QUADRAMED CORP
10-Q, 1999-08-16
COMPUTER PROGRAMMING SERVICES
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<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 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 NUMBER: 0-21031

                              QUADRAMED CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

                       DELAWARE                           68-0422446
             (State or Other Jurisdiction              (I.R.S. Employer
           of Incorporation or Organization)          Identification No.)

           1003 W. Cutting Blvd., 2nd Floor
                  Richmond, CA 94804                         94804
       (Address of Principal Executive Offices)           (Zip Code)

   Registrant's Telephone Number, Including Area Code: (510)620-2340

   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 [ ]

   As of Aug 6, 1999, there were 25,128,782 shares of the Registrant's Common
Stock outstanding, par value $0.01. This quarterly report on Form 10-Q consists
of 202 pages of which this is page 1. The Exhibit Index is located at page 29.

================================================================================



<PAGE>   2
                              QUADRAMED CORPORATION

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

                                                                                                                           PAGE
                                                                                                                          NUMBER
                                                                                                                          ------
PART I.   FINANCIAL INFORMATION

<S>                                                                                                                       <C>
          Item 1. Financial Statements (unaudited)

                  Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998                               3

                  Condensed Consolidated Statements of Operations for the three and six months ended
                  June 30, 1999 and 1998                                                                                        4

                  Condensed Consolidated Statements of Cash Flows for the six months ended
                  June 30, 1999 and 1998                                                                                        5

                  Notes to Condensed Consolidated Financial Statements                                                          6

          Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations                        10

          Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                   14

PART II.  OTHER INFORMATION

          Item 1. Legal Proceedings                                                                                            23

          Item 2. Changes in Securities and Use of Proceeds                                                                    23

          Item 3. Defaults Upon Senior Securities                                                                              23

          Item 4. Submission of Matters to a Vote of Security Holders                                                          23

          Item 5. Other Information                                                                                            23

          Item 6. Exhibits and Reports on Form 8-K                                                                             23
</TABLE>

                                       2
<PAGE>   3

Part I. Financial Information

Item 1. Financial Statements

                              QUADRAMED CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
<TABLE>
<CAPTION>

                                                         JUNE 30,        DECEMBER 31,
                                                           1999              1998
                                                       ------------       ---------
                                                        (UNAUDITED)       (UNAUDITED)
                                                                           (RESTATED)
<S>                                                      <C>              <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                              $  12,891        $  66,531
  Short-term investments                                    23,546           23,043
  Accounts receivable, net                                  46,268           39,991
  Unbilled receivables                                      10,577           10,335
  Notes and other receivables                                6,031            3,989
  Prepaid expenses and other                                 7,375            2,959
                                                         ---------        ---------
      Total current assets                                 106,688          146,848

  Long-term investments                                     33,861           41,641
  Equipment, net                                            11,081           11,380
  Capitalized software development costs, net                6,795            4,864
  Acquired software, net                                     8,761            3,211
  Non-marketable investments                                 4,700            1,200
  Intangibles, net                                          38,364           50,672
  Debt offering costs and other                              7,684            4,917
                                                         ---------        ---------
      Total assets                                       $ 217,934        $ 264,733
                                                         =========        =========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current maturities of capital lease obligations        $     404        $     525
  Notes payable                                                 26            2,728
  Accounts payable                                           4,604            4,389
  Accrued liabilities                                       24,378           30,133
  Deferred revenue                                          11,877           14,021
                                                         ---------        ---------
      Total current liabilities                             41,289           51,796

  Capital lease obligations, less current portion              473              606
  Notes payable, less current portion                           --           19,186
  Convertible subordinated debentures                      115,000          115,000
  Net liabilities of discontinued operations                 7,750            9,157
                                                         ---------        ---------
      Total liabilities                                    164,512          195,745
                                                         ---------        ---------

STOCKHOLDERS' EQUITY:
  Common stock                                                 175              159
  Additional paid-in capital                               269,382          266,087
  Deferred compensation                                     (3,546)          (3,940)
  Unrealized loss on available-for-sale securities            (281)            (157)

  Accumulated deficit                                     (212,308)        (193,161)
                                                         ---------        ---------
      Total stockholders' equity                            53,422           68,988
                                                         ---------        ---------
      Total liabilities & stockholders' equity           $ 217,934        $ 264,733
                                                         =========        =========
</TABLE>

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

                                       3
<PAGE>   4

                              QUADRAMED CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In Thousands, Except Per Share Amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                        THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                             JUNE 30,                           JUNE 30,
                                                    --------------------------        --------------------------
                                                       1999             1998            1999             1998
                                                    ---------        ---------        ---------        ---------
                                                                     (RESTATED)                        (RESTATED)
<S>                                                 <C>              <C>              <C>              <C>
REVENUES:
  Licenses                                          $  29,676        $  26,712        $  63,405        $  49,670
  Services                                             27,928           22,935           54,271           43,230
                                                    ---------        ---------        ---------        ---------
        Total revenues                                 57,604           49,647          117,676           92,900
                                                    ---------        ---------        ---------        ---------
OPERATING EXPENSES:
  Cost of licenses                                     12,195           12,155           25,680           24,119
  Cost of services                                     15,665           15,021           31,972           29,194
  General and administration                            7,919            8,458           15,421           17,056
  Sales and marketing                                   5,472            5,355           10,624           10,184
  Research and development                              5,160            6,015           10,857           12,127
  Amortization of intangibles                           1,660            1,497            3,792            2,322
  Write-off of acquired research and
    development in process                                 --            6,879               --           13,887
  Acquisition costs                                       563            3,039            6,898            3,039
  Impairment of intangible assets                          --               --           10,592               --
  Non-recurring charges                                    --            1,180           18,752            1,180
                                                    ---------        ---------        ---------        ---------
        Total operating expenses                       48,634           59,599          134,588          113,108
                                                    ---------        ---------        ---------        ---------
INCOME (LOSS)  FROM OPERATIONS                          8,970           (9,952)         (16,912)         (20,208)
OTHER INCOME (EXPENSE), NET:
  Interest income (expense), net                         (636)               2           (1,092)              68
  Other income (expense), net                             (79)             135               (7)            (154)
                                                    ---------        ---------        ---------        ---------
        Total other income (expense), net                (715)             137           (1,099)             (86)
                                                    ---------        ---------        ---------        ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES, MINORITY INTEREST, AND DISCONTINUED
OPERATIONS                                              8,255           (9,815)         (18,011)         (20,294)

  Provision for income taxes                             (937)          (1,339)          (1,136)          (1,973)
  Minority interest in earnings of Medicus                 --               --               --             (379)
                                                    ---------        ---------        ---------        ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS                7,318          (11,154)         (19,147)         (22,646)
  DISCONTINUED OPERATIONS                                  --           (1,744)              --           (1,744)
                                                    ---------        ---------        ---------        ---------
NET INCOME (LOSS)                                   $   7,318        $ (12,898)       $ (19,147)       $ (24,390)
                                                    =========        =========        =========        =========
NET INCOME (LOSS) PER BASIC AND DILUTED SHARE       $    0.29        $   (0.57)       $   (0.84)       $   (1.10)
                                                    =========        =========        =========        =========
BASIC WEIGHTED AVERAGE
  SHARES OUTSTANDING                                   24,820           22,633           22,838           22,099
                                                    =========        =========        =========        =========
DILUTED WEIGHTED AVERAGE
   SHARES OUTSTANDING                                  25,192           22,633           22,838           22,099
                                                    =========        =========        =========        =========
</TABLE>

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

                                       4
<PAGE>   5

                              QUADRAMED CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                    SIX MONTHS ENDED
                                                                                        JUNE 30,
                                                                                  1999             1998
                                                                                --------       ----------
                                                                                                (RESTATED)
<S>                                                                             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                      $(19,147)      $ (24,390)
                                                                                --------       ---------
  Adjustments to reconcile net loss
    to net cash used for operating activities:
     Depreciation and amortization                                                 6,783           4,036
     Amortization of deferred compensation                                           394              --
     Write-off of in-process research and development                                 --          13,887
     Impairment of intangible assets                                              10,592              --
     Cash flows from discontinued operations                                      (1,407)         (3,674)
     Minority interest in earnings of Medicus                                         --             379
     Changes in assets and liabilities, net of acquisitions:
       Accounts receivable and unbilled receivables                               (6,519)         (4,247)
       Prepaid expenses and other                                                 (9,881)          1,464
       Accounts payable and accrued liabilities                                   (3,150)         (1,072)
       Deferred revenue                                                           (2,144)          2,468
                                                                                --------       ---------
           Cash used in operating activities                                     (24,479)        (11,149)
                                                                                --------       ---------


CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of non-marketable investments                                          (3,000)             --
  Additions to equipment                                                          (2,325)         (3,287)
  Increase in notes receivable and other                                          (2,542)         (3,183)
  Capitalization of computer software development costs                           (2,218)           (779)
  Purchase of technology rights                                                   (6,000)             --
  Net maturities (purchases) of short and long-term investments                    7,153         (44,268)
  Cash paid for the acquisition of Cabot Marsh, net of cash acquired                  --          (2,748)
  Cash paid for the acquisition of Velox, net of cash acquired                        --          (3,121)
  Cash paid for the acquisition of the InterLink entities,
     net of cash acquired                                                             --          (1,412)
  Cash paid for the acquisition of Vision                                             --          (2,998)
  Cash paid for immaterial acquisitions under purchase accounting                   (762)             --
                                                                                --------       ---------
           Cash used in investing activities                                      (9,694)        (61,796)
                                                                                --------       ---------


CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) of principal on capital lease obligations                     (254)            377
Net borrowings (repayments) under notes payable                                  (21,888)           (843)
Proceeds from the issuance of convertible subordinated
    notes payable, net of offering costs                                              --         110,827
Proceeds from the issuance of common stock
    and exercise of common stock warrants and options                              2,675          17,103
                                                                                --------       ---------
           Cash used in financing activities                                     (19,467)        127,464
                                                                                --------       ---------
Net decrease in cash and cash equivalents                                        (53,640)        (54,519)
CASH AND CASH EQUIVALENTS, beginning of period                                    66,531          48,384
                                                                                --------       ---------
CASH AND CASH EQUIVALENTS, end of period                                        $ 12,891       $ 102,903
                                                                                ========       =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:

  Conversion of notes payable to common stock                                   $     --        $  8,000

  Conversion of note receivable to equity investment in VantageMed              $    500        $     --


  Issuance of common stock in connection with the InterLink acquisition         $     --        $  1,500


  Issuance of common stock in connection with the Cabot Marsh acquisition       $     --        $  8,400


  Issuance of common stock in connection with the Velox acquisition             $     --        $  1,400


  Issuance of common stock in connection with the Medicus acquisition           $     --        $ 28,800
</TABLE>


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

                                       5
<PAGE>   6

                              QUADRAMED CORPORATION

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

   The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These condensed consolidated
financial statements and notes thereto should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 1998 included in the Company's Annual Report on Form 10-K. The unaudited
information contained herein has been prepared on the same basis as the
Company's audited consolidated financial statements and, in the opinion of the
Company's management, includes all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information for
the periods presented. The interim results presented herein are not necessarily
indicative of the results of operations that may be expected for the full fiscal
year ending December 31, 1999 or any other future period.

2. Summary of Significant Accounting Policies

Revenues

   The Company licenses a variety of products and provides a variety of
services. License revenue includes license, installation and post-contract
customer support fees, third-party hardware sales and other revenues related to
licensing of the Company's software products. Service revenue is composed of
business office and health information management outsourcing, cash flow
management, compliance and consulting services.

   The Company's product offering includes a variety of products which can be
licensed individually or as a suite of interrelated products. Products are
licensed either under term arrangements (which range from one year to three
years and typically include monthly or annual payments over the term of the
arrangement) or on a perpetual basis. Revenues from term licenses are recognized
monthly or annually over the term of the license arrangement, beginning at the
date of installation. Revenues from perpetual licenses are recognized upon
shipment of the software if there is persuasive evidence of an agreement,
collection of the resulting receivable is probable and the fee is fixed and
determinable. If an acceptance period is required, revenues are recognized upon
the earlier of customer acceptance or the expiration of the acceptance period.
Revenues from certain products, including the Company's enterprise solutions,
are recognized on a percentage of completion basis of accounting.

   Certain services are also provided to certain of the Company's licensees of
software products. These services consist primarily of consulting and
post-contract customer support. Consulting services generally consist of
installation of software at customer sites, and revenue is recognized upon
completion of installation. Unbilled receivables consist of work performed or
software delivered which has not been billed under the terms of the contractual
arrangement with the customer. Post-contract customer support is recognized
ratably over the term of the support period. Deferred revenue primarily consists
of revenue deferred under annual maintenance and annual license agreements on
which amounts have been received from customers and for which the earnings
process has not been completed.

   The Company provides business office and health information management
outsourcing, cash flow management, compliance and consulting services to certain
hospitals under contract service arrangements. Outsourcing revenues typically
consist of fixed monthly fees plus, in the case of business office outsourcing,
incentive-based payments that are based on a percentage of dollars recovered for
the provider for which the service is being performed. The monthly fees are
recognized as revenue on a monthly basis at the end of each month. Incentive
fees are recognized as the conditions upon which such fees are based are
realized based on collection of accounts from payors. Cash flow management
services typically consist of fixed fee services and additional incentive
payments based on a certain percentage of revenue returns realized by the
customer as a result of the services provided by the Company. The fixed fee
portion is recognized upon completion of the project with the customer.
Compliance and consulting revenues are recognized as the

                                       6
<PAGE>   7

services are provided. The Company has experienced operating margins at
differing levels related to licenses and services. The service business has
historically realized fluctuating margins that were significantly lower than
margins associated with licenses.

   Cost of license revenues consists primarily of salaries, benefits, hardware
costs and allocated costs related to the installation process, and customer
support and royalties to third parties.

   Cost of service revenues consists primarily of salaries, benefits and
allocated costs related to providing such services.

Net Income (Loss) Per Share

   Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Dilutive net income
(loss) per share is computed using the weighted average number of common and
potentially dilutive common shares outstanding during the period. Potentially
dilutive common shares consist of stock options, warrants (using the treasury
stock method) and the Company's convertible subordinated debentures. Potentially
diluted common shares are excluded from the dilutive computation only if their
effect is anti-dilutive. As the Company recorded a net loss in the three months
ended June 30, 1998 and in the six months ended June 30, 1999 and 1998, no
potentially diluted common shares are included in dilutive weighted average
common shares outstanding for those periods.

Comprehensive Income

   The components of comprehensive income (loss) for the three and six months
ended June 30, is as follows:
<TABLE>
<CAPTION>

                                                                    THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                          JUNE 30,                       JUNE 30,
                                                                     1999            1998            1999            1998
                                                                 --------        --------        --------        --------
<S>                                                              <C>             <C>             <C>             <C>
Net income (loss)                                                $  7,318        $(12,898)       $(19,147)       $(24,390)
Unrealized  gain  (loss) on  available-for-sale Securities           (199)           (116)           (124)           (116)
                                                                 --------        --------        --------        --------
Comprehensive income (loss)                                      $  7,119        $(13,014)       $(19,271)       $(24,506)
                                                                 ========        ========        ========        ========
</TABLE>


3. Acquisitions

   In March 1999, the Company acquired all of the outstanding capital stock of
The Compucare Company ("Compucare") in exchange for 2,957,000 shares of common
stock, of which 295,000 shares of common stock have been placed into escrow for
a period of one year under the terms and conditions of the acquisition
agreement. The acquisition was accounted for as a pooling of interests. Upon
closing of the acquisition, the assets and liabilities of Compucare were
recorded at net book value. The accompanying consolidated financial statements
have been restated to reflect the acquisition of Compucare on a pooling of
interests basis.

                                       7

<PAGE>   8

   A reconciliation of the current consolidated financial statements with
previously reported separate Company information for entities with which the
Company has pooled is presented below (in thousands):
<TABLE>
<CAPTION>

                               FOR THE SIX MONTHS
                                  ENDED JUNE 30,
                              1999             1998
                           ---------        ---------
<S>                        <C>              <C>
Revenues:
  QuadraMed                $  91,880        $  72,774
  Compucare                $  25,796        $  20,126
                           ---------        ---------
  Consolidated             $ 117,676        $  92,900
                           =========        =========

  Net income (loss):
  QuadraMed                $ (14,118)       $ (27,709)
  Compucare(a)             $  (5,029)       $   3,319
                           ---------        ---------
  Consolidated             $ (19,147)       $ (24,390)
                           =========        =========
</TABLE>
- ----------
(a) Includes acquisition costs related to the acquisition of Compucare during
    the first quarter of 1999.

4. Notes Payable and Convertible Subordinated Debt

   As of December 31, 1998, the Company held long term notes payable of
$19,186,000. The Company repaid the outstanding balance and accrued interest
related to these notes payable during the second quarter of 1999.

   In May 1998, the Company completed an offering of $115 million principal
amount of Convertible Subordinated Debentures, including the underwriters'
over-allotment option. The debentures are due May 1, 2005 and bear interest at
5.25 percent per annum. The Debentures are convertible into Common Stock at any
time prior to redemption or final maturity, initially at the conversion price of
$33.25 per share (resulting in an initial conversion ratio of 30.075 shares per
$1,000 principal amount). Proceeds to the Company from the offering were
$110,827,000.

5. Line of Credit and Debt Guarantee

   In connection with the acquisition of Compucare in March 1999, the Company
assumed a line of credit arrangement with Compucare's bank. Under the terms of
the agreement, the Company may borrow up to $7,000,000 limited to 85 percent of
eligible billed receivables plus 50 percent of eligible unbilled receivables.
The Company pays interest at a rate of prime plus 1 percent. All outstanding
borrowings under the line of credit were repaid by the Company in March 1999.
The line of credit was terminated by the Company subsequent to the repayment of
the outstanding balance. The Company also had letters of credit with its bank
for $1,000,000.

   In September 1998, the Company entered into an arrangement to guarantee a
line of credit of another company for up to $12,500,000. Outstanding balances
under the line of credit accrue interest at 8.5% and are due October 1, 2001.
The Company has also entered into a reseller agreement with the same company.
Under the terms of the reseller agreement, the Company has a non-exclusive
license to resell the company's software. This reseller agreement remains in
effect for an initial term of three (3) years, expiring on September 29, 2001,
and thereafter is subject to renewal for additional one (1) year terms.

6. Discontinued Operations

   In connection with the acquisition of Compucare in March 1999, the Company
assumed the net liabilities of discontinued operations from certain prior
acquisitions of Compucare. In November 1996, Compucare consummated the sale of
Antrim Corporation ("Antrim"), a wholly-owned subsidiary of Compucare. In
December of 1996, Compucare announced it was evaluating a plan of "spin-off" or
sale of operations of Health Systems Integration, Inc. ("HSII"), a wholly-owned
subsidiary of Compucare. Compucare completed transactions related to the sale of
HSII's intellectual property and the majority of its customer base in December
1997. The results of operations for the three and six months ended June 30, 1999
and 1998, respectively, present Antrim and HSII as discontinued operations.
Results from discontinued operations for the three and six months ended June 30,
1999 were not

                                       8
<PAGE>   9
material. The loss from discontinued operations for the three and six months
ended June 30, 1998 was $1,744,000. The assets and liabilities related to the
discontinued operations have been segregated on each of the aforementioned
balance sheets. Net liabilities related to discontinued operations at June 30,
1999 were $7,750,000.

7. Non-recurring Charges

   During the first quarter of 1999, the Company recorded approximately
$18,800,000 of non-recurring charges. Those charges consisted of costs
associated with the closing of several duplicative operating facilities
primarily within the Company's Business Office Division and certain integration
costs related to prior acquisitions. The charge included approximately
$10,000,000 related to severance payments to employees ranging from several
weeks to two years in the case of certain management of Compucare. Such
severance payments are expected to be paid to involuntarily terminated employees
through August of 1999. In addition, the charge included $8,800,000 for future
rents and lease obligations the Company is obligated to fulfill as well as other
incremental costs to wind-down the operations of the offices. Future rents and
lease obligations are expected to be paid through July 2003. In 1997 and 1998,
respectively, the Company closed several other offices related to acquired
companies. At December 31, 1998, there was $1,579,000 accrued for future rents
and lease obligations related to such facilities. During the quarter ended June
30, 1999, the Company paid $860,000 related to rent and lease obligations for
these facilities.

<TABLE>
<CAPTION>
                                                      ADDITIONS                                 ADDITIONS
                                       BALANCE AT    CHARGED TO                  BALANCE AT    CHARGED TO                 BALANCE AT
                                      DECEMBER 31,    COSTS AND                 DECEMBER 31,     COSTS AND                  JUNE 30,
                                          1997        EXPENSES      PAYMENTS       1998         EXPENSES      PAYMENTS       1998
                                      ------------   -----------    --------    -----------    -----------    --------    ----------
DESCRIPTION
<S>                                     <C>            <C>          <C>            <C>            <C>          <C>         <C>
Personnel costs ...................           --       $    820     $   (820)      $     --      $ 10,000     $ (8,742)    $  1,258
Rents and lease obligations .......        1,334          1,260       (1,015)         1,579         3,282         (865)       3,996
Other incremental operating costs .           --            940         (940)            --         5,470       (3,270)       2,200
                                        --------       --------     --------       --------      --------     --------     --------
  Total Restructuring Accrual .....     $  1,334       $  3,020     $ (2,775)      $  1,579      $ 18,752     $(12,877)    $  7,454
                                        ========       ========     ========       ========      ========     ========     ========
</TABLE>

8. Impairment of Intangibles

   During the quarter ended March 31, 1999, the Company recorded a $10,600,000
charge for the write-down of certain intangible assets. The intangible assets
were associated with the Business Office Division, and were related to the
acquisitions of Synergy in 1997, InterLink, Velox and American Hospital
Directory in 1998. In accordance with SFAS #121, "Impairment of Long-Lived
Assets", projected cash flows from these product lines was not sufficient to
cover future amortization of the intangible assets and therefore were
written-down during the quarter ended March 31, 1999.

9. Segment Reporting

   The Company Reported on three operating segments in 1999: the Business Office
Division (BO), and Health Information Management (HIM) Division and the
Enterprise Division. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before income
taxes not including nonrecurring gains and losses. The Company does not track
long-lived assets by segment and therefore related disclosures are not relevant
and are not presented.

   For the six months ended June 30, 1999 and 1998, respectively, the following
table reports selected segment information required by SFAS No. 131: (TO BE
COMPLETED ON MONDAY)

<TABLE>
<CAPTION>


                                                  1999                                             1998
                              --------------------------------------------      --------------------------------------------
                                 BO         HIM      ENTERPRISE     TOTAL          BO         HIM       ENTERPRISE    TOTAL
                              --------    --------   ----------    --------      --------   --------    ----------  --------
<S>                           <C>         <C>         <C>         <C>           <C>         <C>         <C>         <C>
License revenues              $ 24,298    $ 12,870    $ 26,237    $ 63,405      $ 16,593    $  7,602     $22,082   $ 46,277
Service revenues              $ 13,001    $ 41,270          --      54,271         8,547      38,076          --     46,623
                              --------    --------    --------    --------      --------    --------     -------   --------
                              $ 37,299    $ 54,140    $ 26,237    $117,676      $ 25,140    $ 45,678     $22,082   $ 92,900
Segment earnings (loss)       $(21,386)   $  6,852    $ (4,613)   $(19,147)     $(10,962)   $ (6,659)    $(6,769)  $(24,390)
</TABLE>

Recent Accounting Pronouncements

                                       9

<PAGE>   10

   In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
(SOP) 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2,
'Software Revenue Recognition,'" which defers for one year the application of
provisions in SOP 97-2 which limit what is considered vendor-specific objective
evidence of the fair value of the various elements in a multiple element
arrangement. All other provisions in SOP 97-2 remain in effect. This SOP was
effective as of March 31, 1998. In December 1998, the AICPA issued SOP 98-9,
"Modification of SOP 97-2, 'Software Revenue Recognition,' With Respect to
Certain Transactions," which amends paragraphs 11 and 12 of SOP 97-2, Software
Revenue Recognition, to require recognition of revenue using the "residual value
method" under certain conditions. Effective December 15, 1998, SOP 98-9 amends
SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, 'Software
Revenue Recognition,'" to extend the deferral of the application of certain
passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or
before March 15, 1999. All other provisions of this SOP are effective for
transactions entered into in fiscal years beginning after March 31, 1999. The
Company does not anticipate that these statements will have a material adverse
impact on its statement of operations.

