Document:

<PAGE>   1
                                                                   EXHIBIT 10.47

                              AGREEMENT BETWEEN THE
                           OFFICE OF INSPECTOR GENERAL
                                     OF THE
                  U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES
                                       AND
                            BEVERLY ENTERPRISES, INC.
                           REGARDING THE OPERATIONS OF
                      BEVERLY ENTERPRISES-CALIFORNIA, INC.
       PRIOR TO ITS EXCLUSION PURSUANT TO 42 U.S.C. SECTION 1320a-7(a)(1)

         1. This Agreement is entered into between the Office of Inspector
General ("OIG") of the United States Department of Health and Human Services
("HHS") and Beverly Enterprises, Inc. ("Beverly") (collectively, the "parties").
This Agreement addresses the arrangement between the parties regarding the
operations of certain Beverly nursing facilities and of Beverly
Enterprises-California, Inc. ("Beverly-California"), after its conviction and
prior to its exclusion, as further described below.

         2. Beverly-California will enter a plea of guilty and be convicted in
the Northern District of California of one count of wire fraud (18 U.S.C.
Section 1343) and 10 counts of false statements (18 U.S.C. Section 1001) (the
entry of the Judgment in this matter is hereinafter referred to as the
"Conviction"). Beverly, Beverly-California, and the OIG agree that as a result
of the Conviction, Beverly-California will be subject to mandatory exclusion
from participation in all Federal health care programs pursuant to 42 U.S.C.
Section 1320a-7(a)(1).

         3. At the time of the Conviction, Beverly-California will be comprised
of the 10 nursing facilities listed on Exhibit A (the "Facilities").

         4. In order to ensure that the mandatory exclusion of
Beverly-California will not result in disruption or harm to the residents of the
Facilities, Beverly agrees that the Facilities shall be divested from
Beverly-California to unrelated parties in a manner consistent with this
Agreement and the OIG agrees to withhold notice of exclusion in a manner
consistent with this Agreement.

         5. Beverly agrees that to the extent the interests of
Beverly-California in any Facilities are not divested to unrelated parties,
Beverly must ensure that the only interest in such Facilities held by
Beverly-related entities after the time of Conviction will be the interest in
the Facilities held by Beverly-California.

         6. Beverly shall operate the Facilities in a manner consistent with
this Agreement. Beverly shall not attempt to transfer the Facilities to any
related entity, subsidiary, or affiliate of Beverly other than
Beverly-California. Beverly shall not: close the Facilities

<PAGE>   2

prior to any exclusion, convert the Facilities to "private pay," or transfer
residents eligible for coverage by Federal health care programs from the
Facilities unless such residents request transfers.

         7. Within 120 days after the Conviction, Beverly (or
Beverly-California) shall be Under Contract (as defined in paragraph 17) with
unrelated third parties to divest itself, absolutely and in good faith, of any
interest in the Facilities, including such additional ancillary assets it owned
within the Facilities as are necessary to assure the operability and
marketability of the Facilities. Beverly also shall make all arrangements within
its control that are necessary to assure the operability and marketability of
the Facilities until such time as Beverly-California divests itself of all
interest in the Facilities as required under this Agreement.

         8. Until Beverly and Beverly-California have completely divested
themselves of ownership of all of the Facilities and new owners are operating
all of the Facilities, Beverly shall: (a) ensure that employees provide the
legally required quality of care to the Facilities' residents and meet all of
the requirements applicable to nursing facilities participating in Medicare and
other Federal health care programs, e.g., 42 C.F.R. Part 483; and (b) take such
actions as are necessary to maintain the present marketability, viability, and
competitiveness of all of the Facilities, and to prevent the destruction,
removal, wasting, deterioration, or impairment of any of the Facilities or the
assets and businesses ancillary to the Facilities (except for ordinary wear and
tear). If a temporary manager appointed pursuant to paragraph 12 is managing a
Facility, Beverly is responsible to meet the requirements of this paragraph only
to the extent that Beverly has control over the Facility and its employees.
Nothing in this Agreement shall limit the ability of the Health Care Financing
Administration to take whatever enforcement actions it deems necessary against
Beverly facilities should it determine that quality of care has deteriorated in
a manner that causes a facility not to be in substantial compliance with Federal
certification requirements at 42 C.F.R. Part 483. Nothing in this Agreement
shall limit Beverly's rights in any such enforcement proceedings.

