SHARE-BASED COMPENSATION

12 Months Ended

Oct. 31, 2023

NOTE 11 - 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. On March 16, 2023, at its annual meeting of shareholders, the shareholders of Photronics, Inc., approved amendments to the Plan to increase the number of shares available for issuance by an additional one million shares, thereby increasing the shares available for issuance under the Plan from four million to five million. 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) or at the discretion of the compensation committee; 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, 2023		October 31, 2022		October 31, 2021
Expense reported in:
Cost of goods sold	$	1,259	$	868	$	446
Selling, general, and administrative		5,962		4,803		4,446
Research and development		780		637		456
Total expense incurred	$	8,001	$	6,308	$	5,348

Expense by award type:
Restricted stock awards	$	7,909	$	5,800	$	4,920
Stock options		1		298		218
Employee stock purchase plan		91		210		210
Total expense incurred	$	8,001	$	6,308	$	5,348

Income tax benefits of share-based compensation	$	715	$	449	$	233
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 2023 and the status of our restricted stock awards as of October 31, 2023, is presented below.

Restricted Stock	Shares			Weighted-Average Fair Value at Grant Date
Outstanding at October 31, 2022		893,704		$	15.62
Granted		791,925		$	16.84
Vested		(417,432	)	$	14.98
Cancelled		(29,900	)	$	16.48
Outstanding at October 31, 2023		1,238,297		$	16.27
Expected to vest as of October 31, 2023		1,117,128		$	16.21

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

	Year Ended
	October 31, 2023		October 31, 2022		October 31, 2021
Number of shares granted		791,925		654,224		564,800
Weighted-average grant-date fair value of awards (in dollars per share)	$	16.84	$	18.73	$	11.20
Compensation costs not yet recognized	$	12,760	$	8,949	$	7,300
Weighted-average amortization period (in years)		2.8		2.7		2.6
Fair value of awards for which restrictions lapsed	$	6,256	$	5,212	$	4,491
Shares outstanding at balance sheet date		1,238,297		893,704		929,147

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 2023 and information on stock options outstanding at October 31, 2023.

	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at October 31, 2022		614,001		$	9.74
Granted		-		$	-
Exercised		(137,226	)	$	8.24
Cancellations, forfeitures, and adjustments		(4,500	)	$	10.18
Outstanding at October 31, 2023		472,275		$	10.18	2.5 years	$	3,865
Exercisable at October 31, 2023		472,275		$	10.18	2.5 years	$	3,865
Expected to vest as of October 31, 2023		-		$	-	- years	$	-

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

	Year Ended
	October 31, 2023		October 31, 2022		October 31, 2021
Number of options granted in period		-		-		-
Total intrinsic value of options exercised	$	1,654	$	5,108	$	1,910
Cash received from option exercises	$	1,101	$	5,275	$	3,441
Compensation cost not yet recognized	$	-	$	13	$	109
Weighted-average amortization period for cost not yet recognized (in years)		-		0.2		1.1

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, 2023, 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, 2023. As of October 31, 2023, there is no unrecognized compensation cost. As of October 31, 2022, there were less than 0.1 million shares with unrecognized compensation cost of less than $0.1 million that was recognized in fiscal year 2023.