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                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

            THIS AGREEMENT is entered into as of January 1, 2003, by and between
STEPHEN BENNION (the "Employee") and SELECTICA, INC., a Delaware corporation
(the "Company").

            1. DUTIES AND SCOPE OF EMPLOYMENT.

            (a) POSITION. For the term of his employment under this Agreement
(the "Employment"), the Company agrees to employ the Employee in the position of
Vice President and Chief Financial Officer. The Employee shall report to the
Company's Chief Executive Officer.

            (b) OBLIGATIONS TO THE COMPANY. During his Employment, the Employee
shall devote his full business efforts and time to the Company. During his
Employment, without the prior written approval of the Board of Directors (the
"Board"), the Employee shall not render services in any capacity to any other
person or entity and shall not act as a sole proprietor or partner of any other
person or entity or as a shareholder owning more than five percent of the stock
of any other corporation. The Employee shall comply with the Company's policies
and rules, as they may be in effect from time to time during his Employment. The
Employee represents and warrants to the Company that he is under no obligations
or commitments, whether contractual or otherwise, that are inconsistent with his
obligations under this Agreement.

            2. CASH AND INCENTIVE COMPENSATION.

            (a) SALARY. The Company shall pay the Employee as compensation for
his services a base salary at a gross annual rate of not less than $250,000.
Such salary shall be payable in accordance with the Company's standard payroll
procedures. (The annual compensation specified in this Subsection (a), together
with any increases in such compensation that the Company may grant from time to
time, is referred to in this Agreement as "Base Salary.")

            (b) INCENTIVE BONUSES. After the Company attains profitability, the
Employee shall be eligible to be considered for an annual incentive bonus. Such
bonus (if any) shall be awarded based on objective or subjective criteria
established in advance by the Board or its Compensation Committee. The
determinations of the Board or its Compensation Committee with respect to such
bonus shall be final and binding. Except as expressly provided in this
Agreement, the Employee shall not be entitled to an incentive bonus if he is not
employed by the Company on the date when such bonus is payable.

            (c) STOCK OPTIONS. The Company shall grant the Employee a stock
option covering 300,000 shares of the Company's Common Stock. Such option shall
be granted as soon as reasonably practicable after the date of this Agreement.
The exercise price of such option shall be equal to the fair market value of
such stock on the date of grant. The term of such option shall be 10 years,
subject to earlier expiration in the event of the termination of the Employee's

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Employment. Such option shall become exercisable for 1/36th of the total number
of shares as the Employee completes each month of continuous service following
the date of grant. Such option shall become exercisable in full if (i) the
Company is subject to a Change in Control and (ii) the Employee, within 12
months after such Change in Control, is subject to an Involuntary Termination.
(Certain capitalized terms are defined in Section 11 below.) The grant of such
option shall be subject to the other terms and conditions set forth in the
Company's 1999 Equity Incentive Plan and standard form of Stock Option
Agreement.

            3. VACATION AND EMPLOYEE BENEFITS. During his Employment, the
Employee shall be eligible for paid vacations in accordance with the Company's
vacation policy, as it may be amended from time to time. During his Employment,
the Employee shall be eligible to participate in the employee benefit plans
maintained by the Company, subject in each case to the generally applicable
terms and conditions of the plan in question and to the determinations of any
person or committee administering such plan.

            4. BUSINESS EXPENSES. During his Employment, the Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.

            5. TERM OF EMPLOYMENT.

            (a) TERMINATION OF EMPLOYMENT. The Company may terminate the
Employee's Employment at any time and for any reason (or no reason), and with or
without Cause, by giving the Employee notice in writing. The Employee may
terminate his Employment by giving the Company 30 days' advance notice in
writing. The Employee's Employment shall terminate automatically in the event of
his death. The termination of the Employee's Employment shall not limit or
otherwise affect his obligations under Section 7.