   In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes accounting
and reporting standards for derivative instruments and hedging activities. The
Company does not expect the adoption of SFAS 133, required beginning January
2001, to have a material effect on its consolidated financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

   Except for the historical financial information contained herein, the matters
discussed in this Form 10-Q may be considered "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
include declarations regarding the intent, belief or current expectations of the
Company and its management. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties; actual results could differ materially from
those indicated by such forward-looking statements. Among the important factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements are: (i) variability in quarterly operating
results, (ii) identification, consummation and assimilation of acquisitions,
(iii) dependence on large orders and customer concentration, (iv) dependence on
hospitals and demand for the Company products and services in the healthcare
information systems and services markets, (v) legislative or market-driven
reforms in the health care industry, (vi) the Company's ability to develop and
introduce new products, (vii) management of the Company's changing operations,
(viii) dependence on key personnel, (ix) development by competitors of new or
superior products or entry into the market of new competitors, (x) risks related
to product defects, (xi) risks associated with pending litigation, (xii)
dependence on intellectual property rights, (xiii) volatility in the Company's
stock price and historically low trading volume, (xiv) the success or failure of
strategic alliances, (xv) risk of interruption in data processing, (xvi) risks
associated with certain investments in early stage companies, and (xvii) other
risks identified from time to time in the Company's reports and registration
statements filed with the SEC.

Overview

     QuadraMed Corporation uses technology to transform disparate healthcare
data into valuable, enterprise-wide information. Providing and distributing
meaningful information through its software, services and Internet solutions,
QuadraMed has enabled its 3,850 customers in the U.S. and Canada to generate
operational efficiencies, improve cash flow and measure the cost and quality of
care. QuadraMed has implemented its product and service solutions in more than
60% of the nation's hospitals. The Company has expanded significantly since its
inception in 1993, primarily through the acquisition of other businesses,
products and services. Accordingly, the Company's consolidated financial
statements have been restated to include historical results of entities acquired
on a pooling of interests basis.

   In March 1999, the Company acquired all of the outstanding capital stock of
The Compucare Company ("Compucare") in exchange for 2,957,000 shares of common
stock, of which 295,000 shares of common stock have been placed into escrow for
a period of one year under the terms and conditions of the acquisition
agreement. The acquisition was accounted for as a pooling of interests. The
accompanying consolidated financial statements have been restated to reflect the
acquisition of Compucare on a pooling of interests basis.


                                       10

<PAGE>   11
   As of June 30, 1999, QuadraMed and its subsidiaries had more than 3,800
customers, approximately 80% of which were hospitals, located in all 50 states,
the District of Columbia, Canada, Puerto Rico, South Africa and Singapore. The
Company expects to maintain a high percentage of hospital customers, but also
expects its customer mix to transition to a higher percentage of other
providers, including integrated delivery health care systems ("IDSs"), as well
as physicians, payors and employers. No single customer accounted for more than
10% of the Company's revenues in the six months ended June 30, 1999 or 1998.

   The Company licenses a variety of products and provides a variety of
services. License revenue includes license, installation and post-contract
customer support fees, third-party hardware sales and other revenues related to
licensing of the Company's software products. Service revenue is composed of
business office and health information management outsourcing, cash flow
management, compliance and consulting services.

   The Company's product offering includes a variety of products which can be
licensed individually or as a suite of interrelated products. Products are
licensed either under term arrangements (which range from one year to three
years and typically include monthly or annual payments over the term of the
arrangement) or on a perpetual basis. Revenues from term licenses are recognized
monthly or annually over the term of the license arrangement, beginning at the
date of installation. Revenues from perpetual licenses are recognized upon
shipment of the software if there is persuasive evidence of an agreement,
collection of the resulting receivable is probable and the fee is fixed and
determinable. If an acceptance period is required, revenues are recognized upon
the earlier of customer acceptance or the expiration of the acceptance period.
Revenues from certain products, including the Company's enterprise solutions are
recognized on a percentage of completion basis of accounting as determined by
the achievement of certain performance milestones during the product
installation process.

   Certain services are also provided to certain of the Company's licensees of
software products. These services consist primarily of consulting and
post-contract customer support. Consulting services generally consist of
installation of software at customer sites, and revenue is recognized upon
completion of installation. Unbilled receivables consist of work performed or
software delivered which has not been billed under the terms of the contractual
arrangement with the customer. Post-contract customer support is recognized
ratably over the term of the support period. Deferred revenue primarily consists
of revenue deferred under annual maintenance and annual license agreements on
which amounts have been received from customers and for which the earnings
process has not been completed.

   The Company provides business office and health information management
outsourcing, cash flow management, compliance and consulting services to certain
hospitals under contract service arrangements. Outsourcing revenues typically
consist of fixed monthly fees plus, in the case of business office outsourcing,
incentive-based payments that are based on a percentage of dollars recovered for
the provider for which the service is being performed. The monthly fees are
recognized as revenue on a monthly basis at the end of each month. Incentive
fees are recognized as the conditions upon which such fees are based are
realized based on collection of accounts from payors. Cash flow management
services typically consist of fixed fee services and additional incentive
payments based on a certain percentage of revenue returns realized by the
customer as a result of the services provided by the Company. The fixed fee
portion is recognized upon completion of the project with the customer.
Compliance and consulting revenues are recognized as the services are provided.
The Company has experienced operating margins at differing levels related to
licenses and services. The service business has historically realized
fluctuating margins that were significantly lower than margins associated with
licenses.

   The Company capitalizes a portion of its software costs for internally
developed software products. These capitalized costs relate primarily to the
development of new products and the extension of applications to new markets or
platforms using existing technologies. The capitalized costs are amortized on a
straight-line basis over the estimated lives (usually five years) of the
products, commencing when each product is available to the market.

Revenues

   License. License revenues for the quarter ended June 30, 1999 increased 11.1%
to $29.7 million, compared to $26.7 million in the same period last year. For
the six months ended June 30, 1999, license revenues increased 27.7% to $63.4
million compared to $49.7 million in the same period last year. The increase in
license revenues was due principally to new customers associated with the
Company's coding, capitation products and enterprise products from recently
acquired Compucare. License revenues include license, installation, consulting
and post-contract support fees, third-party hardware sales and other revenues
related to licensing of the Company's software products.

                                       11
<PAGE>   12

   Service. Service revenues for the quarter ended June 30, 1999 increased 21.8%
to $27.9 million, compared to $22.9 million in the same period last year. For
the six months ended June 30, 1999, services revenues increased 25.5% to $54.3
million, compared to $43.2 million in the same period last year. The increase in
service revenues was due principally to new customers associated with the
Company's health information management outsourcing, compliance and specialty
audit services.

   The Company experienced a substantial increase in revenues in 1998 which
reflected the completion of numerous acquisitions, several of which were
significant. The Company currently expects to complete fewer acquisitions in
1999. As a result the Company does not expect revenues to increase at historical
rates in the future.

Cost of Revenues

   Cost of licenses. Cost of license revenues of $12.2 million for the quarter
ended June 30, 1999 increased nominally, compared to the same period last year.
For the six months ended June 30, 1999, cost of license revenues increased 6.5%
to $25.7 million, compared to $24.1 million in the same period last year. Cost
of licenses consists primarily of salaries, benefits and allocated costs related
to software installations, hardware costs, customer support and royalties to
third parties. As a percentage of license revenues, cost of licenses decreased
to 41.1% in the quarter ended June 30, 1999, from 45.5% in the same period last
year. As a percentage of license revenues, cost of licenses decreased to 40.5%
in the six months ended June 30, 1999, from 48.9% in the same period last year.
The increase in cost of licenses for the six months ended June 30, 1999 was
principally due to additional personnel hired to support installations of the
Company's software products, while the decrease in cost of licenses as a
percentage of license revenues during the quarter is principally due to the
leveraging of costs over an increased revenue base.

   Cost of services. Cost of service revenues for the quarter ended June 30,
1999 increased 4.3% to $15.7 million, compared to $15.0 million, in the same
period last year. For the six months ended June 30, 1999, cost of services
revenues increased 9.5% to $32.0 million, compared to $29.2 million in the same
period last year. Cost of services includes expenses associated with services
performed in connection with health information management and business office
outsourcing, compliance, consulting and other audit services. As a percentage of
service revenues, cost of services decreased to 56.1% in the quarter ended June
30, 1999 from 65.5% in the same period last year. As a percentage of service
revenues, cost of services decreased to 58.9% in the six months ended June 30,
1999 from 67.5% in the same period last year. The increase in cost of services
was due principally to additional operating costs associated with the health
information management outsourcing services and to a lesser extent, the hiring
of additional compliance consultants. Cost of services as a percentage of
service revenues decreased for the three and six months ended June 30, 1999,
principally due to a higher revenue contribution from the Company's health
information management outsourcing business unit and to a lesser extent, the
closure of one of the Company's duplicative operating facilities within its
business office outsourcing operations in the third quarter of 1998. As a result
of this facility closure, the Company eliminated a lower margin business. In
addition, the Company's audit services provided higher revenues and operating
margins than certain of its other service businesses in 1999.

Operating Expenses

   General and Administration. General and administration expenses for the
quarter ended June 30, 1999 decreased 6.4% to $7.9 million, compared to $8.5
million in the same period last year and, as a percentage of total revenues,
decreased to 13.8% compared to 17.0% in the same period last year. For the six
months ended June 30, 1999, general and administration expenses decreased 9.6%
to $15.4 million, compared to $17.1 million in the same period last year, and as
a percentage of total revenues, decreased to 13.1% , compared to 18.4% in the
same period last year. The decrease in general and administration expenses in
absolute dollars and as a percentage of total revenues for the three and six
months ended June 30, 1999 was principally due to a larger revenue base and, to
a lesser extent, the reduction of certain overhead costs associated with prior
acquisitions as the Company has centralized many of its administrative
functions.

   Sales and Marketing. Sales and marketing expenses for the quarter ended June
30, 1999 increased 2.2% to $5.5 million, compared to $5.4 million in the same
period last year, and decreased as a percentage of total revenues to 9.5% from
10.9% in the same period last year. For the six months ended June 30, 1999,
sales and marketing expenses increased 4.3% to $10.6 million, compared to $10.2
million in the same period last year, and as a percentage of total revenues,
decreased to 9.0%, compared to 11.0% in the same period last year. The increase
in sales and marketing expenses resulted principally from the addition of sales
and marketing personnel in 1999 and higher advertising costs, which included a
more expansive participation at the annual healthcare information management
conference in February 1999. Sales and marketing expenses as a percentage of
total revenues, decreased principally due to a larger revenue base.

                                        12

<PAGE>   13
 Research and Development. Research and development costs include costs incurred
by the Company to further its efforts for enhancing it's products, which
ultimately supports the Company's license revenues. Research and development
expenses for the quarter ended June 30, 1999 decreased 14.2% to $5.2 million,
compared to $6.0 million in the same period last year and as a percentage of
total revenues decreased to 9.0% from 12.1% in the same period last year. For
the six months ended June 30, 1999, research and development expenses decreased
10.5% to $10.9 million, compared to $12.1 million in the same period last year,
and as a percentage of total revenues, decreased to 9.2%, compared to 13.1% in
the same period last year. Research and development expenses decreased
principally due to the completion of certain software development projects
during the latter half of 1998 and the reallocation of those resources to other
areas, as well as the further integration of acquired companies and their
development efforts. The Company capitalized $2.2 million and $656,000 of
software development costs in the six months ended June 30, 1999 and 1998,
respectively, which represented 16.8% and 6.6% of total research and development
expenditures for the six months ended June 30, 1999 and 1998, respectively. The
Company believes that research and development expenditures are essential to
maintaining its competitive position. As a result, the Company intends to
continue to make investments in the development of new products and in the
further integration of acquired technologies into the Company's suite of
products. The Company believes that these expenses will increase in the future,
both in absolute terms and as a percentage of total revenues.

   Amortization of Intangibles. Amortization of intangibles for the quarter
ended June 30, 1999 increased 10.9% to $1.7 million compared to $1.5 million in
the same period last year. For the six months ended June 30, 1999, amortization
of intangibles increased 63.3% to $3.8 million compared to $2.3 million in the
same period last year. The increase in the amortization of intangibles is
principally due to the acquisition of the remaining 43.3% interest in Medicus in
May 1998, and the acquisition of Cabot Marsh in February 1998.

   Acquired Research and Development In-Process. In connection with the
acquisitions of Cabot Marsh, Velox and entities affiliated with InterLink during
the first six months of 1998, the Company expensed $13.9 million of acquired
in-process research and development as the technology had not achieved
feasibility and had no alternative future use. There were no such charges in the
first six months of 1999.

   Acquisition Costs. The Company incurred $563,000 and $6.9 million of
acquisition costs for the three and six months ended June 30, 1999. These
acquisition costs primarily related to the Compucare acquisition in the first
quarter of 1999. Such costs were primarily for financial advisor fees of
approximately $5.7 million incurred by the Company and Compucare and to a lesser
extent, legal and accounting fees of approximately $1,200,000.

   Non-Recurring Charges. Non-recurring charges of $29.3 million in the first
three months of 1999 were associated with the closing of duplicative operating
facilities within several of the Company's business units and the write-down of
certain intangibles from past acquisitions which were determined to be impaired.
The Company incurred approximately $18.8 million to close four office facilities
and to reduce the related workforce by more than one hundred employees. The
charge included approximately $10 million related to severance payments to
employees ranging from several weeks to two years in the case of certain
management of Compucare. In addition, the charge included $8.8 million of future
rents and lease obligations the Company is contractually obligated to fulfill as
well as other incremental costs to wind-down the operations of the offices. The
Company recorded a $10.6 million charge to write-down certain intangible assets
from acquired companies in 1997 and 1998. The write-down related to the
acquisitions of Synergy, InterLink, Velox and American Hospital Directory. No
such charges were incurred during the quarter ended June 30, 1999.

   Interest Income (expense). Interest expense, net was $636,000 and $1.1
million in the three and six months ended June 30, 1999, respectively, compared
to interest income of $2,000 and $68,000 for the same periods last year,
respectively. Interest expense during 1999 was principally due to interest
expense from the Company's $115 million Convertible Subordinated Debentures
which closed in May 1998 and notes payable assumed from the acquisition of IMN
in September 1998, partially offset by interest income from the Company's cash
and investments.

   Provision for income taxes. Provision for income taxes was $937,000 and
$1,339,000 in the quarters ended June 30, 1999 and 1998 and $1.1 million and
$2.0 million in the six months ended June 30, 1999 and 1998, respectively. The
provision for income taxes is primarily due to state and alternative minimum tax
liabilities on certain of the Company's legal entities. For financial reporting
purposes, a 100% valuation allowance has been recorded against the Company's
deferred tax assets under SFAS No. 109, "Accounting for Income Taxes."

Liquidity and Capital Resources


                                       13

<PAGE>   14
   In October 1996, the Company completed its initial public offering of common
stock, which resulted in net proceeds to the Company of approximately $26.4
million. In October 1997, the Company completed a follow-on offering of common
stock, which resulted in net proceeds to the Company of approximately $57.3
million. In May 1998, the Company completed an offering of $115.0 million
principal amount of Convertible Subordinated Debentures, including the initial
purchasers' over-allotment option. The debentures are due May 1, 2005 and bear
interest, which is payable semi-annually at 5.25 percent per annum. Proceeds to
the Company from the offering were $110.8 million.

     Net cash used in operating activities was $24.5 million and $11.1 million
in the six months ended June 30, 1999 and 1998, respectively. Net cash used in
operating activities in the six months ended June 30, 1999 was principally due
to an increase in accounts receivable and prepaid expenses and other. Accounts
receivable increased primarily due to an increase in receivables associated with
the Company's Enterprise products. Prepaids and other assets increased primarily
due to prepaid royalties related to purchased technology rights during the
second quarter of 1999. Net cash used in operating activities for the six months
ended June 30, 1998 related to the net loss for the period, which was offset by
the write-off of in-process research and development.

     Net cash used in investing activities was $9.7 million and $61.8 million in
the six months ended June 30, 1999 and 1998, respectively. Investing activities
for the six months ended June 30, 1999 primarily included the purchase of
technology rights of $6.0 million, the additional equity investment of $3.0
million in VantageMed rights, as well as the purchase of capital equipment and
the capitalization of computer software development costs. These cash outflows
were offset by $7.2 million received from net maturities of short term
investments. Investing activities for the six months ended June 30, 1998 related
to purchases of short and long term investments and cash paid for the
acquisitions of Cabot Marsh, Velox and entities associated with InterLink, as
well as the purchase of capital equipment and the capitalization of computer
software development costs during 1998.

   Net cash used in financing activities was $19.5 million in the six months
ended June 30, 1999 compared to net cash provided by financing activities of
$127.5 million in the six months ended June 30, 1998. Financing activities in
the six months ended June 30, 1999 related to the repayment of the outstanding
balances under the line of credit assumed as part of the Compucare acquisition
and under a note payable assumed as part of the IMN acquisition, offset by the
proceeds from the exercise of common stock options. Cash provided by financing
activities in the six months ended June 30, 1998 related to the issuance of
convertible subordinated debentures, which was offset by the issuance of common
stock and the proceeds from the exercise of common stock options.

   In December 1997, the Company entered into an agreement with Arcadian
Management Services, Inc. ("Arcadian") to develop a centralized business office
("CBO") and to provide full business office outsourcing services for its four
managed hospitals. In connection with this agreement, the Company purchased
certain accounts receivable from Chama, Inc. ("Chama"), a customer of Arcadian,
for the purpose of increasing cash flow while the CBO was implemented. As of
June 30, 1999, approximately $1.0 million of these receivables remained
outstanding. The remaining balances are included in notes and other receivables
on the consolidated balance sheet. On October 7, 1998, Chama filed for
reorganization under Chapter 11. Prior to the filing, the Company had perfected
a security interest in the receivables purchased from Chama and, pursuant to a
court order, the receivables owned by the Company are being segregated as they
are collected.

   The Company believes that its current cash and investments will be sufficient
to fund operations at least through December 31, 1999.

See "FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS" for discussion on year
2000.

Item 3.  Quantitative and Qualitative Disclosures about Market Risks.

   The Company's exposure to market risk for changes in interest rates primarily
relates to its investment portfolio and Subordinated Convertible Debentures. The
Company invests in high-quality issuers which includes money market funds,
corporate debt securities and securities issued by the United States Government.
It is the Company's intent to ensure the safety and preservation of its invested
principal funds by limiting default risk, market risk and reinvestment risk. The
Company continually reviews both its investment policy and its investments to
ensure this objective is being met.

               FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS

History of Operating Losses; Uncertain Profitability


                                       14

<PAGE>   15

We incurred net losses of $33.9 million and $18.6 million for the years ended
December 31, 1997 and 1998, respectively, and a net loss of $19.1 million for
the six months ended June 30, 1999. As of June 30, 1999, our accumulated deficit
was $212.3 million. These results include write-offs for acquired in-process
research and development in the years ended December 31, 1997 and 1998 of $21.9
million and $14.5 million, respectively. In connection with our acquisitions, we
have and will incur significant non-recurring charges and will be required to
amortize significant expenses related to goodwill and other intangible assets in
future periods. It is uncertain whether we will be able to achieve or sustain
revenue growth or profitability on a quarterly or annual basis.

POTENTIAL VARIABILITY IN QUARTERLY OPERATING RESULTS

        Our quarterly operating results have varied significantly in the past.
Our quarterly revenues and operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. These factors include:

- -       integration of acquired businesses with our business;

- -       variability in demand for our products and services;

- -       the introduction of product enhancements and new products by us and our
        competitors;

- -       the timing and significance of announcements concerning our present or
        prospective strategic alliances;

- -       the termination of, or a reduction in, the products and services we
        offer,

- -       the loss of customers due to consolidation in the health care industry;

- -       delays in product delivery requested by our customers;

- -       the length of the sales cycle for our products or the timing of our
        sales;

- -       the amount of new potential contracts at the beginning of any particular
        quarter;

- -       budgeting cycles of our customers and changes in our customer's budgets;

- -       our investment in marketing, sales, research and development, and
        administrative personnel necessary to support our anticipated
        operations;

- -       costs incurred in connection with our marketing and sale promotional
        activities;

- -       software defects and other quality factors in our products; and

- -       general economic conditions and resulting effects on the health care
        industry.

        We cannot accurately forecast the timing of our customer purchases due
to the complex procurement decision process associated with most health care
providers and payors. As a result, we typically experience sales cycles that
extend over several quarters. In addition, certain products we acquired as a
result of our acquisition of Integrated Medical Networks in September 1998 and
The Compucare Company in March 1999 have higher average selling prices and
longer sales cycles than many of our other products. This may increase the
volatility of our quarterly operating results. Moreover, our operating expense
levels, which will increase with the addition of acquired businesses, are
relatively fixed. Accordingly, if future revenues are below our expectations, we
would experience a disproportionate adverse affect on our net income and
financial results. Further, it is likely that, in some future quarter, our
revenues or operating results may fall below the expectations of securities
analysts and investors. In such an event, the trading price of our Common Stock
would likely be materially and adversely affected.

Integration Of Acquired Companies Into The Company


                                       15

<PAGE>   16

        Realizing benefits from acquisitions depends in significant part upon
several factors and is accompanied by a number of risks, including:

- -       successful integration of the operations, products and personnel of the
        acquired company;

- -       possible costs, delays or other problems we may incur to successfully
        complete such integration;

- -       the potential interruption or disruption of our ongoing business and the
        distraction of management from other matters; and

- -       significant operational and administrative expense relating to such
        integration.

        Any difficulties encountered in the integration process could have a
material adverse effect on our business, operating results and financial
condition. Even if we are able to successfully integrate these businesses with
our business, the acquired operations may not achieve sales, productivity and
profitability commensurate with our historical or projected operating results.
Failure to achieve such projected results would have a material adverse effect
on our financial performance, and in turn, on the market value of the our Common
Stock. There can be no assurance that we will realize any of the anticipated
benefits of our acquisitions or that such acquisitions will enhance our business
or financial performance.

