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                                                                    EXHIBIT 10.1

                            INDEMNIFICATION AGREEMENT

      THIS AGREEMENT is entered into, effective as of _________________ by and
between PHOTON DYNAMICS, INC., a California corporation (the "Company"), and
________________ ("Indemnitee").

      WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;

      WHEREAS, Indemnitee is a director and/or officer of the Company;

      WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims currently being asserted against directors and
officers of corporations; and

      WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued and
effective service to the Company, and in order to induce Indemnitee to provide
services to the Company as a director and/or officer, the Company wishes to
provide in this Agreement for the indemnification of and the advancing of
expenses to Indemnitee to the fullest extent (whether partial or complete)
permitted by California law and as set forth in this Agreement, and, to the
extent insurance is maintained, for the coverage of Indemnitee under the
Company's directors' and officers' liability insurance policies.

      NOW, THEREFORE, in consideration of the above premises and of Indemnitee's
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties agree as
follows:

      1.    CERTAIN DEFINITIONS:

            (a)   BOARD: the Board of Directors of the Company.

            (b)   CHANGE IN CONTROL: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Act")), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 30% or more of
the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board and any new director whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board, or (iii) the shareholders of the
Company approve a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the

                                       1.
<PAGE>

surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or (iv) the shareholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.

            (c)   EXPENSES: any expense, liability, or loss, including
attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts
paid or to be paid in settlement, any interest, assessments, or other charges
imposed thereon, and any federal, state, local, or foreign taxes imposed as a
result of the actual or deemed receipt of any payments under this Agreement,
paid or incurred in connection with investigating, defending, being a witness
in, or participating in (including on appeal), or preparing for any of the
foregoing in, any Proceeding relating to any Indemnifiable Event.

            (d)   INDEMNIFIABLE EVENT: any event or occurrence that takes place
either prior to or after the execution of this Agreement, related to the fact
that Indemnitee is or was a director or an officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent, or fiduciary of another foreign or
domestic corporation, partnership, joint venture, employee benefit plan, trust,
or other enterprise, or was a director, officer, employee, or agent of a foreign
or domestic corporation that was a predecessor corporation of the Company or of
another enterprise at the request of such predecessor corporation, or related to
anything done or not done by Indemnitee in any such capacity, whether or not the
basis of the Proceeding is alleged action in an official capacity as a director,
officer, employee, or agent or in any other capacity while serving as a
director, officer, employee, or agent of the Company, as described above.

            (e)   INDEPENDENT COUNSEL: the person or body appointed in
connection with Section 3.

            (f)   POTENTIAL CHANGE IN CONTROL: shall be deemed to have occurred
if (i) the Company enters into an agreement or arrangement, the consummation of
which would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions that, if consummated, would constitute a Change in Control; (iii)
any person (other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
who is or becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing l0% or more of the combined voting power of the
Company's then outstanding Voting Securities, increases his beneficial ownership
of such securities by 5% or more over the percentage so owned by such person on
the date hereof; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.

            (g)   PROCEEDING: (i) any threatened, pending, or completed action,
suit, or proceeding, or whether civil, criminal, administrative, investigative,
or other; (ii) any inquiry, hearing, or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, suit, or proceeding.

                                       2.
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            (h)   REVIEWING PARTY: the person or body appointed in accordance
with Section 3.

            (i)   VOTING SECURITIES: any securities of the Company that vote
generally in the election of directors.

      2.    AGREEMENT TO INDEMNIFY.

            (a)   GENERAL AGREEMENT. In the event Indemnitee was, is, or becomes
a party to or witness or other participant in, a Proceeding by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee from and against any and all Expenses to the fullest extent permitted
by law, as the same exists or may hereafter be amended or interpreted (but in
the case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the Company to provide broader
indemnification rights than were permitted prior thereto). The parties hereto
intend that this Agreement shall provide for indemnification in excess of that
expressly permitted by statute, including, without limitation, any
indemnification provided by the Company's Articles of Incorporation, its bylaws,
vote of its shareholders or disinterested directors, or applicable law.