            (b) EMPLOYMENT AT WILL. The Employee's Employment with the Company
shall be "at will," meaning that either the Employee or the Company shall be
entitled to terminate the Employee's Employment at any time and for any reason,
with or without Cause. Any contrary representations that may have been made to
the Employee shall be superseded by this Agreement. This Agreement shall
constitute the full and complete agreement between the Employee and the Company
on the "at will" nature of the Employee's Employment, which may only be changed
in an express written agreement signed by the Employee and a duly authorized
officer of the Company.

            (c) RIGHTS UPON TERMINATION. Except as expressly provided in Section
6, upon the termination of the Employee's Employment, the Employee shall only be
entitled to the compensation, benefits and expense reimbursements that the
Employee has earned under this Agreement before the effective date of the
termination. The payments under this Agreement shall fully discharge all
responsibilities of the Company to the Employee.


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            6. TERMINATION BENEFITS.

            (a) GENERAL RELEASE. Any other provision of this Agreement
notwithstanding, Subsections (b), (c) and (d) below shall not apply unless the
Employee:

                  (i) Has executed a general release of all claims in the form
      prescribed by the Company, without alterations; and

                  (ii) Has returned all property of the Company in the
      Employee's possession.

            (b) DISCHARGE. The Company shall pay the Employee his Base Salary
for a period of 12 months following the termination of his Employment if (i) the
Company terminates the Employee's Employment for any reason other than Cause or
Permanent Disability and (ii) Subsection (c) below does not apply. Such Base
Salary shall be paid at the rate in effect at the time of the termination of
Employment and in accordance with the Company's standard payroll procedures.

            (c) INVOLUNTARY TERMINATION AFTER CHANGE IN CONTROL. The Company
shall pay the Employee his Base Salary for a period of 18 months following the
termination of his Employment if (i) the Company is subject to a Change in
Control and (ii) the Employee, within 12 months after such Change in Control, is
subject to an Involuntary Termination. In addition, if the preceding sentence
applies, the Company shall also continue the Employee's group insurance coverage
(to the extent permitted by the Company's group insurance policies) for such
period of 18 months or, if earlier, until the date when the Employee receives
substantially equivalent coverage in connection with new employment or
self-employment. If the Company's group health insurance policy does not permit
the continuation of the Employee's coverage and if he elects to continue his
health insurance coverage under the Consolidated Omnibus Budget Reconciliation
Act ("COBRA") for himself and, if applicable, his dependents following the
termination of his Employment, then the Company shall pay the monthly premium
under COBRA for the Employee and, if applicable, such dependents until the
earliest of (i) the close of such period of 18 months, (ii) the expiration of
the Employee's continuation coverage under COBRA or (iii) the date when the
Employee receives substantially equivalent health insurance coverage in
connection with new employment or self-employment.

            (d) BONUS. If the Company continues the Employee's Base Salary under
Subsection (b) or (c) above, then the Company shall also pay the Employee a pro
rata portion of the incentive bonus (if any) that he would have received under
Section 2(b) for the year in which his Employment terminates. Such pro rata
portion shall be paid when the Company's executives who are still employed
receive their bonuses.

            7. NON-SOLICITATION AND NON-DISCLOSURE.

            (a) NON-SOLICITATION. During the period commencing on the date of
this Agreement and continuing until the first anniversary of the date when the
Employee's Employment terminated for any reason, the Employee shall not directly
or indirectly, personally


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or through others, solicit or attempt to solicit (on the Employee's own behalf
or on behalf of any other person or entity) either (i) the employment of any
employee or consultant of the Company or any of the Company's affiliates or (ii)
the business of any customer of the Company or any of the Company's affiliates.

            (b) NON-DISCLOSURE. The Employee has entered into a Proprietary
Information and Inventions Agreement with the Company, which is incorporated
herein by this reference.

            8. SUCCESSORS.

            (a) COMPANY'S SUCCESSORS. This Agreement shall be binding upon any
successor (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.

