Document:

<PAGE>

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE SUPPLEMENTAL
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY
BE REQUIRED PURSUANT TO SECTION 2.06 OF THE SUPPLEMENTAL INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION
2.06(a) OF THE SUPPLEMENTAL INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED
TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE SUPPLEMENTAL
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY
WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.

<PAGE>

================================================================================

                                                                CUSIP #46521PAA5

                          8 3/4% Senior Notes due 2008

No. 01                                                              $350,000,000

                              iSTAR FINANCIAL INC.

promises to pay to Cede & Co., or registered assigns, the principal sum of THREE
HUNDRED FIFTY MILLION Dollars ($350,000,000) on August 16, 2008.

Interest Payment Dates:  February 15 and August 15

Record Dates:  February 1 and August 1

Dated:  August 16, 2001

   SEAL:                              iSTAR FINANCIAL INC.

                                      By:
                                          --------------------------------------
                                          Name:
                                          Title:

                                      By:
                                          --------------------------------------
                                          Name:
                                          Title:

This is one of the Notes referred to in the within-mentioned Supplemental
Indenture:

STATE STREET BANK AND TRUST COMPANY, N.A.,
  as Trustee

By:
   ---------------------------------------
           Authorized Signatory

================================================================================

                                       A-2

<PAGE>

                                 [Back of Note]
                           83/4% Senior Notes due 2008

         Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.

         1. INTEREST. iStar Financial Inc., a Maryland corporation (the
"Company"), promises to pay interest on the principal amount of this Note at 8
3/4% per annum from August 16, 2001 until maturity. The Company will pay
interest semi-annually in arrears on February 15 and August 15 of each year, or
if any such day is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 16, 2001; PROVIDED that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date; PROVIDED,
FURTHER, that the first Interest Payment Date shall be February 15, 2002. The
Company shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at the rate then in effect; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest (without regard to any applicable grace periods) from
time to time on demand at the same rate to the extent lawful. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.

         2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the February 1 or August 1 next preceding the
Interest Payment Date, even if such Notes are canceled after such record date
and on or before such Interest Payment Date, except as provided in Section 2.12
of the Indenture with respect to defaulted interest. The Notes will be payable
as to principal, premium, if any, and interest at the office or agency of the
Company maintained for such purpose within or without the City and State of New
York, or, at the option of the Company, payment of interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and PROVIDED that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, and premium, if any, on,
all Global Notes and all other Notes the Holders of which shall have provided
wire transfer instructions to the Company or the Paying Agent. Such payment
shall be 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. The Company
reserves the right to pay interest to Holders of Notes by check mailed to such
Holders at their registered addresses or by wire transfer to Holders of at least
$5 million aggregate principal amount of Notes.

         3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust
Company, N.A., the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.

         4. INDENTURE. The Company issued the Notes under an Indenture dated as
of February 5, 2001, as supplemented by a Supplemental Indenture dated as of
August 16, 2001 (collectively, the "Indenture") between the Company and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as

                                      A-3
<PAGE>

amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the indenture shall govern and be
controlling. The Notes are obligations of the Company limited to $500 million in
aggregate principal amount, of which the Company is issuing $350 million in
aggregate principal amount on the Issue Date.

         5.  OPTIONAL REDEMPTION.

         OPTIONAL REDEMPTION. (a) At any time on or prior to August 15, 2008,
the Notes may be redeemed or purchased in whole but not in part at the Company's
option at a price equal to 100% of the principal amount thereof plus the
Applicable Premium as of, and accrued but unpaid interest, if any, to, the date
of redemption or purchase (the "Redemption Date") (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date). Such redemption or purchase may be made upon
notice mailed by first-class mail to each Holder's registered address, not less
than 30 nor more than 60 days prior to the Redemption Date.

         "APPLICABLE PREMIUM" means, with respect to a Note at any Redemption
Date, the greater of: (1) 1.0% of the principal amount of such Note; and (2) the
excess of (a) the present value at such Redemption Date of (i) the redemption
price of such Note on August 15, 2008 plus (ii) all required remaining scheduled
interest payments due on such Note through August 15, 2008, computed using a
discount rate equal to the Treasury Rate plus 50 basis points; over (b) the
principal amount of such Note on such Redemption Date. Calculation of the
Applicable Premium will be made by the Company or on behalf of the Company by
such Person as the Company shall designate; PROVIDED, HOWEVER, that such
calculation shall not be a duty or obligation of the Trustee.

