Employee Stock Purchase Plan - HPL Technologies Inc.


                             HPL TECHNOLOGIES, INC.

                          EMPLOYEE STOCK PURCHASE PLAN

                          (AS ADOPTED ON MAY 22, 2001)


         1.     PURPOSE. This HPL Technologies, Inc. Employee Stock Purchase
Plan (the "Plan") is designed to encourage and assist employees of HPL
Technologies, Inc. (the "Company") and any Participating Subsidiary, as defined
in Section 4, to acquire an equity interest in the Company through the purchase
of shares of Company common stock (the "Common Stock").

         2.     ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Company (or a committee thereof designated by the Board of
Directors, which in either case is referred to as the "Board"). The Board may
from time to time select a committee or persons (the "Administrator") to be
responsible for any matters in implementing the Plan. If no such committee or
persons are selected, the Board shall be the Administrator. Subject to the
express provisions of the Plan, to the overall supervision of the Board, and to
the limitations of Section 423 of the Internal Revenue Code of 1986, as amended
(the "Code"), the Administrator may administer and interpret the Plan in any
manner it believes to be desirable, and any such interpretation shall be
conclusive and binding on the Company and all persons, and the Administrator
shall have all powers necessary to accomplish the purposes of the Plan and
discharge its duties hereunder.

         3.     NUMBER OF SHARES.

                (a)     SHARE LIMIT. The total number of shares of Common 
Stock initially reserved and available for issuance pursuant to this Plan 
shall be 510,000 (the "Share Limit"). Notwithstanding the foregoing and 
subject to Section 3(b), the Share Limit shall automatically increase on 
March 1, 2002 and March 1 of each year thereafter until and including March 
1, 2011 (unless the Plan is terminated earlier in accordance with the 
provisions hereof) by the "Annual Increase" which shall consist of a number 
of shares equal to the least of (i) 150,000, (ii) one percent (1.00%) of the 
number of shares of all classes of common stock of the Company outstanding on 
that date or (iii) a lesser number determined by the Administrator prior to 
such March 1; provided that the total number of shares available for issuance 
under the Plan shall not exceed the initial Share Limit plus the maximum 
potential cumulative Annual Increase. The Share Limit shall be reduced by the 
number of shares issued under the HPL Technologies, Inc. Foreign Subsidiary 
Employee Stock Purchase Plan ("Foreign Plan"). Shares issued under the Plan 
may consist, in whole or in part, of authorized and unissued shares or 
treasury shares 

reacquired in private transactions or open market purchases, but all shares
issued under this Plan and the Foreign Plan shall be counted against the Share
Limit.

                (b)     ADJUSTMENTS. In the event of any reorganization,
recapitalization, stock split, reverse stock split, stock dividend, combination
of shares, offering of rights, or other similar change in the capital structure
of the Company, the Board may make such adjustment, if any, as it deems
appropriate in the number, kind, and purchase price of the shares available for
purchase under the Plan and in the maximum number of shares subject to any
option under the Plan. Such adjustment shall be made by the Administrator, whose
determination shall be final, binding, and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option under the Plan.

         4.     ELIGIBILITY REQUIREMENTS.

                (a)     ELIGIBLE EMPLOYEES. Each employee of the Company and
each Participating Subsidiary, except those described in the next paragraph,
shall become eligible to participate in the Plan in accordance with Section 5 on
the first Enrollment Date on or following commencement of his or her employment
by the Company or the Participating Subsidiary or following such period of
employment, not to exceed two years, as is designated by the Board from time to
time. Participation in the Plan is entirely voluntary.

                (b)     NON-ELIGIBLE EMPLOYEES. The following employees are not
eligible to participate in the Plan:

                        (i)     employees who would, immediately upon enrollment
or re-enrollment in the Plan, own directly or indirectly five percent or more of
the total combined voting power or value of all classes of stock of the Company
or any subsidiary of the Company or any parent of the Company (as defined in
Section 424 of the Code); and

                        (ii)    employees who are customarily employed by the
Company less than 20 hours per week or less than five months in any calendar
year.