         9. As soon as possible and prior to entering actively into divestiture
negotiations, Beverly shall provide the OIG with written notice of the identity
of potential future operators of the Facilities. Beverly agrees that
Beverly-California shall only become Under Contract to divest its interest in
the Facilities to third-party operators who have been approved by the OIG. The
OIG agrees that it will not unreasonably withhold consent to the divestiture of
Beverly's (or Beverly-California's) interest in any of the Facilities (or to the
transfer of Facilities' provider agreements) to qualified third-party nursing
home operators. Once Beverly has provided the identity of potential future
operators of a Facility, the time periods applicable to that Facility shall be
tolled until the OIG provides Beverly with written notice of: (a) approval of at
least one such potential future operator; or (b) disapproval of the proposed
future operators and the grounds for such disapproval. The OIG agrees to provide
written assurance to any approved potential

<PAGE>   3

future operator that, upon divestiture, a Facility will be permitted to operate
free from any encumbrances or limitations imposed by this Agreement or the
Conviction of Beverly-California.

         10. Within 120 days after the Conviction, Beverly may notify the OIG in
writing of its inability to find a third party willing or able to enter into a
contract to divest Beverly-California of its interest in any Facility and
request substitution for such a Facility or appointment of a Trustee. Such a
notice shall include a description of Beverly's efforts to identify such a third
party for the Facility. After receiving such notification and considering
Beverly's report, the OIG, in its sole discretion, may replace the Facility
identified by Beverly with any appropriate nursing facility owned by Beverly or
any of its subsidiaries chosen by the OIG (such a facility shall be referred to
as an "Alternate Facility") or appoint a Trustee. In addition, if any Facility
is not Under Contract within 120 days after the Conviction, the OIG, in its sole
discretion, may substitute an Alternate Facility for such a Facility. If the OIG
exercises the authority described in this paragraph to substitute a Facility,
Beverly shall immediately take all necessary steps to divest the Alternate
Facility in a manner consistent with this Agreement. Ownership of the
substituted original Facility shall not be transferred from Beverly-California
until the Alternate Facility has been divested in a manner consistent with this
Agreement to a purchaser not affiliated with Beverly. Upon divestiture of an
Alternate Facility, the substituted original Facility may be transferred to any
Beverly entity or third party and may continue to operate free from any
encumbrances or limitations imposed by this Agreement or the Conviction of
Beverly-California.

         11. In the event that, pursuant to paragraph 10, the OIG notifies
Beverly that it must substitute an Alternate Facility for a Facility, that
Alternate Facility will then be treated as one of the original Facilities for
the purposes of this Agreement. Thus, the obligations of Beverly under this
Agreement related to Facilities shall apply to any Alternate Facility for which
the OIG has given notice to Beverly to transfer ownership, e.g., Beverly shall
be obligated to divest the Alternate Facility as if it had been a Facility
listed on Exhibit A at the time of the Conviction. However, with respect to an
Alternate Facility, the time limits set forth in this Agreement shall be
extended by 60 days plus the number of days (if any) that elapsed between
Beverly's submission of the notice described in paragraph 10 and the OIG's
acceptance of substitution of that Alternate Facility in response to that
notice. If Beverly is not Under Contract to divest itself of all interest in the
Alternate Facility within the amended time period (the original deadline plus 60
days plus the number of days that elapsed between Beverly's submission of the
notice described in paragraph 10 and the OIG's substitution of that Alternate
Facility in response to that notice), the OIG shall have the authority to use
the remedies set forth in this Agreement with respect to that Alternate
Facility.