         "TREASURY RATE" means, with respect to a Redemption Date, the yield to
maturity at the time of computation of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15(519) that has become publicly available at least two
Business Days prior to such Redemption Date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data)) most
nearly equal to the period from such Redemption Date to August 15, 2008;
PROVIDED, HOWEVER, that if the period from such Redemption Date to August 15,
2008 is not equal to the constant maturity of the United States Treasury
security for which a weekly average yield is given, the Treasury Rate shall be
obtained by linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the period from such Redemption Date
to August 15, 2008 is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year shall be used.

         OPTIONAL REDEMPTION UPON EQUITY OFFERINGS. At any time, or from time to
time, on or prior to August 15, 2004, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings to redeem up to 35% of the
principal amount of the Notes issued under the Indenture at a redemption price
of 108.75% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; PROVIDED that:

                  (1) at least 65% of the principal amount of Notes issued under
         the Indenture remains outstanding immediately after any such
         redemption; and

                                      A-4
<PAGE>

                  (2) the Company makes such redemption not more than 60 days
         after the consummation of any such Equity Offering.

         6.  MANDATORY REDEMPTION.

         Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.

         7.  REPURCHASE AT OPTION OF HOLDER.

         Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Notes at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of repurchase.

         8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.

         9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company and the Trustee may require a Holder to pay any taxes and fees required
by law or permitted by the Indenture. The Company need not exchange or register
the transfer of any Note or portion of a Note selected for redemption, except
for the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.

         10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.

         11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the written
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes voting as a single class, and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the written consent of the Holders of a majority in principal amount of the then
outstanding Notes voting as a single class. Without the consent of any Holder of
a Note, the Indenture or the Notes may be amended or supplemented to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
the Company's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect in any
material respects the rights under the Indenture of any such Holder, to comply
with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the

                                      A-5
<PAGE>

Trust Indenture Act or to evidence and provide for the acceptance of appointment
under the Indenture of a successor Trustee.

         12. DEFAULTS AND REMEDIES. Events of Default are set forth in the
Indenture. If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in
writing in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding by written notice to the Trustee may on behalf of the Holders of all
of the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Company is required
to deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.

         13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.

         14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.

         15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.

         16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).

         17. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.

                                      A-6
<PAGE>

         The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:

iStar Financial Inc.
1114 Avenue of the Americas, 27th Floor
New York, NY  10036
Attention:  Investor Relations

                                      A-7
<PAGE>

                                ASSIGNMENT FORM

         To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: __________________________________
                                             (Insert assignee's legal name)
________________________________________________________________________________
                  (Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
              (Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Date:  _______________
                               Your Signature:__________________________________
                                  (Sign exactly as your name appears on the face
                               of this Note)

Signature Guarantee*:  _________________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

                                      A-8
<PAGE>

                       OPTION OF HOLDER TO ELECT PURCHASE

         If you want to elect to have this Note purchased by the Company
pursuant to Section 4.13 of the Indenture, check the following box: / /

         If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.13 of the Indenture, state the amount you elect to
have purchased:

                                      $________________

Date:    _______________

                                          Your Signature: ______________________
                                             (Sign exactly as your name appears
                                          on the face of this Note)

                                          Tax Identification No.:_______________

Signature Guarantee*:  _________________________

* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).

                                      A-9
<PAGE>

             SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE

         The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>

                                 Amount of               Amount of         Principal Amount of
                                decrease in             increase in         this Global Note            Signature of
                              Principal Amount       Principal Amount        following such        authorized officer of
                              of this Global          of this Global            decrease              Trustee or Note
    Date of Exchange               Note                    Note               (or increase)              Custodian
 ---------------------        -------------          ----------------      --------------------    --------------------
<S>                           <C>                    <C>                   <C>                      <C>

</TABLE>

                                                                A-10Prepared by MERRILL CORPORATION

QuickLinks
 -- Click here to rapidly navigate through this document
Exhibit 4.2  

    REGISTRATION RIGHTS AGREEMENT  

 Dated as of July 16, 2001  

  

 
 

TABLE OF CONTENTS    
  

    This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience
only.

