SHARE-BASED COMPENSATION

12 Months Ended

Oct. 31, 2022

NOTE 9 - SHARE-BASED COMPENSATION

In March 2016, shareholders approved our current equity incentive compensation plan (“the Plan”), under which incentive stock options, non-qualified stock options, stock grants, stock-based awards, restricted stock, restricted stock units, stock appreciation rights, performance units, performance stock, and other stock or cash awards may be granted. Shares to be issued under the Plan may be authorized and unissued shares, issued shares that have been reacquired by us (in the open market or in private transactions), or a combination thereof. The maximum number of shares of common stock approved that may be issued under the Plan is four million shares. Awards may be granted to officers, employees, directors, consultants, advisors, and independent contractors of Photronics or its subsidiaries. In the event of a change in control (as defined in the Plan), the vesting of awards may be accelerated. The Plan, aspects of which are more fully described below, prohibits further awards from being issued under prior plans. The table below presents information on our share-based compensation expenses for the three most recent fiscal years.

	Year Ended
	October 31, 2022		October 31, 2021		October 31, 2020
Expense reported in:
Cost of goods sold	$	868	$	446	$	337
Selling, general and administrative		4,803		4,446		4,590
Research and development		637		456		-
Total expense incurred	$	6,308	$	5,348	$	4,927

Expense by award type:
Restricted stock awards	$	5,800	$	4,920	$	4,140
Stock options		298		218		649
Employee stock purchase plan		210		210		138
Total expense incurred	$	6,308	$	5,348	$	4,927

Income tax benefits of share-based compensation	$	449	$	233	$	168
Share-based compensation cost capitalized	$	-	$	-	$	-

Restricted Stock Awards

We periodically grant restricted stock awards, the restrictions on which typically lapse over a service period of one to four years. The fair values of the awards are determined on the date of grant, based on the closing stock price of our common stock. A summary of restricted stock award activity during 2022 and the status of our restricted stock awards as of October 31, 2022, is presented below.

Restricted Stock	Shares			Weighted-Average Fair Value at Grant Date

Outstanding at October 31, 2021		929,147		$	12.08
Granted		654,224		$	18.73
Vested		(407,716	)	$	12.78
Cancelled		(281,951	)	$	15.27
Outstanding at October 31, 2022		893,704		$	15.62
Expected to vest as of October 31, 2022		814,294		$	15.52

The table below presents additional information on our restricted stock awards for the three most recent fiscal years.

	Year Ended
	October 31, 2022		October 31, 2021		October 31, 2020

Number of shares granted		654,224		564,800		538,000
Weighted-average grant-date fair value of awards (in dollars per share)	$	18.73	$	11.20	$	15.08
Compensation costs not yet recognized	$	8,949	$	7,300	$	6,933
Weighted-average amortization period (in years)		2.7		2.6		2.8
Fair value of awards for which restrictions lapsed	$	5,212	$	4,491	$	2,957
Shares outstanding at balance sheet date		893,704		929,147		812,316

Stock Options

Option awards generally vest in one to four years and have a ten-year contractual term. All incentive and non-qualified stock option grants must have an exercise price no less than the market value of the underlying common stock on the date of grant. The grant-date fair values of options are based on closing prices of our common stock on the dates of grant and are calculated using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of our common stock. We use historical option exercise behavior and employee termination data to estimate expected term, which represents the period of time that options granted are expected to remain outstanding. The risk-free rate of return for the estimated term of an option is based on the U.S. Treasury yield curve in effect at the date of grant.

The table below presents a summary of stock options activity during 2022 and information on stock options outstanding at October 31, 2022.

	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value

Outstanding at October 31, 2021		1,173,103		$	9.49
Granted		-		$	-
Exercised		(571,514	)	$	9.23
Cancellations, forfeitures, and adjustments		12,412		$	9.74
Outstanding at October 31, 2022		614,001		$	9.74	3.3 years	$	3,980
Exercisable at October 31, 2022		590,275		$	9.74	3.2 years	$	3,827
Expected to vest as of October 31, 2022		23,559		$	9.78	6.2 years	$	152

The table below presents additional information on stock option awards for the three most recent fiscal years.

	Year Ended
	October 31, 2022		October 31, 2021		October 31, 2020

Number of options granted in period		-		-		-
Total intrinsic value of options exercised	$	5,108	$	1,910	$	3,184
Cash received from option exercises	$	5,275	$	3,441	$	3,746
Compensation cost not yet recognized	$	13	$	109	$	378
Weighted-average amortization period for cost not yet recognized (in years)		0.2		1.1		1.7

Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (“ESPP”) permits employees to purchase Photronics, Inc. common shares at 85% of the lower of the closing market price at the commencement or ending date of the Plan year (which is approximately one year from the commencement date). We recognize the ESPP expense over that same period. As of October 31, 2022, the maximum number of shares of common stock approved by our shareholders to be purchased under the ESPP was 1.85 million shares, of which approximately 1.6 million shares had been issued through October 31, 2022. As of October 31, 2022, less than 0.1 million shares, with unrecognized compensation cost of less than $0.1 million (all of which will be recognized in fiscal 2023) were subject to outstanding subscriptions.