         12. If Beverly (or Beverly-California) is not Under Contract for
divestiture of the interest of Beverly-California in any one or more of the
Facilities within 120 days after

<PAGE>   4

the Conviction, the OIG may appoint a temporary manager for that Facility. If
the OIG (or its authorized representative) appoints a temporary manager, the
temporary manager shall have full authority to manage the Facility in a
commercially reasonable manner for up to 120 days or until another facility is
substituted for such Facility pursuant to the provisions of this Agreement. If
Beverly (or Beverly-California) is not Under Contract for the divestiture of at
least eight of the Facilities within 120 days after the Conviction, the OIG has
the authority to appoint a Trustee who shall be authorized to divest Beverly (or
Beverly-California) of its interest in the Facilities that remain undivested. If
the OIG appoints a Trustee, the Trustee will also have full authority to operate
any Facilities not Under Contract on terms determined by the OIG, but shall not
otherwise be permitted to obligate Beverly beyond 120 days, or, if the Facility
becomes Under Contract within 120 days, beyond the time of divestiture. The
temporary manager and/or Trustee will report directly to the OIG or OIG's
designee (e.g., the appropriate state agency). Beverly shall pay the reasonable
costs associated with all temporary managers and/or Trustees appointed pursuant
to this Agreement.

         13. Beverly and the OIG agree to the following provisions for the
imposition of penalties, in the OIG's sole discretion, in the event the
Facilities (or Alternate Facilities to the extent that they are substituted for
Facilities) are not divested in a manner consistent with this Agreement. For
each day after the 120th day after the Conviction that a Facility is not Under
Contract, the OIG may impose penalties on Beverly of up to $10,000 per day per
facility for each such Facility (up to a limit of 180 days of such penalties for
any particular Facility). The 120-day time frame of this paragraph shall be
extended by 60 days with respect to any Facility that was originally an
Alternate Facility. Beverly agrees not to contest these penalties in any state
or federal court or administrative forum, except that Beverly may seek review of
a penalty under this Agreement as if the penalty were a Stipulated Penalty
described in section X.A.1 of the Corporate Integrity Agreement entered into
between Beverly and the OIG on or about the date of this Agreement. The only
issues in such a proceeding will be whether: (a) any Facility was not Under
Contract after the 120th day after the Conviction (or 180th day after the
Conviction with respect to former Alternate Facilities); and (b) for how long
after the 120th day after the Conviction (or 180th day after the Conviction with
respect to former Alternate Facilities) such Facility was not Under Contract.

         14. In exchange for the above agreements made by Beverly and
Beverly-California in this Agreement, the OIG agrees that it will not implement
an exclusion of Beverly-California based on the Conviction until after the
earlier of: (1) the date on which Beverly-California has fully divested itself
of the Facilities; or (2) the 120th day after the Conviction (except to the
extent that the time frame applicable to a Facility has been extended pursuant
to paragraph 11), except that the OIG will not exclude Beverly-California while
a Facility is Under Contract. The OIG retains sole discretion to determine the
date of implementation of any exclusion after the conditions set forth in this
paragraph have been met.

<PAGE>   5

         15. Upon written notice from the OIG (consistent with paragraph 14),
Beverly-California hereby agrees to be permanently excluded pursuant to 42
U.S.C. Section 1320a-7(a)(1) from participation in Medicare, Medicaid, and all
other Federal health care programs as defined in 42 U.S.C. Section 1320a-7b(f).
Such exclusion will have national effect and will also apply to all other
Federal procurement and non-procurement programs. Beverly-California waives any
further notice of the exclusion and agrees not to contest the exclusion either
administratively or in any state or federal court.