	 
	 	 
	 	Page

No.

	1.	 	Registration Rights	 	1
	 	 	      (a)  Registration Statement Filing	 	1
	 	 	      (b)  Effectiveness of Registration Statement	 	1
	 	 	      (c)  Registration Statement Form	 	1
	 	 	      (d)  Registration Expenses	 	1
	 	 	      (e)  No Cutback in Registration	 	1
	

2.	
 	

Registration Procedures	
 	

1
	

3.	
 	

Indemnification	
 	

4
	 	 	      (a)  Indemnification by the Company	 	4
	 	 	      (b)  Indemnification by the Sellers	 	4
	 	 	      (c)  Notices of Claims, etc.	 	5
	 	 	      (d)  Contribution	 	5
	 	 	      (e)  Other Indemnification	 	6
	 	 	      (f)  Indemnification Payments	 	6
	

4.	
 	

Covenants Relating to Rule 144	
 	

6
	

5.	
 	

Other Registration Rights	
 	

6
	

6.	
 	

Definitions	
 	

7
	

7.	
 	

Miscellaneous	
 	

8
	 	 	      (a)  Notices	 	8
	 	 	      (b)  Entire Agreement	 	9
	 	 	      (c)  Amendment	 	9
	 	 	      (d)  Waiver	 	9
	 	 	      (e)  No Third Party Beneficiary	 	9
	 	 	      (f)  Successor and Assigns	 	9
	 	 	      (g)  Headings	 	9
	 	 	      (h)  Invalid Provisions	 	9
	 	 	      (i)  Remedies	 	9
	 	 	      (j)  Governing Law	 	10
	 	 	      (k)  Counterparts	 	10

i

 
 

REGISTRATION RIGHTS AGREEMENT    
  

    This REGISTRATION RIGHTS AGREEMENT dated as of July   , 2001, is made and entered into by and between U.S. Bancorp
Investments, Inc., a Minnesota corporation ("Investor"), and Photon Dynamics, Inc., a California corporation (the
"Company"). Capitalized terms not otherwise defined herein have the meanings set forth in Section 6. 

    WHEREAS,
Investor and Intelligent Reasoning Systems, Inc. ("IRSI"), Intelligent Reasoning Systems International, Inc. and IRSI Japan, K.K. entered into that certain
Investment Agreement dated as of August 15, 2000 (the "Investment Agreement") pursuant to which the Investor purchased Senior Subordinated Notes (the "Senior Subordinated Notes") from IRSI; 

    WHEREAS,
the Company, its wholly-owned subsidiary ("Acquisition Sub") and IRSI entered into that certain Agreement and Plan of Merger dated as of July 6, 2001 (the "Merger
Agreement"), pursuant to which, upon the closing thereunder, IRSI and Acquisition Sub will merge with IRSI as the surviving entity (the "Merger"): 

    WHEREAS,
Section 2.5(b) of the Investment Agreement requires IRSI to offer to redeem all outstanding Senior Subordinated Notes for a redemption price equal to 130% of their
aggregate accreted value as of the date of payment; and 

    WHEREAS,
in accordance with the Merger Agreement, IRSI and the Investor have entered into that certain Waiver Agreement and Mutual Release (the "Waiver Agreement") of even date
herewith pursuant to which the Investor agreed to accept common stock of the Company for the Change of Control Amount (as defined in the Waiver Agreement) due under the Investment Agreement provided
that all such Shares were registrable pursuant to this Agreement; 

    NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows: 

1.  Registrations Rights. 

    (a)  Registration Statement Filing.  The Company will use its reasonable efforts to file for the
registration under the Securities Act of the Registrable Securities (the "Registration") to the extent required to permit the disposition (in accordance with the intended methods thereof) of the
Registrable Securities so to be registered within thirty (30) days after the closing of the Merger (the "Closing"). 

    (b)  Effectiveness of Registration Statement.  The Company will used its reasonable efforts to cause the
Registration to become effective as soon as practicable thereafter. 

    (c)  Registration Statement Form.  The Company will effect the Registration by the filing of a
registration statement on Form S-3. 