Dependence On Acquisition Strategy

        We intend to continue to expand in part through acquisitions of
products, technologies and businesses. Our ability to expand successfully
through acquisition depends on many factors, including:

- -       the successful identification and acquisition of products, technologies
        or businesses;

- -       management's ability to effectively negotiate and consummate
        acquisitions and integrate and operate the new products, technologies or
        businesses;

- -       significant competition for acquisition opportunities in our industry,
        which may intensify due to increasing consolidation in the health care
        industry, thereby increasing the costs of capitalizing on acquisition
        opportunities;

- -       competition for acquisition opportunities with other companies that have
        significantly greater financial and management resources than us;

RISKS ASSOCIATED WITH ACQUISITIONS; NEED TO MANAGE CHANGING OPERATIONS

        Acquisitions involve a number of special risks including:

- -       managing geographically dispersed operations;

- -       failure of the acquired business to achieve expected results;

- -       failure to retain key personnel of the acquired business;

- -       inability to integrate the new business into existing operations and
        risks associated with unanticipated events or liabilities;

- -       potential increases in stock compensation expense and increased
        compensation expense resulting from newly hired employees; and

- -       the assumption of unknown liabilities and potential disputes with the
        sellers of one or more acquired entities; and

- -       exposure to the risks of entering markets in which we have no direct
        prior experience or to risks associated with the market acceptance of
        acquired products and technologies.


                                       16

<PAGE>   17

   Management evaluated, purchased and is implementing a new management and
accounting system during 1999. Information systems expansion or replacement can
be a complex, costly and time-consuming process, and there can be no assurance
that our system transition and further implementation can be accomplished
without disruption of our business. Any business disruption or other system
transition difficulties could have a material adverse effect on our business,
financial condition and results of operations.

   We may not be successful in addressing these risks and our failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.

   Additionally, customer dissatisfaction or performance problems at a single
acquired company could have an adverse effect on its sales and marketing
initiatives and on our reputation. With the addition of the acquired businesses,
our anticipated future operations may place a strain on our management systems
and resources. We expect that we will be required to continue to improve our
financial and management controls, reporting systems and procedures, and will
need to expand, train and manage our workforce. There can be no assurance that
we will be able to effectively manage these tasks, and the failure to do so
could have a material adverse effect on our business, financial condition and
results of operations.

   Moreover, future acquisitions by us may result in potentially dilutive
issuances of equity securities, the incurrence of additional debt and the
recognition of amortization expenses related to goodwill and other intangible
assets. Our inability to successfully deal with these factors could have a
material adverse effect on our business, financial condition and results of
operations.

DEPENDENCE ON KEY PERSONNEL

   We are substantially dependent upon the continued service of our executive
officers, product managers and other key sales, marketing and development
personnel. If we fail to retain the services of any of our executive officers or
fail to hire, retain and motivate other key employees, our business will be
adversely affected. Furthermore, additions of new, and departures of existing,
personnel could have a disruptive effect on our business and operations.

RISKS RELATED TO HOSPITAL AND MANAGED CARE MARKETS; UNCERTAINTY IN THE
HEALTHCARE INDUSTRY

   A substantial portion of our revenues have been and are expected to be
derived from the sale of software products and services to hospitals.
Consolidation in the health care industry, particularly in the hospital and
managed care markets, could cause a decrease in the number of existing or
potential purchasers of our products and services, which could adversely affect
our business. In addition, the decision to purchase our products often involves
the approval of several members of management of a hospital or health care
provider. Consequently, it is difficult for us to predict the timing or outcome
of the buying decisions of our customers or potential customers.

   The health care industry in the United States is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of health care organizations. We believe that the
commercial value and appeal of our products may be adversely affected if the
current health care financing and reimbursement system were to reverse its
current evolution to a managed care model back to a fee-for-service model. In
addition, many of our customers are providing services under capitated service
agreements, and a reduction in the use of capitation arrangements as a result of
regulatory or market changes could have a material adverse effect on our
business, financial condition and operating results. During the past several
years, the health care industry has been subject to increasing levels of
governmental regulation of, among other things, reimbursement rates and certain
capital expenditures. Certain proposals to reform the health care system have
been and are being considered by Congress. These proposals, if enacted, could
change the operating environment of our clients in ways that cannot be
predicted. Health care organizations may react to these proposals by curtailing
or deferring investments, including those for our products and services.

   Changes in current health care financing and reimbursement systems could
result in the need for unplanned product enhancements, in delays or
cancellations of product orders or shipments or in the revocation of endorsement
of our products by hospital associations or other customers. Any of these
occurrences could have a material adverse effect on our business. In addition,
many health care providers are consolidating to create integrated health care
delivery systems with greater regional market power. As a result, these emerging
systems could have greater bargaining power, which may lead to price erosion of
our products. If we fail to maintain adequate price levels, our business,
financial condition and results of operations would be adversely affected. Other
market-driven reforms could also have adverse effects on our business, financial
condition and results of operations.

                                       17
<PAGE>   18

HIGHLY COMPETITIVE MARKET

   Competition in the market for our products and services is intense and is
expected to increase. Increased competition could result in price reductions,
reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition and results of operations. We
compete with other providers of health care information software and services,
as well as health care consulting firms. Some principal competitors include,
among others:

- -  CIS Technologies, Inc., a division of National Data Corporation, Inc., and
   Sophisticated Software, Inc. in the market for our EDI products;

- -  MedE AMERICA in the market for our claims processing service;

- -  Healthcare Cost Consultants, Inc., a division of CIS Technologies, Inc., and
   Trego Systems, Inc. in the market for our contract management products;

- -  McKesson HBOC, Inc., Optika Imaging Systems, Inc. and LanVision Systems, Inc.
   in the market for our electronic document management products;

- -  Transition Systems, Inc. and Healthcare Microsystems, Inc., a division of
   Health Management Systems Inc., HCIA Inc. and MediQual Systems, Inc., a
   division of Cardinal Health, Inc., in the market for our decision support
   products;

- -  McKesson HBOC, Inc., Shared Medical Systems, Inc., MediTech Corporation and
   Eclipses Corporation in the market for our enterprise products;

- -  HMS and ARTRAC, a division of Medaphis in the market for our business office
   outsourcing services;

- -  a subsidiary of Minnesota Mining and Manufacturing, in the market for our
   medical records products; and

- -  Transcend Services, Inc. and SMART Corporation in the market for our health
   information management services.

   In addition, current and prospective customers evaluate our capabilities
against the merits of their existing information systems and expertise.
Furthermore, major software information systems companies, including those
specializing in the health care industry, not presently offering products that
compete with those offered by us, may enter our markets. In addition, many of
our competitors and potential competitors have significantly greater financial,
technical, product development, marketing and other resources and market
recognition than us. Many of our competitors also currently have, or may develop
or acquire, substantial installed customer bases in the health care industry. As
a result of these factors, our competitors may be able to respond more quickly
to new or emerging technologies, changes in customer requirements and political,
economic or regulatory changes in the health care industry and may devote
greater resources to the development, promotion and sale of their products than
us. There can be no assurance that we will be able to compete successfully
against current and future competitors or that such competitive pressures will
not materially adversely affect our business, financial condition and operating
results.

SHARES ELIGIBLE FOR FUTURE SALE

   Future sales of Common Stock by existing stockholders under Rule 144 of the
Securities Act and through the exercise of registration rights could lower the
market price of our Common Stock. As of June 30, 1999, approximately 1,500,000
shares are available for sale in the public market subject to compliance with
Rule 144. Certain of our existing stockholders holding an aggregate of 725,934
shares of Common Stock as of June 30, 1999 have rights under certain
circumstances to require us to register their shares for future sale, excluding
shares issued in the acquisitions of Compucare, discussed below.

   In March 1999, we closed the acquisition of Compucare. In connection with the
acquisition of Compucare, we issued an aggregate of 2,957,000 shares of Common
Stock, all of which have registration rights. In September 1998, we closed the
acquisition of IMN . In connection with the acquisition of IMN, we issued an
aggregate of 1,550,000 shares of Common Stock. In June 1998, we closed the
acquisition of Pyramid. In connection with the acquisition of Pyramid, we issued
an aggregate of 2,784,508 shares of Common Stock

                                       18

<PAGE>   19

and warrants to purchase 62,710 shares of Common Stock. All of the shares of
Common Stock issued in connection with the acquisitions of IMN and Pyramid have
been registered under the Securities Act and are freely tradeable.

   Sales of a substantial number of the aforementioned shares in the public
markets or the prospect of such sales could adversely affect or cause
substantial fluctuations in the market price of the Common Stock and impair our
ability to raise additional capital through the sale of our securities.

NEW PRODUCT DEVELOPMENT AND SYSTEM ENHANCEMENT

   Our performance depends in large part upon our ability to provide the
increasing functionality required by our customers through the timely
development and successful introduction of new products and enhancements to our
existing suite of products. We have historically devoted significant resources
to product enhancements and research and development and believe that
significant continuing development efforts will be required to sustain our
operations and integrate the products and technologies of acquired businesses
with our products. There can be no assurance that we will successfully or in a
timely manner develop, acquire, integrate, introduce and market new product
enhancements or products, or that product enhancements or new products developed
by us will meet the requirements of hospitals or other health care providers and
payors and achieve or sustain market acceptance.

LIMITED PROPRIETARY RIGHTS; RISK OF INFRINGEMENT

   We rely on a combination of trade secrets, copyright and trademark laws,
nondisclosure and other contractual provisions to protect our proprietary
rights. We have not filed any patent applications covering our technology. There
can be no assurance that measures taken by us to protect our intellectual
property will be adequate or that our competitors will not independently develop
products and services that are substantially equivalent or superior to the
products and services we offer.

   There is substantial litigation regarding intellectual property rights in the
software industry. We expect that software products may be increasingly subject
to third-party infringement claims as the number of competitors in our industry
segment grows and the functionality of products overlaps. We believe that our
products do not infringe upon the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against us in the future. The Company may incur substantial litigation expenses
in defending any such claim regardless of the merit of the claim. In the event
of an unfavorable ruling on any such claim, we cannot guarantee that a license
or similar agreement will be available to us on reasonable terms, if at all.
Infringement may result in significant monetary liabilities which would have a
material adverse effect on our business, financial condition and results of
operations. We cannot guarantee that we will be successful in the defense of
these or similar claims.

RISK OF PRODUCT DEFECTS; FAILURE TO MEET PERFORMANCE CRITERIA

   Products such as our products frequently contain errors or failures,
especially when initially introduced or when new versions are released. Although
we conduct extensive testing on our products, software errors have been
discovered in certain enhancements and products after their introduction. We
cannot guarantee that despite such testing by us, and by our current and
potential customers, products under development, enhancements or shipped
products will be free of errors or performance failures, resulting in, among
other things;

- -  loss of revenues and customers;

- -  delay in market acceptance;

- -  diversion of resources;

- -  damage to our reputation; or

- -  increased service and warranty costs.

   The occurrence of any of these consequences could have a material adverse
effect upon our business, financial condition and results of operations.

                                       19
<PAGE>   20

YEAR 2000

   As is true for most companies, the Year 2000 computer issue creates a risk
for us. If systems do not correctly recognize date information when the year
changes to 2000, there could be an adverse impact on our operations. We face
risks in four areas: systems used by us to run our business, systems used by our
suppliers, potential warranty or other claims from our customers, and the
potential reduction in spending by other companies on our products and solutions
as a result of significant information systems spending on Year 2000
remediation.

   We have conducted a thorough inventory and evaluation of our systems,
equipment and facilities. We have a number of projects underway to replace or
upgrade systems, equipment and facilities that we know to be Year 2000
non-compliant. We have not identified alternative remediation plans if upgrade
or replacement is not feasible. We will consider the need for such remediation
plans as we continue to assess the year 2000 risk. For the Year 2000
non-compliance issues identified to date, the cost of upgrade or remediation is
not expected to be material to our operating results. If implementation of
replacement systems is delayed, or if significant new non-compliance issues are
identified, our results of operations or financial condition could be materially
adversely affected.

   We are also in the process of contacting our critical suppliers to determine
that such suppliers' operations and the products and services they provide are
Year 2000 compliant. To date, we are unaware of any current suppliers that are
not Year 2000 ready. In the event that our suppliers are not Year 2000
compliant, we will seek alternative sources of supplies. However, such failures
remain a possibility and could have an adverse impact on our results of
operations or financial condition.

   We believe our current products are Year 2000 compliant. However, since all
customer situations cannot be anticipated, particularly those involving third
party products, we may see an increase in warranty and other claims as a result
of the Year 2000 transition. In addition, litigation regarding Year 2000
compliance issues is expected to escalate. For these reasons, the impact of
customer claims could have a material adverse impact on our results of
operations or financial condition.

   Year 2000 compliance is an issue for virtually all businesses whose computer
systems and applications may require significant hardware and software upgrades
or modifications. Companies owning and operating such systems may plan to devote
a substantial portion of their information systems' spending to fund such
upgrades and modifications and divert spending away from our products and
solutions. Such changes in our customers' spending patterns could have a
material adverse impact on our sales, operating results or financial condition.

RISK OF INTERRUPTION OF DATA PROCESSING

   We currently process substantially all our customer data at our facilities in
Richmond, California and Neptune, New Jersey. Although we back up our data
nightly and have safeguards for emergencies such as power interruption or
breakdown in temperature controls, we have no mirror processing site to which
processing could be transferred in the case of a catastrophic event at either of
these facilities. In the event that a major catastrophic event occurs at either
the Richmond or the Neptune facility, possibly leading to an interruption of
data processing, our business, financial condition and results of operations
could be adversely affected.

RISKS RELATED TO OUTSOURCING BUSINESS

   We provide compliance, consulting and business office outsourcing and cash
flow management services, including the billing and collection of receivables.
We acquired the infrastructure for our outsourcing business through an
acquisition. In addition, we often use our software products to provide
outsourcing services. As a result, we have not been required to make significant
capital expenditures in order to service existing outsourcing contracts.
However, if we experience a period of substantial expansion in our outsourcing
business, we may be required to make substantial investments in capital assets
and personnel. We cannot guarantee that we will be able to assess accurately the
investment required and negotiate and perform in a profitable manner any of the
outsourcing contracts we may be awarded. Our failure to either estimate
accurately the resources and related expenses required for a project, or to
complete our contractual obligations in a manner consistent with the project
plan upon which a contract was based, could have a material adverse effect on
our business, financial condition and results of operations. In addition, our
failure to meet a client's expectations in the performance of our services could
damage our reputation and adversely affect our ability to attract new business.
Finally, we could incur substantial costs and expend significant resources
correcting errors in our work, and could possibly become liable for damages
caused by these errors.


                                       20

<PAGE>   21

GOVERNMENT REGULATION

   The United States Food and Drug Administration (the "FDA") is responsible for
assuring the safety and effectiveness of medical devices under the Federal Food,
Drug and Cosmetic Act. Computer products are subject to regulation when they are
used or are intended to be used in the diagnosis of disease or other conditions,
or in the cure, mitigation, treatment or prevention of disease, or are intended
to affect the structure or function of the body. The FDA could determine in the
future that any predictive aspects of our products make them clinical decision
tools subject to FDA regulation. Compliance with these regulations could be
burdensome, time consuming and expensive. We could also become subject to future
legislation and regulations concerning the development and marketing of health
care software systems. Such legislation could increase the cost and time
necessary to market new products and could affect us in other respects not
presently foreseeable. We cannot predict the effect of possible future
legislation and regulation.

   State governments substantially regulate the confidentiality of patient
records and the circumstances under which such records may be released for
inclusion in our databases. These state laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of the hospital, physician or other health care provider,
regulations governing patient confidentiality rights are evolving rapidly.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal levels. This legislation may
require holders of such information to implement security measures that may
require us to incur substantial expenditures. We are not sure that changes to
state or federal laws will not materially restrict the ability of health care
providers to submit information from patient records using our products.

RISK OF PRODUCT-RELATED CLAIMS

   Some of our products and services are used in the payment, collection, coding
and billing of health care claims and the administration of managed care
contracts. If our employees or our products fail to accurately assess, process
or collect these claims, our customers may file claims against us. We have been
and currently are involved in claims for money damages related to services
provided by our accounts receivable management business. We maintain insurance
to protect against certain claims associated with the use of our products, but
there can be no assurance that our insurance coverage would adequately cover any
claim brought against us. A successful claim brought against us that is in
excess of, or is not covered by, our insurance coverage could adversely affect
our business, financial condition and results of operations. Even a claim
without merit could result in significant legal defense costs and would consume
management time and resources. We do not know whether we will be subject to
material claims in the future which may result in liability in excess of our
insurance coverage, or which our insurance may not cover. We may not be able to
obtain appropriate insurance in the future at commercially reasonable rates. In
addition, if we are found liable, we would have to significantly alter our
products resulting in additional unanticipated research and development
expenses.

RISKS ASSOCIATED WITH CERTAIN INVESTMENTS

   We have made equity investments to acquire minority interests in certain
early stage companies. We do not have the ability to control the operations of
any of these companies. Investing in such early stage companies is subject to
certain significant risks. There can be no assurance that any of these companies
will be successful or achieve profitability or that we will ever realize a
return on our investments. In addition, to the extent any of such companies fail
or become bankrupt or insolvent, we may lose some or all of our investment. We
intend to continue to make additional investments in such companies in the
future. Losses resulting from such investment could have a material adverse
effect on our operating results.

POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISION

   Our Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of Common Stock may be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change of
control of the Company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock. We
have no present plans to issue shares of Preferred Stock.


                                       21

<PAGE>   22

   Further, certain provisions of our Certificate of Incorporation and Bylaws
could discourage potential takeover attempts and make attempts by stockholders
to change management more difficult. For example, our Board of Directors is
classified into three classes of directors serving staggered, three-year terms
and has the authority without action by our stockholders to impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. In addition, our Certificate
of Incorporation provides that directors may be removed only by the affirmative
vote of the holders of two-thirds of the shares of capital stock of the Company
entitled to vote. Any vacancy on the Board of Directors may be filled only by
vote of the majority of directors then in office. Further, our Certificate of
Incorporation provides that any "Business Combination" (as therein defined)
requires the affirmative vote of two-thirds of the shares entitled to vote,
voting together as a single class. These provisions, and certain other
provisions of the Certificate of Incorporation which may have the effect of
delaying proposed stockholder actions until the next annual meeting of
stockholders, could have the effect of delaying or preventing a tender offer for
the Company's Common Stock or other changes of control or management of the
Company, which could adversely affect the market price of our Common Stock.
Finally, certain provisions of Delaware law could have the effect of delaying,
deterring or preventing a change in control of the Company, including Section
203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder unless certain conditions are met.

VOLATILITY OF STOCK PRICE

   The stock market in general, and the Nasdaq National Market, has historically
experienced extreme price and volume fluctuations that have often been unrelated
to the operating performance of companies and which has affected the market
price of securities of many companies. The trading price of our Common Stock is
likely to be highly volatile and could also be subject to significant
fluctuations in price in response to such factors as:

- -  variations in quarterly results of operations;

- -  announcements of new products or acquisitions by us or our competitors;

- -  governmental regulatory action;

- -  developments or disputes with respect to proprietary rights;

- -  general trends in our industry and overall market conditions; and

- -  other event or factors, many of which are beyond our control.

                                       22
<PAGE>   23

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings. None

Item 2. Changes in Securities and Use of Proceeds.

   Between December 31, 1998 and June 30, 1999, the Registrant issued the
following securities which were not registered under the Securities Act of 1933
(the "Securities Act"):

   (a) the Registrant issued an aggregate of 2,957,000 shares of Common Stock in
connection with the acquisition of The Compucare Company.

   The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, or Regulation D promulgated thereunder,
or Rule 701 promulgated under Section 3(b) of the Securities Act, as
transactions by an issuer not involving any public offering or transactions
pursuant to compensatory benefit plans and contracts relating to compensation as
provided under Rule 701.

   During the period covered by this report, there were no changes in the rights
of holders of any class of securities of the Company.

Item 3. Defaults Upon Senior Securities. None

Item 4. Submission of Matters to Vote of Security Holders. None

Item 5. Other Information. None

Item 6. Exhibits and Reports On Form 8-K.

   a. Exhibits

     2.1  Form of Agreement and Plan of Merger by and between QuadraMed
          Corporation, a Delaware corporation and QuadraMed Corporation, a
          California corporation.(1)

     2.2  Assets Purchase Agreement dated December 31, 1995, by and among
          QuadraMed Acquisition Corporation, Kaden Arnone, Inc. and its
          stockholders.(1)

     2.3  Exchange Agreement dated June 25, 1996, by and among QuadraMed
          Holdings, Inc., QuadraMed Corporation, and certain stockholders listed
          on Schedule A thereto.(1)

     2.4  Acquisition Agreement and Plan of Merger dated December 2, 1996,
          between the Company and InterMed Acquisition Corporation, a wholly
          owned subsidiary of the Company and InterMed Healthcare Systems Inc.
          and its Stockholders.(2)

     2.5  Acquisition Agreement and Plan of Merger, dated as of March 1, 1997,
          by and among QuadraMed Corporation, Healthcare Recovery Acquisition
          Corporation, Healthcare Recovery Incorporated and its Shareholders
          (the "HRI Acquisition Agreement and Plan of Merger").(3)

     2.6  First Amendment to HRI Acquisition Agreement and Plan of Merger, dated
          as of April 22, 1997.(3)

     2.7  Second Amendment to HRI Acquisition Agreement and Plan of Merger,
          dated as of April 24, 1997.(3)

     2.8  Acquisition Agreement and Plan of Merger, dated as of September 24,
          1997, by and among QuadraMed Corporation, HRM Acquisition Corporation,
          Healthcare Revenue Management, Inc. and its Stockholders (the
          "Acquisition Agreement and Plan of Merger").(4)

     2.9  First Amendment to Acquisition Agreement and Plan of Merger, dated as
          of September 29, 1997.(4)

     2.10 Agreement and Plan of Reorganization by and between QuadraMed
          Corporation and Medicus Systems Corporation, dated as of November 9,
          1997.(5)

     2.11 Amendment No. 1 to Agreement and Plan of Reorganization, dated as of
          February 26, 1998.(10)


                                       23

<PAGE>   24

     2.12 Amendment No. 2 to Agreement and Plan of Reorganization, dated as of
          March 24, 1998.(10)

     2.13 Acquisition Agreement and Plan of Merger dated as of December 29,
          1997, by and among QuadraMed Corporation and Resource Health Partners,
          L.P.(6)

     2.14 Acquisition Agreement and Plan of Merger dated as of February 2, 1998,
          by and among QuadraMed Corporation and Cabot Marsh Corporation.(7)

     2.15 Acquisition Agreement and Plan of Merger by and among QuadraMed
          Corporation and Pyramid Health Acquisition Corporation and Pyramid
          Health Group, Inc. and its stockholders.(11)

     2.16 Acquisition Agreement and Plan of Merger by and among QuadraMed
          Corporation and IMN Acquisition Corp. , and IMN Corp. dated September
          30, 1998.(14)

     2.17 Acquisition Agreement and Plan of Merger dated December 23, 1998 by
          and among the Company and Premiere Healthcare Acquisition Corporation,
          and Premiere Healthcare Corporation and its subsidiaries(19)

     2.18 Acquisition Agreement and Plan of Merger by and among QuadraMed
          Corporation and Compucare Acquisition Corporation, and The Compucare
          Company and certain of its stockholders dated February 3, 1999.(15)

     2.19 First Amendment to Acquisition Agreement and Plan of Merger by and
          among QuadraMed Corporation and Compucare Acquisition Corporation and
          The Compucare Company and certain of its stockholders, dated March 3,
          1999.(18)

     3.1  Reserved.

     3.2  Reserved

     3.3  Reserved.

     3.4  Amended and Restated Bylaws of the Company.(1)

     3.5  Third Amended and Restated Certificate of Incorporation of the
          Company.(16)

     4.1  Reference is made to Exhibits 3.2 and 3.5.(1)(16)

     4.2  Form of Common Stock certificate.(1)

     4.3  Form of Exchange Agreement dated March 16, 1994, by and among the
          Company, THCS Holding, Inc. and certain stockholders listed on
          Schedule A thereto.(1)

     4.4  Reserved.

     4.5  Reserved.

     4.6  Reserved.

     4.7  Amended and Restated Agreement Regarding Adjustment Shares dated June
          25, 1996, by and among the Company, QuadNet Corporation and the
          individuals listed on Schedule A thereto.(1)

     4.8  Amended and Restated Shareholder Rights Agreement dated June 25, 1996,
          by and between the Company and the investors listed on Schedule A
          thereto.(1)

     4.9  Stock Purchase Warrant dated September 27, 1995 issued to James D.
          Durham and amendment #1 thereto dated July 10, 1997.(8)

     4.10 Reserved.

     4.11 Form of Warrant to Purchase Common Stock.(1)

     4.12 Registration Rights Agreement dated December 5, 1996, by and between
          the Company and the investors listed on Schedule A thereto.(8)

     4.13 Registration Rights Agreement, dated as of December 29, 1997, by and
          among QuadraMed Corporation, Resource Health Partners, L.P. and
          certain stockholders.(6)

     4.14 Registration Rights Agreement, dated as of June 5, 1998, by and among
          QuadraMed Corporation and the stockholders of Pyramid Health group,
          Inc. named therein.(11)

     4.15 Subordinated Indenture, dated as of May 1, 1998 between QuadraMed and
          The Bank of New York. (13)

     4.16 Officers' Certificate delivered pursuant to Sections 2.3 and 11.5 of
          the Subordinated Indenture.(13)

     4.17 Registration Rights Agreement dated April 27, 1998 by and among
          QuadraMed and the Initial Purchasers named therein.(13)

     4.18 Form of Global Debenture.(13)

     4.19 Form of Certificated Debenture.(13)

                                       24
<PAGE>   25

        4.20   Registration Rights Agreement, dated as of September 30, 1998,
               by and among QuadraMed Corporation, IMN Corp. and the
               shareholders of IMN named therein (14)

        4.21   Registration Rights Agreement dated December 23, 1998 by and
               between the Company and the shareholders listed therein(19).