         16. If the OIG determines that Beverly owes money due to any of the
provisions of this Agreement, e.g., paragraphs 12 or 13, the OIG shall make a
written request for payment to Beverly including the amount owed and
instructions for paying. Beverly agrees to promptly pay such amounts upon
receiving such a request, except that if Beverly exercises its review rights
under paragraph 13 Beverly shall promptly pay any amount owed if and when it is
due under the process referenced in that paragraph. If Beverly does not make
payment as instructed by the OIG within 10 days of receiving the request for
payment (either under this paragraph or under the process referenced in
paragraph 13), the OIG may: (a) file an action for specific performance of this
Agreement; (b) offset the remaining unpaid balance, inclusive of interest
(calculated at 10% per annum, compounded daily, from the date the request for
payment was received by Beverly), from any amounts due and owing to Beverly by
any department, agency, or agent of the United States at the time of default;
and/or (c) exercise any other right granted by law, or under the terms of this
Agreement, or recognizable at common law or in equity. Except as provided for
under the review process described in paragraph 13, Beverly agrees not to
contest any offset imposed pursuant to this provision, either administratively
or in any state or federal court. In addition, Beverly will pay the OIG all
reasonable costs of collection and enforcement of this Agreement, including
attorney's fees and expenses.

         17. For the purposes of the Agreement, a Facility shall be considered
"Under Contract" if Beverly has entered into a definitive agreement to divest,
to an unrelated third party, its interest in the Facility and has provided to
the appropriate state agency a notice of its intent to transfer its interest in
and the operation of the Facility, with a copy of the divestiture agreement, if
required. Notwithstanding the previous sentence, the Facility cannot become
Under Contract if: (a) Beverly has failed to provide notice to the OIG required
by paragraph 9 regarding the proposed future operator(s); or (b) the OIG has
notified Beverly of its disapproval of the proposed future operator(s)
consistent with paragraph 9. In the event a Facility becomes Under Contract and
the appropriate state agency subsequently disapproves the proposed divestiture,
the Facility will no longer be considered Under Contract for the purposes of
this Agreement. As explicitly set forth in other paragraphs, the applicable time
frames set forth in this Agreement shall be tolled with respect to a Facility
while that Facility is Under Contract. Such time periods shall further be tolled
during any time period that Beverly has an outstanding request for: (1)

<PAGE>   6

substitution of a Facility pursuant to paragraph 10; or (2) an extension of time
pursuant to paragraph 18. The tolling of the time periods applicable to one
Facility shall not affect the time periods applicable to the other Facilities.

         18. If, prior to the 120th day after the Conviction, at least eight of
the Facilities are Under Contract, Beverly may request an extension of time to
become Under Contract with respect to the remaining Facilities. With any such
request, Beverly shall provide the OIG with a description of Beverly's efforts
to become Under Contract with respect to the Facility and a timetable for having
the Facility Under Contract and completing the divestiture of the Facility.
After receiving such request and reasonably considering Beverly's report, the
OIG, in its sole discretion, may deny the request or grant an extension that the
OIG deems appropriate. Notwithstanding any other provision in this Agreement, if
OIG grants the timely written request for extension, penalties for failure to
meet time frames shall not begin to accrue until one day after Beverly fails to
meet the revised deadline set by OIG. Notwithstanding any other provision in
this Agreement, if OIG denies such a timely written request, penalties shall not
begin to accrue until two (2) business days after Beverly receives OIG's written
denial of such request.

         19. This Agreement expires when Beverly-California receives notice of
exclusion from participation in the Federal health care programs.

         20. This Agreement shall be binding on the successors, assigns, and
transferees of Beverly (except that the obligations of this Agreement shall not
apply to facilities that Beverly or a Beverly successor does not own or
operate).

         21. This Agreement shall become final and binding on the date the final
signature is obtained on the Agreement. This Agreement may be executed in
counterparts, each of which constitutes an original and all of which constitute
one and the same agreement.

         22. Any modifications to this Agreement shall be made with the prior
written consent of the parties to this Agreement.

         23. The undersigned Beverly signatories represent and warrant that they
are authorized to execute this Agreement and the undersigned OIG signatory
represents that he is signing this Agreement in his official capacity and that
he is authorized to execute this Agreement.

              The remainder of this page intentionally left blank.

<PAGE>   7

         ON BEHALF OF BEVERLY

-----------------------------------------         ---------------------
DAVID BANKS                                             DATE
Chief Executive Officer
Beverly Enterprises, Inc.

