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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 10-K/A Amendment No. 2 FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2004
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File Number 0-27234   Photon Dynamics, Inc. (Exact name of registrant as specified in its charter) California(State or other jurisdiction of
incorporation or organization)
    
    94-3007502(I.R.S. Employer
Identification No.)
 5970 Optical Court
San Jose, CA 95138(Address of principal executive offices, including zip code) (408) 226-9900(Registrants telephone number, including area code)   Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of class)   Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.       Yes þ       No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.       o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).       Yes þ       No o As of March 31, 2004, the aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the last sale price of such stock as of such date on the
NASDAQ National Market, was approximately $475,679,585. Excludes an aggregate of 2,057,546 shares
of common stock held by officers and directors and by each person known by the registrant to own 5%
or more of the outstanding common stock as of March 31, 2004. Exclusion of shares held by any of
these persons should not be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the registrant, or that
such person is controlled by or under common control with the registrant. As of November 30, 2004, there were 16,873,772 shares of the registrants Common Stock
outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrants definitive Proxy Statement for the 2005 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Form 10-K, are incorporated by
reference in Part III, Items 10-14 of this Form 10-K.




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TABLE OF CONTENTS  PART IIIItem 10. Directors and Executive Officers of the RegistrantItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersItem 14. Principal Accounting Fees and ServicesSIGNATURESEXHIBIT INDEXEXHIBIT 31.1EXHIBIT 31.2    Table of Contents    EXPLANATORY NOTE We are filing this amendment to our Annual Report on Form 10-K, originally filed with the
Securities and Exchange Commission on December 14, 2004, as amended by Amendment No. 1 to our
Annual Report on Form 10-K/A, filed with the Securities and Exchange Commission on December 22,
2004, solely for the purpose of amending the disclosures in Part III, Items 10, 12 and 14; no other
information included in the Annual Report on Form 10-K is amended by this Amendment No. 2 on Form
10-K/A. In addition, we have filed the following exhibits herewith: 31.1       Certification required by Rule 13a-14(a) or Rule 15d-14(a) 31.2       Certification required by Rule 13a-14(a) or Rule 15d-14(a)   
 PART III 
 Item 10.Directors and Executive Officers of the Registrant Information with respect to Directors and Executive Officers may be found under the caption
Executive Officers of the Registrant at the end of Item 1 of this Annual Report on Form 10-K, and
in the section entitled Proposal 1  Election of Directors appearing in the Proxy Statement. Such
information is incorporated herein by reference. Information with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 and our code of ethics may be found in the
sections entitled Security Ownership of Certain Beneficial Owners and Management  Section 16(A)
Beneficial Ownership Reporting Compliance and Proposal 1  Election of Directors  Code of
Business Conduct and Ethics, respectively, appearing in the Proxy Statement. Such information is
incorporated herein by reference. 
 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item with respect to security ownership of certain beneficial
owners and management is incorporated herein by reference to the information from the Proxy
Statement under the section entitled Security Ownership of Certain Beneficial Owners and
Management. The information required by this Item with respect to securities authorized for
issuance under our equity compensation plans is incorporated herein by reference to the information
from the Proxy Statement under the section entitled Proposal 2  Approval of the Photon Dynamics,
Inc. 2005 Equity Incentive Plan  Equity Compensation Plan Information. 
 Item 14.Principal Accounting Fees and Services The information required by this Item is incorporated herein by reference to the information
from the Proxy Statement under the section entitled Proposal 5  Ratification of Selection of
Independent Registered Public Accounting Firm. Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section
202 of the Sarbanes-Oxley Act of 2002, we are responsible for listing the non-audit services
approved by our Audit Committee to be performed by Ernst & Young LLP, our independent registered
public accounting firm. Non-audit services are defined as services other than those provided in
connection with an audit or a review of our financial statements and other than those services that
are normally provided in connection with statutory and regulatory filings or engagements. In the
period covered by this report, our Audit Committee pre-approved the following non-audit services
rendered, currently being rendered, or to be rendered, to us by Ernst & Young LLP:  
    consultations relating to the implementation of
Section 404 of the Sarbanes-Oxley Act of 2002;
    tax services in connection with a Section 382 Study;
    services, which shall not include legal services, in connection with
the dissolution of the subsidiary in Shanghai, China;
    tax services in connection with ex-patriot work;
    preparation of certain foreign tax returns, and tax advice in preparing for and in
connection therewith; and
    accounting advice on the proper recording of various transactions entered into, or to be
entered into, by us.