        4.22   Registration Rights Agreement, dated as of March 3, 1999, by and
               among QuadraMed Corporation and the stockholders of The
               Compucare Company named therein.(18)

       10.1    1996 Stock Incentive Plan of the Company.(1)

       10.2    1996 Employee Stock Purchase Plan of the Company.(1)

       10.3    Summary Plan Description, QuadraMed Corporation 401(k) Plan.(1)

       10.4    Form of Indemnification Agreement between the Company and its
               directors and executive officers.(1)

       10.5    1999 Supplemental Stock Option Plan for The Company

       10.6    Lease dated February 26, 1996 for facilities located at 1345
               Campus Parkway, Building M, Block #930, Lot #51.02, Neptune, New
               Jersey.(1)

       10.7    Lease dated May 23, 1994 for facilities located at 80 East Sir
               Francis Drake Boulevard, Suite 2A, Larkspur, California.(1)

       10.8    Reserved.

       10.9    Reserved.

       10.10   Stock Purchase Agreement dated March 3, 1994, by and between the
               Company and James D. Durham.(1)

       10.11   Reserved.

       10.12   Reserved.

       10.13   Reserved.

       10.14   Reserved.

       10.15   Credit Terms and Conditions dated July 2, 1997, by and between
               Imperial Bank and the Company, with addendum thereto.(8)

       10.16   Reserved.

       10.16.1 Reserved.

       10.17   Reserved.

       10.18   Reserved.

       10.19   Reserved.

       10.20   Reserved.

       10.21   Reserved.

       10.22   Reserved.

       10.23   Reserved.

       10.24   Reserved.

       10.25   Reserved.

       10.26   Reserved.

       10.27   Reserved.

       10.28   Reserved.

       10.29   Reserved.

       10.30   Reserved.

       10.31   Reserved.

       10.32   Reserved.

       10.32   Reserved.

       10.34   Reserved.

       10.35   Reserved.

       10.36   Reserved.


                                       25
<PAGE>   26

       10.37  Reserved.

       10.38  Reserved.

       10.39  Letter dated July 1, 1997 from the Company to Lemuel C. Stewart,
              Jr. regarding terms of employment.(9)

       10.40  Form of Stock Purchase Agreement dated as of November 9, 1997 by
              and among QuadraMed Corporation and certain stockholders of
              Medicus Systems Corporation.(5)

       10.41  Form of Stock Purchase Warrant dated as of November 9, 1997 issued
              to certain stockholders of Medicus (including as Appendix A to
              Exhibit 10.40).(5)

       10.42  Reserved.

       10.43  Letter dated November 13, 1997 from the Company to John V.
              Cracchiolo, regarding terms of employment.(5)

       10.44  Reserved.

       10.45  Letter dated January 15, 1998 from the Company to Andrew J. Hurd,
              regarding terms of employment.(5)

       10.46  Employment Agreement dated September 29, 1997 by and between
              Steven D. McCoy and the Company.(10)

       10.47  Letter dated March 17, 1998 from the Company to Keith M. Roberts
              regarding terms of employment.(10)

       10.48  Employment Agreement dated February 4, 1998 by and between Ruthann
              Russo and the Company.(10)

       10.49  Employment Agreement dated June 5, 1998 between Nitin T. Mehta and
              the Company.(16)

       10.50  Mergers and Acquisitions Advisory Fee Agreement dated June 5, 1998
              between the Company and Mehta & Company, Inc.(12)

       10.51  Employment Agreement dated January 1, 1999 between James D. Durham
              and the Company.(20)

       10.52  Employment Agreement dated April 1, 1999 between Michael Sanderson
              and the Company.

       10.53  Employment Agreement dated April 1, 1999 between Michael Wilstead
              and the Company.

       10.54  Employment Agreement dated April 1, 1999 between Nancy Nelson and
              the Company.

       10.55  Employment Agreement dated April 1, 1999 between Andrew Hurd and
              the Company.

       10.56  Employment Agreement dated April 1, 1999 between Patrick Ahearn
              and the Company.

       10.57  Employment Agreement dated April 1, 1999 between Keith Roberts
              and the Company.

       10.58  Employment Agreement dated April 27, 1999 between E. Payson Smith
              and the Company.

       10.59  Employment Agreement dated May 18, 1999 between John V.
              Cracchiolo and the Company.

       10.60  Employment Agreement dated May 25, 1999 between Brian Moriarity
              and the Company.

       21     List of subsidiaries of the Company.(17)

       27.1   Financial Data Schedule

(1)  Incorporated herein by reference from the exhibit with the same number to
     the Company's Registration Statement on Form SB-2, No. 333-5180-LA, as
     filed with the Commission on June 28, 1996, as amended by Amendment No. 1,
     Amendment No. 2 and Amendment No. 3 thereto, as filed with the Commission
     on July 26, 1996, September 9, 1996, and October 2, 1996, respectively.

(2)  Incorporated herein by reference from the exhibit with the same number to
     the Company's Current Report on Form 8-K, as filed with the Commission on
     January 9, 1997.

(3)  Incorporated herein by reference from the exhibit with the same number to
     the Company's Current Report on Form 8-K, as filed with the Commission on
     May 9, 1997, as amended on July 8, 1997 and March 10, 1998.

(4)  Incorporated herein by reference from the exhibit with the same number to
     the Company's Current Report on Form 8-K, as filed with the Commission on
     October 10, 1997, as amended on March 10, 1998.

(5)  Incorporated by reference from the exhibit with the same number to the
     Company's Current Report on Form 8-K, as filed with the Commission on
     November 21, 1997.

(6)  Incorporated herein by reference from Exhibit 2.11 to the Company's Current
     Report on Form 8-K, as filed with the Commission on January 13, 1998.

(7)  Incorporated herein by reference from Exhibit 2.12 to the Company's Current
     Report on Form 8-K, as filed with the Commission on February 18, 1998.

(8)  Incorporated herein by reference from the exhibit with the same number to
     the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
     1997, as filed with the Commission on August 14, 1997, as amended September
     4, 1997.

                                       26
<PAGE>   27

(9)  Incorporated by reference from the exhibit with the same number to the
     Company's Registration Statement on Form S-3, No. 333-36189, as filed with
     the Commission on September 23, 1997, as amended by Amendment No. 1 and
     Amendment No. 2 thereto, as filed with the Commission on October 1, 1997
     and October 15, 1997 respectively.

(10) Incorporated by reference from the exhibit with the same number to the
     Company's Annual Report on Form 10-K/A for the year ended December 31,
     1997, as filed with the Commission on April 20, 1998.

(11) Incorporated by reference from the Company's Current Report on Form 8-K, as
     filed with the Commission on June 11, 1998.

(12) Incorporated by reference from the Company's Current Report on Form 8-K/A
     filed with the Commission on June 17, 1998

(13) Incorporated by reference from the Company's Registration Statement on Form
     S-3, No. 333-55775, as filed with the Commission on June 2, 1998, as
     amended by Amendment No. 1 thereto, as filed with the Commission on June
     17, 1998.

(14) Incorporated by reference from the Company's Current Report on Form 8-K, as
     filed with the Commission on October 15, 1998.

(15) Incorporated by reference from Exhibit 2.1 to the Company's Current Report
     on Form 8-K, as filed with the Commission on February 18, 1999.

(16) Incorporated by reference from the Exhibit with the same number to the
     Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
     1998, as filed with the Commission on August 14, 1998, as amended August
     24, 1988.

(17) Incorporated herein by reference from the Company's Annual Report on Form
     10-K, as filed with the Commission on March 31, 1998, as amended April 20,
     1998.

(18) Incorporated herein by reference from the Company's Current Report on Form
     8-K/A filed with the Commission on March 22, 1999.

  b. Reports on Form 8-K.

     None.

(19) Incorporated herein by reference from the Company's Registration Statement
     on Form S-3, No. 333-80617, as filed with the Commission on June 14, 1999,
     as amended by Amendment No. 1 thereto, as filed with the Commission on
     August 4, 1999.


(20) Incorporated herein by reference from the exhibit with the same number to
the Company's Quarterly Report on the Form 10-Q for the quarter ended March 31,
1999 as filed with the Commision on May 17, 1999.

                                       27
<PAGE>   28
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

                                    QUADRAMED CORPORATION (Company)

Date: August 16, 1999               By: /s/    E. PAYSON SMITH
                                        ----------------------------------------
                                        E. Payson Smith
                                        Executive Vice President,
                                        Chief Financial Officer
                                        (Principal Financial Officer)

                                    By: /s/    BERNIE J. MURPHY
                                        ----------------------------------------
                                        Bernie J. Murphy
                                        Vice President, Finance and Chief
                                        Accounting Officer (Principal Accounting
                                        Officer)

                                       28
<PAGE>   29

                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

   EXHIBIT
      NO.
   -------

<S>            <C>
   10.5        1999 Supplemental Stock Option Plan for The Company

   10.52       Employment Agreement dated April 1, 1999 between Michael
               Sanderson and the Company.

   10.53       Employment Agreement dated April 1, 1999 between Michael Wilstead
               and the Company.

   10.54       Employment Agreement dated April 1, 1999 between Nancy Nelson and
               the Company.

   10.55       Employment Agreement dated April 1, 1999 between Andrew Hurd and
               the Company.

   10.56       Employment Agreement dated April 1, 1999 between Patrick Ahearn
               and the Company.

   10.57       Employment Agreement dated April 1, 1999 between Keith Roberts
               and the Company.

   10.58       Employment Agreement dated April 27, 1999 between E. Payson Smith
               and the Company.

   10.59       Employment Agreement dated May 18, 1999 between John V.
               Cracchiolo and the Company.

   10.60       Employment Agreement dated May 25, 1999 between Brian Moriarity
               and the Company.

   1999 Stock Option Plan

  27.1         Financial Data Schedule

</TABLE>

                                       29


<PAGE>   1
                                                                   Exhibit 10.5

                              QUADRAMED CORPORATION
                       1999 SUPPLEMENTAL STOCK OPTION PLAN



                                  ARTICLE ONE

                                    GENERAL


     I.       PURPOSE OF THE PLAN

              A. This 1999 Supplemental Stock Option Plan is intended to promote
the interests of QuadraMed Corporation, a Delaware corporation, by authorizing
an additional reserve of shares of the Corporation's common stock for issuance
through long-term option grants to be made from time to time to individuals in
the employ or service of the Corporation (or any Parent or Subsidiary) who are
neither officers of the Corporation nor members of the Board and who are not
otherwise Section 16 Insiders.

              B. The Plan shall become effective immediately upon adoption by
the Board on March 22, 1999.

              C. This Plan shall supplement the authorized share reserve under
the Corporation's 1996 Stock Incentive Plan, and share issuances under this Plan
shall not reduce or otherwise affect the number of shares of the Corporation's
common stock available for issuance under the 1996 Stock Incentive Plan. In
addition, share issuances under the 1996 Stock Incentive Plan shall not reduce
or otherwise affect the number of shares of the Corporation's common stock
available for issuance under this Plan.

              D. Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.

     II.      ADMINISTRATION OF THE PLAN

              A. The Plan Administrator shall have full power and discretion
(subject to the express provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper administration of the Plan
and to make such determinations under, and issue such interpretations of, the
provisions of the Plan and any outstanding option grants thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan or any outstanding
option thereunder.

              B. The individuals serving as Plan Administrator shall serve for
such period as the Board may determine and shall be subject to removal by the
Board at any time.

              C. Service as Plan Administrator shall constitute service as a
Board member, and each Board member serving as Plan Administrator shall
accordingly be entitled to full indemnification and reimbursement as a Board
member for such service. No individual serving as Plan Administrator shall be
liable for any act or omission made in good faith with respect to the Plan or
any option granted under the Plan.






<PAGE>   2

     III.     ELIGIBILITY

              A. The persons eligible to participate in the Plan shall be
limited to those Employees and independent consultants and advisors in the
service of the Corporation (or any Parent or Subsidiary) who are neither
officers of the Corporation nor members of the Board and who are not otherwise
Section 16 Insiders at the time of the option grant.

              B. The Plan Administrator shall have full authority to determine
which eligible individuals are to receive option grants under the Plan, the time
or times when such grants are to be made, the number of shares to be covered by
each such grant, the time or times when each granted option is to become
exercisable and the maximum term for which the option may remain outstanding.
All options granted under the Plan shall be Non-Statutory Options.

     IV.      STOCK SUBJECT TO THE PLAN

              A. Shares of Common Stock shall be available for issuance under
the Plan and shall be drawn from either the Corporation's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Corporation on the open market. The maximum
number of shares of Common Stock reserved for issuance over the term of the Plan
shall be limited to [ ] shares, subject to adjustment from time to time in
accordance with the provisions of this Section IV.

              B. Should one or more outstanding options under this Plan expire
or terminate for any reason prior to exercise in full (including any option
cancelled in accordance with the cancellation-regrant provisions of Section III
of Article Two), then the shares subject to the portion of each option not so
exercised shall be available for subsequent issuance under the Plan. Should the
exercise price of an outstanding option under the Plan be paid with shares of
Common Stock, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised, and not by the net number of shares of Common Stock
actually issued to the holder of such option.

              C. Should any change be made to the Common Stock issuable under
the Plan by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, then appropriate adjustments shall be made to (i) the maximum
number and/or class of securities issuable under the Plan and (ii) the number
and/or class of securities and price per share in effect under each option
outstanding under the Plan. Such adjustments to the outstanding options are to
be effected in a manner which shall preclude the enlargement or dilution of
rights and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.








                                       2.
<PAGE>   3

                                  ARTICLE TWO

                              OPTION GRANT PROGRAM


I.       OPTION TERMS

              Options granted under the Plan shall be authorized by action of
the Plan Administrator and shall be evidenced by one or more instruments in the
form approved by the Plan Administrator; provided, however, that each such
instrument shall comply with the terms and conditions specified below. All such
granted options shall be Non-Statutory Options.

              A. Exercise Price.

                 1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the grant date.

                 2. Full payment of the exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the forms
specified below:

                    a. cash or check made payable to the Corporation's order,

                    b. shares of Common Stock held for the requisite period
         necessary to avoid a charge to the Corporation's earnings for financial
         reporting purposes and valued at Fair Market Value on the Exercise
         Date, or

                    c. through a special sale and remittance procedure pursuant
         to which the Optionee shall concurrently provide irrevocable
         instructions to (a) a Corporation-designated brokerage firm to effect
         the immediate sale of the purchased shares and remit to the
         Corporation, out of the sale proceeds available on the settlement date,
         sufficient funds to cover the aggregate exercise price payable for the
         purchased shares plus all applicable Federal, state and local income
         and employment taxes required to be withheld by the Corporation in
         connection with such purchase and (b) the Corporation to deliver the
         certificates for the purchased shares directly to such brokerage firm
         in order to complete the sale transaction.

              Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.

              B. Exercise and Term of Options. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing such option. No option shall have a maximum term in excess of ten
(10) years. During the lifetime of the Optionee, the option shall be exercisable
only by the Optionee and shall not be assignable or transferable except for a
transfer of the option effected by will or by the laws of inheritance following
the Optionee's death.






                                       3.
<PAGE>   4

              C. Effect of Termination of Service.

                 1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:

                    a. Any option outstanding at the time of the Optionee's
         cessation of Service for any reason shall remain exercisable for such
         limited period of time thereafter as shall be determined by the Plan
         Administrator and set forth in the documents evidencing the option, but
         no such option shall be exercisable after the expiration of the option
         term.

                    b. Any option exercisable in whole or in part by the
         Optionee at the time of death may be subsequently exercised by the
         personal representative of the Optionee's estate or by the person or
         persons to whom the option is transferred pursuant to the Optionee's
         will or in accordance with the laws of descent and distribution.

                    c. During the applicable post-Service exercise period, the
         option may not be exercised in the aggregate for more than the number
         of shares for which the option is exercisable on the date of the
         Optionee's cessation of Service. Upon the expiration of the applicable
         post-Service exercise period or (if earlier) upon the expiration of the
         option term, the option shall terminate and cease to be outstanding for
         any otherwise exercisable shares for which the option has not been
         exercised. However, the option shall, immediately upon the Optionee's
         cessation of Service, terminate and cease to be outstanding for any and
         all shares for which the option is not otherwise at that time
         exercisable.

                    d. Should the Optionee's Service be terminated for
         Misconduct, then all outstanding options held by the Optionee shall
         terminate immediately and cease to be outstanding.

                 2. The Plan Administrator shall have the discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:

                    a. extend the period of time for which the option is to
         remain exercisable following Optionee's cessation of Service or death
         from the limited period otherwise in effect for that option to such
         greater period of time as the Plan Administrator shall deem
         appropriate, but in no event beyond the expiration of the option term,
         and/or

                    b. permit the option to be exercised, during the applicable
         post-Service exercise period, not only with respect to the number of
         shares of Common Stock for which such option is exercisable at the time
         of the Optionee's cessation of Service but also with respect to one or
         more additional installments for which the option would have become
         exercisable had the Optionee continued in Service.

              D. Stockholder Rights. An Optionee shall have none of the rights
of a stockholder with respect to any option shares until such person shall have
exercised the option and paid the exercise price for the purchased shares.







                                       4.
<PAGE>   5

     II.      CORPORATE TRANSACTION/CHANGE IN CONTROL

              A. In the event of any Corporate Transaction, each option
outstanding at the time but not otherwise fully exercisable shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become exercisable for all of the shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. However, an
outstanding option shall NOT become exercisable on such an accelerated basis if
and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or (ii) such option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing at the time of the
Corporate Transaction on the shares for which the option is not otherwise at
that time exercisable (the excess of the Fair Market Value of those shares over
the exercise price payable for such shares) and provides for subsequent payout
in accordance with the same exercise/vesting schedule applicable to those option
shares or (iii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of the option grant.

              B. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

              C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the number and/or class of securities available for issuance under the
Plan following the consummation of such Corporate Transaction and (ii) the
exercise price payable per share under each outstanding option, provided the
aggregate exercise price payable for such securities shall remain the same.

              D. The Plan Administrator shall have full power and authority to
grant options under the Plan which will automatically accelerate in the event
the Optionee's Service subsequently terminates by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Corporate Transaction in which those options
are assumed or replaced and do not otherwise accelerate. Any options so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Involuntary Termination.

              E. The Plan Administrator shall have full power and authority to
grant options under the Plan which will automatically accelerate in the event
the Optionee's Service subsequently terminates by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of any Change in Control. Each option so
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Involuntary Termination.







                                       5.
<PAGE>   6

              F. The grant of options under the Plan shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.

     III.     CANCELLATION AND REGRANT OF OPTIONS

              The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected Optionees, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution new options under the Plan covering the same or different numbers
of shares of Common Stock but with an exercise price per share not less than the
Fair Market Value of the Common Stock on the new grant date.





















                                       6.
<PAGE>   7

                                 ARTICLE THREE

                                  MISCELLANEOUS


     I.       FINANCING

              A. The Plan Administrator may permit any Optionee to pay the
option exercise price under the Plan by delivering a promissory note payable in
one or more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Promissory notes may be authorized with or
without security or collateral. In all events, the maximum credit available to
the Optionee may not exceed the sum of (i) the aggregate option exercise price
payable for the purchased shares plus (ii) any Federal, state and local income
and employment tax liability incurred by the Optionee in connection with the
option exercise.

              B. The Plan Administrator may, in its discretion, determine that
one or more such promissory notes shall be subject to forgiveness by the
Corporation in whole or in part upon such terms as the Plan Administrator may
deem appropriate.

     II.      AMENDMENT OF THE PLAN

              The Board has complete and exclusive power and authority to amend
or modify the Plan in any or all respects whatsoever. However, no such amendment
or modification shall adversely affect rights and obligations with respect to
stock options at the time outstanding under the Plan, unless the affected
Optionees consent to such amendment.

     III.     TAX WITHHOLDING

              The Corporation's obligation to deliver shares of Common Stock
upon the exercise of stock options under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income tax and
employment tax withholding requirements.

     IV.      EFFECTIVE DATE AND TERM OF PLAN

              A. This Plan shall become effective immediately upon approval by
the Board at the March 22, 1999 Board meeting and shall not be subject to
stockholder approval.

              B. The Plan shall terminate upon the earliest of (i) March 21,
2009, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of options under the Plan or
(iii) the termination of all outstanding options in connection with a Corporate
Transaction. If the date of termination is determined under clause (i) above,
then all option grants outstanding on such date shall thereafter continue to
have force and effect in accordance with the provisions of the instruments
evidencing those grants.







                                       7.
<PAGE>   8

     V.       USE OF PROCEEDS

              Any cash proceeds received by the Corporation from the sale of
shares pursuant to option grants under the Plan shall be used for general
corporate purposes.

     VI.      REGULATORY APPROVALS

              A. The implementation of the Plan, the granting of any option
under the Plan, and the issuance of Common Stock upon the exercise of the stock
options granted hereunder shall be subject to the Corporation's procurement of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the stock options granted under it and the Common Stock issued
pursuant to it.

              B. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any securities exchange on which the Common Stock is then listed for trading.

     VII.     NO EMPLOYMENT/SERVICE RIGHTS

              Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.

