-----------------------------------------         ---------------------
MARK BIROS, Esq.                                        DATE
Proskauer Rose LLP
1233 20th Street, NW
Suite 800
Washington, DC 20036-2396

                  ON BEHALF OF THE OFFICE OF INSPECTOR GENERAL
                 OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES

-----------------------------------------         ---------------------
LEWIS MORRIS                                            DATE
Assistant Inspector General for Legal Affairs
Office of Inspector General
U. S. Department of Health and Human Services

<PAGE>   8

Exhibit A

1.  Beverly Manor, Escondido, California;

2.  Beverly Manor, San Francisco, California;

3.  College Oak Nursing and Rehabilitation Center, Sacramento, California;

4.  Hy-Long Convalescent Center, Sunnyvale, California;

5.  Torreno Gardens, Los Gatos, California;

6.  Hearthstone Nursing Center, St. John, Kansas;

7.  Countryside Estates, Iola, Kansas;

8.  Hospitality of Macon, Macon, Georgia;

9.  Beverly Health and Rehabilitation Center, Aiken, South Carolina;

10.  Pinewood Terrace, Colville, Washington.<PAGE>   1

                                                                    EXHIBIT 10.7

                              EMPLOYMENT AGREEMENT

         THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and
between INLAND RESOURCES INC. (hereinafter referred to as "Employer") and BILL
I. PENNINGTON (hereinafter referred to as "Employee").

         WHEREAS, Employer desires to continue the employment of Employee as its
Chief Executive Officer and Chief Financial Officer and Employee desires to
continue such employment; and

         WHEREAS, Employer and Employee have previously entered into an
Employment Agreement dated June 1, 1996, as amended (the "Original Employment
Agreement"), and Employer and Employee desire to mutually terminate the Original
Employment Agreement in connection with the execution of this Agreement; and

         WHEREAS, Employer has granted options and warrants (collectively the
"Existing Options/Warrants") to Employee exercisable for 235,000 shares of
common stock, par value $.001 per share (the "Common Stock"), of Employer, and
Employer and Employee desire to mutually terminate the Existing Options/Warrants
in connection with this Agreement, and grant new options to Employee as provided
herein.

         NOW, THEREFORE, in consideration of the mutual promises herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employer and Employee agree as
follows:

         1.       TERMINATION OF ORIGINAL EMPLOYMENT AGREEMENT. Employer and
Employee hereby agree that the Original Employment Agreement is terminated
effective the date hereof.

         2.       TERMINATION OF EXISTING OPTIONS/WARRANTS. Employer and
Employee hereby agree that the Existing Options/Warrants are terminated
effective the date hereof.

         3.       AGREEMENT TO GRANT OPTIONS. Employer hereby grants to
Employee, effective the date of execution of this Agreement, an option to
purchase 875,000 shares of Common Stock exercisable at the closing sale price of
the Common Stock on the date of execution of this Agreement. The number of
option shares granted herein shall be increased or decreased to the same extent
that the outstanding shares of Common Stock of Employer are increased or
decreased by any stock split occurring after the effective date of this
Agreement. Such options shall vest over a period of five years, as provided for
herein. On each of the first four anniversary dates of the effective date of
this Agreement, ten percent (10%) of such options shall be vested and, on the
fifth anniversary of the date of execution of this Agreement, the remaining
sixty percent (60%) shall vest. All options granted hereunder will be
exercisable for a period of five years after the

                                      -1-
<PAGE>   2

last options are vested, regardless whether Employer subsequently voluntarily
leaves the employment of Employer or is terminated with or without "Cause" (as
hereinafter defined). Options will vest on each such anniversary date if
Employee continues to be employed by Employer on such anniversary date. All
non-vested options will vest immediately upon a "Change of Control" (as
hereinafter defined). Employer will concurrently with execution of this
Agreement prepare an Option Agreement incorporating these terms and such other
standard terms as have been contained in prior options or warrants granted to
Employee.

         4.       EMPLOYMENT. Employer hereby employs Employee to serve as Chief
Executive Officer and Chief Financial Officer of Employer and otherwise at the
direction of the Board of Directors.

