<PAGE>

                                                                   EXHIBIT 10.12

                        EXECUTIVE EMPLOYMENT AGREEMENT



          This Executive Employment Agreement ("Agreement") is dated as of March
4, 1998, between Inference Corporation, a Delaware corporation (the "Company"),
and Charles W. Jepson (the "Executive").

          NOW, THEREFORE, in consideration of the mutual promises and conditions
contained herein, the parties hereto agree as follows:




                                   ARTICLE I
                                  EMPLOYMENT


          I.1  Employment.  The Company employs the Executive and the Executive
               ----------                                                      
hereby accepts employment as the President and Chief Executive Officer of the
Company upon the terms and conditions hereinafter set forth.

          I.2  Term.  The employment of the Executive by the Company under the
               ----                                                           
terms and conditions of this Agreement will commence on the date hereof and
continue until terminated under Article IV ("Employment Term").

          I.3  Executive Duties.  As the Company's President and Chief Executive
               ----------------                                                 
Officer, the Executive shall perform such duties as are requested by and shall
report directly to the Company's Board of Directors ("Board").  The Executive
agrees to devote his full business time (with allowances for vacations, sick
leave, service on the boards of other companies, and civic and other similar
activities) and attention and best efforts to the affairs of the Company and its
subsidiaries and affiliates during the term of employment.



                                  ARTICLE II
                           COMPENSATION AND BENEFITS


          II.1 Base Salary.  During the Employment Term, the Company shall pay
               -----------                                                    
to the Executive a base salary at the initial rate of Two Hundred Twenty-Five
Thousand Dollars ($225,000) per year, payable in substantially equal semimonthly
installments.  The Company will review annually and may, in the discretion of
the Board of Directors, increase such base salary in light of the Executive's
performance, inflation in cost of living or other factors.

          II.2 Bonus.  The Company also shall pay to the Executive an annual
               -----                                                        
incentive compensation bonus to be calculated and paid as set forth on Exhibit
A.


          II.3 Deferred Compensation Arrangement.  The Company shall establish a
               ---------------------------------                                
plan or arrangement pursuant to which Executive may elect to defer receipt of
any or all of the compensation payable under Section 2.1 or Section 2.2

          II.4 Stock Options.
               ------------- 



          II.4.1    Standard Options.  The Company hereby grants Executive stock
                    ----------------                                            
options covering 300,000 shares of the Company's Class A Common Stock ("Common
Stock") upon the following terms:


               (i)  an exercise price per share equal to the closing sales price
                    of the Common Stock on the date hereof ($4.50), as reported
                    by the Nasdaq National Market;



               (ii) a term of ten (10) years beginning on the date hereof;

<PAGE>
 
               (iii) twenty-five percent (25%) of the options will vest on the
                     first anniversary of this Agreement, and the remainder will
                     vest in substantially equal quarterly installments over the
                     subsequent three (3) years thereof;



               (iv)  although generally, under the terms of the Company's
                     Amended and Restated 1993 Stock Option Plan, as amended
                     ("1993 Plan"), one hundred percent (100%) of the options
                     granted thereunder become exercisable immediately upon the
                     occurrence of a Terminating Transaction (as defined in
                     Section 7(c) of the 1993 Plan), if such a transaction
                     occurs prior to the first anniversary of this Agreement and
                     the consideration under such transaction is less than ten
                     dollars ($10.00) per share, then only fifty percent (50%)
                     (not one hundred percent (100%)) of the options granted
                     under this Section 2.4.1 will become exercisable upon such
                     transaction.


          II.4.2  Performance Options.  The Company hereby grants Executive
                  -------------------                                      
stock options covering 100,000 shares of Common Stock ("Performance Options")
upon the following terms:


               (i)  a term of ten (10) years beginning on the date hereof;



               (ii) the Performance Options will be divided into equal 50,000
                    tranches for purposes of vesting as follows:



                    (A)  Ten percent (10%) of the first tranche (the "First
                         Tranche Options") will vest on each of the first four
                         anniversaries of the date hereof and sixty percent
                         (60%) of the First Tranche Options will vest on the
                         fifth anniversary of the date hereof; provided,
                         however, if the Company exceeds the performance goals
                         established by the Board for the fiscal year ending
                         January 31, 1999, all then unvested First Tranche
                         Options shall vest on the second anniversary of the
                         date hereof; and



                    (B)  Ten percent (10%) of the second tranche (the "Second
                         Tranche Options") will vest on each of the first four
                         anniversaries of the date hereof and the remaining
                         sixty percent (60%) of the Second Tranche Options will
                         vest on the fifth anniversary of the date hereof;
                         provided, however, if the Company exceeds the
                         performance goals established by the Board for the
                         fiscal year ending January 31, 2000, all then unvested
                         Second Tranche Options shall vest on the third
                         anniversary of the date hereof; and



               (iii) the exercise price per share for the Performance Options
                     shall be $4.50 per share.