                                       8.

<PAGE>   9

                                    APPENDIX



         The following definitions shall be in effect under the Plan:

         A.    BOARD shall mean the Corporation's Board of Directors.

         B.    CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:

               - the acquisition, directly or indirectly, by any person or
         related group of persons (other than the Corporation or a person that
         directly or indirectly controls, is controlled by, or is under common
         control with, the Corporation), of beneficial ownership (within the
         meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
         than fifty percent (50%) of the total combined voting power of the
         Corporation's outstanding securities pursuant to a tender or exchange
         offer made directly to the Corporation's stockholders which the Board
         does not recommend such stockholders to accept, or

               - a change in the composition of the Board over a period of
         thirty-six (36) consecutive months or less such that a majority of the
         Board members ceases, by reason of one or more contested elections for
         Board membership, to be comprised of individuals who either (A) have
         been Board members continuously since the beginning of such period or
         (B) have been elected or nominated for election as Board members during
         such period by at least a majority of the Board members described in
         clause (A) who were still in office at the time the Board approved such
         election or nomination.

         C.    CODE shall mean the Internal Revenue Code of 1986, as amended.

         D.    COMMON STOCK shall mean the Corporation's common stock.

         E.    CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:

               - a merger or consolidation in which securities possessing more
         than fifty percent (50%) of the total combined voting power of the
         Corporation's outstanding securities are transferred to a person or
         persons different from the persons holding those securities immediately
         prior to such transaction; or

               - the sale, transfer or other disposition of all or substantially
         all of the Corporation's assets in complete liquidation or dissolution
         of the Corporation.

         F.    CORPORATION shall mean QuadraMed Corporation, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of QuadraMed Corporation which shall by appropriate
action adopt the Plan.







                                      A-1.
<PAGE>   10


         G.    EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

         H.    EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.

         I.    FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

               - If the Common Stock is at the time traded on the Nasdaq
         National Market, then the Fair Market Value shall be the closing
         selling price per share of Common Stock on the date in question, as
         such price is reported by the National Association of Securities
         Dealers on the Nasdaq National Market. If there is no closing selling
         price for the Common Stock on the date in question, then the Fair
         Market Value shall be the closing selling price on the last preceding
         date for which such quotation exists.

               - If the Common Stock is at the time listed on any Stock
         Exchange, then the Fair Market Value shall be the closing selling price
         per share of Common Stock on the date in question on the Stock Exchange
         determined by the Plan Administrator to be the primary market for the
         Common Stock, as such price is officially quoted in the composite tape
         of transactions on such exchange. If there is no closing selling price
         for the Common Stock on the date in question, then the Fair Market
         Value shall be the closing selling price on the last preceding date for
         which such quotation exists.

         J.    INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:

               - such individual's involuntary dismissal or discharge by the
         Corporation for reasons other than Misconduct, or

               - such individual's voluntary resignation following (A) a change
         in his or her position with the Corporation which materially reduces
         his or her duties and responsibilities or the level of management to
         which he or she reports, (B) a reduction in his or her level of
         compensation (including base salary, fringe benefits and target bonus
         under any corporate-performance based bonus or incentive programs) by
         more than fifteen percent (15%) or (C) a relocation of such
         individual's place of employment by more than fifty (50) miles,
         provided and only if such change, reduction or relocation is effected
         by the Corporation without the individual's consent.

         K.    MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by the Optionee of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by the
Optionee adversely affecting the business







                                      A-2.
<PAGE>   11

or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. The foregoing definition shall not be deemed to be inclusive of all the
acts or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of any Optionee or other
person in the Service of the Corporation (or any Parent or Subsidiary).

         L.    1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.

         M.    NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.

         N.    OPTIONEE shall mean any person to whom an option is granted under
the Plan.

         O.    PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

         P.    PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment expected to
result in death or to be of continuous duration of twelve (12) months or more.

         Q.    PLAN shall mean the Corporation's 1999 Supplemental Stock Option
Plan, as set forth in this document.

         R.    PLAN ADMINISTRATOR shall mean either the Board or a committee of
the Board acting in its administrative capacity under the Plan.

         S.    PLAN EFFECTIVE DATE shall mean March 22, 1999, the date on which
the Plan was adopted by the Board.

         T.    SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit restrictions of Section 16 of the
1934 Act.

         U.    SERVICE shall mean the performance of services to the Corporation
(or any Parent or Subsidiary) by any person in the capacity of an Employee or an
independent consultant or advisor, except to the extent otherwise specifically
provided in the applicable stock option agreement.

         V.    STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.

         W.    SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock








                                      A-3.
<PAGE>   12


possessing fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.






















                                      A-4.





<PAGE>   1
                                                                   EXHIBIT 10.52
                                  April 1, 1999


Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
6424 Missy
Dallas, Texas 75252

Dear Mr. Sanderson:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three concludes this Agreement with a series of general terms and





<PAGE>   2
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 2


conditions applicable to your employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means Michael Sanderson.

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of


<PAGE>   3
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 3


ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company which
materially reduces Employee's level of responsibility or changes Employee's
title from Senior Vice President, Sales, (b) a reduction in Employee's level of
compensation (including base salary, fringe benefits and any non-discretionary
bonuses or other incentive payments earned pursuant to objective standards or
criteria) or (c) a relocation of Employee's principal place of employment by
more than forty-five (45) miles and such change, reduction or relocation is
effected without Employee's written concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote his full working time and effort to the
performance of his duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) his
private passive investments, (b) his charitable or community activities and (c)
his participation in trade or professional




<PAGE>   4
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 4


organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.



<PAGE>   5
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 5

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of Senior Vice President, Sales.
Employee agrees to continue in such employment for the duration of the
Employment Period and to perform in good faith and to the best of Employee's
ability all services which may be required of Employee in his executive position
and to be available to render such services at all reasonable times and places
in accordance with reasonable directives and assignments issued by the Board.
During Employee's Employment Period, Employee will devote his full time and
effort to the business and affairs of the Company within the scope of his
executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of One Hundred Seventy-Five Thousand
Dollars ($175,000). Employee's annual rate of base salary may be subject to
adjustment each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.

<PAGE>   6
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 6

                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had his employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any

<PAGE>   7
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 7


unpaid compensation earned under Part Two, Section 4 for services rendered
through the date of Employee's disability, together with the severance benefits
set forth in Section 9 below. However, the Company's obligation to provide such
severance benefits shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
programs funded by the Company on Employee's behalf.

                  B. Employee will be deemed disabled if his is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days, or one hundred
eighty (180) days during any twelve (12) month period.

                  C. Upon death or disability the terms of the Stock Option Plan
will apply.

         9. SEVERANCE BENEFITS. Employee will be entitled to receive the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of his employment (other than a Termination for Cause).

                  A. SEVERANCE BENEFIT. The Company will make a severance
payment to Employee, in one lump sum within thirty (30) days of the date of
Employee's Involuntary Termination, in an aggregate amount equal to one (1) time
Employee's then-current annual rate of base salary. Employee may elect, in his
sole discretion, to have the severance benefit payable pursuant to this Section
9.A in monthly installments over a one (1) year period following the date of his
Involuntary Termination.

                  B. WELFARE BENEFITS. For a period of twelve (12) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following his
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan," as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section 9.B. To the maximum extent permitted by
applicable


<PAGE>   8
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 8


law, the benefits provided under this Section 9.B shall be in discharge of any
obligations of the Company or any rights of Employee under the benefit
continuation provisions under Section 4980A of the Code and Part VI of Title I
of ERISA ("COBRA") or any other legislation of similar import.

                  C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase right with respect thereto
will terminate so that each such Option or share of restricted or unvested
Common Stock will become immediately and fully exercisable or vested as of the
date of termination. Each such accelerated Option, together with all of
Employee's other vested Options, will remain exercisable for a period of three
(3) years following Employee's Involuntary Termination and may be exercised for
any or all of the option shares, including the accelerated shares, in accordance
with the exercise provisions of the Option agreement evidencing the grant.

                  D. RELEASE OF COMPANY. Receipt of severance benefits pursuant
to this Section 9 shall be in lieu of all other amounts payable by the Company
to Employee and in settlement and complete release of all claims Employee may
have against the Company other than those arising out of the severance benefits
due and payable under Sections 9 and 16 of Part Two of this Agreement and
Employee's rights under Part Three of this Agreement. Employee acknowledges and
agrees that execution of a mutual general release of claims setting for the
terms of this Section 9.D. and otherwise reasonably acceptable to the Company
and Employee shall be a condition precedent to the Company's obligation to pay
severance benefits hereunder.

         10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or

<PAGE>   9
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 9


unvested shares of Common Stock held by the Employee at the time of the Change
in Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for a period of
three (3) years following Employee's Involuntary Termination and may be
exercised for any or all of the Option shares, including the accelerated shares,
in accordance with the provisions of the Option agreement evidencing such
Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 10 shall be made in accordance with the
procedures set forth in

<PAGE>   10
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 10


Section 16.B.

              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

       13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of his salary.

<PAGE>   11
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 11

              B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into Employee's possession during the
Employment Period will be returned by Employee to the Company immediately upon
the termination of the Employment Period or upon any earlier request by the
Company, and Employee will not retain any copies, notes or excerpts thereof.
Notwithstanding the foregoing, Employee shall be entitled to retain his file or
Rolodex containing names, addresses and telephone numbers and personal diaries
and calendars; provided, however, that Employee shall continue to be bound by
the terms of Section 13.A. above to the extent such retained materials
constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 13.

       14. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance

<PAGE>   12
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 12


will include (without limitation) the execution of documents and assistance and
cooperation in legal proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

       15.    TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by him pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.

<PAGE>   13
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 13

        16. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting Firm has concluded that no Excise Tax is payable (including the
reasons therefor) and that Employee has substantial authority not to report any
Excise Tax on Employee's federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Employee within five (5) business
days after the Determination is delivered to the Company or to Employee. Any
Determination by the Accounting Firm shall be binding upon the Company and
Employee, absent manifest error. All of the costs and expenses of the Accounting
Firm shall be borne by the Company.

<PAGE>   14
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 14

              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of 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 not made by the Company should have been made ("Underpayments") or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to

<PAGE>   15
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 15


expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement entitling Employee to the benefits hereunder, as though Employee
was subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, his successors, assigns, executors,
administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following his Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee shall be provided to
each current member of the Board at each such director's current address as
listed in the Company's records.

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or


<PAGE>   16
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 16


proceeding, in addition to any other relief to which Employee may be entitled,
in the event and to the extent that Employee prevails in such action or other
proceeding. Notwithstanding anything herein above to the contrary, as between
Employee and the Company, the Company shall bear all legal costs and expenses of
defending the validity of this Agreement against any third party. The Company
shall bear all legal costs and expenses incurred in the event the Company should
contest or dispute the characterization of any amounts paid pursuant to this
Agreement as being nondeductible under Section 280G of the Code or subject to
imposition of an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   17
Michael Sanderson
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 17

       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:

/s/ MICHAEL SANDERSON

Michael Sanderson

Dated:

<PAGE>   18
                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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




<PAGE>   1
                                                                   EXHIBIT 10.53

                                  April 1, 1999


Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
332 Mariposa Drive
Washington, Utah 84780

Dear Mr. Wilstead:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three concludes this Agreement with a series of general terms and




<PAGE>   2
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 2


conditions applicable to your employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means Michael Wilstead.

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of




<PAGE>   3
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 3


ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company which
materially reduces Employee's level of responsibility or changes Employee's
title from Senior Vice President, Sales, (b) a reduction in Employee's level of
compensation (including base salary, fringe benefits and any non-discretionary
bonuses or other incentive payments earned pursuant to objective standards or
criteria) or (c) a relocation of Employee's principal place of employment by
more than forty-five (45) miles and such change, reduction or relocation is
effected without Employee's written concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote his full working time and effort to the
performance of his duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) his
private passive investments, (b) his charitable or community activities and (c)
his participation in trade or professional




<PAGE>   4


Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 4


organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.




<PAGE>   5
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 5

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of Senior Vice President, Sales.
Employee agrees to continue in such employment for the duration of the
Employment Period and to perform in good faith and to the best of Employee's
ability all services which may be required of Employee in his executive position
and to be available to render such services at all reasonable times and places
in accordance with reasonable directives and assignments issued by the Board.
During Employee's Employment Period, Employee will devote his full time and
effort to the business and affairs of the Company within the scope of his
executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of One Hundred Seventy-Five Thousand
Dollars ($175,000). Employee's annual rate of base salary may be subject to
adjustment each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.


<PAGE>   6
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 6

                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had his employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any



<PAGE>   7
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 7


unpaid compensation earned under Part Two, Section 4 for services rendered
through the date of Employee's disability, together with the severance benefits
set forth in Section 9 below. However, the Company's obligation to provide such
severance benefits shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
programs funded by the Company on Employee's behalf.

                  B. Employee will be deemed disabled if his is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days, or one hundred
eighty (180) days during any twelve (12) month period.

                  C. Upon death or disability the terms of the Stock Option Plan
will apply.

         9. SEVERANCE BENEFITS. Employee will be entitled to receive the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of his employment (other than a Termination for Cause).

                  A. SEVERANCE BENEFIT. The Company will make a severance
payment to Employee, in one lump sum within thirty (30) days of the date of
Employee's Involuntary Termination, in an aggregate amount equal to one (1) time
Employee's then-current annual rate of base salary. Employee may elect, in his
sole discretion, to have the severance benefit payable pursuant to this Section
9.A in monthly installments over a one (1) year period following the date of his
Involuntary Termination.

                  B. WELFARE BENEFITS. For a period of twelve (12) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following his
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan," as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section 9.B. To the maximum extent permitted by
applicable



<PAGE>   8
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 8


law, the benefits provided under this Section 9.B shall be in discharge of any
obligations of the Company or any rights of Employee under the benefit
continuation provisions under Section 4980A of the Code and Part VI of Title I
of ERISA ("COBRA") or any other legislation of similar import.

                  C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase right with respect thereto
will terminate so that each such Option or share of restricted or unvested
Common Stock will become immediately and fully exercisable or vested as of the
date of termination. Each such accelerated Option, together with all of
Employee's other vested Options, will remain exercisable for a period of three
(3) years following Employee's Involuntary Termination and may be exercised for
any or all of the option shares, including the accelerated shares, in accordance
with the exercise provisions of the Option agreement evidencing the grant.

                  D. RELEASE OF COMPANY. Receipt of severance benefits pursuant
to this Section 9 shall be in lieu of all other amounts payable by the Company
to Employee and in settlement and complete release of all claims Employee may
have against the Company other than those arising out of the severance benefits
due and payable under Sections 9 and 16 of Part Two of this Agreement and
Employee's rights under Part Three of this Agreement. Employee acknowledges and
agrees that execution of a mutual general release of claims setting for the
terms of this Section 9.D. and otherwise reasonably acceptable to the Company
and Employee shall be a condition precedent to the Company's obligation to pay
severance benefits hereunder.

         10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or



<PAGE>   9
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 9


unvested shares of Common Stock held by the Employee at the time of the Change
in Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for a period of
three (3) years following Employee's Involuntary Termination and may be
exercised for any or all of the Option shares, including the accelerated shares,
in accordance with the provisions of the Option agreement evidencing such
Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 10 shall be made in accordance with the
procedures set forth in


<PAGE>   10
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 10


Section 16.B.

              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

       13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of his salary.
<PAGE>   11
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 11


              B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into Employee's possession during the
Employment Period will be returned by Employee to the Company immediately upon
the termination of the Employment Period or upon any earlier request by the
Company, and Employee will not retain any copies, notes or excerpts thereof.
Notwithstanding the foregoing, Employee shall be entitled to retain his file or
Rolodex containing names, addresses and telephone numbers and personal diaries
and calendars; provided, however, that Employee shall continue to be bound by
the terms of Section 13.A. above to the extent such retained materials
constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 13.

       14.    OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance
<PAGE>   12
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 12


will include (without limitation) the execution of documents and assistance and
cooperation in legal proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

        15. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by him pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.
<PAGE>   13
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 13


         16. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting Firm has concluded that no Excise Tax is payable (including the
reasons therefor) and that Employee has substantial authority not to report any
Excise Tax on Employee's federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Employee within five (5) business
days after the Determination is delivered to the Company or to Employee. Any
Determination by the Accounting Firm shall be binding upon the Company and
Employee, absent manifest error. All of the costs and expenses of the Accounting
Firm shall be borne by the Company.
<PAGE>   14
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 17


              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of 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 not made by the Company should have been made ("Underpayments") or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to
<PAGE>   15
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 15

expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement entitling Employee to the benefits hereunder, as though Employee
was subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, his successors, assigns, executors,
administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following his Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee shall be provided to
each current member of the Board at each such director's current address as
listed in the Company's records.

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or

<PAGE>   16
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 16


proceeding, in addition to any other relief to which Employee may be entitled,
in the event and to the extent that Employee prevails in such action or other
proceeding. Notwithstanding anything herein above to the contrary, as between
Employee and the Company, the Company shall bear all legal costs and expenses of
defending the validity of this Agreement against any third party. The Company
shall bear all legal costs and expenses incurred in the event the Company should
contest or dispute the characterization of any amounts paid pursuant to this
Agreement as being nondeductible under Section 280G of the Code or subject to
imposition of an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   17
Michael Wilstead
Senior Vice President, Sales
QuadraMed Corporation
April 1, 1999
Page 17

       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:

/s/ MICHAEL WILSTEAD

Michael Wilstead

Dated:


<PAGE>   18

                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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


<PAGE>   1
                                                                   EXHIBIT 10.54

                                  April 1, 1999


Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation



Dear Ms. Nelson:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three concludes this Agreement with a series of general terms and

<PAGE>   2
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 2


conditions applicable to your employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means Nancy Nelson

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of
<PAGE>   3


Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 3


ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company which
materially reduces Employee's level of responsibility or changes Employee's
titles from President of the Enterprise Solutions Division, (b) a reduction in
Employee's level of compensation (including base salary, fringe benefits and any
non-discretionary bonuses or other incentive payments earned pursuant to
objective standards or criteria) or (c) a relocation of Employee's principal
place of employment by more than forty-five (45) miles and such change,
reduction or relocation is effected without Employee's written concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote her full working time and effort to the
performance of her duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) her
private passive investments, (b) her charitable or community activities and (c)
her participation in trade or professional

<PAGE>   4
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 4


organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.
<PAGE>   5

Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 5

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of President of the Enterprise Solutions
Division. Employee agrees to continue in such employment for the duration of the
Employment Period and to perform in good faith and to the best of Employee's
ability all services which may be required of Employee in her executive position
and to be available to render such services at all reasonable times and places
in accordance with reasonable directives and assignments issued by the Board.
During Employee's Employment Period, Employee will devote her full time and
effort to the business and affairs of the Company within the scope of her
executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of Two Hundred Six Thousand Dollars
($206,000). Employee's annual rate of base salary may be subject to adjustment
each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.
<PAGE>   6
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 6



                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by her in the performance of her duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or her
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had her employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any unpaid compensation earned under Part
Two, Section 4 for services rendered through the date

<PAGE>   7
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 7



of Employee's disability, together with the severance benefits set forth in
Section 9 below. However, the Company's obligation to provide such severance
benefits shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
programs funded by the Company on Employee's behalf.

              B. Employee will be deemed disabled if her is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of her duties for physical or
mental reasons for one hundred twenty (120) consecutive days or one hundred
eighty (180) days during any twelve (12) month period.

              C. Upon death or disability the terms of the Stock Option Plan
will apply.

       9. SEVERANCE BENEFITS. Employee will be entitled to receive the severance
benefits specified below in the event there should occur a termination of
Employee's employment by reason of disability or an Involuntary Termination of
her employment (other than a Termination for Cause).

              A. SEVERANCE BENEFIT. The Company will make a severance payment to
Employee, in one lump sum within thirty (30) days of the date of Employee's
Involuntary Termination, in an aggregate amount equal to one (1) time Employee's
then-current annual rate of base salary. Employee may elect, in her sole
discretion, to have the severance benefit payable pursuant to this Section 9.A
in monthly installments over a one (1) year period following the date of her
Involuntary Termination.

              B. WELFARE BENEFITS. For a period of twelve (12) months, Employee
(and her dependents, as applicable) shall be provided by the Company with the
same life, health and disability plan participation, benefits and other
coverages to which she was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following her
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan," as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section 9.B. To the maximum extent permitted by
applicable


<PAGE>   8

Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 8


law, the benefits provided under this Section 9.B shall be in discharge of any
obligations of the Company or any rights of Employee under the benefit
continuation provisions under Section 4980A of the Code and Part VI of Title I
of ERISA ("COBRA") or any other legislation of similar import.

              C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase rights with respect thereto
will terminate so that each such Option or share of restricted and unvested
Common Stock will become immediately and fully exercisable or vested as of the
date of termination. Each such accelerated Option, together with all of
Employee's other vested Options, will remain exercisable for a period of three
(3) years following Employee's Involuntary Termination and may be exercised for
any or all of the option shares, including the accelerated shares, in accordance
with the exercise provisions of the Option agreement evidencing the grant.

              D. RELEASE OF COMPANY. Receipt of severance benefits pursuant to
this Section 9 shall be in lieu of all other amounts payable by the Company to
Employee and in settlement and complete release of all claims Employee may have
against the Company other than those arising out of the severance benefits due
and payable under Section 9 and 16 of Part Two of this Agreement and Employee's
rights under Part Three of this Agreement. Employee acknowledges and agrees that
execution of a mutual general release of claims setting forth the terms of this
Section 9.D. and otherwise reasonably acceptable to the Company and Employee
shall be a condition precedent to the Company's obligations to pay severance
benefits hereunder.

       10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or


<PAGE>   9

Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 9


unvested shares of Common Stock held by the Employee at the time of the Change
in Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for a period of
three (3) years following Employee's Involuntary Termination and may be
exercised for any or all of the Option shares, including the accelerated shares,
in accordance with the provisions of the Option agreement evidencing such
Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 10 shall be made in accordance with the
procedures set forth in

<PAGE>   10
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 10


Section 16.B.

              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

       13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of her salary.
<PAGE>   11
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 11


              B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into Employee's possession during the
Employment Period will be returned by Employee to the Company immediately upon
the termination of the Employment Period or upon any earlier request by the
Company, and Employee will not retain any copies, notes or excerpts thereof.
Notwithstanding the foregoing, Employee shall be entitled to retain her file or
Rolodex containing names, addresses and telephone numbers and personal diaries
and calendars; provided, however, that Employee shall continue to be bound by
the terms of Section 13.A. above to the extent such retained materials
constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
her continuing obligations under this Section 13.

       14. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance


<PAGE>   12

Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 12


will include (without limitation) the execution of documents and assistance and
cooperation in legal proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

       15. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of her death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by her pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.
<PAGE>   13
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 13


       16. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting Firm has concluded that no Excise Tax is payable (including the
reasons therefor) and that Employee has substantial authority not to report any
Excise Tax on Employee's federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Employee within five (5) business
days after the Determination is delivered to the Company or to Employee. Any
Determination by the Accounting Firm shall be binding upon the Company and
Employee, absent manifest error. All of the costs and expenses of the Accounting
Firm shall be borne by the Company.