                For purposes of the determination in clause (i) above, (a) the
employee shall be deemed to own stock attributed to him or her under the
attribution rules of Section 424(d) of the Code; (b) the employee shall be
considered to own any stock that the employee could purchase through the
exercise of any option or right to acquire stock held by the employee (including
the option granted to the employee upon an Enrollment 

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Date); and (c) the option granted to an employee on an Enrollment Date shall be
deemed to be an option to acquire a number of shares of Common Stock of the
Company equal to (x) the maximum number of shares that may be purchased on any
Purchase Date as set forth in Section 6(b)(vii) hereof multiplied by (y) the
number of Purchase Dates in the option period for such option.

                (c)     DEFINITION OF EMPLOYEE. "Employee" shall mean any
individual who is an employee of the Company or a Participating Subsidiary.
Whether an individual qualifies as an Employee shall be determined by the
Administrator, in its sole discretion. The Administrator shall be guided by the
provisions of Treasury Regulation Section 1.421-7 and Section 3401(c) of the
Code and the Treasury Regulations thereunder, with the intent that the Plan
cover all "employees" within the meaning of those provisions other than those
who are not eligible to participate in the Plan; provided, however, that any
determinations regarding whether an individual is an "employee" shall be
prospective only, unless otherwise determined by the Administrator. Unless the
Administrator makes a contrary determination, the Employees of the Company
shall, for all purposes of this Plan, be those individuals who are carried as
employees of the Company or a Participating Subsidiary for regular payroll
purposes or are on a leave of absence for not more than 90 days. Any inquiries
regarding eligibility to participate in the Plan shall be directed to the
Administrator, whose decision will be final.

                (d)     DEFINITION OF SUBSIDIARY. "Subsidiary" shall mean any
corporation that is a "subsidiary" of the Company as defined in Section 424(f)
of the Code. "Participating Subsidiary" shall mean a subsidiary which has been
designated by the Administrator as covered by the Plan.

         5.     ENROLLMENT. Any eligible employee may enroll or re-enroll in the
Plan each year as of the first trading day of (i) September 2001, (ii) March
2002, and (iii) each September and March thereafter, or such other days as may
be established by the Board from time to time (the "Enrollment Dates"). In order
to enroll, an eligible employee must complete and submit to the Company the
enrollment form approved by the Administrator. Any enrollment form received by
the designee of the Administrator by (a) the September 2001 Enrollment Date, (b)
with respect to each Enrollment Date thereafter, the 25th day of the month
preceding such Enrollment Date (or the Enrollment Date in the case of employees
hired after such 25th day), or (c) such other date established by the
Administrator from time to time, will be effective on that Enrollment Date. For
purposes of the Plan, a "trading day" is any day on which regular trading occurs
on any established stock exchange or market system on which the Common Stock is
traded. Any employee who has enrolled in the Plan and has not withdrawn shall be
automatically re-enrolled in the Plan on the Enrollment Date next following the
expiration of the employee's option at the same level of payroll deduction as
during the preceding option period. An employee 

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wishing to change the level of payroll deduction must submit a new enrollment
form on or before the due dates for such forms described above.

         6.     GRANT OF OPTION ON ENROLLMENT.

                (a)     GRANT OF OPTION. Enrollment or re-enrollment by a
participant in the Plan on an Enrollment Date will constitute the grant by the
Company to the participant of an option to purchase shares of Common Stock from
the Company under the Plan.

                (b)     TERMS OF OPTION. Each option granted under the Plan
shall have the following terms:

                        (i)     each option granted under the Plan will have a
term of not more than 24 months or such shorter option period as may be
established by the Board from time to time; notwithstanding the foregoing,
however, whether or not all shares have been purchased thereunder, the option
will expire on the earlier to occur of (A) the completion of the purchase of
shares on the last Purchase Date occurring within 24 months after the Enrollment
Date for such option, or such shorter option period as may be established by the
Board before an Enrollment Date for all options to be granted on such date or
(B) the date on which the employee's participation in the Plan terminates for
any reason;

                        (ii)    payment for shares purchased under the option
will be made only through payroll withholding in accordance with Section 7;