    (d)  Registration Expenses.  The Company will pay all Registration Expenses incurred in connection with
any Registration. 

    (e)  No Cutback in Registration.  The Company shall not reduce the number of Registrable Securities to be
registered under this Registration Rights Agreement regardless of whether it would impact the number of securities that can be registered pursuant to registration rights granted to any other party. 

2.  Registration Procedures. 

    If
and whenever the Company is required to use its reasonable efforts to effect the registration of any Registrable Securities under the Securities Act pursuant
to Section 1, the Company will use its reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with 

 

the intended methods of disposition thereof specified by the sellers of Registrable Securities. Without limiting the foregoing, the Company in each such case will, as expeditiously as possible: 

    (a) prepare
and file with the Commission the requisite registration statement to effect such registration and use its reasonable efforts to cause such registration
statement to become effective in accordance
with the timeframes set forth in Section 1, provided that as far in advance as practical before filing such registration statement or any
amendment thereto, the Company will furnish to the sellers of Registrable Securities copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits), and any such
seller shall have the opportunity to object to any information pertaining solely to such seller that is contained therein and the Company will make the corrections reasonably requested by such seller
with respect to such information prior to filing any such registration statement or amendment; 

    (b) prepare
and file with the Commission such amendments and supplements to such registration statement and any prospectus used in connection therewith as may be
necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by
such registration statement, in accordance with the intended methods of disposition thereof, until the earlier of (i) such time as all of such securities not yet sold are able to be sold by
such sellers of Registrable Securities in any three (3) month period under Rule 144 of the Securities Act, and (ii) two years after the Closing; provided,
however, that the Company shall be entitled to suspend the use of the Registration Statement and related prospectus during any period in which the Board of Directors of the
Company shall have determined in good faith that because of valid business reasons, including the acquisition or divestiture of assets, pending corporate developments and similar events, it is in the
best interests of the Company to suspend such use, and prior to suspending such use the Company provides such sellers of Registrable Securities with written notice of such suspension, which notice
need not specify the nature of the event giving rise to such suspension; provided, further, that to the extent the use of the Registration Statement is
suspended the period of time that the effectiveness of the Registration Statement must be maintained will be extended for a period of time equal to such suspension (subject to the limitation set forth
above with respect to the date such sellers of Registrable Securities are able to sell all of the Registrable Securities not yet sold in any three (3) month period under Rule 144 of the
Securities Act); 

    (c) promptly
notify the sellers of Registrable Securities: 

	(i)
	when
such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with
respect to such registration statement or any post-effective amendment thereto, when the same has become effective;

	(ii)
	of
any written comments from the Commission with respect to any filing referred to in clause (i) and of any written request by the
Commission for amendments or supplements to such registration statement or prospectus;

	(iii)
	of
the notification to the Company by the Commission of its initiation of any proceeding with respect to the issuance by the Commission of, or of
the issuance by the Commission of, any stop order suspending the effectiveness of such registration statement; and

	(iv)
	of
the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under
the applicable securities or blue sky laws of any jurisdiction; 

    (d) furnish
to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each
amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such registration statement
(including each 

2

 

preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such seller's Registrable Securities, and such
other documents, as such seller may reasonably request to facilitate the disposition of its Registrable Securities; 

    (e) use
its reasonable efforts to register or qualify all Registrable Securities covered by such registration statement under such other securities or blue sky laws of
such jurisdictions as each holder thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that
the Company shall not for any such purpose be required (i) to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of
this paragraph (e) be obligated to be so qualified, (ii) to subject itself to taxation in any such jurisdiction or (iii) to consent
to general service of process in any jurisdiction; 

    (f)  use
its reasonable efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable each holder thereof to consummate the disposition of such Registrable Securities; 

    (g) notify
each holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which any prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the
request of any such holder promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they were made, not misleading; 

    (h) otherwise
use its reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as
reasonably practicable, an earnings statement covering the period of at least twelve (12) months, but not more than eighteen (18) months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder; 

    (i)  provide
a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration
statement; and 

    (j)  use
its reasonable efforts to cause all Registrable Securities covered by such registration statement to be listed, upon official notice of issuance, on any
securities exchange on which any of the securities of the same class as the Registrable Securities are then listed. 