         5.       DUTIES. During his employment, Employee shall devote all of
his working time, energies and skills to the management of Employer's business.
Employee agrees to serve Employer diligently and to the best of his ability.
Employee shall render services consistent with those of a person in his position
and shall perform all duties incident to such office and all such further
similar duties that may, from time to time, be assigned to him by Employer.
Employee's duties include finding further business opportunities for Employer
and Employee agrees to bring to Employer for acceptance or rejection all
business opportunities located by or made available to Employee.

         6.       COMPENSATION. Employee's compensation for services performed
under this Agreement shall be as follows:

                  (a) Base Salary. Employer shall pay Employee a base salary
         ("Base Salary") of Two Hundred Fifty Thousand and No/100 Dollars
         ($250,000.00) per year, commencing effective October 1, 1999. In
         addition, the Board of Directors of Employer shall, in good faith,
         consider granting increases in such salary based upon such factors as
         Employee's performance and the growth and/or profitability of Employer,
         but it shall have no obligation to grant any such increases in
         compensation. Such Base Salary shall be payable in equal monthly
         installments, or at such other times and in such installments as may be
         agreed upon between Employer and Employee. All payments shall be
         subject to the deduction of payroll taxes and similar assessments as
         required by law.

                  (b) Bonus. In addition to the Base Salary, Employee shall be
         eligible to receive bonus compensation in such amounts and at such
         times as the Board of Directors shall, from time to time, determine.

                  Termination Payment. If Employee's employment is terminated by
         the Company for any reason prior to September 30, 2001 (i.e., with
         "Cause" or without "Cause"), Employee shall be paid a termination
         payment, computed below, payable immediately upon the date of
         termination. However, if Employee voluntarily leaves the employment of
         Employer prior to September 30, 2001, payment of the termination
         payment shall be forfeited by Employee. The termination payment shall
         be $168,000, which amount shall

                                      -2-
<PAGE>   3
          be decreased by the sum of $21,000 for each calendar quarter during
          which Employee's employment is retained by Employer. For example, the
          termination payment shall be decreased by $21,000 on each of January
          1, 2000, April 1, 2000, July 1, 2000, October 1, 2000, January 1,
          2001, April 1, 2001, July 1, 2001 and September 30, 2001.

                  (d) Performance Bonus. In addition to the Base Salary and the
         bonuses payable pursuant to Sections 6(b) and (c) hereof, Employer
         shall pay to Employee a performance bonus of $250,000, as follows: (A)
         one-third shall vest on each of the years ending December 31, 2000,
         December 31, 2001 and December 31, 2002 provided (i) Employee continues
         to be employed by Employer on such dates and (ii) Employer has met the
         financial performance targets for each of such years; such financial
         performance targets to be determined by the Board of Directors (and
         approved by Trust Company of the West) at a later date and attached to
         this Agreement as Schedule "A" and (B) shall be payable equally, if
         vested, on December 31, 2003, December 31, 2004 and December 31, 2005.
         Upon a "Change of Control", any unvested portion of the performance
         bonus shall be deemed to be immediately vested and shall be paid to
         Employee immediately if Employee is terminated within ninety days of
         such Change of Control. If Employee voluntarily leaves the employment
         of Employer, Employee shall forfeit any unpaid vested installments.

         7.       EXPENSES AND BENEFITS. Employee is authorized to incur
reasonable expenses in connection with the business of Employer, including
expenses for entertainment, travel and similar matters. Employer will reimburse
Employee for such expenses upon presentation by Employee of such accounts and
records as Employer shall, from time to time, require. Employer also agrees to
provide Employee with the following benefits:

                  (a) Employee Benefit Plans. Employee shall be entitled to
         participate in employee benefit plans or programs of Employer, if any,
         to the extent that his position, tenure, salary, age, health and other
         qualifications make him eligible to participate, subject to the rules
         and regulations applicable thereto. Such additional benefits shall
         include, subject to the approval of the Board of Directors, full
         medical, dental and disability income insurance.

                  (b) Other. Such items and benefits as Employer shall, from
         time to time, consider necessary or appropriate to assist Employee in
         the performance of his duties.

