Photronics, Inc. - SEC Filing

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1995.

REGISTRATION NO. 33-58239

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SECURITIES AND EXCHANGE COMMISSION
------------------------

AMENDMENT NO. 1

FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PHOTRONICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

CONNECTICUT 06-0854886
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

1061 EAST INDIANTOWN ROAD
JUPITER, FLORIDA 33477
(407) 747-4163
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JEFFREY P. MOONAN, ESQ.,
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
1061 EAST INDIANTOWN ROAD
JUPITER, FLORIDA 33477
(407) 747-4163
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

Copies to:

STEVEN L. WASSERMAN, ESQ. ALAN K. AUSTIN, ESQ.
REID & PRIEST LLP GREGORY M. PRIEST, ESQ.
40 WEST 57TH STREET WILSON, SONSINI, GOODRICH & ROSATI, P.C.
NEW YORK, NEW YORK 10019 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /

CALCULATION OF REGISTRATION FEE

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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE
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Common Stock, par value
$.01 per share........... 1,610,000 shares(2) $21.00 $33,810,000 $11,658.62
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457, based upon the average of the high and low sale prices
of the Registrant's Common Stock on the Nasdaq National Market on April 12,
1995. The Registrant previously paid a registration fee of $18,737.07.

(2) Includes 210,000 shares which may be purchased by the Underwriters to cover
over-allotments, if any.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED APRIL 14, 1995

[LOGO]

PHOTRONICS, INC.

1,400,000 SHARES

COMMON STOCK

Of the 1,400,000 shares of Common Stock offered hereby, 1,290,000 shares
are being issued and sold by Photronics, Inc. ("Photronics" or the "Company")
and 110,000 shares are being sold by the Selling Shareholders. See "Principal
and Selling Shareholders." On April 12, 1995, the last sale price of the
Company's Common Stock as reported on the Nasdaq National Market was $20.25 per
share. See "Price Range of Common Stock." The Common Stock is quoted on the
Nasdaq National Market under the symbol "PLAB."

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS
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Per Share..................... $ $ $ $
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Total(2)...................... $ $ $ $
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(1) Before deducting expenses payable by the Company, estimated at $250,000.

(2) The Company has granted the several Underwriters a 30-day option to purchase
up to an additional 210,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ ,
respectively.

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The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company, L.P. ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1995.

ROBERTSON, STEPHENS & COMPANY
PRUDENTIAL SECURITIES INCORPORATED
NEEDHAM & COMPANY, INC.

The date of this Prospectus is , 1995
3

* * * * * * * * * * * * * * * Photronics * * * * * * * * * * * * * * *
* * is a leading * *
* * manufacturer * *
* * of photomasks, * *
* Person looking * which are high * Person looking *
* through * precision * at plate *
* photomask * quartz plates * cassettes *
* * containing * inside machine *
* * microscopic * *
* * images of * *
* * electronic * *
* * * * * * * * * * * * * * * circuits. * * * * * * * * * * * * * * *

* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* *
* *
* *
* *
* Photomask Semiconductor *
* Interface *
* *
* *
* *
* *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Photomasks are a key element in the manufacture of semiconductors and
are used as masters to transfer circuit patterns onto semicondutor wafers.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * *
* * * *
* * * *
* Person sitting at * * Person looking inside *
* machine console * * machine *
* * * *
* * * *
* * * *
* * * *
* * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THOSE SPECIFICALLY OFFERED HEREBY OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS

PAGE
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Incorporation of Certain Documents by Reference................................................. 3
Prospectus Summary.............................................................................. 4
Risk Factors.................................................................................... 6
The Company..................................................................................... 10
Use of Proceeds................................................................................. 10
Price Range of Common Stock..................................................................... 11
Dividend Policy................................................................................. 11
Capitalization.................................................................................. 12
Selected Consolidated Financial Data............................................................ 13
Management's Discussion and Analysis of Results of Operations and Financial Condition........... 14
Business........................................................................................ 22
Management...................................................................................... 28
Principal and Selling Shareholders.............................................................. 30
Underwriting.................................................................................... 32
Legal Matters................................................................................... 33
Experts......................................................................................... 33
Available Information........................................................................... 33
Index to Consolidated Financial Statements...................................................... F-1

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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents which have been filed by the Company with the
Securities and Exchange Commission (the "Commission") (File Number 0-15451)
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"),
are incorporated herein by reference: (i) the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1994; (ii) the Company's Current
Reports on Form 8-K, dated December 5, 1994 and March 24, 1995; (iii) the
Company's Current Report on Form 8-K/A Amendment 1, dated January 27, 1995; (iv)
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended January
31, 1995; and (v) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, dated March 3, 1987, pursuant to
Section 12 of the 1934 Act. All documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the 1934 Act, after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference and to be a part hereof from the respective dates of
filing. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus. The Company will
furnish, without charge, to each person, including any beneficial owner, to whom
a copy of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the foregoing documents incorporated herein by
reference (other than certain exhibits). Requests for such documents should be
directed to Michael W. McCarthy, Manager of Investor Relations, Photronics,
Inc., P.O. Box 5226, 15 Secor Road, Brookfield, Connecticut, 06804, telephone
(203) 775-9000.