            (b)   INITIATION OF PROCEEDING. Notwithstanding anything in this
Agreement to the contrary, Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Proceeding initiated by
Indemnitee against the Company or any director or officer of the Company unless
(i) the Company has joined in or the Board has consented to the initiation of
such Proceeding; (ii) the Proceeding is one to enforce indemnification rights
under Section 5; or (iii) the Proceeding is instituted after a Change in Control
and Independent Counsel has approved its initiation.

            (c)   EXPENSE ADVANCES. If so requested by Indemnitee, the Company
shall advance (within ten business days of such request) any and all Expenses to
Indemnitee (an "Expense Advance"); provided that, if and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid. If Indemnitee has commenced legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, as provided in Section 4, any determination
made by the Reviewing Party that Indemnitee would not be permitted to be
indemnified under applicable law shall not be binding and Indemnitee shall not
be required to reimburse the Company for any Expense Advance until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or have lapsed). Indemnitee's obligation to
reimburse the Company for Expense Advances shall be unsecured and no interest
shall be charged thereon.

            (d)   MANDATORY INDEMNIFICATION. Notwithstanding any other provision
of this Agreement (other than Section 2(f) below), to the extent that Indemnitee
has been successful on the merits in defense of any Proceeding relating in whole
or in part to an Indemnifiable Event or in defense of any issue or matter
therein, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.

                                       3.
<PAGE>

            (e)   PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.

            (f)   PROHIBITED INDEMNIFICATION. No indemnification pursuant to
this Agreement shall be paid by the Company on account of any Proceeding in
which judgment is rendered against Indemnitee for an accounting of profits made
from the purchase or sale by Indemnitee of securities of the Company pursuant to
the provisions of Section 16(b) of the Act or similar provisions of any federal,
state, or local laws.

      3.    REVIEWING PARTY. Prior to any Change in Control, the Reviewing party
shall be any appropriate person or body consisting of a member or members of the
Board or any other person or body appointed by the Board who is not a party to
the particular Proceeding with respect to which Indemnitee is seeking
indemnification; after a Change in Control, the Reviewing Party shall be the
Independent Counsel referred to below. With respect to all matters arising after
a Change in Control (other than a Change in Control approved by a majority of
the directors on the Board who were directors immediately prior to such Change
in Control) concerning the rights of Indemnitee to indemnity payments and
Expense Advances under this Agreement or any other agreement or under applicable
law or the Company's Articles of Incorporation or Bylaws now or hereafter in
effect relating to indemnification for Indemnifiable Events, the Company shall
seek legal advice only from Independent Counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld), and
who has not otherwise performed services for the Company or the Indemnitee
(other than in connection with indemnification matters) within the last five
years. The Independent Counsel shall not include any person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's rights under this Agreement. Such counsel,
among other things, shall render its written opinion to the Company and
Indemnitee as to whether and to what extent the Indemnitee should be permitted
to be indemnified under applicable law. The Company agrees to pay the reasonable
fees of the Independent Counsel and to indemnify fully such counsel against any
and all expenses (including attorneys' fees), claims, liabilities, loss, and
damages arising out of or relating to this Agreement or the engagement of
Independent Counsel pursuant hereto.

      4.    INDEMNIFICATION PROCESS AND APPEAL.

            (a)   INDEMNIFICATION PAYMENT. Indemnitee shall be entitled to
indemnification of Expenses, and shall receive payment thereof, from the Company
in accordance with this Agreement as soon as practicable after Indemnitee has
made written demand on the Company for indemnification, unless the Reviewing
Party has given a written opinion to the Company that Indemnitee is not entitled
to indemnification under applicable law.

            (b)   SUIT TO ENFORCE RIGHTS. Regardless of any action by the
Reviewing Party, if Indemnitee has not received full indemnification within
thirty days after making a demand in accordance with Section 4(a), Indemnitee
shall have the right to enforce its indemnification rights under this Agreement
by commencing litigation in any court in the State

                                       4.
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of California having subject matter jurisdiction thereof and in which venue is
proper seeking an initial determination by the court or challenging any
determination by the Reviewing Party or any aspect thereof. The Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party not challenged by the Indemnitee shall be
binding on the Company and Indemnitee. The remedy provided for in this Section 4
shall be in addition to any other remedies available to Indemnitee in law or
equity.