               II.4.3  Incentive Stock Options.
                       ----------------------- 

               (a) The options in Sections 2.4.1 and 2.4.2 (collectively, the
"Options") shall be "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended, to the extent permitted by the rules and
regulations governing such options.

               (b) Subject to the other terms provided above, the Options shall
have substantially the same terms as if such options were granted under the 1993
Plan, including one hundred percent (100%) acceleration of vesting in the event
of a Terminating Transaction.

          II.5 Benefits.  During the Employment Term, the Executive shall be
               --------                                                     
eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").

                                       2
<PAGE>
 
          II.6 Reimbursement of Expenses.  The Executive shall be entitled to
               -------------------------                                     
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and living expenses while away from home on business at the
request of, or in the service of, the Company, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.

          II.7 Automobile Allowance.  The Company shall provide the Executive
               --------------------                                          
with an automobile allowance in the amount of Six Hundred Dollars ($600) per
month as reimbursement to the Executive of costs and expenses incurred by the
Executive for the purchase or lease and maintenance and operation of an
automobile for use by the Executive in the performance of the Executive's duties
hereunder.  Such automobile allowance shall be paid in substantially equal semi-
monthly installments.

          II.8 Vacation and Holidays.  The Executive shall be entitled to an
               ---------------------                                        
annual vacation leave of four (4) weeks at full pay or such greater vacation
benefits as may be provided for by the Company's vacation policies applicable to
senior executives of the Company.  Any unused vacation time may be accumulated
and carried over from one year to the next; provided, however, only eight weeks
of vacation may be accumulated at any time; Executive shall be entitled to such
holidays as are established by the Company for all employees.

          II.9 Life Insurance.  In addition to the life insurance provided to
               --------------                                                
all employees of the Company (see Section 2.5 above), the Company shall provide
additional life insurance to Executive in the amount of One Million Dollars
($1,000,000), payable to the beneficiaries designated by the Executive.

          II.10  Annual Physical.  The Company shall reimburse the Executive for
                 ---------------                                                
all costs and expenses incurred by the Executive in connection with a complete
annual physical.

          II.11  Relocation Expenses.  The Company shall reimburse Executive for
                 -------------------                                            
any reasonable and necessary expenses and costs incurred by Executive in
connection with his relocation to the Novato area, including without limitation,
all expenses for moving, commuting and temporary housing; provided; however, all
such costs and expenses must be documented, and the Company's reimbursement
hereunder shall not exceed Seventy-Five Thousand Dollars ($75,000).  In
addition, the Company will reimburse Executive for any taxable income he
receives from the Company as a result of the Company's reimbursement of the
Executive's relocation costs and expenses.

          II.12  Home Office.  The Company shall provide the Executive with the
                 -----------                                                   
following items for use outside of the Company's offices:  PC printer/fax, cell
phone, pager, internet, laptop (multi-use - office/home/travel) or desktop
computer.

          II.13  Club Membership.  During the Executive's employment with the
                 ---------------                                             
Company, the Executive shall be able to use one of the Company's Rolling Hills
memberships.

          II.14  Legal Fees Reimbursement.  The Company will reimburse Executive
                 ------------------------                                       
up to a maximum of Two Thousand Five Hundred Dollars ($2,500) for the fees and
disbursements of Executive's counsel in reviewing, negotiating and advising
Executive with respect to the terms and conditions of this Agreement.

                                       3
<PAGE>
 
                                  ARTICLE III



                       CONFIDENTIALITY AND NONDISCLOSURE
                       ---------------------------------



          III.1  Confidentiality.  Executive will not during Executive's
                 ---------------                                        
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.


          III.2  Return of Confidential Material.  Executive shall promptly
                 -------------------------------                           
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.

          III.3  Prohibition on Solicitation of Customers.  During the term of
                 ----------------------------------------                     
Executive's employment with the Company and for a period of two (2) years
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship.  None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.