                        (iii)   purchase of shares upon exercise of the option
will be effected only on the Purchase Dates established in accordance with
Section 8;

                        (iv)    the price per share under the option will be
determined as provided in Section 8;

                        (v)     the number of shares available for purchase
under an option will be determined by dividing (i) such participant's payroll
deductions accumulated on or prior to such Purchase Date and retained in such
participant's account as of the Purchase Date; by (ii) the applicable Purchase
Price determined in accordance with Section 8;

                        (vi)    the option (taken together with all other
options then outstanding under this and all other similar stock purchase plans
of the Company and any subsidiary of the Company, collectively "Options") will
in no event give the participant the right to purchase shares at a rate per
calendar year which accrues in excess of $25,000 of fair market value of such
shares, determined at the applicable Enrollment Date;

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                        (vii)   the option will in no event give the right to
purchase more than 1500 shares on any Purchase Date; and

                        (viii)  the option will in all respects be subject to
the terms and conditions of the Plan, as interpreted by the Administrator, in
its sole discretion, from time to time.

         7.     PAYROLL AND TAX WITHHOLDING; USE BY COMPANY.

                (a)     PAYROLL DEDUCTIONS. Each participant shall elect to have
amounts withheld from his or her compensation paid by the Company during the
option period, at a rate equal to any whole percentage up to 15 percent, or such
other maximum percentage as the Board may establish from time to time before an
Enrollment Date. Compensation includes regular salary payments, bonuses,
overtime pay and any other compensation as may be determined from time to time
by the Board of Directors, but excludes all other payments including, without
limitation, long-term disability or workers compensation payments, car
allowances, employee referral bonuses, relocation payments, expense
reimbursements (including but not limited to travel, entertainment, and moving
expenses), salary gross-up payments, and non-cash recognition awards. The
participant shall designate a rate of withholding in his or her enrollment form
and may elect to increase or decrease the rate of contribution effective as of
any Enrollment Date, by delivery to the Company, not later than the 25th day of
the month preceding such Enrollment Date, of a written notice indicating the
revised withholding rate. The first payroll deduction will commence with the
first payment of compensation on or after the Enrollment Date.

                (b)     USE OF WITHHOLDINGS. Payroll withholdings shall be
credited to an account maintained for purposes of the Plan on behalf of each
participant, as soon as administratively feasible after the withholding occurs.
The Company shall be entitled to use the withholdings for any corporate purpose,
shall have no obligation to pay interest on withholdings to any participant, and
shall not be obligated to segregate withholdings.

                (c)     TAX WITHHOLDINGS. The participant shall pay, or make
provision adequate to the Company for payment of, all federal, state, and other
tax (and similar) withholdings that the Company determines, in its discretion,
are required due to the acquisition of shares under the Plan or the disposition
of such shares, including any such withholding that the Company determines in
its discretion is necessary to allow the Company to claim tax deductions or
other benefits in connection with the disposition.

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         8.     PURCHASE OF SHARES.

                (a)     PURCHASE DATE. On the last trading day of each month
immediately preceding a month containing an Enrollment Date, or on such other
days as may be established by the Board from time to time prior to an Enrollment
Date for all options to be granted on an Enrollment Date (each a "Purchase
Date"), the Company shall apply the funds then credited to each participant's
payroll withholdings account to the purchase of whole shares of Common Stock.

                (b)     PURCHASE PRICE. The cost to the participant for the
shares purchased under any option shall be not less than 85 percent of the lower
of:

                        (i)     the fair market value of the Common Stock on the
Enrollment Date for such option; or

                        (ii)    the fair market value of the Common Stock on
that Purchase Date.

         The "fair market value" of the Common Stock on a date shall be the
closing price of the Common Stock on the Nasdaq National Market (or, if
determined by the Administrator to be the primary market on which the Common
Stock is traded, a stock exchange or other market system on which the Common
Stock is traded), or the fair market value on such date as determined by the
Administrator if no such price is reported.

                (c)     FUNDS REMAINING AFTER PURCHASE. Any funds in an amount
less than the cost of one share of Common Stock left in a participant's payroll
withholdings account on a Purchase Date shall be carried forward in such account
for application on the next Purchase Date.