            (c)   DEFENSE TO INDEMNIFICATION, BURDEN OF PROOF, AND PRESUMPTIONS.
It shall be a defense to any action brought by Indemnitee against the Company to
enforce this Agreement (other than an action brought to enforce a claim for
Expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking has been tendered to the Company) that it is not
permissible under applicable law for the Company to indemnify Indemnitee for the
amount claimed. In connection with any such action or any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified hereunder, the burden of proving such a defense or determination
shall be on the Company. Neither the failure of the Reviewing Party or the
Company (including its Board, independent legal counsel, or its shareholders) to
have made a determination prior to the commencement of such action by Indemnitee
that indemnification of the claimant is proper under the circumstances because
Indemnitee has met the standard of conduct set forth in applicable law, nor an
actual determination by the Reviewing Party or Company (including its Board,
independent legal counsel, or its shareholders) that the Indemnitee had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the Indemnitee has not met the applicable standard of
conduct. For purposes of this Agreement, the termination of any claim, action,
suit, or proceeding, by judgment, order, settlement (whether with or without
court approval), conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.

      5.    INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS. The
Company shall indemnify Indemnitee against any and all Expenses and, if
requested by Indemnitee, shall (within ten business days of such request),
advance such Expenses to Indemnitee, that are incurred by Indemnitee in
connection with any claim asserted against or action brought by Indemnitee for:

            (i)   indemnification of Expenses or Expense Advances by the Company
under this Agreement or any other agreement or under applicable law or the
Company's Articles of Incorporation or Bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, and/or

            (ii)  recovery under directors' and officers' liability insurance
policies maintained by the Company, regardless of whether Indemnitee ultimately
is determined to be entitled to such indemnification, Expense Advances, or
insurance recovery, as the case may be.

                                       5.
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      6.    NOTIFICATION AND DEFENSE OF PROCEEDING.

            (a)   NOTICE. Promptly after receipt by Indemnitee of notice of the
commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof
is to be made against the Company under this Agreement, notify the Company of
the commencement thereof; but the omission so to notify the Company will not
relieve the Company from any liability that it may have to Indemnitee, except as
provided in Section 6(c).

            (b)   DEFENSE. With respect to any Proceeding as to which Indemnitee
notifies the Company of the commencement thereof, the Company shall be entitled
to participate in the Proceeding at its own expense and except as otherwise
provided below, to the extent the Company so wishes, it may assume the defense
thereof with counsel reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election to assume the defense of any
Proceeding, the Company shall not be liable to Indemnitee under this Agreement
or otherwise for any Expenses subsequently incurred by Indemnitee in connection
with the defense of such Proceeding other than reasonable costs of investigation
or as otherwise provided below. Indemnitee shall have the right to employ his or
her own legal counsel in such Proceeding, but all Expenses related thereto
incurred after notice from the Company of its assumption of the defense shall be
at Indemnitee's expense unless: (i) the employment of legal counsel by
Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably
determined that there may be a conflict of interest between Indemnitee and the
Company in the defense of the Proceeding, (iii) after a Change in Control, the
employment of counsel by Indemnitee has been approved by the Independent
Counsel, or (iv) the Company shall not in fact have employed counsel to assume
the defense of such Proceeding, in each of which case all Expenses of the
Proceeding shall be borne by the Company. The Company shall not be entitled to
assume the defense of any Proceeding brought by or on behalf of the Company or
as to which Indemnitee shall have made the determination provided for in (ii)
above.

            (c)   SETTLEMENT OF CLAIMS. The Company shall not be liable to
indemnify Indemnitee under this Agreement or otherwise for any amounts paid in
settlement of any Proceeding effected without the Company's written consent,
provided, however, that if a Change in Control has occurred, the Company shall
be liable for indemnification of Indemnitee for amounts paid in settlement if
the Independent Counsel has approved the settlement. The Company shall not
settle any Proceeding in any manner that would impose any penalty or limitation
on Indemnitee without Indemnitee's written consent. Neither the Company nor the
Indemnitee will unreasonably withhold their consent to any proposed settlement.
The Company shall not be liable to indemnify the Indemnitee under this Agreement
with regard to any judicial award if the Company was not given a reasonable and
timely opportunity, at its expense, to participate in the defense of such
action; the Company's liability hereunder shall not be excused if participation
in the Proceeding by the Company was barred by this Agreement.