<PAGE>   14

Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 14


              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of 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 not made by the Company should have been made ("Underpayments") or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to

<PAGE>   15
Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 15


expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement entitling Employee to the benefits hereunder, as though Employee
was subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, her successors, assigns, executors,
administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following her Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at her
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or

<PAGE>   16

Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 16


proceeding, in addition to any other relief to which Employee may be entitled,
in the event and to the extent that Employee prevails in such action or other
proceeding. Notwithstanding anything herein above to the contrary, as between
Employee and the Company, the Company shall bear all legal costs and expenses of
defending the validity of this Agreement against any third party. The Company
shall bear all legal costs and expenses incurred in the event the Company should
contest or dispute the characterization of any amounts paid pursuant to this
Agreement as being nondeductible under Section 280G of the Code or subject to
imposition of an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   17


Nancy Nelson
President, Enterprise Solutions Division
QuadraMed Corporation
April 1, 1999
Page 17

       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:

/s/ NANCY NELSON

Nancy Nelson

Dated:


<PAGE>   18
                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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

<PAGE>   1
                                                                   EXHIBIT 10.55

                                  April 1, 1999


Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation



Dear Mr. Hurd:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three concludes this Agreement with a series of general terms and



<PAGE>   2
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 2


conditions applicable to your employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means Andrew Hurd

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of

<PAGE>   3
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 3


ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company which
materially reduces Employee's level of responsibility or changes Employee's
titles from President of the Health Information Management Group, (b) a
reduction in Employee's level of compensation (including base salary, fringe
benefits and any non-discretionary bonuses or other incentive payments earned
pursuant to objective standards or criteria) or (c) a relocation of Employee's
principal place of employment by more than forty-five (45) miles and such
change, reduction or relocation is effected without Employee's written
concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote his full working time and effort to the
performance of his duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) his
private passive investments, (b) his charitable or community activities and (c)
his participation in trade or professional




<PAGE>   4
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 4


organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.




<PAGE>   5
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 5

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of President of the Health Information
Management Group. Employee agrees to continue in such employment for the
duration of the Employment Period and to perform in good faith and to the best
of Employee's ability all services which may be required of Employee in his
executive position and to be available to render such services at all reasonable
times and places in accordance with reasonable directives and assignments issued
by the Board. During Employee's Employment Period, Employee will devote his full
time and effort to the business and affairs of the Company within the scope of
his executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of Two Hundred Thousand Dollars
($200,000). Employee's annual rate of base salary may be subject to adjustment
each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.



<PAGE>   6
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 6

                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as
the Board deems appropriate, including Employee's individual performance and the
Company's financial results.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had his employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any unpaid compensation earned under Part
Two, Section 4 for services rendered through the date




<PAGE>   7
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 7


of Employee's disability, together with the severance benefits set forth in
Section 9 below. However, the Company's obligation to provide such severance
benefits shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
programs funded by the Company on Employee's behalf.

                  B. Employee will be deemed disabled if his is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days or one hundred
eighty (180) days during any twelve (12) month period.

                  C. Upon death or disability the terms of the Stock Option Plan
will apply.

         9. SEVERANCE BENEFITS. Employee will be entitled to receive the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of his employment (other than a Termination for Cause).

                  A. SEVERANCE BENEFIT. The Company will make a severance
payment to Employee, in one lump sum within thirty (30) days of the date of
Employee's Involuntary Termination, in an aggregate amount equal to one (1) time
Employee's then-current annual rate of base salary. Employee may elect, in his
sole discretion, to have the severance benefit payable pursuant to this Section
9.A in monthly installments over a one (1) year period following the date of his
Involuntary Termination.

                  B. WELFARE BENEFITS. For a period of twelve (12) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following his
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan," as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section 9.B. To the maximum extent permitted by
applicable law, the benefits provided under this Section 9.B shall be in
discharge of any obligations of the

<PAGE>   8
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 8


Company or any rights of Employee under the benefit continuation provisions
under Section 4980A of the Code and Part VI of Title I of ERISA ("COBRA") or any
other legislation of similar import.

                  C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase rights with respect thereto
will terminate so that each such Option or share of restricted or unvested
Common Stock will become immediately and fully exercisable or vested as of the
date of termination. Each such accelerated Option, together with all of
Employee's other vested Options, will remain exercisable for a period of three
(3) years following Employee's Involuntary Termination and may be exercised for
any or all of the option shares, including the accelerated shares, in accordance
with the exercise provisions of the Option agreement evidencing the grant.

                  D. RELEASE OF COMPANY. Receipt of severance benefits pursuant
to this Section 9 shall be in lieu of all other amounts payable by the Company
to Employee and in settlement and complete release of all claims Employee may
have against the Company other than those arising out of the severance benefits
due and payable under Sections 9 and 16 of Part Two of this Agreement and
Employee's rights under Part Three of this Agreement. Employee acknowledges and
agrees that execution of a mutual general release of claims setting forth the
terms of this Section 9.D. and otherwise reasonably acceptable to the Company
and Employee shall be a condition precedent to the Company's obligations to pay
severance benefits hereunder.

         10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or unvested shares of Common Stock held by the Employee at the time
of the Change in

<PAGE>   9
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 9


Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any unvested shares which do not vest at the time of the Change in
Control by reason of the foregoing limitation shall continue in effect and shall
be assigned to any successor entity in the Change in Control transaction, and
Employee shall continue to vest in those shares in accordance with the vesting
schedule in effect for the shares immediately prior to the Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for a period of
three (3) years following Employee's Involuntary Termination and may be
exercised for any or all of the Option shares, including the accelerated shares,
in accordance with the provisions of the Option agreement evidencing such
Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 10 shall be made in accordance with the
procedures set forth in Section 16.B.

<PAGE>   10
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 10


              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

       13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of his salary.

              B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the


<PAGE>   11
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 11

Company which come into Employee's possession during the Employment Period will
be returned by Employee to the Company immediately upon the termination of the
Employment Period or upon any earlier request by the Company, and Employee will
not retain any copies, notes or excerpts thereof. Notwithstanding the foregoing,
Employee shall be entitled to retain his file or Rolodex containing names,
addresses and telephone numbers and personal diaries and calendars; provided,
however, that Employee shall continue to be bound by the terms of Section 13.A.
above to the extent such retained materials constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 13.

         14. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance will include (without
limitation) the execution of documents and assistance and cooperation in legal
proceedings.

<PAGE>   12
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 12


              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

         15. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by him pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.

         16. TAX EFFECT OF PAYMENTS.

<PAGE>   13
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 13


              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting Firm has concluded that no Excise Tax is payable (including the
reasons therefor) and that Employee has substantial authority not to report any
Excise Tax on Employee's federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Employee within five (5) business
days after the Determination is delivered to the Company or to Employee. Any
Determination by the Accounting Firm shall be binding upon the Company and
Employee, absent manifest error. All of the costs and expenses of the Accounting
Firm shall be borne by the Company.

              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the


<PAGE>   14
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 14

Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the
Company should have been made ("Underpayments") or that Gross-Up Payments will
have been made by the Company which should not have been made ("Overpayments").
In either event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment shall promptly be paid by the Company to or for
Employee's benefit. In the case of an Overpayment, Employee shall, at the
direction and expense of the Company, take such steps as are reasonably
necessary (including the filing of returns and claims for refund), follow
reasonable instructions from, and procedures established by, the Company and
otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.

<PAGE>   15
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 15


Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement
entitling Employee to the benefits hereunder, as though Employee was subject to
Involuntary Termination. This Agreement shall be binding upon and inure to the
benefit of Employee, his successors, assigns, executors, administrators or
beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following his Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee shall be provided to
each current member of the Board at each such director's current address as
listed in the Company's records.

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or proceeding, in
addition to any other relief to which Employee may be entitled, in the event and
to the extent that Employee prevails in such action or other proceeding.
Notwithstanding


<PAGE>   16
Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 16


anything herein above to the contrary, as between Employee and
the Company, the Company shall bear all legal costs and expenses of defending
the validity of this Agreement against any third party. The Company shall bear
all legal costs and expenses incurred in the event the Company should contest or
dispute the characterization of any amounts paid pursuant to this Agreement as
being nondeductible under Section 280G of the Code or subject to imposition of
an excise tax under Section 4999 of the Code.

                      [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   17


Andrew Hurd
President, Health Information Management Group
QuadraMed Corporation
April 1, 1999
Page 17

       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:

/s/ ANDREW HURD

Andrew Hurd

Dated:


<PAGE>   18

                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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

<PAGE>   1
                                                                   EXHIBIT 10.56

                                  April 1, 1999


Patrick Ahearn
President, Business Office Group
QuadraMed Corporation



Dear Mr. Ahearn:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three concludes this Agreement with a series of general terms and



<PAGE>   2
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 2



conditions applicable to your employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means Patrick Ahearn.

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of


<PAGE>   3
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 3


ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company which
materially reduces Employee's level of responsibility or changes Employee's
title from President of the Business Office Group, (b) a reduction in Employee's
level of compensation (including base salary, fringe benefits and any
non-discretionary bonuses or other incentive payments earned pursuant to
objective standards or criteria) or (c) a relocation of Employee's principal
place of employment by more than forty-five (45) miles and such change,
reduction or relocation is effected without Employee's written concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote his full working time and effort to the
performance of his duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) his
private passive investments, (b) his charitable or community activities and (c)
his participation in trade or professional




<PAGE>   4


Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 4


organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.

<PAGE>   5
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 5

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of President of the Business Office
Group. Employee agrees to continue in such employment for the duration of the
Employment Period and to perform in good faith and to the best of Employee's
ability all services which may be required of Employee in his executive position
and to be available to render such services at all reasonable times and places
in accordance with reasonable directives and assignments issued by the Board.
During Employee's Employment Period, Employee will devote his full time and
effort to the business and affairs of the Company within the scope of his
executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of Two Hundred Thousand Dollars
($200,000). Employee's annual rate of base salary may be subject to adjustment
each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.


<PAGE>   6
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 6

                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had his employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any unpaid compensation earned under Part
Two, Section 4 for services rendered through the date



<PAGE>   7
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 7


of Employee's disability, together with the severance benefits set forth in
Section 9 below. However, the Company's obligation to provide such severance
benefits shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
programs funded by the Company on Employee's behalf.

                  B. Employee will be deemed disabled if his is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days, or one hundred
eighty (180) days during any twelve (12) month period.

                  C. Upon death or disability the terms of the Stock Option Plan
will apply.

         9. SEVERANCE BENEFITS. Employee will be entitled to receive the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of his employment (other than a Termination for Cause).

                  A. SEVERANCE BENEFIT. The Company will make a severance
payment to Employee, in one lump sum within thirty (30) days of the date of
Employee's Involuntary Termination, in an aggregate amount equal to one (1) time
Employee's then-current annual rate of base salary. Employee may elect, in his
sole discretion, to have the severance benefit payable pursuant to this Section
9.A in monthly installments over a one (1) year period following the date of his
Involuntary Termination.

                  B. WELFARE BENEFITS. For a period of twelve (12) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following his
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan," as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section 9.B. To the maximum extent permitted by
applicable law, the benefits provided under this Section 9.B shall be in
discharge of any obligations of the




<PAGE>   8
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 8


Company or any rights of Employee under the benefit continuation provisions
under Section 4980A of the Code and Part VI of Title I of ERISA ("COBRA") or any
other legislation of similar import.

                  C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase right with respect thereto
will terminate so that each such Option or share of restricted or unvested
Common Stock will become immediately and fully exercisable or vested as of the
date of termination. Each such accelerated Option, together with all of
Employee's other vested Options, will remain exercisable for a period of three
(3) years following Employee's Involuntary Termination and may be exercised for
any or all of the option shares, including the accelerated shares, in accordance
with the exercise provisions of the Option agreement evidencing the grant.

                  D. RELEASE OF COMPANY. Receipt of severance benefits pursuant
to this Section 9 shall be in lieu of all other amounts payable by the Company
to Employee and in settlement and complete release of all claims Employee may
have against the Company other than those arising out of the severance benefits
due and payable under Sections 9 and 16 of Part Two of this Agreement and
Employee's rights under Part Three of this Agreement. Employee acknowledges and
agrees that execution of a mutual general release of claims setting for the
terms of this Section 9.D. and otherwise reasonably acceptable to the Company
and Employee shall be a condition precedent to the Company's obligation to pay
severance benefits hereunder.

         10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or unvested shares of Common Stock held by the Employee at the time
of the Change in



<PAGE>   9
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 9



Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for a period of
three (3) years following Employee's Involuntary Termination and may be
exercised for any or all of the Option shares, including the accelerated shares,
in accordance with the provisions of the Option agreement evidencing such
Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 10 shall be made in accordance with the
procedures set forth in Section 16.B.


<PAGE>   10
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 10


              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers

for products or services substantially similar to those offered by the Company,
or (iii) disparage the Company or any of its stockholders, directors, officers,
employees or agents.

       13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of his salary.

              B. All documents and data (whether written, printed or otherwise



<PAGE>   11
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 11



reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into Employee's possession during the
Employment Period will be returned by Employee to the Company immediately upon
the termination of the Employment Period or upon any earlier request by the
Company, and Employee will not retain any copies, notes or excerpts thereof.
Notwithstanding the foregoing, Employee shall be entitled to retain his file or
Rolodex containing names, addresses and telephone numbers and personal diaries
and calendars; provided, however, that Employee shall continue to be bound by
the terms of Section 13.A. above to the extent such retained materials
constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 13.

         14. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance will include (without
limitation) the execution of documents and assistance and cooperation in


<PAGE>   12
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 12


legal proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

         15. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by him pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.

<PAGE>   13
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 13

         16. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company
or by Employee (if Employee reasonably believes that any of the Total Payments
may be subject to the Excise Tax). If the Accounting Firm determines that no
Excise Tax is payable by Employee, it shall furnish Employee with a written
statement that such Accounting Firm has concluded that no Excise Tax is payable
(including the reasons therefor) and that Employee has substantial authority not
to report any Excise Tax on Employee's federal income tax return. If a Gross-Up
Payment is determined to be payable, it shall be paid to Employee within five
(5) business days after the Determination is delivered to the Company or to
Employee. Any Determination by the Accounting Firm shall be binding upon the
Company and Employee, absent manifest error. All of the costs and expenses of
the Accounting Firm shall be borne by the Company.

              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of uncertainty in
the



<PAGE>   14
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 14


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 not made
by the Company should have been made ("Underpayments") or that Gross-Up Payments
will have been made by the Company which should not have been made
("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same




<PAGE>   15
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 15


extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement entitling Employee to the benefits hereunder, as though Employee was
subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, his successors, assigns, executors,
administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following his Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee shall be provided to
each current member of the Board at each such director's current address as
listed in the Company's records.

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or proceeding, in
addition to any other relief to which Employee may be entitled, in the event and



<PAGE>   16
Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 16


to the extent that Employee prevails in such action or other proceeding.
Notwithstanding anything herein above to the contrary, as between Employee and
the Company, the Company shall bear all legal costs and expenses of defending
the validity of this Agreement against any third party. The Company shall bear
all legal costs and expenses incurred in the event the Company should contest or
dispute the characterization of any amounts paid pursuant to this Agreement as
being nondeductible under Section 280G of the Code or subject to imposition of
an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   17


Patrick Ahearn
President, Business Office Group
QuadraMed Corporation
April 1, 1999
Page 17

       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:


/s/ PATRICK AHEARN
- ------------------
Patrick Ahearn

Dated:



<PAGE>   18

                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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



<PAGE>   1
                                                                   EXHIBIT 10.57




                                  April 1, 1999


Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
33 Graystone Terrace
San Francisco, California 94114

Dear Mr. Roberts:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         This Agreement supersedes any written or oral employment agreement
between you and the Company prior to the date hereof, including the prior letter
agreement dated March 17, 1998.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for

<PAGE>   2
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 2


purposes of determining your benefit entitlements. Part Two specifies the terms
and conditions which will apply to your continued employment with the Company,
including the severance payments and benefits to which you will become entitled
in the event your employment should be terminated. Part Three concludes this
Agreement with a series of general terms and conditions applicable to your
employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE>   3
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 3



         "EMPLOYEE" means Keith M. Roberts

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company or any
successor which materially reduces Employee's level of responsibility or changes
Employee's titles from Executive Vice President and General Counsel, (b) a
reduction in Employee's level of compensation (including base salary, fringe
benefits and any non-discretionary bonuses or other incentive payments earned
pursuant to objective standards or criteria) or (c) a relocation of Employee's
principal place of employment by more than forty-five (45) miles and such
change, reduction or relocation is effected without Employee's written
concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other
<PAGE>   4
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 4


verifiable misconduct adversely affecting the business reputation of the Company
in a material manner or (ii) Employee's failure to devote his full working time
and effort to the performance of his duties hereunder; provided, however,
Employee will have the right to perform incidental services as are necessary in
connection with (a) his private passive investments, (b) his charitable or
community activities and (c) his participation in trade or professional
organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of Executive Vice President and General
Counsel. Employee agrees to continue in such employment for the duration of the
Employment Period and to perform in good faith and to the best of Employee's
ability all services which may be required of Employee in his executive position
and to be available to render such services at all reasonable times and places
in accordance with reasonable directives and assignments issued by the Board.
Employee hereby undertakes to comply with all provisions of the Code of
Professional Responsibility in effect in the State of California from time to
time and to take all reasonable steps to maintain his license to practice law in
the State of California, including, without limitation, compliance with any
applicable legal education requirements. During Employee's Employment Period,
Employee will devote his full time and effort to the business and affairs of the
Company within the scope of his executive office. Employee's principal place of
operations will be at the Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
<PAGE>   5
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 5


extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of Two Hundred Ten Thousand Dollars
($210,000). Employee's annual rate of base salary may be subject to adjustment
each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.

                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results. Employee
will be eligible to participate in all bonus plans applicable to the Company's
executives.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

<PAGE>   6
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 6



                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had his employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any unpaid compensation earned under Part
Two, Section 4 for services rendered through the date of Employee's disability,
together with the severance benefits set forth in Section 9 below. However, the
Company's obligation to provide such severance benefits shall be reduced and
offset, dollar-for-dollar, by any income continuation payments provided Employee
under any disability income/insurance programs funded by the Company on
Employee's behalf.

                  B. Employee will be deemed disabled if his is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days, or one hundred
eighty (180) days during any twelve (12) month period.

                  C. Upon death or disability the terms of the Stock Option Plan
will apply.

         9. SEVERANCE BENEFITS. Employee will be entitled to receive the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of his employment (other than a Termination for Cause).

                  A. SEVERANCE BENEFIT. The Company will make a severance
payment to Employee, in one lump sum within thirty (30) days of the date of
Employee's Involuntary Termination, in an aggregate amount equal to one (1)
times Employee's then-current annual rate of base salary. Employee may elect, in
his sole discretion, to have the severance benefit payable pursuant to this
Section 9.A in monthly installments over a one (1) year period following the
date of his Involuntary Termination.

                  B. WELFARE BENEFITS. For a period of twelve (12) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an

<PAGE>   7

Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 7


employee immediately before the disability or the Involuntary Termination. In
the event that under applicable law or the terms of the relevant Employee
Benefit Plans such participation, benefits and/or coverage cannot be provided to
Employee following his Involuntary Termination, such coverage and/or benefits
shall be provided directly by the Company pursuant to this Agreement on a
comparable basis. In its sole discretion, the Company may obtain such coverage
and benefits for Employee through private insurance acquired at the Company's
expense. Amounts paid or payable to or on behalf of Employee pursuant to any
"employee welfare benefit plan," as defined in ERISA, providing health and/or
disability benefits, that is sponsored by the Company or an affiliate of the
Company, shall be credited against amounts due under this Section 9.B. To the
maximum extent permitted by applicable law, the benefits provided under this
Section 9.B shall be in discharge of any obligations of the Company or any
rights of Employee under the benefit continuation provisions under Section 4980A
of the Code and Part VI of Title I of ERISA ("COBRA") or any other legislation
of similar import.

                  C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase rights with respect thereto
will terminate so that each such Option or share of restricted or unvested
Common Stock will become immediately and fully exercisable or vested as of the
date of termination. Each such accelerated Option, together with all of
Employee's other vested Options, will remain exercisable for a period of three
(3) years following Employee's Involuntary Termination and may be exercised for
any or all of the option shares, including the accelerated shares, in accordance
with the exercise provisions of the Option agreement evidencing the grant.

                  D. RELEASE OF COMPANY. Receipt of severance benefits pursuant
to this Section 9 shall be in lieu of all other amounts payable by the Company
to Employee and in settlement and release of all claims Employee may have
against the Company other than those arising out of the severance benefits due
and payable under Sections 9 and 16 of Part Two of this Agreement and Employee's
rights under Part Three of this Agreement. Employee acknowledges and agrees that
execution of a mutual general release of claims setting forth the terms of this
Section 9.D. and otherwise reasonably acceptable to the Company and Employee
shall be a condition precedent to the Company's obligation to pay severance
benefits hereunder.

         10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

<PAGE>   8
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 8

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or unvested shares of Common Stock held by the Employee at the time
of the Change in Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such


<PAGE>   9
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 9


accelerated Option, together with each of the Employee's other vested Options
shall remain exercisable and outstanding for a period of three (3) years and may
be exercised for any or all of the Option shares, including the accelerated
shares, in accordance with the provisions of the Option agreement evidencing
such Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 10 shall be made in accordance with the
procedures set forth in Section 16.B.

              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

       13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and

<PAGE>   10
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 10


information pertaining to the salaries, duties and performance levels of the
Company's employees. Employee will not, at any time during or after such
Employment Period, disclose to any third party or directly or indirectly make
use of any such confidential information, including (without limitation) the
names, addresses and telephone numbers of the Company's customers, other than in
connection with, and in furtherance of, the Company's business and affairs.
Nothing contained in this section shall be construed to prevent Employee from
disclosing the amount of his salary.

              B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into Employee's possession during the
Employment Period will be returned by Employee to the Company immediately upon
the termination of the Employment Period or upon any earlier request by the
Company, and Employee will not retain any copies, notes or excerpts thereof.
Notwithstanding the foregoing, Employee shall be entitled to retain his file or
Rolodex containing names, addresses and telephone numbers and personal diaries
and calendars; provided, however, that Employee shall continue to be bound by
the terms of Section 13.A. above to the extent such retained materials
constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 13.

         14. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results


<PAGE>   11
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 11


from any work performed by Employee for the Company. The foregoing exception
corresponds to the assignment of inventions precluded by California Labor Code
Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance will include (without
limitation) the execution of documents and assistance and cooperation in legal
proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

         15. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.
<PAGE>   12

Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 12



              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by him pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.

         16. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting


<PAGE>   13
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 13


Firm has concluded that no Excise Tax is payable (including the reasons
therefor) and that Employee has substantial authority not to report any Excise
Tax on Employee's federal income tax return. If a Gross-Up Payment is determined
to be payable, it shall be paid to Employee within five (5) business days after
the Determination is delivered to the Company or to Employee. Any Determination
by the Accounting Firm shall be binding upon the Company and Employee, absent
manifest error. All of the costs and expenses of the Accounting Firm shall be
borne by the Company.

              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of 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 not made by the Company should have been made ("Underpayments") or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.
<PAGE>   14

Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 14


       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement entitling Employee to the benefits hereunder, as
though Employee was subject to Involuntary Termination. This Agreement shall be
binding upon and inure to the benefit of Employee, his successors, assigns,
executors, administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following his Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the



<PAGE>   15
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 15

permanent Company records. Copies of each such notice delivered by either the
Company or Employee shall be provided to each current member of the Board at
each such director's current address as listed in the Company's records.