                  (c) Vacations. Employee shall be entitled (in addition to the
         usual public holidays) to a paid vacation for a period in each calendar
         year not exceeding three (3) weeks, to be taken at such times as may be
         approved by Employer.

         8.       TERM. The term of this Agreement shall be for a term of one
(1) year, beginning from the effective date hereof and for month to month
thereafter unless terminated by either party on thirty (30) days' notice.

                                      -3-
<PAGE>   4

         9.       DISABILITY. In the event that Employee becomes Permanently
Disabled (as hereafter defined) during the term of this Agreement and while
engaged in the scope of his employment by Employer, Employee shall continue in
the employ of Employer but his compensation hereunder shall be reduced to
one-half (1/2) of the Base Salary then in effect, as set forth in Section 6(a)
hereof, commencing upon the determination of Employee's Permanent Disability and
continuing thereafter until the first to occur of (a) twelve (12) months or (b)
the death of Employee or (c) the expiration of the term of this Agreement; and
during such period of time, Employee shall not be entitled to payment of
expenses or benefits specified in Section 7 hereof (except for reimbursement of
expenses incurred by Employee prior to becoming Permanently Disabled), except
that Employer shall continue to provide Employee with the insurance benefits
specified in Section 7(a) hereof. In addition, any compensation payable to
Employee by Employer shall be reduced by any amount which Employee is eligible
to receive from workers compensation, social security or disability insurance
provided by Employer. If Employee becomes Permanently Disabled while not engaged
in the scope of his employment by Employer, such disability may be cause for
termination for "Cause" under Section 10 hereof.

                  (a) Definition of Disability. For purposes of this Agreement,
         the terms "Permanent Disability" or "Permanently Disabled" shall mean
         three (3) months of substantially continuous disability. Disability
         shall be deemed "substantially continuous" if, as a practical matter,
         Employee, by reason of his mental or physical health, is unable to
         sustain reasonably long periods of substantial performance of his
         duties. Frequent long illnesses, though different from the preceding
         illness and though separated by relatively short periods of
         performance, shall be deemed to be "substantially continuous".
         Disability shall be determined in good faith by the Board of Directors
         whose decision shall be final and binding upon Employee. Employee
         hereby consents to medical examinations by such physicians and medical
         consultants as Employer shall, from time to time, require.

         10.      TERMINATION BY EMPLOYER. Employer shall have the right to
terminate Employee's employment as hereinafter provided.

                  (a) Termination by Employer for Cause. The Board of Directors
         shall have the right to terminate Employee's employment under this
         Agreement for Cause, in which event no compensation under Sections
         6(a), (b) or (d) shall be paid or other benefits furnished to Employee
         after termination for Cause. Termination for Cause shall be effective
         immediately upon notice sent or given to Employee.

                           (i) Definition of Cause. For purposes of this
                  Agreement, the term "Cause" shall mean and be strictly limited
                  to: (1) conviction of a crime constituting a felony under
                  state or federal law; (2) determination by the Board of
                  Directors that Employee has committed any act of dishonesty
                  against Employer; (3) gross negligence by Employee in carrying
                  out his duties; (4) breach of this Agreement by Employee; (5)
                  gross misconduct by Employee, such as intoxication on the job,
                  use of drugs on the job for non-medical purposes or other
                  misconduct which has a substantial adverse effect on the
                  business of Employer; or (6) Employee

                                      -4-
<PAGE>   5

                  becoming Permanently Disabled while not engaged in the scope
                  of his employment by Employer.

                  (b) Termination by Employer without Cause. The Board of
         Directors shall have the right to terminate Employee's employment under
         this Agreement without Cause at any time, by giving written notice of
         termination to Employee. In such event, Employer will immediately pay
         the sum of the remaining amount, if any, set forth in Sec. 6(c) and the
         amount vested under Sec. 6(d) above.

