SHARE-BASED COMPENSATION

9 Months Ended

Jul. 28, 2019

NOTE 7 - SHARE-BASED COMPENSATION

In March 2016, shareholders approved a new 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 we have reacquired (in the open-market or in private transactions), shares held in the treasury, 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. Total share-based compensation costs for the three and nine-month periods ended July 28, 2019, were $0.9 million and $2.9 million, respectively, and $0.8 million and $2.4 million for the three and nine-month periods ended July 29, 2018, respectively. The Company received cash from option exercises of $0.2 million and $1.0 million for the three and nine-month periods ended July 28, 2019, respectively, and $0.2 million and $3.8 million for the three and nine-month periods ended July 29, 2018, respectively. No share-based compensation cost was capitalized as part of an asset and no related income tax benefits were recorded during the periods presented.

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 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 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.

There were no share options granted during the three-month period ended July 28, 2019, and there were 12,000 options granted during the three-month period ended July 29, 2018, with a weighted-average grant-date fair value of $2.84 per share. There were 132,000 share options granted during the nine-month period ended July 28, 2019, with a weighted-average grant-date fair value of $3.31 per share, and 264,000 share options granted during the nine-month period ended July 29, 2018, with a weighted-average grant-date fair value of $2.74 per share. As of July 28, 2019, the total unrecognized compensation cost related to unvested option awards was approximately $1.0 million. That cost is expected to be recognized over a weighted-average amortization period of 2.3 years.

The weighted-average inputs and risk-free rate of return ranges used to calculate the grant-date fair value of options issued during the three and nine-month periods ended July 28, 2019 and July 29, 2018, are presented in the following table.

Three Months Ended

Nine Months Ended

July 28,

2019

July 29,

2018

July 28,

2019

July 29,

2018

Volatility

N/A

32.3%

33.1%

31.7%

Risk free rate of return

N/A

2.8%

2.5%-2.9%

2.2%-2.8%

Dividend yield

N/A

0.0%

Expected term

N/A

5.1 years

5.0 years

Information on outstanding and exercisable option awards as of July 28, 2019, is presented below.

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

Outstanding at July 28, 2019		2,366,868	$	8.95	5.6 years	$	3,288

Exercisable at July 28, 2019		1,785,201	$	8.57	4.7 years	$	3,060

Restricted Stock

We periodically grant restricted stock awards, the restrictions on which typically lapse over a service period of one to four years. The fair value of an award is determined on the date of grant, based on the closing price of our common stock. There were 435,000 restricted stock awards granted during the nine-month period ended July 28, 2019, with a weighted-average grant-date fair value of $9.80 per share. There were no restricted stock awards granted during the three-month periods ended July 28,2019 and July 29, 2018; there were 290,000 restricted stock awards granted during the nine-month period ended July 29, 2018, with a weighted-average grant-date fair value of $8.62 per share. As of July 28, 2019, the total compensation cost not yet recognized related to unvested restricted stock awards was approximately $5.0 million. That cost is expected to be recognized over a weighted-average amortization period of 2.7 years. As of July 28, 2019, there were 676,863 shares of restricted stock outstanding.