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. PHOTON DYNAMICS, INC.By:
    
    /s/ JEFFREY A. HAWTHORNEJeffrey A. HawthornePresident and Chief Executive OfficerDated: January 28, 2005
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated: Name
    
    Title
    
    DateBy: /s/ JEFFREY A. HAWTHORNE

Jeffrey A. Hawthorne
    
    President and Chief Executive
Officer and Director (Principal Executive Officer)
    
    January 28, 2005By: /s/ RICHARD OKUMOTO

Richard Okumoto
    
    Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
    
    January 28, 2005By: *
Malcolm Thompson
    
    Chairman of the Board and Directors
    
    January 28, 2005By: *

Michael J. Kim
    
    Director
    
    January 28, 2005By: *

E. Floyd Kvamme
    
    Director
    
    January 28, 2005*By: /s/ JEFFREY A. HAWTHORNE

Jeffrey A. HawthorneAttorney-In-Fact
    
    
    
    January 28, 2005




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EXHIBIT INDEX Number
    
    Exhibit2.3(E)
    
    Agreement and Plan of Merger, dated as of July 6, 2001, by and among the Registrant; Iris Acquisition, LLC, a Texas limited liability
company; Intelligent Reasoning Systems, Inc., a Texas corporation; and Clinton Bybee (as the Shareholders Agent), as amended on July 12,
2001.3.1(H)
    
    Amended and Restated Articles of Incorporation of the Registrant.3.2(C)
    
    Bylaws of the Registrant and amendments thereto.3.3(H)
    
    Certificate of Amendment to Articles of Incorporation of the Registrant.4.1
    
    Reference is made to Exhibits 3.1, 3.2 and 3.3.10.1(A)*
    
    Form of Indemnification Agreement between the Registrant and each of its executive officers and directors.10.2(A)*
    
    1987 Stock Option Plan and Form of Stock Option Agreement.10.3.1(B)
    
    Lease agreement between Berg & Berg Developers and the Registrant dated August 6, 1996.10.3.2(H)
    
    First Amendment to Lease between Mission West Properties, L.P. II and the Registrant dated December 7, 2001.10.8(M)*
    
    Offer Letter between the Registrant and Elwood Spedden dated February 4, 2003.10.9(D)*
    
    Agreement Regarding Change of Control between the Registrant and Jeffrey Hawthorne dated October 15, 1995.10.10(P)
    
    Lease Agreement between Corridor Park Pointe II, L.P. and Intelligent Reasoning Systems, Inc., dated May 21, 1999.10.11(P)
    
    First Amendment to Lease Agreement between Corridor Park Pointe II, L.P. and Intelligent Reasoning Systems, Inc. dated November 9, 1999.10.12(P)
    
    Second Amendment to Lease Agreement between Corridor Park Pointe II, L.P. and Intelligent Reasoning Systems, Inc. dated March 15, 2000.10.13(F)
    
    Agreement for Purchase and Sale of Commercial Property between the Registrant and Integrated Power Chip Corporation dated February 12,
2001.10.15(G)
    
    Image Processing Systems Inc. Amended Share Incentive Plan.10.16(P)
    
    Series E Stock Purchase Warrant for Leader Technologies LTD, dated March 1, 2000.10.17(I)
    
    Manufacturing Services Agreement, dated as of December 10, 2001 by and between the Registrant and Sanmina-SCI Corporation.10.18(H)
    
    Real Estate Sublease by and between the Registrant and Sanmina-SCI Corporation dated December 10, 2001.10.19(H)
    
    Amended and Restated Agreement for Purchase of Inventory by and between the Registrant and Sanmina-SCI Corporation dated January 29, 2002.10.20(L)*
    
    Amended and Restated 1995 Stock Option Plan, as amended.




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Number
    
    Exhibit10.20.1(W)*
    
    Form of Stock Option Agreement under 1995 Stock Option Plan, as amended.10.21(L)*
    
    1995 Employee Stock Purchase Plan, as amended.10.22(M)*
    
    2001 Equity Incentive Plan, as amended.10.22.1(W)*
    
    Form of Stock Option Agreement under 2001 Equity Incentive Plan, as amended.10.25.1(Q)
    
    Lease Agreement between Bruce N. Huntley Contracting Limited and Image Processing Systems Inc. dated September 17, 1997.10.25.2(Q)
    
    Option to Renew Agreement between Bruce N. Huntley Contracting Limited and Photon Dynamics Canada Inc. dated May 24, 2002.10.26(V)
    
    Third Amendment to Lease Agreement between the Registrant and Mission West Properties L.P. II dated as of August 2003.10.29(R)*
    
    Offer Letter between the Registrant and Richard Okumoto dated April 21, 2003.10.30(V)*
    
    Consulting Agreement between the Registrant and Malcolm Thompson dated July 28, 2003.10.31(V)*
    
    Amendment to Consulting Agreement between the Registrant and Malcolm Thompson dated
September 1, 2003.10.33(S)*
    
    Separation Agreement, dated December 4, 2003, between Elwood Spedden and Photon
Dynamics, Inc.10.34(S)
    
    Settlement and License Agreement, dated November 10, 2003, between Photon Dynamics,
Inc., Shimadzu Corporation, Panelvision Technology, Inc. and Guillermo Toro-Lira.10.35(T)*
    