                (d)     INSUFFICIENT SHARES AVAILABLE. If at any Purchase Date,
the shares available under the Plan are less than the number all participants
would otherwise be entitled to purchase on such date, purchases (including
purchases under the Foreign Plan) shall be reduced proportionately to eliminate
the deficit. Any funds that cannot be applied to the purchase of shares due to
such a reduction shall be refunded to participants as soon as administratively
feasible, unless the Administrator, in its sole discretion, determines that such
excess funds shall be carried over to the next Purchase Date under this Plan.

         9.     WITHDRAWAL FROM THE PLAN. A participant may withdraw from the
Plan in full (but not in part) at any time, effective after written notice
thereof is received by the Company. All funds credited to a participant's
payroll withholdings account shall be 

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distributed to him or her without interest within 60 days after notice of
withdrawal is received by the Company. Any eligible employee who has withdrawn
from the Plan may enroll in the Plan again on any subsequent Enrollment Date in
accordance with the provisions of Section 5. If a participant fails to remain
employed for at least 20 hours per week during an Offering Period, the
participant will be deemed to have withdrawn from this Plan, the payroll
deductions credited to the participant's account will be promptly refunded, and
the participant's option under the Plan shall terminate.

         10.    TERMINATION OF EMPLOYMENT. Participation in the Plan terminates
immediately when a participant ceases to be employed by the Company for any
reason whatsoever (including death or disability) or otherwise becomes
ineligible to participate in the Plan. As soon as administratively feasible
after termination, the Company shall pay to the participant or his or her
beneficiary or legal representative, all amounts credited to the participant's
payroll withholdings account; provided, however, that if a participant ceases to
be employed by the Company because of the commencement of employment with a
Subsidiary of the Company that is not a Participating Subsidiary, funds then
credited to such participant's payroll withholdings account shall be applied to
the purchase of whole shares of Common Stock at the next Purchase Date, and any
funds remaining after such purchase shall be paid to the participant.

         11.    BENEFICIARIES.

                (a)     DESIGNATION OF BENEFICIARY. Each participant may
designate one or more beneficiaries in the event of death and may, in his or her
sole discretion, change such designation at any time. Any such designation shall
be effective upon receipt in written form by the Company and shall control over
any disposition by will or otherwise.

                (b)     PAYMENT TO BENEFICIARY. As soon as administratively
feasible after the death of a participant, amounts credited to his or her
account shall be paid in cash to the designated beneficiaries or, in the absence
of a designation, to the executor, administrator, or other legal representative
of the participant's estate. Such payment shall relieve the Company of further
liability with respect to the Plan on account of the deceased participant. If
more than one beneficiary is designated, each beneficiary shall receive an equal
portion of the account unless the participant has given express contrary written
instructions.

         12.    ASSIGNMENT.

                (a)     ASSIGNMENT PROHIBITED. Except as provided in Section 11,
the rights of a participant under the Plan shall not be assignable by such
participant, by operation of law or otherwise. No participant may create a lien
on any funds, securities, rights, or other property held by the Company for the
account of the participant under the Plan, 

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except to the extent that there has been a designation of beneficiaries in
accordance with the Plan, and except to the extent permitted by the laws of
descent and distribution if beneficiaries have not been designated.

                (b)     RIGHTS EXERCISABLE ONLY BY PARTICIPANT. A participant's
right to purchase shares under the Plan shall be exercisable only during the
participant's lifetime and only by him or her, except that a participant may
direct the Company in the enrollment form to issue share certificates to the
participant and his or her spouse in community property, to the participant
jointly with one or more other persons with right of survivorship, or to certain
forms of trusts approved by the Administrator; provided, that such direction may
not be terminated, except at the beginning of a new enrollment period or
pursuant to a "qualified domestic relations order" as defined under the Code.