            (b) EMPLOYEE'S SUCCESSORS. This Agreement and all rights of the
Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

            9. ARBITRATION.

            (a) SCOPE OF ARBITRATION REQUIREMENT. The parties hereby waive their
rights to a trial before a judge or jury and agree to arbitrate before a neutral
arbitrator any and all claims or disputes arising out of this Agreement and any
and all claims arising from or relating to the Employee's Employment, including
(but not limited to) claims against any current or former employee, director or
agent of the Company, claims of wrongful termination, retaliation,
discrimination, harassment, breach of contract, breach of the covenant of good
faith and fair dealing, defamation, invasion of privacy, fraud,
misrepresentation, constructive discharge or failure to provide a leave of
absence, or claims regarding commissions, stock options or bonuses, infliction
of emotional distress or unfair business practices.

            (b) PROCEDURE. The arbitrator's decision shall be written and shall
include the findings of fact and law that support the decision. The arbitrator's
decision shall be final and binding on both parties, except to the extent
applicable law allows for judicial review of arbitration awards. The arbitrator
may award any remedies that would otherwise be available to the parties if they
were to bring the dispute in court. The arbitration shall be conducted in
accordance with the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association; provided, however that the arbitrator
shall allow the discovery authorized by the California Arbitration Act or the
discovery that the arbitrator deems necessary for the parties to vindicate their
respective claims or defenses. The arbitration shall take place in San Jose,
California, or, at the Employee's option, the county in which the Employee
primarily worked with the Company at the time when the arbitrable dispute or
claim first arose.


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            (c) COSTS. The parties shall share the costs of arbitration equally,
except that the Company shall bear the cost of the arbitrator's fee and any
other type of expense or cost that the Employee would not be required to bear if
he were to bring the dispute or claim in court. Both the Company and the
Employee shall be responsible for their own attorneys' fees, and the arbitrator
may not award attorneys' fees unless a statute or contract at issue specifically
authorizes such an award.

            (d) APPLICABILITY. This Section 9 shall not apply to (i) workers'
compensation or unemployment insurance claims or (ii) claims concerning the
validity, infringement or enforceability of any trade secret, patent right,
copyright or any other trade secret or intellectual property held or sought by
either the Employee or the Company (whether or not arising under the Proprietary
Information and Inventions Agreement between the Employee and the Company).

            10. MISCELLANEOUS PROVISIONS.

            (a) NOTICE. Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid. In the case of the Employee,
mailed notices shall be addressed to him at the home address that he most
recently communicated to the Company in writing. In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.

            (b) MODIFICATIONS AND WAIVERS. No provision of this Agreement shall
be modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by the Employee and by an authorized officer
of the Company (other than the Employee). No waiver by either party of any
breach of, or of compliance with, any condition or provision of this Agreement
by the other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.

            (c) WHOLE AGREEMENT. This Agreement supersedes the offer letter
dated September 16, 1999. No other agreements, representations or understandings
(whether oral or written and whether express or implied) that are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof. This Agreement and the Proprietary
Information and Inventions Agreement contain the entire understanding of the
parties with respect to the subject matter hereof.

            (d) WITHHOLDING TAXES. All payments made under this Agreement shall
be subject to reduction to reflect taxes or other charges required to be
withheld by law.

            (e) CHOICE OF LAW AND SEVERABILITY. This Agreement shall be
interpreted in accordance with the laws of the State of California (except their
provisions governing the choice of law). If any provision of this Agreement
becomes or is deemed invalid, illegal or unenforceable in any applicable
jurisdiction by reason of the scope, extent or duration of its coverage, then
such provision shall be deemed amended to the minimum extent necessary to


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conform to applicable law so as to be valid and enforceable or, if such
provision cannot be so amended without materially altering the intention of the
parties, then such provision shall be stricken and the remainder of this
Agreement shall continue in full force and effect. If any provision of this
Agreement is rendered illegal by any present or future statute, law, ordinance
or regulation (collectively the "Law"), then such provision shall be curtailed
or limited only to the minimum extent necessary to bring such provision into
compliance with the Law. All the other terms and provisions of this Agreement
shall continue in full force and effect without impairment or limitation.