    The
Company may require each holder of Registrable Securities as to which any registration is being effected to, and each such holder, as a condition to including Registrable
Securities in such registration, shall, furnish the Company with such information and affidavits regarding such holder and the distribution of such securities as the Company may from time to time
reasonably request in writing in connection with such registration. 

    Each
holder of Registrable Securities agrees by acquisition of such Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind
described in

3

 

 paragraph (g), such holder will forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (g). In the
event the Company shall give any such notice, the period referred to in paragraph (b) shall be extended by a number of days equal to the number
of days during the period from and including the giving of notice pursuant to paragraph (g) and to and including the date when each holder of any
Registrable Securities covered by such registration statement shall receive the copies of the supplemented or amended prospectus contemplated by paragraph (g). 

3.  Indemnification. 

    (a)  Indemnification by the Company.  The Company shall, to the full extent permitted by law, indemnify
and hold harmless each seller of Registrable Securities included in any registration statement filed in connection with the Registration, its directors and officers, and each other Person, if any, who
controls any such seller within the meaning of the Securities Act, against any losses, claims, damages, expenses or liabilities, joint or several (together,
"Losses"), to which such seller or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar
as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they
were made) not misleading, and the Company will reimburse such seller and each such director, officer and controlling Person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such Loss (or action or proceeding in respect thereof); provided that the Company shall not be liable in
any such case to the extent that any such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or any such director, officer or controlling Person, and shall survive the transfer of such securities by such seller. The Company
shall also indemnify each other Person who participates in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such
participating Person within the meaning of the Securities Act to the same extent as provided above with respect to sellers of Registrable Securities. 

    (b)  Indemnification by the Sellers.  Each holder of Registrable Securities which are included or are to
be included in any registration statement filed in connection with the Registration, as a condition to including Registrable Securities in such registration statement, shall, to the full extent
permitted by law, indemnify and hold harmless the Company, its directors and officers, and each other Person, if any, who controls the Company within the meaning of the Securities Act, against any
Losses to which the Company or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or
alleged untrue statement or 

4

 

omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that
it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided,
however, that the obligation to provide indemnification pursuant to this Section 3(b) shall be several, and not joint and
several, among such
Indemnifying Parties on the basis of the number of Registrable Securities included in such registration statement and the aggregate amount which may be recovered from any holder of Registrable
Securities pursuant to the indemnification provided for in this Section 3(b) in connection with any registration and sale of Registrable
Securities shall be limited to the total proceeds received by such holder from the sale of such Registrable Securities. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller. 

    (c)  Notices of Claims, etc.  Promptly after receipt by an Indemnified Party of notice of the
commencement of any action or proceeding involving a claim referred to in the preceding paragraph (a) or (b) of
this Section 3, such Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party pursuant to such
paragraphs, give written notice to the latter of the commencement of such action, provided that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations under the preceding paragraphs of this Section 3, except to the
extent that the Indemnifying Party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and, unless, in the reasonable judgment of any Indemnified Party, a conflict of interest between such Indemnified Party and any Indemnifying Party exists with respect to such claim, to
assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after
notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or
other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that
the Indemnified Party may participate in such defense at the Indemnified Party's expense; and provided further that the Indemnified Party or Indemnified
Parties shall have the right to employ one counsel to represent it or them if, in the reasonable judgment of the Indemnified Party or Indemnified Parties, it is advisable for it or them to be
represented by separate counsel by reason of having legal defenses which are different from or in addition to those available to the Indemnifying Party, and in that event the reasonable fees and
expenses of such one counsel shall be paid by the Indemnifying Party. If the Indemnifying Party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the
fees and expenses of more than one counsel for the Indemnified Parties with respect to such claim, unless in the reasonable judgment of any Indemnified Party a conflict of interest may exist between
such Indemnified Party and any other Indemnified Parties with respect to such claim, in which event the Indemnifying Party shall be obligated to pay the fees and expenses of such additional counsel
for the Indemnified Parties or counsels. No Indemnifying Party shall consent to entry of any judgment or enter into any settlement without the consent of the Indemnified Party which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall
be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. 