         11.      CHANGE OF CONTROL. For purposes of this Agreement, a "Change
of Control" shall mean: (i) the issuance of shares of capital stock of Employer
or the granting of options or other derivative securities representing on a
combined basis more than 50% of the outstanding capital stock following such
issuance and grant, or the issuance of shares of capital stock by Employer or
the granting of options or other derivative securities to a person who, when
added to shares acquired by such person in the market or from other stockholders
of Employer, would result in such person owning more than 50% of the outstanding
capital stock (assuming for this purpose, exercise of such options or other
derivative securities) of Employer; or (ii) the sale or other disposition by
Employer of substantially all of the assets of Employer.

         12.      GENERAL PROVISIONS.

                  (a) Notices. Any notices to be given hereunder by either party
         to the other may be effected by personal delivery, in writing or by
         mail, registered or certified, postage prepaid with return receipt
         requested. Mailed notices shall be addressed to the parties at the
         addresses set forth below, but each party may change his or its address
         by written notice in accordance with this Section 12(a). Notices
         delivered personally shall be deemed communicated as of the actual
         receipt; mailed notices shall be deemed communicated as of three (3)
         days after mailing.

                                    If to Employee:
                                    Inland Resources Inc.
                                    410 17th Street, Suite 700
                                    Denver, Colorado  80202

                                    If to  Employer:
                                    Inland Resources Inc.
                                    410 17th Street, Suite 700
                                    Denver, Colorado  80202

                  (b) Partial Invalidity. If any provision in this Agreement is
         held by a court of competent jurisdiction to be invalid, void, or
         unenforceable, the remaining provisions shall, nevertheless, continue
         in full force without being impaired or invalidated in any way.

                                      -5-
<PAGE>   6

                  (c) Law Governing Agreement. This Agreement shall be governed
         by and construed in accordance with the laws of the State of Colorado.

                  (d) Attorneys' Fees and Costs. If any action at law or in
         equity is necessary to enforce or interpret the terms of this
         Agreement, the prevailing party shall be entitled to reasonable
         attorneys' fees, costs and necessary disbursements in addition to any
         other relief to which he or it may be entitled.

                  (e) Assignment. This Agreement shall inure to the benefit of
         and bind the parties hereto and their respective legal representatives,
         successors and assigns.

                  (f) Entire Agreement. This Agreement supersedes any and all
         other agreements, either oral or in writing, between the parties hereto
         with respect to the employment of Employee by Employer and contain all
         of the covenants and agreements between the parties with respect to
         such employment. Each party to this Agreement acknowledges that no
         representations, inducements, or agreements, oral or otherwise, have
         been made by any party, or anyone acting on behalf of any party, which
         are not embodied herein, and no other agreement, statement or promise
         not contained in this Agreement shall be valid or binding. Any
         modification of this Agreement will be effected only if it is in
         writing signed by the party to be charged.

         IN WITNESS WHEREOF, the parties have executed this Agreement on October
21, 1999, but to be effective the 1st day of October, 1999.

                                   EMPLOYER:
                                   INLAND RESOURCES INC.

                                   By:       /s/ Michael J. Stevens
                                            ------------------------------
                                            Michael J. Stevens
                                            Vice President
                                            Secretary and Treasurer

                                   EMPLOYEE:

                                   /s/ Bill I. Pennington
                                   ---------------------------------------
                                   Bill I. Pennington

                                      -6-
<PAGE>   7

                                  SCHEDULE "A"
                          FINANCIAL PERFORMANCE TARGETS

THE FINANCIAL PERFORMANCE TARGET, TO BE SATISFIED FOR THE INITIAL ONE YEAR
VESTING PERIOD ENDING DECEMBER 31, 2000 IS TOTAL EARNINGS BEFORE INTEREST,
TAXES, DEPRECIATION AND AMORTIZATION, DETERMINED UTILIZING GENERALLY ACCEPTED
ACCOUNTING PRINCIPALS, CONSISTENTLY APPLIED, OF AT LEAST $17.3 MILLION. THE
FINANCIAL PERFORMANCE TARGETS FOR THE ONE YEAR VESTING PERIODS ENDING DECEMBER
31, 2001 AND DECEMBER 31, 2002 WILL BE ESTABLISHED BY AMENDMENT TO THIS SCHEDULE
A.

                                      -7-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00006-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00006-of-00352.parquet"}]]