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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements incorporated by reference and
appearing elsewhere in this Prospectus. All applicable share and per share
numbers reflect a 3-for-2 stock split and an increase in authorized shares of
Common Stock to 20,000,000 effected in March 1995. Unless otherwise indicated,
the information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option.

THE COMPANY

Photronics, Inc. ("Photronics" or the "Company") is a leading manufacturer
of photomasks, which are primarily used by the semiconductor industry in the
manufacture of integrated circuits. The Company's photomasks, which are high
precision photographic quartz plates containing microscopic images of electronic
circuits, are manufactured in Photronics' four manufacturing facilities in the
United States in accordance with circuit designs provided on a confidential
basis by its customers. The Company images circuit patterns onto photomasks
using laser-based or electron beam technologies and, to a lesser degree,
optical-based technologies.

Photomasks are a key element in the manufacture of semiconductors and are
used as masters to transfer circuit patterns onto semiconductor wafers during
the fabrication of integrated circuits and, to a lesser extent, other types of
electronic components. Each circuit consists of a series of separate patterns,
each of which is imaged onto a different photomask. The resulting series of
photomasks is then used to successively layer the circuit patterns onto the
semiconductor wafer. Demand for photomasks is driven both by semiconductor
design activity and the complexity of integrated circuits. As the complexity of
integrated circuits has increased, the number of photomasks used in the
manufacture of a single circuit also has increased. According to Dataquest, in
1994 worldwide semiconductor sales exceeded $100 billion. Based upon industry
estimates, photomask sales for 1994 exceeded $300 million in North America.

Photomasks are manufactured by independent manufacturers, like the Company,
and captives, which are semiconductor manufacturers that produce almost
exclusively for their own fabrication of integrated circuits. Since the
mid-1980s, there has been in the United States a trend toward the divestiture or
closing of captive photomask operations by semiconductor manufacturers. As a
result, the share of the market served by independents increased significantly.
During the same period, due in part to competitive pressures and increasing
capital requirements, the number of significant independent manufacturers
decreased from approximately 12 in the mid-1980s to four in 1994. In response to
these trends, the Company has completed a number of strategic acquisitions,
including acquisitions of operations in Dallas, Texas in October 1993 and in
Sunnyvale, California in December 1994. These two recent acquisitions were
primarily responsible for the significant increases in the Company's net sales
and net income in fiscal 1994 and the first three months of fiscal 1995.

The Company's objective is to expand its position as a leader in the
manufacture of photomasks. The Company's strategy includes ensuring strong
customer relationships through high levels of customer satisfaction, maintaining
technological leadership through investment in state-of-the-art manufacturing
capabilities and leveraging the Company's network of manufacturing facilities to
provide timely product delivery and rapid response to customer demands. The
Company has expanded sales in international markets by serving customers from
its facilities in the United States and by forming strategic alliances with
photomask manufacturers in certain foreign countries. In March 1995, the Company
announced that it will establish a facility in Singapore, and it intends to
continue to increase its presence in selected international markets.

The Company sells its products primarily through a direct sales force. The
Company conducts its sales activities from 11 locations in the United States and
one in the United Kingdom. The Company's customers include Advanced Micro
Devices, Inc., Cypress Semiconductor Corporation, LSI Logic Corporation, Micron
Technology, Inc., Motorola, Inc., National Semiconductor Corporation, Orbit
Semiconductor, Inc., Raytheon Company, Texas Instruments Incorporated, VLSI
Technology, Inc. and Zilog, Inc.