    (d)  Contribution.  If the indemnity and reimbursement obligation provided for in any paragraph of
this Section 3 is unavailable or insufficient to hold harmless an Indemnified Party in respect of any Losses (or actions or proceedings in
respect thereof) referred to therein, then the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Losses (or actions or proceedings in
respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in 

5

 

connection with statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not
be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the first sentence of this paragraph. The amount paid by an Indemnified Party as a result of the Losses referred to in the
first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any Loss which is
the subject of this paragraph. 

    No
Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Indemnifying
Party if the Indemnifying Party was not guilty of such fraudulent misrepresentation. 

    (e)  Other Indemnification.  Indemnification similar to that specified in the preceding paragraphs of
this Section 3 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any
required registration or other qualification of securities under any federal or state law or regulation of any governmental authority other than the Securities Act. The provisions of
this Section 3 shall be in addition to any other rights to indemnification or contribution which an Indemnified Party may have pursuant to law,
equity, contract or otherwise. 

    (f)  Indemnification Payments.  The indemnification required by this Section 3 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or Losses are
incurred. 

4.  Covenants Relating to Rule 144. 

    The
Company will file reports in compliance with the Exchange Act, will comply with all rules and regulations of the Commission applicable in connection with the use of
Rule 144 and take such other actions and furnish such holder with such other information as such holder may reasonably request in order to avail itself of such rule and will, at its expense,
promptly upon the request of any holder of Registrable Securities, deliver to such holder a certificate, signed by the Company's principal financial officer, stating (a) the Company's name,
address and telephone number (including area code), (b) the Company's Internal Revenue Service identification number, (c) the Company's Commission file number, (d) the number of
shares of each class of Stock outstanding as shown by the most recent report or statement published by the Company, and (e) whether the Company has filed the reports required to be filed under
the Exchange Act for a period of at least ninety (90) days prior to the date of such certificate and in addition has filed the most recent annual report required to be filed thereunder. If at
any time the Company is not required to file reports in compliance with either Section 13 or Section 15(d) of the Exchange Act, the Company at its expense will, promptly upon the written
request of the holder of any Registrable Securities, make available adequate current public information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144. 

5.  Other Registration Rights. 

    The
Company represents and warrants to the Investor that there is not in effect on the date hereof any agreement by the Company pursuant to which any holders of securities of the
Company have a right to cause the Company to register or qualify such securities under the Securities Act or any securities or blue sky laws of any jurisdiction that would conflict or be inconsistent
with any provision of this Agreement. 

6

 

6.  Definitions. 

    (a) Except
as otherwise specifically indicated, the following terms will have the following meanings for all purposes of this Agreement: 

    "Agreement" means this Registration Rights Agreement, as the same shall be amended from time to time. 

    "Common Stock" means shares of Common Stock of the Company, as constituted on the date hereof, and any stock into which such Common
Stock shall have been changed or any stock resulting from any reclassification of such Common Stock. 

    "Commission" means the United States Securities and Exchange Commission, or any successor governmental agency or authority. 

    "Company" has the meaning ascribed to it in the preamble. 

    "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 

    "Form S-3" means Form S-3 promulgated by the Commission under the Securities Act, or any
successor or similar short-form registration statement. 

    "Indemnified Party" means a party entitled to indemnity in accordance with Section 3. 

    "Indemnifying Party" means a party obligated to provide indemnity in accordance with Section 3. 

    "Inspectors" has the meaning ascribed to it in Section 2(i). 

    "Losses" has the meaning ascribed to it in Section 3(a). 

    "NASD" means the National Association of Securities Dealers. 

    "Person" means any natural person, corporation, general partnership, limited partnership, proprietorship, other business organization,
trust, union or association. 

    "Public Offering" means any offering of Common Stock to the public, either on behalf of the Company or any of its securityholders,
pursuant to an effective registration statement under the Securities Act. 

    "Records" has the meaning ascribed to it in Section 2(i). 

    "Registrable Securities" means (i) the Shares and (ii) any additional shares of Common Stock issued or distributed by way
of a dividend, stock split or other distribution in respect of the Shares, or acquired by way of any rights offering or similar offering made in respect of the Shares. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under
the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been distributed to the public pursuant to
Rule 144, or (iii) they shall have ceased to be outstanding. 