            (f) NO ASSIGNMENT. This Agreement and all rights and obligations of
the Employee hereunder are personal to the Employee and may not be transferred
or assigned by the Employee at any time. The Company may assign its rights under
this Agreement to any entity that assumes the Company's obligations hereunder in
connection with any sale or transfer of all or a substantial portion of the
Company's assets to such entity.

            (g) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

            11. DEFINITIONS.

            (a) CAUSE. For all purposes under this Agreement, "Cause" shall mean
the commission of any act of fraud, embezzlement or dishonesty by the recipient
of the Award, any unauthorized use or disclosure by such person of confidential
information or trade secrets of the Company (or any parent or subsidiary of the
Company), or any other intentional misconduct by such person adversely affecting
the business or affairs of the Company (or any parent or subsidiary of the
Company) in a material manner.

            (b) CHANGE IN CONTROL. For all purposes under this Agreement,
"Change in Control" shall mean:

                  (i) The consummation of a merger or consolidation of the
      Company with or into another entity or any other corporate reorganization,
      if persons who were not stockholders of the Company immediately prior to
      such merger, consolidation or other reorganization own immediately after
      such merger, consolidation or other reorganization 50% or more of the
      voting power of the outstanding securities of each of (a) the continuing
      or surviving entity and (b) any direct or indirect parent corporation of
      such continuing or surviving entity;

                  (ii) The sale, transfer or other disposition of all or
      substantially all of the Company's assets;

                  (iii) A change in the composition of the Board, as a result of
      which fewer than 50% of the incumbent directors are directors who either:


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                        (A) Had been directors of the Company on the date 24
            months prior to the date of such change in the composition of the
            Board (the "Original Directors"); or

                        (B) Were appointed to the Board, or nominated for
            election to the Board, with the affirmative votes of at least a
            majority of the aggregate of (I) the Original Directors who were in
            office at the time of their appointment or nomination and (II) the
            directors whose appointment or nomination was previously approved in
            a manner consistent with this Subparagraph (B); or

                  (iv) Any transaction as a result of which any person is the
      "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
      Act of 1934, as amended), directly or indirectly, of securities of the
      Company representing at least 50% of the total voting power represented by
      the Company's then outstanding voting securities. For purposes of this
      Paragraph (iv), the term "person" shall have the same meaning as when used
      in sections 13(d) and 14(d) of such Act but shall exclude (a) a trustee or
      other fiduciary holding securities under an employee benefit plan of the
      Company or of a parent or subsidiary of the Company and (b) a corporation
      owned directly or indirectly by the stockholders of the Company in
      substantially the same proportions as their ownership of the common stock
      of the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.

            (c) INVOLUNTARY TERMINATION. For all purposes under this Agreement,
"Involuntary Termination" shall mean a termination of the Employee's service
that occurs by reason of (i) his involuntary dismissal or discharge by the
Company for reasons other than Cause or (ii) his voluntary resignation following
(a) a change in his position with the Company that materially reduces his level
of responsibility, (b) a reduction in his level of base salary or (c) a
relocation of his place of employment by more than 35 miles, provided and only
if such change, reduction or relocation is effected by the Company without his
consent.

            (d) PERMANENT DISABILITY. For all purposes under this Agreement,
"Permanent Disability" shall mean the Employee's inability to perform the
essential functions of the Employee's position, with or without reasonable
accommodation, for a period of at least 120 consecutive days because of a
physical or mental impairment.


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            IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.

                                         /s/ STEPHEN BENNION
                                        ----------------------------------------
                                        SELECTICA, INC.


                                        By /s/ SANJAY MITTAL
                                           -------------------------------------
                                        Title: Chief Executive Officer
                                               ---------------------------------

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