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THE OFFERING

Common Stock Offered by the Company................. 1,290,000 shares
Common Stock Offered by the Selling Shareholders.... 110,000 shares
Common Stock Outstanding after the Offering(1)...... 11,203,415 shares
Use of Proceeds..................................... Capital expenditures for establishment
and expansion of manufacturing
facilities, including in Texas and
Singapore.
Nasdaq National Market Symbol....................... PLAB

SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

THREE MONTHS
YEAR ENDED OCTOBER 31, ENDED JANUARY 31,
------------------------------- ----------------------
1992 1993 1994 1994 1995(2)
------- ------- ------- ------- -----------

STATEMENT OF EARNINGS DATA:
Net sales........................... $41,305 $48,363 $80,696 $18,857 $26,176
Operating income.................... 5,868 6,991 14,237 2,921 4,868
Income before income taxes.......... 6,719 7,436 15,301 2,997 5,202
Net income(3)....................... 4,367 4,908 10,336 2,275 3,267
Net income per common share(3)...... $ 0.55 $ 0.59 $ 1.03 $ 0.23 $ 0.32
Weighted average number of common
shares outstanding................ 7,998 8,372 10,062 9,938 10,256

JANUARY 31, 1995
-----------------------
OCTOBER 31, AS
1994 ACTUAL ADJUSTED(4)
----------- -------- -----------

BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.... $27,627 $ 21,609 $ 46,167
Working capital...................................... 32,329 26,907 51,718
Property, plant and equipment........................ 36,948 42,066 42,066
Total assets......................................... 98,346 113,176 137,734
Long-term debt, less current portion................. 495 1,855 1,855
Total shareholders' equity........................... 80,402 86,283 111,094

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(1) Excludes 403,198 shares reserved for issuance pursuant to currently
exercisable options with a weighted average exercise price of $4.41 per
share.

(2) On December 1, 1994, the Company acquired substantially all of the assets of
Hoya Micro Mask, Inc. ("Micro Mask"), an independent photomask manufacturer
with manufacturing operations located in Sunnyvale, California. The
consolidated statement of earnings for the three months ended January 31,
1995 includes the operating results of the acquired Micro Mask operations
only from December 1, 1994. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and Note 13 of Notes to
Consolidated Financial Statements.

(3) The Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," effective November 1, 1993. The
cumulative effect of adopting SFAS 109 was an increase in income of
$237,000, or $0.02 per share, for both fiscal 1994 and the three months
ended January 31, 1994. See Note 1 of Notes to Consolidated Financial
Statements.

(4) As adjusted to give effect to (i) the sale of 1,290,000 shares of Common
Stock offered hereby by the Company at an assumed public offering price of
$20.25 per share (the last sale price of the Company's Common Stock as
reported on the Nasdaq National Market on April 12, 1995), (ii) the exercise
by certain Selling Shareholders of options to purchase, in the aggregate,
40,000 shares of Common Stock at exercise prices ranging from $1.83 to $3.17
per share and of a warrant to purchase 7,500 shares of Common Stock with an
exercise price of $5.24 per share, all of which shares will be sold in this
offering and (iii) the application of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."

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RISK FACTORS

In addition to the other information in this Prospectus, the following
should be considered carefully in evaluating the Company and its business before
purchasing the Common Stock offered by this Prospectus.

UNCERTAIN DEMAND FOR PHOTOMASKS; CYCLICAL NATURE OF SEMICONDUCTOR INDUSTRY

The Company believes that, during the early 1990s, unit sales of photomasks
were relatively flat, and the Company and other independent manufacturers
experienced price reductions. Although demand for photomasks increased in 1994,
there can be no assurance that demand will not decline or that pressure to
reduce prices will not continue. In addition, substantially all of the Company's
net sales are derived from customers in the semiconductor industry. This
industry is highly cyclical and has been characterized by periodic downturns,
which in some cases have had severe effects on suppliers to the industry. There
can be no assurance that any of the foregoing factors will not have a material
adverse effect on the Company's business and results of operations. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business--Industry Overview."

DEPENDENCE ON MAJOR CUSTOMERS

Approximately 36% of the Company's net sales in fiscal 1994 was derived
from sales to Texas Instruments Incorporated ("Texas Instruments"). An
additional 18% of net sales in fiscal 1994 was derived from sales to the
Company's next four largest customers, no one of which accounted for more than
approximately 5% of net sales. None of the Company's customers has contracts
requiring it to purchase any minimum quantity of photomasks from the Company,
and any loss of, or significant reduction in, orders from any of these
customers, particularly Texas Instruments, could have a material adverse effect
on the Company's business and results of operations. The Company currently
supplies substantially all of the photomasks used by the operations of Texas
Instruments in North America. Large semiconductor manufacturers typically have
multiple sources of supply of photomasks, and Texas Instruments could utilize
additional sources of supply in the future, which could have a material adverse
effect on the Company's business and results of operations. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
"Business--Customers."