          III.4  Prohibition on Solicitation of Employees, Agents or Independent
                 ---------------------------------------------------------------
Contractors After Termination.  During the term of Executive's employment with
-----------------------------                                                 
the Company and for a period of two (2) years following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business.  However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.



          III.5  Right to Injunctive and Equitable Relief.  Executive's
                 ----------------------------------------              
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value.  The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations.  Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue.  Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.


          III.6  Survival of Obligations.  Executive agrees that the terms of
                 -----------------------                                     
this Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.

                                       4
<PAGE>
 
                                  ARTICLE IV
                                  TERMINATION


          IV.1 Definitions.  For purposes of this Article IV, the following
               -----------                                                 
definitions shall be applicable to the terms set forth below:

               IV.1.1 Cause.  "Cause" shall mean only the following: (i) the
                      -----                                                 
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his or her duties; (iii) willful misconduct by
the Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive.  For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless (x)
the Executive first shall have received at least 5 days written notice setting
forth the reasons for the Company's intention to terminate or take other action
and shall have been provided an opportunity to appear, accompanied by counsel,
and be heard before the Board of Directors; (y) after such appearance before the
Board, the Board of Directors shall have duly adopted by a majority of the
Directors of the Company then in office, and shall have provided to the
Executive a certified resolution finding that in the good faith opinion of such
Directors the Executive was guilty of conduct constituting Cause, as set forth
above, and specifying the particulars thereof in detail; and (z) the Executive
shall have failed to cure or remedy the event constituting Cause within 15 days
after the Executive's receipt of such certified resolution from the Board of
Directors.

               IV.1.2 Change in Control. A "Change in Control" means and shall
                      -----------------
be deemed to have occurred with respect to the Company if: (i) there shall be
consummated (A) any consolidation, merger or other business combination of the
Company with another corporation or entity and as a result of such
consolidation, merger or other business combination less than 50% of the
outstanding voting securities of the surviving or resulting corporation or
entity shall be owned in the aggregate by the shareholders of the Company, other
than affiliates (within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), of any party to such consolidation, merger, or
other business combination, as the same shall have existed immediately prior to
such consolidation, merger, or other business combination; or (B) any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company; (ii)
the shareholders of the Company approve any plan or proposal for the liquidation
or dissolution of the Company; (iii) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than the shareholders of
the Company as of the date hereof, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 30% or more of the Company's
outstanding Common Stock; or (iv) a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Exchange Act shall have occurred.

               IV.1.3 Disability.  "Disability" shall mean a physical or mental
                      ----------                                               
incapacity as a result of which the Executive becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to three (3) consecutive months excepted).  A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and the Executive or, in the event of the Executive's
incapacity to designate a doctor, the Executive's legal representative.  In the
absence of agreement between the Company and the Executive, each party shall
nominate a qualified medical doctor and the two doctors so nominated shall
select a third doctor, who shall make the determination as to Disability.

               IV.1.4 Good Reason.  "Good Reason" shall mean each of the
                      -----------                                       
following: (i) the failure of the Company to vest the Executive, without the
Executive's consent, with the powers and authority of the Executive's office or
position of employment as contemplated herein, or any removal of the Executive
from or failure to re-elect the Executive, without the Executive's consent, to a
position of employment consistent with the position and status of Executive as
set forth herein; (ii) a reduction by the Company, without the Executive's
consent, in the Executive's annual base salary as it may exist from time to
time; (iii) the requirement by the Company, without Executive's consent, that
the 

                                       5
<PAGE>
 
Executive be based anywhere other than within 50 miles of San Francisco,
California, except for required travel on the Company's business to an extent
substantially consistent with the Executive's present business travel
obligations; (iv) a failure by the Company to comply with any material
provisions of this Agreement which has not been cured within thirty (30) days
after notice of such noncompliance has been given by the Executive to the
Company, or if such failure is not capable of being cured in such time, a cure
shall not have been diligently initiated by the Company within such thirty-day
period; or (v) a failure by the Company to obtain from any successor, before the
succession takes place, an agreement to assume and perform this Agreement;
provided, however, that any of the foregoing actions shall not be considered to
be Good Reason if such action is undertaken by the Company for Cause.