      7.    ESTABLISHMENT OF TRUST. In the event of a Change in Control or a
Potential Change in Control, the Company shall, upon written request by
Indemnitee, create a Trust for the benefit of the Indemnitee and from time to
time upon written request of Indemnitee shall fund the Trust in an amount
sufficient to satisfy any and all Expenses reasonably anticipated at the time of
each such request to be incurred in connection with investigating, preparing
for, participating in, and/or defending any Proceeding relating to an
Indemnifiable Event. The

                                       6.
<PAGE>

amount or amounts to be deposited in the Trust pursuant to the foregoing funding
obligation shall be determined by the Reviewing Party. The terms of the Trust
shall provide that upon a Change in Control, (i) the Trust shall not be revoked
or the principal thereof invaded, without the written consent of the Indemnitee,
(ii) the Trustee shall advance, within ten business days of a request by the
Indemnitee, any and all Expenses to the Indemnitee (and the Indemnitee hereby
agrees to reimburse the Trust under the same circumstances for which the
Indemnitee would be required to reimburse the Company under Section 2(c) of this
Agreement), (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above, (iv) the Trustee shall
promptly pay to the Indemnitee all amounts for which the Indemnitee shall be
entitled to indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in the Trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that the Indemnitee has been fully indemnified under the terms
of this Agreement. The Trustee shall be chosen by the Indemnitee. Nothing in
this Section 7 shall relieve the Company of any of its obligations under this
Agreement. All income earned on the assets held in the Trust shall be reported
as income by the Company for federal, state, local, and foreign tax purposes.
The Company shall pay all costs of establishing and maintaining the Trust and
shall indemnify the Trustee against any and all expenses (including attorneys'
fees), claims, liabilities, loss, and damages arising out of or relating to this
Agreement or the establishment and maintenance of the Trust.

      8.    NON-EXCLUSIVITY. The rights of Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's Articles of
Incorporation, Bylaws, applicable law, or otherwise. To the extent that a change
in applicable law (whether by statute or judicial decision) permits greater
indemnification by agreement than would be afforded currently under the
Company's Articles of Incorporation, Bylaws, applicable law, or this Agreement,
it is the intent of the parties that Indemnitee enjoy by this Agreement the
greater benefits so afforded by such change.

      9.    LIABILITY INSURANCE. The Company will use its commercially
reasonable best efforts to obtain and maintain a policy or policies of insurance
with reputable insurance companies providing the Indemnitee with coverage for
losses from wrongful acts, and to ensure the Company's performance of its
indemnification obligations under the Agreement. To the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer. Not withstanding the foregoing,
if the Company, after employing commercially reasonable efforts as provided in
this section, determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance is disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit the Company shall
use its commercially reasonable efforts to obtain and maintain a policy or
policies of insurance with coverage having features as similar as practicable to
those described above.

      10.   PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or on behalf of the Company or any affiliate of
the Company against Indemnitee, Indemnitee's spouse, heirs, executors, or
personal or legal representatives after the expiration of two years from the
date of accrual of such cause of action, or such longer period as

                                       7.
<PAGE>

may be required by state law under the circumstances. Any claim or cause of
action of the Company or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such period;
provided, however, that if any shorter period of limitations is otherwise
applicable to any such cause of action the shorter period shall govern.

      11.   AMENDMENT OF THIS AGREEMENT. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall operate as a waiver of any other provisions hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver. Except as
specifically provided herein, no failure to exercise or any delay in exercising
any right or remedy hereunder shall constitute a waiver thereof.

      12.   SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.

      13.   NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise received payment (under any
insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable
hereunder.

      14.   BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation, or otherwise to all or substantially all of the business and/or
assets of the Company), assigns, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation, or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity pertaining to an Indemnifiable Event even though he
or she may have ceased to serve in such capacity at the time of any Proceeding.

      15.   SEVERABILITY. If any provision (or portion thereof) of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, or otherwise unenforceable, the remaining provisions shall remain
enforceable to the fullest extent permitted by law. Furthermore, to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void, or otherwise unenforceable, that is not itself invalid, void, or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, void, or unenforceable.

                                       8.
<PAGE>

      16.   GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of California applicable to
contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.