MANAGEMENT OF EXPANDING OPERATIONS; LIMITED ADDITIONAL ACQUISITION OPPORTUNITIES

The Company has recently experienced rapid expansion of its operations,
primarily due to its acquisitions of the photomask manufacturing operations of
Toppan Printronics (USA), Inc. ("TPI") in October 1993 and Micro Mask in
December 1994. In addition, the Company currently is expanding its manufacturing
capacity and plans to relocate its Texas manufacturing operations to a new
facility and establish a manufacturing facility in Singapore. The Company also
from time to time evaluates and enters into negotiations with respect to
potential acquisitions, and the Company may make additional acquisitions in the
future. This expansion has placed, and is expected to continue to place,
significant demands on the Company's administrative, operational and financial
personnel and systems. The Company has in the past experienced, and could in the
future experience, difficulties and delays in ramping up new production
facilities. Managing acquired operations entails numerous operational and
financial risks, including difficulties in the assimilation of acquired
operations, diversion of management's attention to other business concerns,
amortization of acquired intangible assets and potential loss of key employees
of acquired operations. Sales of acquired operations also may decline following
the acquisition, particularly if there is an overlap of customers served by the
Company and the acquired operation, and such customers transition to another
vendor in order to ensure a second source of supply. In this respect, the
Company believes that there was some degree of overlap between the Company's
customers and those of Micro Mask, and some of these customers may transition to
second sources of supply. Furthermore, in connection with any future
acquisitions, the Company would be required to utilize its cash reserves and/or
issue new securities, which could have a dilutive effect on the Company's
earnings per share, particularly during the initial integration of the acquired
operations into the Company's operations. Any failure of the Company to
successfully manage its

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expanding operations could have a material adverse effect on the Company's
business and results of operations.

A substantial majority of the Company's increases in net sales and net
income in fiscal 1994 and the three months ended January 31, 1995 were
attributable to the acquisitions of TPI and Micro Mask, respectively. The
Company believes that there are limited remaining opportunities to acquire
significant photomask operations in the United States. Any future growth in net
sales in the United States therefore will substantially depend upon growth in
the Company's existing business, and there can be no assurance that such growth
will occur. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."

FLUCTUATIONS IN QUARTERLY PERFORMANCE

In the past, the Company experienced fluctuations in its quarterly
operating results, and it anticipates that such fluctuations will continue and
could intensify in the future. Fluctuations in operating results may result in
volatility in the price of the Common Stock. Operating results may fluctuate as
a result of many factors, including size and timing of orders and shipments,
product mix, sales of equipment (which have widely varying gross margins),
technological change, competition, loss of significant customers and general
economic conditions. The Company's customers generally order the Company's
products on an as-needed basis, and substantially all of the Company's net sales
in any quarter are dependent on orders received during that quarter. Since the
Company operates with a limited backlog and the rate of new orders may vary
significantly from month to month, the Company's capital expenditures and
expense levels are based primarily on sales forecasts. Consequently, if
anticipated sales in any quarter do not occur when expected, capital
expenditures and expense levels could be disproportionately high, and the
Company's operating results would be adversely affected. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
Note 12 of Notes to Consolidated Financial Statements.

EXPANSION INTO INTERNATIONAL MARKETS

In fiscal 1994, international sales accounted for approximately 13% of the
Company's net sales. The Company believes that achieving significant additional
international sales will require it, among other things, to develop a local
presence in the markets on which it is focused, which would require a
significant investment of financial, management, operational and other
resources. In March 1995, the Company announced plans to establish a facility in
Singapore. In international markets, existing independent photomask suppliers,
including, in certain markets, DuPont Photomasks, Inc. ("DuPont"), have
significant local presences and market share. Accordingly, the Company expects
to encounter significant competition which could affect the Company's success in
establishing a significant presence in international markets that it targets.

Operations outside the United States are subject to inherent risks,
including fluctuations in exchange rates, political and economic conditions in
various jurisdictions, unexpected changes in regulatory requirements, tariffs
and other trade barriers, difficulties in staffing and managing foreign
operations, longer accounts receivable payment cycles and potentially adverse
tax consequences. There can be no assurance that such factors will not have a
material adverse effect on the Company's ability to generate sales outside the
United States and, consequently, on the Company's business and results of
operations. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and "Business--Strategy."

TECHNOLOGICAL CHANGE

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photomasks in volume. In addition, demand for photomasks has been and in the
future could be adversely affected by changes in methods of semiconductor
manufacturing (which could affect the type or quantity of photomasks utilized)
or market acceptance of alternative methods of transferring circuit designs. If
the Company were unable, due to resource, technological or other constraints, to
anticipate, respond to or utilize these or other changing technologies, the
Company's business and results of operations could be materially adversely
affected. See "Business--Research and Development."