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or proceeding, in
addition to any other relief to which Employee may be entitled, in the event and
to the extent that Employee prevails in such action or other proceeding.
Notwithstanding anything herein above to the contrary, as between Employee and
the Company, the Company shall bear all legal costs and expenses of defending
the validity of this Agreement against any third party. The Company shall bear
all legal costs and expenses incurred in the event the Company should contest or
dispute the characterization of any amounts paid pursuant to this Agreement as
being nondeductible under Section 280G of the Code or subject to imposition of
an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]



<PAGE>   16
Keith M. Roberts
Executive Vice President and General Counsel
QuadraMed Corporation
April 1, 1999
Page 16


       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:

/s/ KEITH M. ROBERTS
- --------------------
Keith M. Roberts

Dated:



<PAGE>   17

                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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


<PAGE>   1
                                                                   EXHIBIT 10.58




                                 April 27, 1999


E. Payson Smith, Jr.
Executive Vice President and Chief Financial Officer
QuadraMed Corporation
24 Via San Fernando
Tiburon, California 94920

Dear Mr. Smith:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three concludes this Agreement with a series of general terms and




<PAGE>   2
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 2

conditions applicable to your employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means E. Payson Smith, Jr.

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of



<PAGE>   3
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 3


ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company or any
successor which materially reduces Employee's level of responsibility or changes
Employee's title from Executive Vice President and Chief Financial Officer, (b)
a reduction in Employee's level of compensation (including base salary, fringe
benefits and any non-discretionary bonuses or other incentive payments earned
pursuant to objective standards or criteria) or (c) a relocation of Employee's
principal place of employment by more than forty-five (45) miles and such
change, reduction or relocation is effected without Employee's written
concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote his full working time and effort to the
performance of his duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) his
private passive investments, (b) his charitable or community activities and (c)
his participation in trade or professional



<PAGE>   4
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 4



organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of Executive Vice President and Chief
Financial Officer. Employee agrees to continue in such employment for the
duration of the Employment Period and to perform in good faith and to the best
of Employee's ability all services which may be required of Employee in his
executive position and to be available to render such services at all reasonable
times and places in accordance with reasonable directives and assignments issued
by the Board. During Employee's Employment Period, Employee will devote his full
time and effort to the business and affairs of the Company within the scope of
his executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of Two Hundred Thousand Dollars
($200,000). Employee's annual rate of base salary may be subject to adjustment
each calendar year by the Board.


<PAGE>   5
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 5


                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.

                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results. Employee
will be eligible to participate in all bonus plans applicable to the Company's
executives.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination
<PAGE>   6
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 6




payment equal to the additional amount of base salary Employee would have earned
hereunder had his employment continued for an additional thirty (30) days. In
connection with such termination by reason of disability, the Company will be
required to pay to Employee any unpaid compensation earned under Part Two,
Section 4 for services rendered through the date of Employee's disability,
together with the severance benefits set forth in Section 9 below. However, the
Company's obligation to provide such severance benefits shall be reduced and
offset, dollar-for-dollar, by any income continuation payments provided Employee
under any disability income/insurance programs funded by the Company on
Employee's behalf.

                  B. Employee will be deemed disabled if his is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days, or one hundred
eighty (180) days during any twelve (12) month period.

                  C. Upon death or disability the terms of the Stock Option Plan
will apply.

         9. SEVERANCE BENEFITS. Employee will be entitled to receive the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of his employment (other than a Termination for Cause).

                  A. SEVERANCE BENEFIT. The Company will make a severance
payment to Employee, in one lump sum within thirty (30) days of the date of
Employee's Involuntary Termination, in an aggregate amount equal to one (1)
times Employee's then-current annual rate of base salary. Employee may elect, in
his sole discretion, to have the severance benefit payable pursuant to this
Section 9.A in monthly installments over a one (1) year period following the
date of his Involuntary Termination.

                  B. WELFARE BENEFITS. For a period of twelve (12) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following his
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any



<PAGE>   7
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 7


"employee welfare benefit plan," as defined in ERISA, providing health and/or
disability benefits, that is sponsored by the Company or an affiliate of the
Company, shall be credited against amounts due under this Section 9.B. To the
maximum extent permitted by applicable law, the benefits provided under this
Section 9.B shall be in discharge of any obligations of the Company or any
rights of Employee under the benefit continuation provisions under Section 4980A
of the Code and Part VI of Title I of ERISA ("COBRA") or any other legislation
of similar import.

                  C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise
exercisable or vested) automatically accelerate and vest and any repurchase
rights with respect thereto will terminate so that each such Option or share of
restricted or unvested Common Stock will become immediately and fully
exercisable or vested as of the date of termination. Each such accelerated
Option, together with all of Employee's other vested Options, will remain
exercisable for a period of three (3) years following Employee's Involuntary
Termination and may be exercised for any or all of the option shares, including
the accelerated shares, in accordance with the exercise provisions of the Option
agreement evidencing the grant.

                  D. RELEASE OF COMPANY. Receipt of severance benefits pursuant
to this Section 9 shall be in lieu of all other amounts payable by the Company
to Employee and in settlement and release of all claims Employee may have
against the Company other than those arising out of the severance benefits due
and payable under Sections 9 and 16 of Part Two of this Agreement and Employee's
rights under Part Three of this Agreement. Employee acknowledges and agrees that
execution of a mutual general release of claims setting forth the terms of this
Section 9.D. and otherwise reasonably acceptable to the Company and Employee
shall be a condition precedent to the Company's obligation to pay severance
benefits hereunder.

         10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.


<PAGE>   8
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 8


              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or unvested shares of Common Stock held by the Employee at the time
of the Change in Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for a period of
three (3) years and may be exercised for any or all of the Option shares,
including the accelerated shares, in accordance with the provisions of the
Option agreement evidencing such Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares


<PAGE>   9
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 9


pursuant to this Section 10 shall be made in accordance with the procedures set
forth in Section 16.B.

              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

       13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of his salary.


<PAGE>   10
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 10

              B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into Employee's possession during the
Employment Period will be returned by Employee to the Company immediately upon
the termination of the Employment Period or upon any earlier request by the
Company, and Employee will not retain any copies, notes or excerpts thereof.
Notwithstanding the foregoing, Employee shall be entitled to retain his file or
Rolodex containing names, addresses and telephone numbers and personal diaries
and calendars; provided, however, that Employee shall continue to be bound by
the terms of Section 13.A. above to the extent such retained materials
constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 13.

         14. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance




<PAGE>   11
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 11


will include (without limitation) the execution of documents and assistance and
cooperation in legal proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

         15. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by him pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.


<PAGE>   12
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 12


         16. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting Firm has concluded that no Excise Tax is payable (including the
reasons therefor) and that Employee has substantial authority not to report any
Excise Tax on Employee's federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Employee within five (5) business
days after the Determination is delivered to the Company or to Employee. Any
Determination by the Accounting Firm shall be binding upon the Company and
Employee, absent manifest error. All of the costs and expenses of the Accounting
Firm shall be borne by the Company.

              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of uncertainty in
the





<PAGE>   13
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 13


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 not made
by the Company should have been made ("Underpayments") or that Gross-Up Payments
will have been made by the Company which should not have been made
("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same




<PAGE>   14
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 14


extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement entitling Employee to the benefits hereunder, as though Employee was
subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, his successors, assigns, executors,
administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following his Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee shall be provided to
each current member of the Board at each such director's current address as
listed in the Company's records.

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or proceeding, in
addition to any other relief to which Employee may be entitled, in the event and


<PAGE>   15
E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 15


to the extent that Employee prevails in such action or other proceeding.
Notwithstanding anything herein above to the contrary, as between Employee and
the Company, the Company shall bear all legal costs and expenses of defending
the validity of this Agreement against any third party. The Company shall bear
all legal costs and expenses incurred in the event the Company should contest or
dispute the characterization of any amounts paid pursuant to this Agreement as
being nondeductible under Section 280G of the Code or subject to imposition of
an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   16


E. Payson Smith, Jr.
Executive Vice President Chief Financial Officer
QuadraMed Corporation
April 27, 1999
Page 16

       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:

/s/ E. PAYSON SMITH, JR.

E. Payson Smith, Jr.

Dated:


<PAGE>   17
                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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




<PAGE>   1
                                                                   EXHIBIT 10.59



                                  May 18, 1999


John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
215 Madrone Avenue
Larkspur, California 94939

Dear Mr. Cracchiolo:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 12, 13, 14 and 15 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         This Agreement supersedes any written or oral employment agreement
between you and the Company prior to the date hereof, including the prior letter
agreement dated November 13, 1997.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the



<PAGE>   2
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 2

terms and conditions which will apply to your continued employment with the
Company, including the severance payments and benefits to which you will become
entitled in the event your employment should be terminated. Part Three concludes
this Agreement with a series of general terms and conditions applicable to your
employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder sale, transfer or other disposition of all or
substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.
<PAGE>   3
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 3


         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means John V. Cracchiolo.

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

        "INVOLUNTARY TERMINATION" means the termination of Employee's employment
with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company or any
successor which materially reduces Employee's level of responsibility or changes
Employee's title from President and Chief Operating Officer, as such
responsibilities and titles apply to the ultimate parent entity or similar
entity in control of the Company (both before and after any Change in Control),
(b) a reduction in Employee's level of compensation (including base salary,
fringe benefits and any non-discretionary bonuses or other incentive payments
earned pursuant to objective standards or criteria) or (c) a relocation of
Employee's principal place of employment by more than forty-five (45) miles and
such change, reduction or relocation is effected without Employee's written
concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.
<PAGE>   4
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 4


         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote his full working time and effort to the
performance of his duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) his
private passive investments, (b) his charitable or community activities and (c)
his participation in trade or professional organizations, but only to the extent
such incidental services do not materially interfere with the performance of
Employee's services hereunder.

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of President and Chief Operating
Officer. Employee agrees to continue in such employment for the duration of the
Employment Period and to perform in good faith and to the best of Employee's
ability all services which may be required of Employee in his executive position
and to be available to render such services at all reasonable times and places
in accordance with reasonable directives and assignments issued by the Board.
During Employee's Employment Period, Employee will devote his full time and
effort to the business and affairs of the Company within the scope of his
executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless,


<PAGE>   5

John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 5


not later than three (3) months preceding such anniversary date, either party to
this Agreement shall have given written notice to the other party pursuant to
Section 6 of Part Three that such party will not extend the term of this
Agreement.

        4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of Two Hundred Fifty Thousand Dollars
($250,000). Employee's annual rate of base salary may be subject to adjustment
each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.

                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results. Employee
will be eligible to participate in all bonus plans applicable to the Company's
executives.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by Employee in the performance of his duties hereunder, provided
Employee furnishes the Company with vouchers, receipts and other substantiation
of such expenses in accordance with Company policies.

         Employee will also be entitled to continued reimbursement of $500 per
month with respect to the automobile currently leased or owned by him or as
otherwise approved by the Board and with respect to mileage driven in accordance
with the Company's then existing policies. The Company will also pay or
reimburse Employee for the costs of the preparation of his federal, state and
local income tax returns by the Company's independent certified public
accounting firm.
<PAGE>   6
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 6


         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had his employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any unpaid compensation earned under Part
Two, Section 4 for services rendered through the date of his disability,
together with the severance benefits set forth in Section 9 below. However, the
Company's obligation to provide such severance benefits shall be reduced and
offset, dollar-for-dollar, by any income continuation payments provided Employee
under any disability income/insurance programs funded by the Company on
Employee's behalf.

              B. Employee will be deemed disabled if he is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days, or one hundred
eighty (180) days during any twelve (12) month period.

              C. Upon death or disability the terms of the Stock Option Plan
will apply.
<PAGE>   7
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 7



       9. SEVERANCE BENEFITS. Employee will be entitled to receive only the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of Employee's employment (other than a Termination for Cause).

              A. SEVERANCE BENEFIT. The Company will make a severance payment to
Employee, in one lump sum within thirty (30) days of the date of his Involuntary
Termination, in an aggregate amount equal to (i) two (2) times Employee's
then-current annual rate of base salary plus (ii) two (2) times Employee's
then-current maximum annual cash bonus. Employee may elect, in his sole
discretion, to have the severance benefit payable pursuant to this Section 9.A.
in monthly installments over a one (1) year period following the date of his
Involuntary Termination.

              B. WELFARE BENEFITS. For a period of twenty-four (24) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following his
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan," as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section 9.B. To the maximum extent permitted by
applicable law, the benefits provided under this Section 9.B. shall be in
discharge of any obligations of the Company or any rights of Employee under the
benefit continuation provisions under Section 4980A of the Code and Part VI of
Title I of ERISA ("COBRA") or any other legislation of similar import.

              C. OPTION ACCELERATION. Solely in connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase rights thereto will
terminate so that each such


<PAGE>   8

John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 8


Option or share of restricted or unvested Common Stock will become immediately
and fully exercisable or vested as of the date of termination. Each such
accelerated Option, together with all of Employee's other vested Options, will
remain exercisable following Employee's Involuntary Termination and may be
exercised for any or all of the option shares, including the accelerated shares,
in accordance with the exercise provisions of the Option agreement evidencing
the grant during the full term of such Option agreement.

              D. RELEASE OF COMPANY. Receipt of severance benefits pursuant to
this Section 9 shall be in lieu of all other amounts payable by the Company to
Employee and in settlement and complete release of all claims Employee may have
against the Company other than those arising out of the severance benefits due
and payable under Sections 9 and 17 of Part Two of this Agreement and Employee's
rights under Part Three of this Agreement. Employee acknowledges and agrees that
execution of a mutual general release of claims setting forth the terms of this
Section 9.D. and otherwise reasonably acceptable to the Company and Employee
shall be a condition precedent to the Company's obligation to pay severance
benefits hereunder.

       10. SPLIT-DOLLAR LIFE INSURANCE AGREEMENT. The Company and Employee
acknowledge and agree that the termination of this Agreement in any fashion
shall have no effect on the rights of the Company, Employee and any other
parties pursuant to that certain Split-Dollar Insurance Agreement dated December
15, 1998 by and between the Company, Employee and a trust for the benefit of
Employee's family including, without limitation, the Company's obligation to pay
life insurance premiums thereunder.

       11. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or unvested shares of Common Stock held by the Employee at the time
of the Change in Control.
<PAGE>   9
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 9



              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for the full term
of the Option agreement evidencing such Option and may be exercised for any or
all of the Option shares, including the accelerated shares, in accordance with
the provisions of such Option agreement.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 11 shall be made in accordance with the
procedures set forth in Section 17.B.



<PAGE>   10


John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 10


              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       12. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       13. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

       14. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of his salary.

              B. All documents and data (whether written, printed or otherwise
reproduced or recorded) containing or relating to any such proprietary
information of the


<PAGE>   11

John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 11




Company which come into Employee's possession during the Employment Period will
be returned by Employee to the Company immediately upon the termination of the
Employment Period or upon any earlier request by the Company, and Employee will
not retain any copies, notes or excerpts thereof. Notwithstanding the foregoing,
Employee shall be entitled to retain his file or Rolodex containing names,
addresses and telephone numbers and personal diaries and calendars; provided,
however, that Employee shall continue to be bound by the terms of Section 14.A.
above to the extent such retained materials constitute confidential information.

              C. Employee's obligations under this Section 14 will continue in
effect after the termination of his employment with the Company, whatever the
reason or reasons for such termination, and the Company will have the right to
communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 14.

        15. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance will include (without
limitation) the execution of documents and


<PAGE>   12

John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 12



assistance and cooperation in legal proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

        16. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of his employment with the
Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by Employee pursuant to
Part Two, Section 4 for services rendered through the date of such termination,
and no termination or severance benefits will be payable to Employee under Part
Two, Section 9.
<PAGE>   13
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 13



        17. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 17, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 17, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting Firm has concluded that no Excise Tax is payable (including the
reasons therefor) and that Employee has substantial authority not to report any
Excise Tax on Employee's federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Employee within five (5) business
days after the Determination is delivered to the Company or to Employee. Any
Determination by the Accounting Firm shall be binding upon the Company and
Employee, absent manifest error. All of the costs and expenses of the Accounting
Firm shall be borne by the Company.
<PAGE>   14
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 14


              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of 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 not made by the Company should have been made ("Underpayments") or that
Gross-Up Payments will have been made by the Company which should not have been
made ("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 17, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or


<PAGE>   15

John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 15


otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement entitling Employee to the benefits hereunder, as though Employee
was subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, his successors, assigns, executors,
administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following Employee's
Involuntary Termination, with respect to any and all matters, events or
transactions occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of his employment and the subject of severance benefits and supersedes
all prior agreements and understandings with respect to such subject matter.
This Agreement may only be amended by written instrument signed by Employee and
an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee shall be provided to
each current member of the Board at each such director's current address as
listed in the Company's records.
<PAGE>   16
John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 16


       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or proceeding, in
addition to any other relief to which Employee may be entitled, in the event and
to the extent that Employee prevails in such action or other proceeding.
Notwithstanding anything herein above to the contrary, as between Employee and
the Company, the Company shall bear all legal costs and expenses of defending
the validity of this Agreement against any third party. The Company shall bear
all legal costs and expenses incurred in the event the Company should contest or
dispute the characterization of any amounts paid pursuant to this Agreement as
being nondeductible under Section 280G of the Code or subject to imposition of
an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]





<PAGE>   17


John V. Cracchiolo
President and Chief Operating Officer
QuadraMed Corporation
May 18, 1999
Page 17


       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                    Very truly yours,

                                    QUADRAMED CORPORATION


                                    By:
                                    Title:

ACCEPTED BY AND AGREED TO:

/s/ JOHN V. CRACCHIOLO

John V. Cracchiolo

Dated:




<PAGE>   18

                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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



<PAGE>   1
                                                                   EXHIBIT 10.60




                                  May 25, 1999


Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation



Dear Mr. Moriarity:

         We are pleased to inform you that the Board of Directors (the "Board")
of QuadraMed Corporation (the "Company") has authorized an employment package
for you which will provide certain assurances concerning the terms and
conditions of your continued employment with the Company and will allow you to
participate in a program of severance benefit payments should your employment
terminate. The purpose of this letter agreement (the "Agreement") is to document
the terms of your employment package by providing you with a formal employment
contract.

         The Company considers it essential to the continuing operation of the
Company and in the best interests of its stockholders to assure the continuous
dedication of key management personnel. It is recognized in the context of
public ownership that a termination of an employee's employment without cause
may be sought and that such circumstances could prove distracting to key
executives and detrimental to the ongoing management and administration of the
Company. Such distraction is not in the best interest of the stockholders of the
Company. Accordingly, the Board has determined to discourage the inevitable
distraction to you in the face of potentially disturbing circumstances inherent
in any uncertainty regarding your employment status. This Agreement is intended
to secure and encourage your ongoing retention by providing separation benefits
in the event that your employment is altered as hereinafter described. In order
to induce you to remain in the employ of the Company, and in consideration of
your agreement set forth in Sections 11, 12, 13 and 14 of Part Two hereof, the
Company agrees to pay the severance payments and benefits set forth in this
Agreement, under the circumstances described herein.

         Part One of this Agreement sets forth certain definitional provisions
to be in effect for purposes of determining your benefit entitlements. Part Two
specifies the terms and conditions which will apply to your continued employment
with the Company, including the severance payments and benefits to which you
will become entitled in the event your employment should be terminated. Part
Three concludes this Agreement with a series of general terms and

<PAGE>   2
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 2


conditions applicable to your employment benefits.

                             PART ONE -- DEFINITIONS

         DEFINITIONS. For purposes of this Agreement, including in particular
the severance payments and benefits to which Employee may become entitled under
Part Two, the following definitions will be in effect:

         "CHANGE IN CONTROL" means:

         (i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the
State of the Company's incorporation;

         (ii) a stockholder approved sale, transfer or other disposition of all
or substantially all of the assets of the Company;

         (iii) a transfer of all or substantially all of the Company's assets
pursuant to a partnership or joint venture agreement or similar arrangement
where the Company's resulting interest is less than fifty percent (50%);

         (iv) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held the stock
immediately prior to such merger;

         (v) on or after the date hereof, a change in ownership of the Company
through an action or series of transactions, such that any person is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the securities of the combined
voting power of the Company's outstanding securities; or

         (vi) a majority of the members of the Board are replaced during any
twelve-month period by directors whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of such appointment
of election.

         "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.

         "EMPLOYEE" means Brian Moriarity.

         "EMPLOYEE BENEFIT PLAN" shall have the meaning given the term under
Section 3 of

<PAGE>   3
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 3


ERISA.

         "EMPLOYMENT PERIOD" means the period of Employee's employment with the
Company governed by the terms and provisions of this Agreement.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as in effect from time to time.

         "INVOLUNTARY TERMINATION" means the termination of Employee's
employment with the Company:

         (i) involuntarily upon Employee's discharge, dismissal or the Company's
failure to renew this Agreement pursuant to Section 3 of Part Two, whether or
not in connection with a Change in Control; or

         (ii) voluntarily or involuntarily, provided such termination occurs in
connection with (a) a change in Employee's position with the Company which
materially reduces Employee's level of responsibility or changes Employee's
title from Executive Vice President, Business Development, (b) a reduction in
Employee's level of compensation (including base salary, fringe benefits and any
non-discretionary bonuses or other incentive payments earned pursuant to
objective standards or criteria) or (c) a relocation of Employee's principal
place of employment by more than forty-five (45) miles and such change,
reduction or relocation is effected without Employee's written concurrence.

         "OPTION" means any option or share purchase right granted to Employee
under the Stock Option Plan which is outstanding at the time of a Change in
Control or Employee's Involuntary Termination.

         "STOCK OPTION PLAN" means the Company's 1996 Stock Incentive Plan
(including the predecessor 1994 Stock Option Plan), as amended through the date
hereof.

         "TERMINATION FOR CAUSE" will mean an Involuntary Termination of
Employee's employment for (i) one or more alleged acts of fraud, embezzlement,
misappropriation of proprietary information, misappropriation of the Company's
trade secrets or other confidential information, a verifiable breach of
Employee's fiduciary duties to the Company or any other verifiable misconduct
adversely affecting the business reputation of the Company in a material manner
or (ii) Employee's failure to devote his full working time and effort to the
performance of his duties hereunder; provided, however, Employee will have the
right to perform incidental services as are necessary in connection with (a) his
private passive investments, (b) his charitable or community activities and (c)
his participation in trade or professional
<PAGE>   4
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 4


organizations, but only to the extent such incidental services do not materially
interfere with the performance of Employee's services hereunder.
<PAGE>   5


Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 5

                 PART TWO -- TERMS AND CONDITIONS OF EMPLOYMENT

         The following terms and conditions will govern Employee's employment
with the Company throughout the Employment Period and will also, to the extent
indicated below, remain in effect following Employee's termination date.

         1. EMPLOYMENT AND DUTIES. The Company will continue to employ Employee
as an executive officer in the position of Executive Vice President, Business
Development. Employee agrees to continue in such employment for the duration of
the Employment Period and to perform in good faith and to the best of Employee's
ability all services which may be required of Employee in his executive position
and to be available to render such services at all reasonable times and places
in accordance with reasonable directives and assignments issued by the Board.
During Employee's Employment Period, Employee will devote his full time and
effort to the business and affairs of the Company within the scope of his
executive office. Employee's principal place of operations will be at the
Company's corporate offices in Richmond, California.