    Consulting Agreement, dated March 18, 2004, between the Registrant and Malcolm Thompson.10.36(T)
    
    Termination and Assignment Agreement, dated February 27, 2004, between Photon Dynamics,
Inc. and Ishikawajima-Harima Heavy Industries Co. Ltd.10.37(U)
    
    Confidential Mutual Settlement Agreement and Mutual General Release of All Claims,
dated April 22, 2004, between Photon Dynamics, Inc. and Robert L. Thomason, et. al.10.38(W)*
    
    Offer Letter between the Registrant and Mark Merrill dated April 27, 2004.10.39(W)*
    
    Executive Officer Bonus Compensation Plan.10.40(W)*
    
    Outside Director Cash Compensation Arrangement.21.1(W)
    
    Subsidiaries of the Registrant.23.1(W)
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.24.1(W)
    
    Power of Attorney (included on the signature pages hereto).31.1
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a).31.2
    
    Certification required by Rule 13a-14(a) or Rule 15d-14(a).32.1(W)**
    
    Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter
63 of Title 18 of the United States Code (18 U.S.C. §1350).




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Key to Exhibits:
 (A)
    
    Previously filed on the Registrants Registration Statement on Form
SB-2 (Commission File No. 33-98232-LA) as filed with the Securities
and Exchange Commission (the SEC) on November 15, 1995 and
incorporated herein by reference.(B)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1996 (Commission
File No. 000-27234) as filed with the SEC on December 30, 1996, and
incorporated herein by reference.(C)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1998 as filed with
the SEC on December 18, 1998, and incorporated herein by reference.(D)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-KSB for the fiscal year ended September 30, 1999 as filed with
the SEC on October 27, 1999, and incorporated herein by reference.(E)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K as filed with the SEC on July 25, 2001, and incorporated
herein by reference.(F)
    
    Previously filed as an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2001 as filed with the SEC
on May 4, 2001, and incorporated herein by reference.(G)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-8 as filed with the SEC on January 24, 2001, and
incorporated herein by reference.(H)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-1 (Commission File No. 333-76650) as filed with
the SEC on January 14, 2002, as amended, and incorporated by reference
herein.(I)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K as filed with the SEC on January 7, 2002, and incorporated
herein by reference. Confidential treatment has been granted for
portions of this exhibit.(K)
    
    Previously filed as an exhibit to the Registrants Current Report on
Form 8-K/ A as filed with the SEC on July 29, 2002, and incorporated
herein by reference.(L)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-8 (Reg. No. 333-117021) as filed with the SEC on
June 30, 2004, and incorporated herein by reference.(M)
    
    Previously filed as an exhibit to the Registrants Quarterly Report
Form on Form 10-Q for the quarter ended March 31, 2003 as filed with
the SEC on May 9, 2003, and incorporated herein by reference.(N)
    
    Previously filed as an appendix to the Registrants Definitive Proxy
Statement as filed with the SEC on November 8, 1999 and incorporated
herein by reference.(O)
    
    Previously filed as an exhibit to the Registrants Registration
Statement on Form S-3 as filed with the SEC on November 7, 2000 and
incorporated herein by reference.(P)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended September 30, 2001 as filed with
the SEC on December 6, 2001, and incorporated herein by reference.(Q)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended September 30, 2002 as filed with
the SEC on December 11, 2002, and incorporated herein by reference.(R)
    
    Previously filed as an exhibit to the Registrants Quarterly Report
Form on Form 10-Q for the quarter ended June 30, 2003 as filed with
SEC on August 14, 2003, and incorporated herein by reference.




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(S)
    
    Previously filed as an exhibit to the Registrants Quarterly Report
Form on Form 10-Q for the quarter ended December 31, 2003 as filed
with SEC on February 17, 2004, and incorporated herein by reference.
Confidential treatment has been granted for portions of Exhibit 10.34.(T)
    
    Previously filed as an exhibit to the Registrants Quarterly Report
Form on Form 10-Q for the quarter ended March 31, 2004 as filed with
SEC on May 14, 2004, and incorporated herein by reference.
Confidential treatment has been granted for portions of Exhibit 10.36.(U)
    
    Previously filed as an exhibit to the Registrants Quarterly Report
Form on Form 10-Q for the quarter ended June 30, 2004 as filed with
SEC on August 16, 2004, and incorporated herein by reference.
Confidential treatment has been requested for portions of this
exhibit.(V)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended September 30, 2003 as filed with
the SEC on December 24, 2003, and incorporated herein by reference.(W)
    
    Previously filed as an exhibit to the Registrants Annual Report on
Form 10-K for the fiscal year ended September 30, 2004, as amended,
originally filed with the SEC on December 14, 2004, and incorporated
herein by reference.*
    
    Indicates a management contract or compensatory plan or arrangement.**
    
    The certification attached as Exhibit 32.1 accompanies the Annual
Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and shall not be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.