FUTURE CAPITAL NEEDS UNCERTAIN

The manufacture of photomasks requires a significant investment in capital
equipment. The Company expects that it will be required to continue to make
significant capital expenditures in connection with its operations in the United
States. The Company also has initiated a strategy to increase its presence in
certain international markets in which it does not yet have a significant
presence. Any expansion of the Company's operations in these markets would
require significant additional investment in new manufacturing facilities. There
can be no assurance that the Company will be able to obtain any additional
capital required in connection with such expansion on reasonable terms, or at
all, or that any such expansion will not have a material adverse effect on the
Company's business and results of operations, particularly during the start-up
phase of new operations. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition."

COMPETITION

The photomask industry is highly competitive, and most of the Company's
customers utilize more than one photomask supplier. In the United States, the
Company competes primarily with DuPont and, to a lesser extent, with other
smaller independent photomask suppliers. The Company also competes with
semiconductor manufacturers' captive photomask manufacturing operations. The
Company expects to face continued competition from these and other suppliers in
the future. DuPont, which has competed aggressively in the past, and certain
potential competitors in international markets have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition, than the Company.

The Company's ability to compete primarily depends upon the consistency of
product quality and timeliness of delivery, as well as pricing, technical
capability and service. The Company also believes that proximity to customers is
an important competitive factor in certain markets. In the past, competition led
to pressure to reduce prices which, the Company believes, contributed to the
decrease in the number of independent manufacturers. There can be no assurance
that pressure to reduce prices will not continue. See "Business--Competition."

DEPENDENCE ON SUPPLIERS

Raw materials utilized by the Company generally include high precision
quartz plates, which are used as photomask blanks, pellicles, which are
protective transparent cellulose membranes, and electronic grade chemicals used
in the manufacturing process. The Company has established purchasing
arrangements with each of Hoya Corporation USA, the parent of Micro Mask
("Hoya"), and Toppan Printing Co., Ltd. ("Toppan") pursuant to which the Company
purchases substantially all of its photomask blanks. The Company expects that it
will continue to purchase substantially all of its photomask blanks from Hoya
and Toppan so long as their price, quality and delivery and service are
competitive. Any delays or quality problems in connection with significant raw
materials, particularly photomask blanks from either Hoya or Toppan, could cause
delays in shipments of photomasks which could adversely affect the Company's
business and results of operations. The fluctuation of exchange rates with
respect to prices of significant raw materials used in manufacturing also could
have a material adverse effect on the Company's business and results of
operations, although the Company has not experienced any such effect to date.
See "Business--Materials and Supplies."

8
10

CONTROL BY MANAGEMENT

Following the offering made hereby, officers and directors of the Company
and their affiliates will beneficially own approximately 37% of the Company's
outstanding Common Stock, including shares held by Toppan that are subject to an
agreement with the Company which, among other things, requires Toppan to vote
its shares for nominees for director proposed by the Company's board. This
concentration of ownership will enable management to exercise substantial
influence over the election of directors and other corporate transactions
requiring shareholder approval, including mergers, consolidations or other
significant transactions. This concentration of ownership could prevent or delay
a change in control of the Company. See "Principal and Selling Shareholders."

DEPENDENCE ON MANAGEMENT AND TECHNICAL PERSONNEL

The Company's success depends upon, in part, key managerial, engineering
and technical personnel, as well as its ability to continue to attract and
retain additional personnel. The loss of certain key personnel could have a
material adverse effect upon the Company's business and results of operations.
There can be no assurance that the Company can retain its key managerial,
engineering and technical employees or that it can attract similar additional
employees in the future. While the Company believes that it provides competitive
compensation and incentive packages, it does not have written employment
agreements with employees. See "Business--Employees" and "Management."

FLUCTUATIONS IN STOCK PRICE

The trading prices of the Company's Common Stock have fluctuated
significantly. The prices at which the Common Stock trades are determined in the
marketplace and may be influenced by many factors, including the performance of,
and investor expectations for, the Company, the trading volume in the Common
Stock and general economic and market conditions. In addition, in recent years
the stock market in general, and the shares of technology companies in
particular, have experienced extreme price and volume fluctuations. This
volatility has substantially affected the market prices of securities issued by
many companies for reasons unrelated to their operating performance. These broad
market fluctuations may adversely affect the market price of the Company's
Common Stock. There can be no assurance as to the price at which the Common
Stock will trade in the future. See "Price Range of Common Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 11,203,415 shares
of Common Stock outstanding. Of these shares, 7,382,015 shares will be freely
tradable without restriction or further registration under the Securities Act of
1933, as amended (the "1933 Act"), and 3,821,400 shares will be "restricted"
securities within the meaning of Rule 144. Due to lock-up agreements and
restrictions under the 1933 Act, none of the restricted shares will be eligible
for sale before 90 days after the date of this Prospectus. Beginning 90 days
after the date of this Prospectus (or earlier upon release by Robertson,
Stephens & Company from lock-up agreements), 2,231,400 of such restricted shares
will be eligible for sale in the open market under and subject to restrictions
contained in Rule 144. Robertson, Stephens & Company reserves the right to
release the holders of such shares from such lock-up agreements at any time
without notice. The Company is unable to estimate the number of shares that may
be sold pursuant to the foregoing methods of sale because such sales will depend
on the market price for the Common Stock, the personal circumstances of sellers
and other factors. In addition, options to purchase 986,528 shares of Common
Stock were outstanding as of January 31, 1995. The holder of 1,590,000 shares of
Common Stock has certain demand and piggyback registration rights beginning in
1996. Any sale of substantial amounts of Common Stock in the open market may
significantly reduce the market price of the Common Stock. See "Underwriting."