      17.   NOTICES. All notices, demands, and other communications required or
permitted hereunder shall be made in writing and shall be deemed to have been
duly given if delivered by hand, against receipt, or mailed, postage prepaid,
certified or registered mail, return receipt requested, and addressed to the
Company at:

                               Photon Dynamics, Inc.
                               5970 Optical Court
                               San Jose, California 95138
                               Attention: President

      Notice of change of address shall be effective only when given in
accordance with this Section. All notices complying with this Section shall be
deemed to have been received on the date of delivery or on the third business
day after mailing.

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

                                       9.
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the specified above.

                                       PHOTON DYNAMICS, INC.

                                       By:______________________________________

                                       Title:___________________________________

                                       INDEMNITEE:

                                       Name:____________________________________

                                       10.<PAGE>

                                                                     EXHIBIT 4.2

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR
EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE
DEPOSITORY OR A NOMINEE THEREOF AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY
AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

                              CAMDEN PROPERTY TRUST

                                     FORM OF
                              4.375% NOTE DUE 2010

REGISTERED                                                      PRINCIPAL AMOUNT
No.: R-1                                                            $250,000,000

CUSIP No.: 133131 AN 2

         CAMDEN PROPERTY TRUST, a real estate investment trust organized and
existing under the laws of the State of Texas (hereinafter called the "Company,"
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to CEDE & Co., or
registered assigns, upon presentation, the principal sum of Two Hundred and
Fifty Million Dollars ($250,000,000) on January 15, 2010 at the office or agency
of the Company referred to below, and to pay interest thereon from December 20,
2004, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, semi-annually in arrears on January 15 and July 15 in
each year (each, an "Interest Payment Date"), commencing July 15, 2005 at the
rate of 4.375% per annum, until the entire principal hereof is paid or duly
provided for. The interest so payable, and punctually paid or duly provided for
on any Interest Payment Date will, as provided for in the Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on the Regular Record Date for such
interest which shall be January 1 or July 1 (whether or not a Business Day), as
the case may be, immediately preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not more than 15 days and not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in the
Indenture.

<PAGE>

         Payment of the principal of, or Make-Whole Amount, if any, and interest
on, the Securities will be made to The Depository Trust Company or its nominee
in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
(i) check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register or (ii) by wire transfer of funds to an
account of the Person entitled thereto maintained within the United States.

         Securities of this series may be redeemed at any time at the option of
the Company, in whole or in part, upon notice of not more than 60 nor less than
30 days prior to the Redemption Date, at a redemption price equal to the sum of
(i) the principal amount of the Securities being redeemed plus accrued interest
thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with
respect to such Securities.

         REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET
FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH IN THIS PLACE.

         Unless the Certificate of Authentication hereon has been executed by or
on behalf of the Trustee by manual signature, this Security shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.

         IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

                                      CAMDEN PROPERTY TRUST

Dated: December 20, 2004              By:
                                         ---------------------------------------
                                         Dennis M. Steen
                                         Senior Vice President-Finance,
                                         Chief Financial Officer and Secretary

Attest:

By:
   ------------------------------------------------
   Terry S. McKinney
   Assistant Secretary

                    TRUSTEE'S CERTIFICATE OF AUTHENTICATION:

         This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.

SunTrust Bank,
as Trustee

By:                                                     Dated: December 20, 2004
    ----------------------------------------
    Authorized Officer

                                       2
<PAGE>

                                 Reverse of Note

                              CAMDEN PROPERTY TRUST

                              4.375% NOTE DUE 2010

         This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 11, 2003, (herein called the
"Indenture"), between the Company and SunTrust Bank, a banking corporation
organized and existing under the laws of the State of Georgia, as Trustee
(herein called the "Trustee," which term includes any successor trustee under
the Indenture with respect to the series of which this Security is a part), to
which Indenture and all board resolutions and indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is one of the series
designated on the first page hereof.

         "Make-Whole Amount" means, in connection with any optional redemption
or accelerated payment of any Security, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of such dollar if such redemption or accelerated
payment had not been made, determined by discounting, on a semi-annual basis,
such principal and interest at the Reinvestment Rate (determined on the third
Business Day preceding the date such notice of redemption is given or
declaration of acceleration is made) from the respective dates on which such
principal and interest would have been payable if such redemption or accelerated
payment had not been made, over (ii) the aggregate principal amount of the
Securities being redeemed or paid.

