NOTE 4 -

JOINT VENTURE, TECHNOLOGY LICENSE AND OTHER AGREEMENTS WITH MICRON TECHNOLOGY, INC.

In May 2006, Photronics and Micron Technology, Inc. ("Micron") entered into the MP Mask joint venture (“MP Mask”), which develops and produces photomasks for leading-edge and advanced next generation semiconductors. At the time of the formation of the joint venture, the Company also entered into both an agreement to license photomask technology developed by Micron and certain supply agreements.

This joint venture is a variable interest entity ("VIE") (as that term is defined in the Accounting Standards Codification ("ASC") ) because all costs of the joint venture are passed on to the Company and Micron through purchase agreements they have entered into with the joint venture, and it is dependent upon the Company and Micron for any additional cash requirements. On a quarterly basis the Company reassesses whether its interest in MP Mask gives it a controlling financial interest in this VIE. The purpose of this quarterly reassessment is to identify the primary beneficiary (which is defined in the ASC as the entity that consolidates a VIE) of the VIE. As a result of the reassessments in fiscal year 2013, the Company determined that Micron is still the primary beneficiary of the VIE, by virtue of its tie-breaking voting rights within MP Mask’s Board of Managers, thereby giving it the power to direct the activities of MP Mask that most significantly impact its economic performance, including its decision making authority in the ordinary course of business and its purchasing the majority of products produced by the VIE.

The Company has utilized MP Mask for both high-end IC photomask production and research and development purposes. MP Mask charges its variable interest holders based on their actual usage of its facility and charges separately for any research and development activities it engages in at the requests of its owners.

MP Mask is governed by a Board of Managers, appointed by Micron and the Company. Since MP Mask's inception, Micron, as a result of its majority ownership, has held majority voting power on the Board of Managers. The voting power held by each party is subject to change as ownership interests change. Under the MP Mask joint venture operating agreement, the Company may be required to make additional capital contributions to MP Mask up to the maximum amount defined in the operating agreement. However, should the Board of Managers determine that further additional funding is required, MP Mask shall pursue its own financing. If MP Mask is unable to obtain its own financing, it may request additional capital contributions from the Company. Should the Company choose not to make a requested contribution to MP Mask, its ownership percentage may be reduced. During fiscal 2012 the Company made additional capital contributions of $13.4 million to the MP Mask joint venture, which were primarily related to capital calls made by the joint venture. The Company did not make any contributions to MP Mask in fiscal 2013 and it did not receive any distributions from MP Mask during fiscal 2013 or fiscal 2012.

The Company's investment in the VIE, which represents its maximum exposure to loss, was $93.1 million and $93.3 million at November 3, 2013 and October 28, 2012, respectively. These amounts are reported in the Company's consolidated balance sheets as Investment in joint venture. The Company recorded losses from its investment in MP Mask of $0.1 million in fiscal years 2013 and 2012 and income of $0.6 million in fiscal year 2011. Income (loss) from MP Mask is included in Interest and other income, net, in the consolidated statements of income.

As of November 3, 2013, the Company owed MP Mask $4.5 million and had a receivable from Micron of $4.9 million, both primarily related to the aforementioned supply agreements. The Company, in 2013, recorded $0.9 million of commission revenue earned under the supply agreements it has with Micron and MP Mask, and amortization of $0.3 million of the related supply agreement intangible asset. In 2013 the Company also recorded cost of sales in the amount of $8.7 million for photomasks produced by MP Mask for the Company's customers, and incurred expenses of $1.6 million for research and development activities and other goods and services purchased from MP Mask by the Company. In 2013 the Company purchased equipment from MP Mask for $6.1 million.

As of October 28, 2012, the Company owed MP Mask $6.4 million and had a receivable from Micron of $9.0 million, both primarily related to the aforementioned supply agreements. The Company, in 2012, recorded $1.6 million of commission revenue earned under the supply agreements it has with Micron and MP Mask, and amortization of $0.4 million of the related supply agreement intangible asset. The Company, for certain sales made during 2012, also recorded cost of sales in the amount of $7.6 million for photomasks produced by MP Mask for the Company's customers, and incurred expenses of $2.0 million for research and development activities and other goods and services purchased from MP Mask by the Company. In 2012 the Company purchased equipment from MP Mask for $1.9 million, of which $1.5 million was recorded as the cost of the equipment and $0.4 million was recorded as an investment in joint venture.

The Company, in 2011, recorded $1.7 million of commission revenue earned under the supply agreements it has with Micron and MP Mask, and amortization of $0.5 million of the related supply agreement intangible asset. The Company, for certain sales made during 2011, also recorded cost of sales in the amount of $18.5 million for photomasks produced by MP Mask for the Company's customers, and incurred expenses of $3.1 million for research and development activities and other goods and services purchased from MP Mask by the Company. In 2011, the Company purchased equipment from MP Mask for $4.6 million, of which $2.3 million was recorded as the cost of the equipment and $2.3 million was recorded as an investment in joint venture.

In the second quarter of fiscal 2012 the Company paid $35 million to Micron in connection with the purchase of the U.S. nanoFab facility and the remaining term of the operating lease agreement through 2014 was cancelled.

Summarized financial information of MP Mask is presented below.

	As of October
	2013		2012

Current assets	$	35,794	$	25,701
Noncurrent assets		177,769		170,226
Current liabilities		28,497		15,597
Noncurrent liabilities		-		-

	Year Ended October
	2013		2012		2011

Net sales	$	77,900	$	84,216	$	79,766
Gross profit		4,663		1,799		2,649
Net income		4,735		831		6,691