9
11

THE COMPANY

The Company is a Connecticut corporation, organized in 1969. The Company
changed its name in April 1990 from Photronics Labs, Inc. Its principal
executive offices are located at 1061 East Indiantown Road, Jupiter, Florida
33473, telephone (407) 747-4163.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,290,000 shares of
Common Stock offered by the Company hereby, after deducting estimated
underwriting discounts, commissions and offering expenses payable by the
Company, are expected to be approximately $24.4 million ($28.5 million if the
Underwriters' over-allotment option is exercised in full). The Company also will
receive approximately $122,000 upon the exercise of options and a warrant by
certain Selling Shareholders but will not receive any of the proceeds from the
sale of the Common Stock by the Selling Shareholders.

The Company intends to use such proceeds to provide (i) approximately $20
million for the construction of a new state-of-the-art facility in Allen, Texas,
a suburb of Dallas, to relocate the operations acquired by the Company in
October 1993 and to fund the expansion of manufacturing and research and
development capacity in existing manufacturing facilities, and (ii) the balance,
together with other resources available to the Company, for the establishment of
a new facility in Singapore. The foregoing represents the Company's best
estimate of the allocation of the net proceeds of this offering based upon
current economic and industry conditions and the current state of its business
operations and plans. The application of proceeds for any particular purpose
will depend on a number of factors, including the timing of expenditures and the
availability of funds from operations or other sources. As a result, the Company
may find it desirable, and reserves the right, to change the allocation of
funds. In addition, from time to time the Company evaluates and enters into
negotiations with respect to potential acquisitions of the equipment and other
assets of both captive and independent photomask manufacturers and may, as
opportunities become available, make such acquisitions in the future. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition." Pending such uses, proceeds will be invested in short-term
instruments.

10
12

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "PLAB" since the Company's initial public offering in March
1987. The following table sets forth the high and low sale prices for the Common
Stock as reported on the Nasdaq National Market for the periods indicated,
adjusted to reflect a 3-for-2 stock split effected on March 20, 1995.

HIGH LOW
---- ---

Fiscal year ended October 31, 1993
First quarter........................................................... $10 $ 5 13/16
Second quarter.......................................................... 9 13/16 8 5/16
Third quarter........................................................... 9 11/16 6 1/2
Fourth quarter.......................................................... 9 1/2 6 13/16
Fiscal year ended October 31, 1994
First quarter........................................................... $12 $ 9
Second quarter.......................................................... 14 1/2 11
Third quarter........................................................... 14 11/16 10 13/16
Fourth quarter.......................................................... 18 3/16 11 5/16
Fiscal year ending October 31, 1995
First quarter........................................................... $20 1/2 $15 13/16
Second quarter (through April 12, 1995)................................. 24 1/2 19 3/16

On April 12, 1995, the last sale price for the Common Stock as reported on
the Nasdaq National Market was $20.25 per share. As of December 31, 1994, there
were 273 shareholders of record.

DIVIDEND POLICY

The Company has not paid any cash dividends to date and, for the
foreseeable future, anticipates that earnings will continue to be retained for
use in its business. The terms of the Company's financing agreements contain
certain financial covenants, including covenants that require the maintenance of
minimum net worth and compliance with ratios of (i) total unsubordinated
liabilities to tangible net worth, (ii) accounts receivable and cash to current
liabilities and (iii) earnings before interest and taxes to consolidated
interest and the current portion of long-term debt, which could have the effect
of limiting the payment of dividends.

11
13

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
January 31, 1995 and as adjusted to give effect to (i) the sale of 1,290,000
shares of Common Stock being offered by the Company hereby at an assumed public
offering price of $20.25 per share (the last sale price of the Company's Common
Stock as reported on the Nasdaq National Market on April 12, 1995) and (ii) the
issuance of 47,500 shares of Common Stock upon the exercise of options and a
warrant by certain Selling Shareholders.