         "Reinvestment Rate" means 0.15% (fifteen one-hundredths of one percent)
plus the arithmetic mean of the yields under the respective headings "This Week"
and "Last Week" published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date of the
principal being redeemed or paid. If no maturity exactly corresponds to such
maturity, yields for the two published maturities most closely corresponding to
such maturity shall be calculated pursuant to the immediately preceding sentence
and the Reinvestment Rate shall be interpolated or extrapolated from such yields
on a straight-line basis, rounding in each of such relevant periods to the
nearest month. For purposes of calculating the Reinvestment Rate, the most
recent Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.

         "Statistical Release" means the statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded United
States government securities adjusted to constant maturities or, if such
statistical release is not published at the time of any determination under the
Indenture, then such other reasonably comparable index which shall be designated
by the Company.

         The covenants set forth in Section 10.12 of the Indenture shall be
fully applicable to this Security.

         The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of the Company on this Security and (b) certain restrictive
covenants and the related defaults and Events of Default applicable to the
Company, in each case, upon compliance by the Company with certain conditions
set forth in the Indenture, which provisions apply to this Security.

         If any Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of, and the Make-Whole Amount, if any,
on, the Securities of this series may be declared due and payable in the manner
and with the effect provided in the Indenture.

         As provided in and subject to the provisions of the Indenture, the
Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a

                                       3
<PAGE>

continuing Event of Default with respect to the Securities of this series, the
Holders of not less than 25% in principal amount of the Securities of this
series at the time Outstanding shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default as Trustee, offered
the Trustee reasonable indemnity, and the Trustee shall not have received from
the Holders of a majority in principal amount of Securities of this series at
the time Outstanding a direction inconsistent with such request, and the Trustee
shall have failed to institute any such proceeding, for 60 days after receipt of
such notice, request and offer of indemnity. The foregoing shall not apply to
any suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof (and premium or Make-Whole Amount, if any) or any
interest on and any Additional Amounts in respect thereof on or after the
respective due dates expressed herein.

         The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of not less than a majority in principal amount of the
Securities of each series at the time Outstanding affected thereby. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.

         No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, Make-Whole Amount, if
any, on, and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.

         As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any Place of Payment where the principal of,
Make-Whole Amount, if any, on, and interest on this Security are payable, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

         The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series of a different authorized denomination, as
requested by the Holder surrendering the same.

         No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.

         Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

         No recourse under or upon any obligation, covenant or agreement
contained in the Indenture or in this Security, or because of any indebtedness
evidenced thereby, shall be had against any promoter, as such or, against any
past, present or future shareholder, officer, trust manager or director, as
such, of the Company or of any successor, either directly or through the Company
or any successor, under any rule of law, statute or constitutional provision or
by the enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of this Security by the Holder thereof and as part of the
consideration for the issue of the Securities of this series.

         All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

                                       4
<PAGE>

         THE INDENTURE AND THE SECURITIES, INCLUDING THIS SECURITY, SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.

         Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused "CUSIP" numbers to be
printed on the Securities of this series as convenience to the Holders of such
Securities. No representation is made as to the correctness or accuracy of such
CUSIP numbers as printed on the Securities, and reliance may be placed only on
the other identification numbers printed hereon.

                     [REMAINDER OF PAGE INTENTIONALLY BLANK]

                                       5
<PAGE>

                                  ABBREVIATIONS

    The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COMM    --   as tenants in common                  UNIF GIFT/TRANSFER MIN ACT --
TEN ENT     --   as tenants by the entireties          ________ Custodian ________
JT TEN      --   as joint tenants with right           (Cust)             (Minor)
                 of survivorship and not as            Under Uniform Gifts/Transfers to Minors Act ______
                 tenants in common                                                                 (State)
</TABLE>

Additional abbreviations may also be used though not in the above list.

                        ---------------------------------

Social Security or taxpayer I.D. or other identifying number of assignee:

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

--------------------------------------------------------------------------------
                         (name and address of assignee)

the within Note and all rights thereunder, hereby irrevocably constituting and
appointing ____________________ ________________________________________,
attorney to transfer said Note on the books kept for registration thereof, with
full power of substitution in the premises.

Dated:

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