         2. AT WILL EMPLOYEE. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, upon the terms and conditions
set forth in this Agreement. Employee shall be an employee "at will", terminable
at any time by the Company for cause or without cause.

         3. TERM; AUTOMATIC EXTENSION. The initial term of this Agreement shall
be two (2) years from the effective date hereof. Commencing on the anniversary
of the effective date hereof, and on each succeeding anniversary of the date
hereof, the term of this Agreement shall automatically be extended for one (1)
additional year unless, not later than three (3) months preceding such
anniversary date, either party to this Agreement shall have given written notice
to the other party pursuant to Section 6 of Part Three that such party will not
extend the term of this Agreement.

         4. COMPENSATION.

                  A. For service in the 1999 calendar year, Employee's base
salary will be paid at the annual rate of One Hundred Fifty Thousand Dollars
($150,000). Employee's annual rate of base salary may be subject to adjustment
each calendar year by the Board.

                  B. Employee's base salary will be paid at periodic intervals
in accordance with the Company's payroll practices for salaried employees.
<PAGE>   6
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 6


                  C. Employee will be entitled to such bonuses (if any) for
service rendered during the Employment Period as the Board may determine in its
sole discretion and based upon the recommendation of the Company's Compensation
Committee and such additional factors as the Board deems appropriate, including
Employee's individual performance and the Company's financial results.

                  D. The Company will deduct and withhold, from the compensation
payable to Employee hereunder, any and all applicable federal, state and local
income and employment withholding taxes and any other amounts required to be
deducted or withheld by the Company under applicable statute or regulation.

         5. EXPENSE REIMBURSEMENT. Employee will be entitled to reimbursement
from the Company for all customary, ordinary and necessary business expenses
incurred by him in the performance of his duties hereunder, provided Employee
furnishes the Company with vouchers, receipts and other substantiation of such
expenses in accordance with Company policies.

         6. FRINGE BENEFITS. During the Employment Period, Employee will be
eligible to participate in any group life insurance plan, group medical and/or
dental insurance plan, accidental death and dismemberment plan, short-term
disability program and other employee benefit plans, including profit sharing
plans, cafeteria benefit programs and stock purchase and option plans, which are
made available to executives and for which Employee qualifies.

         7. VACATION. Employee will accrue four (4) weeks of paid vacation
benefits during each calendar year of the Employment Period in accordance with
the Company policy in effect for executive officers.

         8. DEATH OR DISABILITY.

                  A. Upon Employee's death or disability during the Employment
Period, the employment relationship created pursuant to this Agreement will
immediately terminate, and no further compensation will become payable to
Employee pursuant to Part Two, Section 4. In connection with such termination by
reason of death, the Company will only be required to pay Employee (or his
estate) any unpaid compensation earned under Part Two, Section 4 for services
rendered through the date of Employee's death, together with a special
termination payment equal to the additional amount of base salary Employee would
have earned hereunder had his employment continued for an additional thirty (30)
days. In connection with such termination by reason of disability, the Company
will be required to pay to Employee any unpaid compensation earned under Part
Two, Section 4 for services rendered through the date

<PAGE>   7

Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 7


of Employee's disability, together with the severance benefits set forth in
Section 9 below. However, the Company's obligation to provide such severance
benefits shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
programs funded by the Company on Employee's behalf.

                  B. Employee will be deemed disabled if his is so characterized
pursuant to the terms of the Company's disability insurance policies applicable
to Employee from time to time or, if no such policy is applicable, if Employee
is unable to perform the essential functions of his duties for physical or
mental reasons for one hundred twenty (120) consecutive days, or one hundred
eighty (180) days during any twelve (12) month period.

                  C. Upon death or disability the terms of the Stock Option Plan
will apply.

         9. SEVERANCE BENEFITS. Employee will be entitled to receive the
severance benefits specified below in the event there should occur a termination
of Employee's employment by reason of disability or an Involuntary Termination
of his employment (other than a Termination for Cause).

                  A. SEVERANCE BENEFIT. The Company will make a severance
payment to Employee, in one lump sum within thirty (30) days of the date of
Employee's Involuntary Termination, in an aggregate amount equal to one (1) time
Employee's then-current annual rate of base salary. Employee may elect, in his
sole discretion, to have the severance benefit payable pursuant to this Section
9.A in monthly installments over a one (1) year period following the date of his
Involuntary Termination.

                  B. WELFARE BENEFITS. For a period of twelve (12) months,
Employee (and his dependents, as applicable) shall be provided by the Company
with the same life, health and disability plan participation, benefits and other
coverages to which he was entitled as an employee immediately before the
disability or the Involuntary Termination. In the event that under applicable
law or the terms of the relevant Employee Benefit Plans such participation,
benefits and/or coverage cannot be provided to Employee following his
Involuntary Termination, such coverage and/or benefits shall be provided
directly by the Company pursuant to this Agreement on a comparable basis. In its
sole discretion, the Company may obtain such coverage and benefits for Employee
through private insurance acquired at the Company's expense. Amounts paid or
payable to or on behalf of Employee pursuant to any "employee welfare benefit
plan," as defined in ERISA, providing health and/or disability benefits, that is
sponsored by the Company or an affiliate of the Company, shall be credited
against amounts due under this Section 9.B. To the maximum extent permitted by
applicable law, the benefits provided under this Section 9.B shall be in
discharge of any obligations of the

<PAGE>   8

Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 8


Company or any rights of Employee under the benefit continuation provisions
under Section 4980A of the Code and Part VI of Title I of ERISA ("COBRA") or any
other legislation of similar import.

                  C. OPTION ACCELERATION. In connection with the Involuntary
Termination of Employee's employment (other than Termination for Cause), whether
before or after a Change in Control transaction, each of Employee's Options
under the Stock Option Plan and all restricted or unvested Common Stock granted
by the Company will (to the extent not then otherwise exercisable or vested)
automatically accelerate and vest and any repurchase right with respect thereto
will terminate so that each such Option or share of restricted or unvested
Common Stock will become immediately and fully exercisable or vested as of the
date of termination. Each such accelerated Option, together with all of
Employee's other vested Options, will remain exercisable for a period of three
(3) years following Employee's Involuntary Termination and may be exercised for
any or all of the option shares, including the accelerated shares, in accordance
with the exercise provisions of the Option agreement evidencing the grant.

                  D. RELEASE OF COMPANY. Receipt of severance benefits pursuant
to this Section 9 shall be in lieu of all other amounts payable by the Company
to Employee and in settlement and complete release of all claims Employee may
have against the Company other than those arising out of the severance benefits
due and payable under Sections 9 and 16 of Part Two of this Agreement and
Employee's rights under Part Three of this Agreement. Employee acknowledges and
agrees that execution of a mutual general release of claims setting for the
terms of this Section 9.D. and otherwise reasonably acceptable to the Company
and Employee shall be a condition precedent to the Company's obligation to pay
severance benefits hereunder.

         10. OPTION/VESTING ACCELERATION UPON CHANGE IN CONTROL.

              A. To the extent the acquiring company in any Change in Control
transaction does not assume or otherwise continue in full force and effect the
Employee's outstanding Options under the Stock Option Plan, those Options shall
automatically accelerate and vest so that each such Option will, immediately
prior to the Change in Control, become fully exercisable for all the option
shares and shall terminate immediately after the Change in Control transaction.

              B. The following provisions shall govern any Options which are to
be assumed or otherwise continued in effect in the Change in Control and any
restricted or unvested shares of Common Stock held by the Employee at the time
of the Change in

<PAGE>   9
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 9


Control.

              The Options shall accelerate and vest at the time of the Change in
Control so that each Option will become exercisable for all of the Option shares
immediately prior to the Change in Control transaction, except to the extent the
Option parachute payment attributable to such accelerated vesting would
otherwise result in an excess parachute payment under Code Section 280G. Any
Option which does not accelerate and vest at the time of the Change in Control
by reason of the foregoing limitation shall continue to become exercisable and
vest in accordance with the vesting schedule applicable to that Option
immediately prior to the Change in Control.

              Any restricted or unvested shares of Common Stock held by the
Employee at the time of the Change in Control shall immediately vest at that
time and the Company's repurchase rights with respect to those shares shall
terminate, except to the extent the parachute payment attributable to such
accelerated vesting, when added to the parachute payment attributable to the
acceleration of the Employee's outstanding Options, would result in an excess
parachute payment under Code Section 280G. The Company's repurchase rights with
respect to any restricted or unvested shares which do not vest at the time of
the Change in Control by reason of the foregoing limitation shall continue in
effect and shall be assigned to any successor entity in the Change in Control
transaction, and Employee shall continue to vest in those shares in accordance
with the vesting schedule in effect for the shares immediately prior to the
Change in Control.

              Any Option which does not accelerate, and any restricted or
unvested shares of Common Stock which do not vest at the time of the Change in
Control by reason of the foregoing limitations shall immediately vest in full
pursuant to the provisions of Section 9.C. upon any Involuntary Termination of
Employee's employment following the Change in Control (other than a Termination
for Cause). Each such accelerated Option, together with each of the Employee's
other vested Options shall remain exercisable and outstanding for a period of
three (3) years following Employee's Involuntary Termination and may be
exercised for any or all of the Option shares, including the accelerated shares,
in accordance with the provisions of the Option agreement evidencing such
Option.

              All determinations concerning the application of the parachute
payment provisions of Code Section 280G to the accelerated vesting of Options
and shares pursuant to this Section 10 shall be made in accordance with the
procedures set forth in Section 16.B.
<PAGE>   10

Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 10


              Each Option which is assumed or otherwise continued in effect will
be appropriately adjusted to apply to the number and class of securities which
would have been issued to Employee in the consummation of the Change in Control
transaction had the Option been exercised immediately prior to such transaction,
and appropriate adjustments will be made to the Option exercise price payable
per share, provided the aggregate exercise price will remain the same.

       11. RESTRICTIVE COVENANT. During the Employment Period, Employee will not
directly or indirectly, whether for Employee's own account or as an employee,
consultant or advisor, provide services to any business enterprise other than
the Company, unless otherwise authorized by the Company in writing.

       12. NON-SOLICITATION AND NON-DISPARAGEMENT. During any period for which
Employee is receiving compensation payments pursuant to Part Two, Section 4 and
one (1) year thereafter, Employee will not directly or indirectly (i) solicit
any Company employee, independent contractor or consultant to leave the
Company's employ or otherwise terminate such person's relationship with the
company for any reason or interfere in any other manner with the employment or
other relationships at the time existing between the Company and its current
employees, independent contractors or consultants, (ii) solicit any of the
Company's customers for products or services substantially similar to those
offered by the Company, or (iii) disparage the Company or any of its
stockholders, directors, officers, employees or agents.

        13. CONFIDENTIALITY.

              A. Employee hereby acknowledges that the Company may, from time to
time during the Employment Period, disclose to Employee confidential information
pertaining to the Company's business and affairs and client base, including
(without limitation) customer lists and accounts, other similar items indicating
the source of the Company's income and information pertaining to the salaries,
duties and performance levels of the Company's employees. Employee will not, at
any time during or after such Employment Period, disclose to any third party or
directly or indirectly make use of any such confidential information, including
(without limitation) the names, addresses and telephone numbers of the Company's
customers, other than in connection with, and in furtherance of, the Company's
business and affairs. Nothing contained in this section shall be construed to
prevent Employee from disclosing the amount of his salary.

              B. All documents and data (whether written, printed or otherwise


<PAGE>   11


Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 11


reproduced or recorded) containing or relating to any such proprietary
information of the Company which come into Employee's possession during the
Employment Period will be returned by Employee to the Company immediately upon
the termination of the Employment Period or upon any earlier request by the
Company, and Employee will not retain any copies, notes or excerpts thereof.
Notwithstanding the foregoing, Employee shall be entitled to retain his file or
Rolodex containing names, addresses and telephone numbers and personal diaries
and calendars; provided, however, that Employee shall continue to be bound by
the terms of Section 13.A. above to the extent such retained materials
constitute confidential information.

              C. Employee's obligations under this Section 13 will continue in
effect after the termination of Employee's employment with the Company, whatever
the reason or reasons for such termination, and the Company will have the right
to communicate with any of Employee's future or prospective employers concerning
his continuing obligations under this Section 13.

        14. OWNERSHIP RIGHTS.

              A. All materials, ideas, discoveries and inventions pertaining to
the Company's business or clients, including (without limitation) all patents
and copyrights, patent applications, patent renewals and extensions and the
names, addresses and telephone numbers of customers, will belong solely to the
Company.

              B. All materials, ideas, discoveries and inventions which Employee
may devise, conceive, develop or reduce to practice (whether individually or
jointly with others) during the Employment Period will be the sole property of
the Company and are hereby assigned by Employee to the Company, except for any
idea, discovery or invention (i) for which no Company equipment, supplies,
facility or trade secret information is used, (ii) which is developed entirely
on Employee's own time and (iii) which neither (a) relates at the time of
conception or reduction to practice, to the Company's business or any actual or
demonstrably-anticipated research or development program of the Company nor (b)
results from any work performed by Employee for the Company. The foregoing
exception corresponds to the assignment of inventions precluded by California
Labor Code Section 2870, attached as Exhibit A.

              C. Employee will, at all times whether during or after the
Employment Period, assist the Company, at the Company's sole expense, in
obtaining, maintaining, defending and enforcing all legal rights and remedies of
the Company, including, without limitation, patents, copyrights and other
proprietary rights of the Company. Such assistance will include (without
limitation) the execution of documents and assistance and cooperation in

<PAGE>   12
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 12


legal proceedings.

              D. Employee will continue to be bound by all the terms and
provisions of Employee's existing Proprietary Information Agreement with the
Company, and nothing in this document will be deemed to modify or affect
Employee's duties and obligations under those other agreements.

         15. TERMINATION OF EMPLOYMENT.

              A. The Company (or any successor entity resulting from a Change in
Control) may terminate Employee's employment under this Agreement at any time
for any reason, with or without cause, by providing Employee with at least seven
(7) days prior written notice. However, such notice requirement will not apply
in the event there is a Termination for Cause under subsection D below.

              B. In the event there is a termination of Employee's employment by
reason of disability or an Involuntary Termination of Employee's employment with
the Company (other than Termination for Cause) during the Employment Period,
Employee will become entitled to the benefits specified in Part Two, Section 9
in addition to any unpaid compensation earned by Employee under Part Two,
Section 4 for services rendered prior to such termination. However, in the event
of such disability, the Company's obligation to provide benefits under Part Two,
Section 9 shall be reduced and offset, dollar-for-dollar, by any income
continuation payments provided Employee under any disability income/insurance
program funded by the Company on Employee's behalf.

              C. Should Employee's employment with the Company terminate by
reason of his death during the Employment Period, no severance benefits will be
payable to Employee under Part Two, Section 9, and only the limited death
benefits provided under Part Two, Section 8 will be payable.

              D. The Company may at any time, upon written notice, terminate
Employee's employment hereunder for any act qualifying as a Termination for
Cause. Such termination will be effective immediately upon such notice.

              E. Upon such Termination for Cause, the Company will only be
required to pay Employee any unpaid compensation earned by him pursuant to Part
Two, Section 4 for services rendered through the date of such termination, and
no termination or severance benefits will be payable to Employee under Part Two,
Section 9.

<PAGE>   13


Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 13


         16. TAX EFFECT OF PAYMENTS.

              A. GROSS-UP PAYMENT. In the event that it is determined that any
payment or distribution of any type to or for Employee's benefit made by the
Company, by any of its affiliates, by any person who acquires ownership or
effective control of the Company or ownership of a substantial portion of the
Company's assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are
collectively referred to as the "Excise Tax"), then Employee shall be entitled
to receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by Employee of all taxes imposed upon the Gross-Up Payment,
including any Excise Tax, Employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed on the Total Payments.

              B. DETERMINATION BY ACCOUNTANT. All mathematical determinations
and all determinations of whether any of the Total Payments are "parachute
payments" (within the meaning of Section 280G of the Code) that are required to
be made under this Section 16, including all determinations of whether a
Gross-Up Payment is required, of the amount of such Gross-Up Payment and of
amounts relevant to the last sentence of this Section 16, shall be made by an
independent accounting firm selected by Employee and reasonably acceptable to
the Company from among the largest five (5) accounting firms in the United
States (the "Accounting Firm"), which shall provide its determination, together
with detailed supporting calculations regarding the amount of any Gross-Up
Payment and any other relevant matters (the "Determination"), both to the
Company and to Employee within five (5) business days of Employee's termination
date, if applicable, or such earlier time as is requested by the Company or by
Employee (if Employee reasonably believes that any of the Total Payments may be
subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax
is payable by Employee, it shall furnish Employee with a written statement that
such Accounting Firm has concluded that no Excise Tax is payable (including the
reasons therefor) and that Employee has substantial authority not to report any
Excise Tax on Employee's federal income tax return. If a Gross-Up Payment is
determined to be payable, it shall be paid to Employee within five (5) business
days after the Determination is delivered to the Company or to Employee. Any
Determination by the Accounting Firm shall be binding upon the Company and
Employee, absent manifest error. All of the costs and expenses of the Accounting
Firm shall be borne by the Company.

              C. UNDERPAYMENTS AND OVERPAYMENTS. As a result of uncertainty in
the

<PAGE>   14
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 14



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 not made
by the Company should have been made ("Underpayments") or that Gross-Up Payments
will have been made by the Company which should not have been made
("Overpayments"). In either event, the Accounting Firm shall determine the
amount of the Underpayment or Overpayment that has occurred. In the case of an
Underpayment, the amount of such Underpayment shall promptly be paid by the
Company to or for Employee's benefit. In the case of an Overpayment, Employee
shall, at the direction and expense of the Company, take such steps as are
reasonably necessary (including the filing of returns and claims for refund),
follow reasonable instructions from, and procedures established by, the Company
and otherwise reasonably cooperate with the Company to correct such Overpayment;
provided, however, that (i) Employee shall in no event be obligated to return to
the Company an amount greater than the net after-tax portion of the Overpayment
that Employee has retained or has received as a refund from the applicable
taxing authorities and (ii) this provision shall be interpreted in a manner
consistent with the intent of this Section 16, which is to make Employee whole,
on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in Employee's
repaying to the Company an amount which is less than the Overpayment.

                     PART THREE -- MISCELLANEOUS PROVISIONS

       1. MITIGATION. Employee shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise and no future income earned by Employee from employment
or otherwise shall in any way reduce or offset any payments due to Employee
hereunder. The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish Employee's existing rights which would accrue solely as a result of the
passage of time, under any Company Employee Benefit Plan, "Payroll practice" (as
defined in ERISA), compensation arrangement, incentive plan, stock option or
other stock-related plan.

       2. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company, including, without
limitation, any corporation or corporations acquiring directly or indirectly all
or substantially all of the stock, business or assets of the Company whether by
merger, consolidation, division, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement). The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by agreement in form and substance satisfactory to
Employee, to expressly assume and agree to perform this Agreement in the same
manner and to the same

<PAGE>   15


Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 14



extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement entitling Employee to the benefits hereunder, as though Employee was
subject to Involuntary Termination. This Agreement shall be binding upon and
inure to the benefit of Employee, his successors, assigns, executors,
administrators or beneficiaries.

       3. INDEMNIFICATION. The indemnification provisions for officers and
directors under the Company's Bylaws and any applicable indemnification
agreement between Employee and the Company will (to the maximum extent permitted
by law) be extended to Employee, during the period following his Involuntary
Termination, with respect to any and all matters, events or transactions
occurring or effected during Employee's Employment Period.

       4. MISCELLANEOUS. The provisions of this Agreement will be construed and
interpreted under the laws of the State of California. This Agreement
incorporates the entire Agreement between Employee and the Company relating to
the terms of Employee's employment and the subject of severance benefits and
supersedes all prior agreements and understandings with respect to such subject
matter. This Agreement may only be amended by written instrument signed by
Employee and an authorized officer of the Company.

       5. ARBITRATION. Any controversy which may arise between Employee and the
Company with respect to the construction, interpretation or application of any
of the terms, provisions, covenants or conditions of this Agreement or any claim
arising from or relating to this Agreement will be submitted to final and
binding arbitration in San Francisco, California in accordance with the rules of
the American Arbitration Association then in effect.

       6. NOTICES. Any notice required to be given under this Agreement shall be
deemed sufficient, if in writing, and sent by certified mail, return receipt
requested, via overnight courier, or hand delivered to the Company at 1003 West
Cutting Boulevard, 2nd Floor, Richmond, California 94804, and to Employee at his
most recent address reflected in the permanent Company records. Copies of each
such notice delivered by either the Company or Employee shall be provided to
each current member of the Board at each such director's current address as
listed in the Company's records.

       7. LEGAL COSTS. If any legal action or other proceeding is brought by
Employee for the enforcement of this Agreement, or because of an alleged
dispute, breach, default or misrepresentation in connection with any of the
provisions of this Agreement, Employee shall be entitled to recover reasonable
attorneys fees and other costs incurred in that action or proceeding, in
addition to any other relief to which Employee may be entitled, in the event and

<PAGE>   16
Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 16



to the extent that Employee prevails in such action or other proceeding.
Notwithstanding anything herein above to the contrary, as between Employee and
the Company, the Company shall bear all legal costs and expenses of defending
the validity of this Agreement against any third party. The Company shall bear
all legal costs and expenses incurred in the event the Company should contest or
dispute the characterization of any amounts paid pursuant to this Agreement as
being nondeductible under Section 280G of the Code or subject to imposition of
an excise tax under Section 4999 of the Code.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


<PAGE>   17


Brian Moriarity
Executive Vice President, Business Development
QuadraMed Corporation
May 25, 1999
Page 17

       Please indicate your acceptance of the foregoing provisions of this
Agreement by signing the enclosed copy of this Agreement and returning it to the
Company.

                                  Very truly yours,

                                  QUADRAMED CORPORATION


                                  By:
                                  Title:

ACCEPTED BY AND AGREED TO:

/s/ BRIAN MORIARITY

Brian Moriarity

Dated:


<PAGE>   18
                                    EXHIBIT A

       Section 2870. APPLICATION OF PROVISION PROVIDING THAT EMPLOYEE WILL
ASSIGN OR OFFER TO ASSIGN RIGHTS IN INVENTION TO EMPLOYER.

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

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

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

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


<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THREE
MONTHS ENDED JUNE 30, 1999 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             APR-01-1999
<PERIOD-END>                               JUN-30-1999
<CASH>                                          12,891
<SECURITIES>                                    57,407
<RECEIVABLES>                                   53,065
<ALLOWANCES>                                     6,797
<INVENTORY>                                          0
<CURRENT-ASSETS>                               106,688
<PP&E>                                          34,647
<DEPRECIATION>                                  23,566
<TOTAL-ASSETS>                                 217,934
<CURRENT-LIABILITIES>                           41,289
<BONDS>                                        115,000
                                0
                                          0
<COMMON>                                           175
<OTHER-SE>                                      53,247
<TOTAL-LIABILITY-AND-EQUITY>                   217,934
<SALES>                                         57,604
<TOTAL-REVENUES>                                57,604
<CGS>                                           27,860
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                                  (79)
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<INTEREST-EXPENSE>                                 636
<INCOME-PRETAX>                                  8,255
<INCOME-TAX>                                     7,318
<INCOME-CONTINUING>                              7,318
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<NET-INCOME>                                     7,318
<EPS-BASIC>                                       0.29
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