JANUARY 31, 1995
-------------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)

Long-term debt, less current portion................................. $ 1,855 $ 1,855
------- -----------
Shareholders' equity:
Preferred Stock $0.01 par value, 2,000,000 shares authorized; none
issued and outstanding.......................................... -- --
Common Stock, $0.01 par value, 20,000,000 shares authorized;
10,002,416 shares issued and outstanding; 11,339,915 shares
issued and outstanding as adjusted(1)........................... 100 113
Additional paid-in capital......................................... 41,419 66,217
Retained earnings.................................................. 37,605 37,605
Unrealized gains on investments(2)................................. 8,020 8,020
Treasury stock, 136,500 shares, at cost............................ (245) (245)
Deferred compensation on restricted stock(3)....................... (616) (616)
------- -----------
Total shareholders' equity...................................... 86,283 111,094
------- -----------
Total capitalization.......................................... $88,138 $ 112,949
======= ========

- ---------------

(1) Excludes 403,198 shares reserved for issuance pursuant to currently
exercisable options with a weighted average exercise price of $4.41 per
share.

(2) Reflects unrealized gains on the Company's shares in two publicly-held
technology companies. All of such shares were acquired in private
transactions and are subject to restrictions on transfer under the 1933 Act.
See Notes 1 and 2 of Notes to Consolidated Financial Statements.

(3) See Note 8 of Notes to Consolidated Financial Statements.

12
14

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data of the Company as of
October 31, 1990, 1991, 1992, 1993 and 1994 and for each of the years then ended
have been derived from the audited consolidated financial statements of the
Company. The financial statements as of October 31, 1993 and 1994 and for each
of the years in the three year period ended October 31, 1994, and the report of
Deloitte & Touche LLP, independent auditors, with respect to such periods, are
included elsewhere in this Prospectus. The selected consolidated financial data
as of January 31, 1995 and for the three months ended January 31, 1994 and 1995
have been derived from the Company's unaudited consolidated financial statements
which, in the opinion of the Company, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of such data.
Results for the three months ended January 31, 1995 are not necessarily
indicative of results that may be expected for the full year. The data are
qualified by reference to, and should be read in conjunction with, "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Consolidated Financial Statements and related notes and other financial
information appearing elsewhere in this Prospectus or incorporated by reference
herein.

THREE MONTHS
ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
----------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995(1)
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF EARNINGS DATA:
Net sales.......................................... $37,370 $42,158 $41,305 $48,363 $80,696 $18,857 $26,176
Costs and expenses:
Cost of sales.................................... 23,100 25,853 27,142 32,048 51,204 12,525 16,417
Selling, general and administrative.............. 5,442 4,986 5,746 6,580 10,517 2,274 3,543
Research and development......................... 2,468 2,613 2,549 2,744 4,738 1,137 1,348
------- ------- ------- ------- ------- ------- -------
Operating income................................... 6,360 8,706 5,868 6,991 14,237 2,921 4,868
Gain on insurance settlements...................... -- 1,479 -- -- -- -- --
Interest and other income (expense), net........... (57) 747 851 445 1,064 76 334
------- ------- ------- ------- ------- ------- -------
Income before income taxes......................... 6,303 10,932 6,719 7,436 15,301 2,997 5,202
Provision for income taxes(2)...................... 2,332 4,155 2,352 2,528 4,965 722 1,935
------- ------- ------- ------- ------- ------- -------
Net income(2)...................................... $ 3,971 $ 6,777 $ 4,367 $ 4,908 $10,336 $ 2,275 $ 3,267
======== ======== ======== ======== ======== ======== ========
Net income per common share(2)..................... $ 0.69 $ 0.89 $ 0.55 $ 0.59 $ 1.03 $ 0.23 $ 0.32
======== ======== ======== ======== ======== ======== ========
Weighted average number of common shares
outstanding...................................... 5,721 7,562 7,998 8,372 10,062 9,938 10,256
======== ======== ======== ======== ======== ======== ========

OCTOBER 31,
----------------------------------------------- JANUARY 31,
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -----------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments...................................... $ 6,653 $19,913 $16,703 $11,722 $27,627 $ 21,609
Working capital.................................... 11,121 23,506 20,771 17,577 32,329 26,907
Property, plant and equipment...................... 14,801 17,097 24,168 40,218 36,948 42,066
Total assets(3).................................... 32,617 47,850 52,026 74,441 98,346 113,176
Long-term debt, less current portion............... 2,452 1,758 1,698 1,051 495 1,855
Total shareholders' equity(3)...................... 22,537 39,384 44,011 62,626 80,402 86,283

- ---------------
(1) On December 1, 1994, the Company acquired substantially all of the assets of
Micro Mask. The Consolidated Statement of Earnings for the three months
ended January 31, 1995 includes the operating results of the acquired Micro
Mask operations only from December 1, 1994. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and Note 13 of
Notes to Consolidated Financial Statements.