          IV.2 Termination by Company.  The Executive's employment hereunder may
               ----------------------                                           
be terminated by the Company immediately for Cause.  Subject to the other
provisions contained in this Agreement, the Company may terminate this Agreement
for any reason other than Cause upon thirty (30) days' written notice to
Executive.  The effective date of termination ("Effective Date") shall be
considered to be thirty (30) days subsequent to written notice of termination;
however, the Company may elect to have Executive leave the Company immediately.


          IV.3 Severance Benefits Received Upon Termination.
               ---------------------------------------------


               IV.3.1 If (i) at any time the Executive's employment is
terminated by the Company for Cause, or (ii) at any time before a Change in
Control the Executive's employment is terminated by the Employee for any reason,
the Company shall pay the Executive his or her base salary through the end of
the month during which such termination occurs (or at the Executive's election,
the rate in effect on the first day of the month preceding the month in which
the date of termination occurs) plus credit for any accrued vacation and the
Company shall thereafter have no further obligations under this Agreement to the
Executive or his or her dependents, beneficiaries or estate; provided that the
Company will continue to honor any obligations that may have been accrued under
then existing Company Benefit Plans or any other agreements or arrangements
applicable to the Executive; and provided further that, if the Executive's
employment is terminated for Disability then in addition to the above, the
vesting of all options granted to the Executive under Section 2.4.1 will be
modified such that one-sixteenth (1/16th) of the shares covered by such options
will be deemed vested for each full or partial quarter elapsed since the date of
this Agreement.

               IV.3.2 If (i) at any time the Executive's employment is
terminated by the Company without Cause, or (ii) at any time after a Change in
Control the Executive's employment is terminated by the Employee for Good
Reason, then the Company shall:

                   (a) pay to the Executive within four business days following
the date of termination his base salary through the end of the month during
which such termination occurs (or at the Executive's election, the rate in
effect on the first day of the month preceding the month in which the date of
termination occurs) plus credit for any vacation earned but not taken; and

                   (b) continue to pay to the Executive his base salary for six
(6) months (the "Severance Period") following his termination, payable in semi-
monthly installments in accordance with the Company's customary payroll
practices; provided, if the Executive has been employed by the Company for at
least two (2) years but less than four (4) years at the date of termination, the
Severance Period shall be increased to twelve (12) months; provided, further, if
the Executive has been employed by the Company for at least four (4) years at
the date of termination, the Severance Period shall be increased to twenty-four
(24) months; and

                   (c) modify the vesting of Executive's Options granted
hereunder such that, if termination occurs during the period prior to the first
anniversary hereof and if at such time the closing market price of the Company's
Class A Common Stock averaged over the five (5) trading days prior to such
termination is at least ten dollars ($10.00) per share, then one-sixteenth
(1/16th) of the shares covered by such Options will be deemed vested for each
full or partial quarter elapsed since the date of this Agreement.

                   (d) maintain, at the Company's expense, in full force and
effect, for the Executive's continued benefit until the earlier of (i) the
applicable Severance Period, or (ii) the Executive's commencement of full time
employment with a new employer, all life insurance, medical, health and
accident, and 

                                       6
<PAGE>
 
disability plans, programs or arrangements in which the Executive was entitled
to participate immediately prior to the date of termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Executive's
participation in any such plan or program is barred, the Company shall arrange
to provide the Executive with benefits substantially similar to those which the
Executive was entitled to receive under such plans or programs. Subsequent
health insurance benefits will be in accordance with COBRA.

          IV.4 No Obligation to Mitigate Damages; No Effect on Other Contractual
               -----------------------------------------------------------------
Rights.
------ 


               IV.4.1 The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination, or
otherwise (except as provided in Section 4.3.2(d)).


               IV.4.2 The provisions of this Agreement, and any payment or
benefit provided for hereunder, shall not reduce any amounts otherwise payable,
or in any way diminish the Executive's existing rights, or rights which would
accrue solely as a result of the passage of time, under any Company Benefit
Plan, employment agreement or other contract, plan or arrangement.



                                   ARTICLE V
                              GENERAL PROVISIONS


          V.1  Notice.  For purposes of this Agreement, notices and all other
               ------                                                        
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:


     If to the Company:    Inference Corporation
                           100 Rowland Way
                           Novato, California 94945
                           Attn: William D. Griffin


     If to the Executive:    Charles Jepson
                             At the address shown in Company files
 

or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

          V.2  No Waivers.  No provision of this Agreement may be modified,
               ----------                                                  
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company.  No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.