         13.    ADMINISTRATIVE ASSISTANCE. If the Administrator in its
discretion so elects, it may engage a brokerage firm, bank, or other financial
institution to assist in the purchase of shares, delivery of reports, or other
administrative aspects of the Plan. If the Administrator so elects, each
participant shall be deemed upon enrollment in the Plan to have authorized the
establishment of an account on his or her behalf at such institution. Shares
purchased by a participant under the Plan shall be held in the account in the
name in which the share certificate would otherwise be issued.

         14.    COSTS. All costs and expenses incurred in administering the Plan
shall be paid by the Company, except that any stamp duties or transfer taxes
applicable to participation in the Plan may be charged to the account of such
participant by the Company. Any brokerage fees for the purchase of shares by a
participant shall be paid by the Company, but brokerage fees for the resale of
shares by a participant shall be borne by the participant.

         15.    EQUAL RIGHTS AND PRIVILEGES. All eligible employees shall have
equal rights and privileges with respect to the Plan so that the Plan qualifies
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code and the related Treasury Regulations. Any provision of the Plan which is
inconsistent with Section 423 of the Code shall without further act or amendment
by the Company or the Board be reformed to comply with the requirements of
Section 423. This Section 15 shall take precedence over all other provisions of
the Plan.

         16.    APPLICABLE LAW. The Plan and options granted hereunder shall be
governed by the substantive laws (excluding the conflict of laws rules) of the
State of Delaware.

         17.    MODIFICATION AND TERMINATION.

                (a)     MODIFICATION AND TERMINATION OF PLAN. The Board may
modify, amend, alter, or terminate the Plan at any time, including amendments to
outstanding options. No amendment to (i) increase the number of shares reserved
for purchase under the Plan, (ii) change the designation of the employees (or
class of employees) eligible for participation in this Plan; or (iii) if the
Company has a class of equity securities registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") at the time of
such amendment, materially increase the benefits that may accrue to participants
under this Plan, shall be effective unless within 12 months after it is adopted
by the Board, it is approved by the stockholders of the Company.

                (b)     TERMINATION OF OPTIONS. In the event the Plan is
terminated, the Board may elect to terminate all outstanding options either
immediately or upon completion of the purchase of shares on the next Purchase
Date, or may elect to permit options to expire in accordance with their terms
(and participation to continue through 


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such expiration dates). If the options are terminated prior to expiration, all
funds contributed to the Plan that have not been used to purchase shares shall
be returned to the participants as soon as administratively feasible.

                (c)     ASSET SALE, MERGER, ETC. In the event of the sale of all
or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation, or the
dissolution or liquidation of the Company, the Board shall provide for the
assumption or substitution of each option under the Plan by the successor or
surviving corporation, or a parent or subsidiary thereof, unless the Board
decides to take such other action as it deems appropriate, including, without
limitation, providing for the termination of the Plan and providing for a
Purchase Date to occur on the trading day immediately preceding the date of such
termination.

         18.    RIGHTS AS AN EMPLOYEE. Nothing in the Plan shall be construed to
give any person the right to remain in the employ of the Company or any
Subsidiary or to affect the Company's or any Subsidiary's right to terminate the
employment of any person at any time with or without cause.

         19.    RIGHTS AS A SHAREHOLDER; DELIVERY OF CERTIFICATES. Participants
shall be treated as the owners of their shares effective as of the Purchase
Date. Certificates evidencing shares purchased on any Purchase Date shall be
delivered to participants as soon as administratively feasible, unless the
Administrator determines that the Company instead of delivery of share
certificates shall (i) deliver a certificate (or equivalent) to a broker for
crediting to the participant's account, or (ii) make a notation in the
participant's favor of non-certificated shares on the Company's stock records.

         20.    ADDITIONAL RESTRICTIONS OF RULE 16b-3. The terms and conditions
of options granted hereunder to, and the purchase of shares by, persons subject
to Section 16 of the Securities Exchange Act of 1934 shall comply with the
applicable provisions of Rule 16b-3 of such Act. This Plan shall be deemed to
contain, and such options shall contain, and the shares issued upon exercise
thereof shall be subject to, such additional conditions and restrictions as may
be required by Rule 16b-3 to qualify for the maximum exemption from Section 16
of the Securities Exchange Act of 1934 with respect to Plan transactions.


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