    "Registration Expenses" means all expenses incident to the Company's performance of or compliance with its obligations under this
Agreement to effect the registration of Registrable Securities in the Registration, including, without limitation, all registration, filing, securities exchange listing and NASD fees, all
registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such
performance and compliance, the reasonable fees and disbursements of a single 

7

 

counsel and single firm of accountants retained by the holders of the Registrable Securities being registered, premiums and other costs of policies of insurance against liabilities arising out of the
Public Offering of the Registrable Securities being registered, but excluding transfer taxes, if any, in respect of Registrable Securities, which shall be payable by each holder thereof. 

    "Registration" means any registration of Registrable Securities under the Securities Act effected in accordance
with Section 1. 

    "Rule 144" means Rule 144 promulgated by the Commission under the Securities Act, and any successor provision thereto. 

    "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. 

    "Shares" means the shares of common stock of the Company issued to Investor for the "Change of Control Amount" pursuant to the Waiver
Agreement. 

    (b) Unless
the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural
number also include the plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; and (iv) the
term "Section" refers to the specified Section of this Agreement. Whenever this Agreement refers to a number of days, such number shall refer to calendar days. 

7.  Miscellaneous. 

    (a)  Notices.  All notices, requests and other communications hereunder must be in writing and will be
deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers: 

	 	 	If to Investor, to:
	

 	
 	

U.S. Bancorp Investments, Inc.

11766 Wilshire Boulevard, Suite 870

Los Angeles, California 90025

Facsimile No.: 310.312.5616

Attn: General Counsel
	

 	
 	

If to the Company, to:
	

 	
 	

Photon Dynamics, Inc.

6325 San Ignacio Avenue

San Jose, California 95119

Facsimile No.: 408.226.9910

Attn: Chief Financial Officer
	

 	
 	

with a copy to:
	

 	
 	

Cooley, Goward, LLP

Five Palo Alto Square

3000 El Camino Real

Palo Alto, California 94306

Facsimile No.: 650.849.7400

Attention: Brett White

All
such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by
facsimile transmission to 

8

 

the facsimile number as provided in this Section, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be
deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to
this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other
parties hereto. 

    (b)  Entire Agreement.  This Agreement supersedes all prior discussions and agreements between the
parties with respect to the subject matter hereof, and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. 

    (c)  Amendment.  This Agreement may be amended, supplemented or modified only by a written instrument
(which may be executed in any number of counterparts) duly executed by each of the Company and the holders of the Registrable Securities. 

    (d)  Waiver.  Any term or condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by
any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same term or condition of this Agreement on any future
occasion. 

    (e)  No Third Party Beneficiary.  The terms and provisions of this Agreement are intended solely for the
benefit of each party hereto, their respective successors or permitted assigns and any other holder of Registrable Securities, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Person entitled to indemnity under Section 3. 

    (f)  Successors and Assigns.  This Agreement is binding upon, inures to the benefit of and is enforceable
by the parties hereto and their respective successors and assigns (including, without limitation, subsequent holders of Registrable Securities, whether made express assignees or not). 

    (g)  Headings.  The headings used in this Agreement have been inserted for convenience of reference only
and do not define or limit the provisions hereof. 

    (h)  Invalid Provisions.  If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (iii) the
remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (iv) in
lieu of such illegal, invalid or unenforceable provision, there
will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 

    (i)  Remedies.  Except as otherwise expressly provided for herein, no remedy conferred by any of the
specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver by any such party of the right to
pursue any other available remedies. 

    Damages
in the event of breach of this Agreement by a party hereto or any other holder of Registrable Securities would be difficult, if not impossible, to ascertain, and it is
therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, will have 

9

 

the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof and the Company and
each holder of Registrable Securities, by its acquisition of such Registrable Securities, hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the
court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such
Person may have. 

    (j)  Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the
State of California applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. 

    (k)  Counterparts.  This Agreement may be executed in any number of counterparts, each of which will be
deemed an original, but all of which together will constitute one and the same instrument. 

    IN
WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first above written. 

	 	 	U.S. BANCORP INVESTMENTS, INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
PHOTON DYNAMICS, INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:

10

QuickLinks

TABLE OF CONTENTS

REGISTRATION RIGHTS AGREEMENT

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00028-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00028-of-00352.parquet"}]]