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EXHIBIT 10.3

        [HPL Letterhead]

December 9, 2001

Private & Confidential

Mr. Michael P. Scarpelli
471 Montori Court
Pleasanton, CA 94566

Re: Employment with HPL

Dear Mike:

Subject to the approval of the Board of Directors, HPL Technologies, Inc. or its
designated subsidiary (the "Company" or "HPL") is pleased to offer you a
position as Vice President, Corporate Development, on the terms set forth in
this letter agreement (this "Agreement"), effective upon your acceptance by
execution of a counterpart copy of this Agreement where indicated below.

1.Reporting Duties and Responsibilities. In this position you will report to the
Chief Executive Officer of the Company. This offer is for a full time position,
located at the offices of the Company, except as travel to other locations may
be necessary to fulfill your responsibilities.

2.Salary and Bonus. Your monthly salary will be $18,750, payable in accordance
with the Company's customary payroll practices as in effect from time to time.
You will also be eligible to earn an annual bonus based on the achievement of
objectives which you and the CEO will mutually determine in good faith each
year, with such bonus paid by the Company in accordance with its normal bonus
payment program. The payment of all sums hereunder shall be subject to all
applicable federal, state and local withholding taxes.

3.Stock Option. Subject to the approval of the Board of Directors, the Company
will grant you an option (the "Option") to purchase 350,000 shares of the
Company's Common Stock (the "Shares") pursuant to the Company's 2001 Equity
Incentive Plan (the "Plan") and the standard agreements related thereto. The
Option will be an Incentive Stock Option to the maximum extent permitted by the
Internal Revenue Code and any balance will be a non-qualified stock option. The
option exercise price will be equal to the fair market value of the Company's
Common Stock at the date of grant.

4.Loan. The Company will make a loan ("Loan") to you in the amount of $750,000,
secured by a second deed of trust on your home. The terms and conditions of the
loan will be set forth in a promissory note and deed of trust mutually
acceptable to you and the Company. If you remain an employee of the Company, for
five years, on each anniversary date of your employment, the Company will
forgive the principal and interest payment due on the note evidencing the Loan
for the annual period then ending, subject to your immediate remittance to the
Company of all Federal and state withholding taxes due on such amount, until the
note is paid in full.

5.Corporate Transaction. In the event that a Corporate Transaction (as defined
in Section 10.2(a) of the Plan) occurs and the acquiring or successor company
does not assume the Company's outstanding options or issue substitute options
therefor, all of the unvested shares under the Option shall be vested.
Furthermore, upon completion of the Corporate Transaction, all outstanding
principal and interest on the Loan will be immediately forgiven, subject to your
immediate remittance of all applicable withholding taxes on the forgiven
amounts.

6.Confidential Information. As an employee of the Company, you will have access
to certain Company confidential information and you may, during the course of
your employment, develop certain information or inventions, which will be the
property of the Company. To protect the interest of the Company, you will need
to sign the Company's standard "Employee Inventions and Confidentiality
Agreement" as a condition of your employment. We wish to impress upon you that

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we do not wish you to bring with you any confidential or proprietary material of
any former employer or to violate any other obligation to your former employers,
and you have advised us that in connection with your employment by the Company
you will not bring with you or otherwise use any such confidential or
proprietary material.

7.If, during the first five years of your employment, the Company terminates
your employment without cause (as defined below), all outstanding principal and
interest on the Loan will be forgiven, subject to your immediate remittance of
all applicable withholding taxes on the forgiven amounts, and all of the
unvested shares under the Option will be vested. You agree that the arrangements
set forth in this Section 7 shall constitute the only benefits, payments,
severance or other amounts that you shall be entitled to receive upon a
termination of your employment, if it occurs during the first 5 years of
employment, except accrued salary and vacation, and you hereby acknowledge and
agree that receipt of those benefits shall be expressly conditioned upon your
execution of a general release in the form attached hereto.

"Cause" shall mean the occurrence of one or more of the following: (i) your
conviction of a felony or a crime involving moral turpitude or dishonesty;
(ii) your participation in a fraud or act of deceit or dishonesty against the
Company or its stockholders; (iii) your intentional and material damage to the
Company's property; (iv) your willful or continuing neglect of your duties
(following notice); (v) a material breach by you of this Agreement, the
Company's written policies, or the Employee Inventions and Confidentiality
Agreement that is not remedied by you within fourteen (14) days of written
notice of such breach from the Company.

A material diminution in your duties or responsibilities shall constitute a
termination without cause.

8.Benefits. You will receive benefits according to the Company's employee
benefits package, and will be subject to the Company's vacation policy, as such
package and policy is in effect from time to time. Details about these benefits
will be available for your review.

9.At-Will Employment. While we look forward to a long term relationship, should
you decide to accept our offer, you will be an at-will employee of the Company,
which means the employment relationship can be terminated by either you or the
Company for any reason at any time. Any statements or representations to the
contrary (and, indeed, any statements contradicting any provision in this
Agreement) should be regarded by you as ineffective. Further, your participation
in any stock option or benefit program is not to be regarded as assuring you of
continuing employment for any particular period of time.