          V.3  Governing Law.  This Agreement shall be governed by and construed
               -------------                                                    
in accordance with the laws of the State of California.

          V.4  Severability or Partial Invalidity.  The invalidity or
               ----------------------------------                    
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.

          V.5  Counterparts.  This Agreement may be executed in one or more
               ------------                                                
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

                                       7
<PAGE>
 
          V.6  Legal Fees and Expenses.  Should any party institute any action
               -----------------------                                        
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.

          V.7  Entire Agreement.  This Agreement constitutes the entire
               ----------------                                        
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof.  This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.

          V.8  Assignment.  This Agreement and the rights, duties, and
               ----------                                             
obligations hereunder may not assigned or delegated by any party without the
prior written consent of the other party shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.8, the Company may
assign or delegate its rights, duties, and obligations hereunder to any person
or entity which succeeds to all or substantially all of the business of the
Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement.

          V.9  Arbitration.  Any controversy, dispute, claim or other matter in
               -----------                                                     
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:

          V.9.1     Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.

               V.9.2  Reasonable discovery shall be allowed in arbitration.

               V.9.3  The costs and fees of the arbitration shall be allocated
by the arbitrators.


                                       8
<PAGE>

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
 
                         INFERENCE CORPORATION, a Delaware corporation



                         By:   /s/ William D. Griffin
                             ------------------------
  
                              William D. Griffin, Senior Vice President and
                              Chief Financial Officer



                         EXECUTIVE



                            /s/ Charles W. Jepson
                          -----------------------

                           Charles W. Jepson
 

                                       9
<PAGE>
 
                                   EXHIBIT A



                                     BONUS
                                     -----



     General.  As set forth in Section 2.2 of the Agreement, the Executive shall
     -------                                                                    
receive a bonus from the Company based upon the Company attaining mutually
agreed upon financial objectives.  Should the Company not attain all of the
relevant financial objectives, the Board of Directors shall use its discretion
in determining the amount of the Executive's bonus, if any.  The bonus may be
paid annually, quarterly or a combination of both.

     FY 1999.  For the Company's fiscal year ending January 31, 1999 ("FY
     -------                                                             
1999"), the Executive's bonus shall be equal to the sum of the following:

     Quarterly Bonuses
     -----------------


               (a) If during any fiscal quarter in FY 1999 the Company's total
     revenues for such quarter equals at least 90% of the total revenues target
     ("Revenue Target") for such quarter as provided in the Operating Plan, the
     Executive shall receive for each such quarter the following:



                    (i) If the Company's total revenues for such quarter do not
          exceed 100% of the Revenue Target for such quarter, a bonus of $26,250
          minus the product equal to (A) $131,250 times (B) the amount equal to
          (1) the difference between the Revenue Target and the Company's total
          revenues for such quarter divided by (2) the Revenue Target; or



                    (ii) If the Company's total revenues for such quarter exceed
          100% of the Revenue Target, but do not exceed 110% of the Revenue
          Target, a bonus of $26,250; or



                    (iii)  If the Company's total revenues for such quarter
          exceed 110% of the Revenue Target for such quarter, a bonus equal to
          the sum of (A) $28,875 plus (B) the product of (1) $52,500 times (2)
          an amount determined by dividing (a) the difference between the
          Company's total revenues for such quarter and 110% of the Revenue
          Target for such quarter by (b) such Revenue Target.



               (b) If during any fiscal quarter in FY 1999 both the Company's
     operating income for such quarter exceeds the operating income target ("OP
     Target") for such quarter (as provided in the Operating Plan) and the
     Company's total revenues for such quarter exceed the Revenue Target for
     such quarter, the Executive shall receive an additional $13,125 for such
     quarter.



          Notwithstanding the foregoing, during each fiscal quarter in FY 1999,
the bonus determined above (clauses (a) + (b)) shall not be less than $15,000
for such quarter.

     Annual Bonus
     ------------


          In addition, if both the Company's operating income for FY 1999
exceeds the OP Target for FY 1999 (as provided in the Operating Plan) and the
Company's total revenues for FY 1999 exceed the Revenue Target for FY 1999 (as
provided in the Operating Plan), the Executive shall receive an additional
$17,500.


          The "Operating Plan" means the proposed Fiscal 1999 Operating Plan
which is subject to the approval of the Board of Directors of the Company.



                                      A-1

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