10.Term of Offer. This offer will remain open until December 15, 2001. If you
decide to accept our offer, and I hope that you will, please sign the enclosed
copy of this Agreement in the space indicated and return it to me. Upon your
signature below, this Agreement, together with the Employee Inventions and
Confidentiality Agreement referred to in paragraph 6, will become our binding
agreement with respect to the subject matter of this Agreement. This Agreement
shall inure to the benefit of and be binding upon the Company and its successors
and assigns and upon you and your heirs, administrators and executors, provided
that neither this Agreement, nor any of your rights, duties or obligations, may
be assigned by you, and any attempt to do so shall be void. This Agreement shall
be governed by California law, and may only be amended in a writing signed by
you and the Company.

11.Start Date. This offer is made with the understanding that you will be
available to start full time employment with HPL on or before January 2, 2002.

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We are excited and pleased to have you join the HPL team. We confident that we
can work together to successfully capitalize on our substantial market
opportunity.

Sincerely,         /s/  Y. DAVID LEPEJIAN      

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Y. David Lepejian
President and Chief Executive Officer        
Acknowledged, Accepted and Agreed:
Michael P. Scarpelli
 
 
 
 
/s/  MICHAEL P. SCARPELLI      

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Date:
 
December 15, 2001

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GENERAL RELEASE

        This GENERAL RELEASE ("Release"), is made this            day of
December, 2001 (the "Effective Date") by Michael P. Scarpelli ("Employee") in
favor of HPL Technologies, Inc., a Delaware corporation or its designated
subsidiary ("the Company").

RECITALS

        A. On December            , 2001, the parties hereto entered into an
Employment Agreement ("Agreement") pursuant to which the parties agreed that,
among other things, upon a termination without Cause, Employee would become
eligible to receive certain benefits in exchange for Employee's release of the
Company and its subsidiaries and affiliates from all claims which Employee may
have against the Company and its subsidiaries and affiliates as of his
termination date.

        B. The parties desire to dispose of, fully and completely, all claims
which Employee may have against the Company and its subsidiaries and affiliates
in the manner set forth in this Release.

        NOW, THEREFORE, in consideration of the benefits conferred on Employee
pursuant to the Agreement referenced above and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employee hereby agrees as follows:

        1.    Release.    Employee, for himself and his heirs, successors and
assigns, fully and forever releases, relinquishes, acquits and discharges the
Company, its officers, directors, employees, shareholders, attorneys,
accountants, other professionals, insurers and agents of the other (collectively
"Agents"), and all entities related to each party, including, but not limited
to, heirs, executors, administrators, personal representatives, assigns, parent,
subsidiary and sister corporations, affiliates, partners and co-venturers
(collectively "Related Entities"), from all rights, claims, demands, actions,
causes of action, liabilities and obligations of every kind, nature and
description whatsoever, Employee now has, owns or holds or has at anytime had,
owned or held or may have against the Company, Agents or Related Entities from
any source whatsoever, whether or not arising from or related to the facts
recited in this Release. Employee specifically releases and waives any and all
claims arising under any express or implied contract, rule, regulation or
ordinance, including, without limitation, Title VII of the Civil Rights Act of
1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the
California Fair Employment and Housing Act, and the Age Discrimination in
Employment Act, as amended ("ADEA").

        2.    Section 1542 Waiver.    This Release is intended as a full and
complete release and discharge of any and all claims that Employee may have
against the Company, Agents or Related Entities. In making this Release,
Employee intends to release the Company, Agents and Related Entities from
liability of any nature whatsoever for any claim of damages or injury or for
equitable or declaratory relief of any kind, whether the claim, or any facts on
which such claim might be based, is know or unknown to him. Employee expressly
waives all rights under §1542 of the Civil Code of the State of California,
which Employee understands provides as follows:

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.

        Employee acknowledges that he may discover facts different from or in
addition to those which he now believes to be true with respect to this Release.
Employee agrees that this Release shall remain effective notwithstanding the
discovery of any different or additional facts.

        3.    Waiver of Certain Claims.    Employee acknowledges that he has
been advised in writing of his right to consult with an attorney prior to
executing the waivers set out in this Release, and that he has

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been given a twenty-one day period in which to consider entering into the
release of ADEA claims, if any. In addition, Employee acknowledges that he has
been informed that he may revoke a signed waiver of the ADEA claims for up to
7 days after executing this Release.

        4.    No Undue Influence.    This Release is executed voluntarily and
without any duress or undue influence. Employee acknowledges he has read this
Release and executed it with his full and free consent. No provision of this
Release shall be construed against any party by virtue of the fact that such
party or its counsel drafted such provision or the entirety of this Release.

        5.    Governing Law.    This Release is made and entered into in the
State of California and accordingly the rights and obligations of the parties
hereunder shall in all respects be construed, interpreted, enforced and governed
in accordance with the laws of the State of California as applied to contracts
entered into by and between residents of California to be wholly performed
within California.

        6.    Severability.    If any provision of this Release is held to be
invalid, void or unenforceable, the balance of the provisions of this Release
shall, nevertheless, remain in full force and effect and shall in no way be
affected, impaired or invalidated.

        IN WITNESS WHEREOF, the undersigned has executed this General Release at
San Jose, California as of the date first above written.

   

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RECITALS