(2) The Company adopted SFAS 109 effective November 1, 1993. The cumulative
effect of adopting SFAS 109 was a benefit of $237,000, or $0.02 per share,
for both fiscal 1994 and the three months ended January 31, 1994. See Note 1
of Notes to Consolidated Financial Statements.

(3) Under Statement of Financial Accounting Standards No. 115, which the Company
adopted effective October 31, 1994, equity investments are included in
assets at fair market value and unrealized gains on investments, net of tax,
are reported as a separate component of total shareholders' equity. See
Notes 1 and 2 of Notes to Consolidated Financial Statements.

13
15

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

The Company is a leading manufacturer of photomasks which are a key element
in the manufacture of semiconductors. The market for photomasks consists
primarily of semiconductor manufacturers and designers, including manufacturers
that have the capability to manufacture photomasks. During the past several
years, a number of factors resulted in the divestiture or closing of captive
manufacturing operations by semiconductor manufacturers in the United States and
the consolidation of market share among a small number of independent
manufacturers. In response to these trends, the Company completed a number of
strategic acquisitions, including acquisitions of TPI in October 1993 and of
Micro Mask in December 1994. These two recent acquisitions were primarily
responsible for the significant increases in the Company's net sales and net
income in fiscal 1994 and the first three months of fiscal 1995. For further
information concerning the terms of the Micro Mask acquisition, see
"Business--Properties." The Company believes that there are limited remaining
opportunities to acquire significant photomask operations in the United States.
Any future growth in net sales in the United States therefore will substantially
depend upon growth in the Company's existing business, and there can be no
assurance that such growth will occur. Managing acquired operations entails
numerous operational and financial risks. See "Risk Factors--Management of
Expanding Operations; Limited Additional Acquisition Opportunities."

The Company intends to increase its manufacturing capabilities and its
market presence by investing in facilities and state-of-the-art equipment and
acquiring, where appropriate, the operations of other manufacturers. As part of
the Company's expansion into Texas, the Company is constructing a new
state-of-the-art facility in the Dallas area to relocate the Texas operations
acquired in 1993.

The Company also has expanded sales in international markets by serving
customers from current facilities and by forming strategic partnerships with
overseas photomask manufacturers. Foreign sales accounted for approximately 2%
of the Company's net sales for fiscal 1992, 8% for fiscal 1993 and 13% for
fiscal 1994. As part of its strategy to increase international sales, the
Company announced in March 1995 that it would establish a facility in Singapore.

14
16

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items in the Company's Consolidated
Statement of Earnings for each period:

THREE MONTHS
ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------- ---------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----

Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales............................ 65.7 66.3 63.4 66.4 62.7
Selling, general and administrative...... 13.9 13.6 13.0 12.1 13.5
Research and development................. 6.2 5.6 5.9 6.0 5.2
----- ----- ----- ----- -----
Operating income........................... 14.2 14.5 17.7 15.5 18.6
Interest and other income, net............. 2.1 0.9 1.3 0.4 1.3
----- ----- ----- ----- -----
Income before income taxes................. 16.3 15.4 19.0 15.9 19.9
Provision for income taxes(1).............. 5.7 5.2 6.2 3.8 7.4
----- ----- ----- ----- -----
Net income(1).............................. 10.6% 10.2% 12.8% 12.1% 12.5%
===== ===== ===== ===== =====

- ---------------
(1) Includes a benefit from the adoption of SFAS 109 of $237,000 for both fiscal
1994 and the three months ended January 31, 1994, or 0.3% and 1.3%,
respectively.

Three months ended January 31, 1995 and 1994

A significant portion of the material changes in each category of the
Company's results of operations for the three months ended January 31, 1995, as
compared to the same period in the prior fiscal year, is attributable to the
acquisition, on December 1, 1994, of the photomask manufacturing operations and
assets of Micro Mask in Sunnyvale, California.

Net sales. Net sales for the three months ended January 31, 1995 increased
38.8% to $26.2 million compared with $18.9 million in the same period in the
prior fiscal year. The increase is attributable to the inclusion of two months'
sales by the Company's new Sunnyvale facility and generally stronger demand from
its existing customer base.

Cost of sales. Cost of sales for the three months ended January 31, 1995
increased 31.1% to $16.4 million compared to $12.5 million for the same period
in the prior fiscal year, resulting primarily from increased sales, together
with higher employee incentive compensation expenses resulting from the
Company's performance. In addition, employee benefit costs for the three months
ended January 31, 1995 increased as the majority of the employees at the Texas
facility were not yet eligible for benefits in the three months ended January
31, 1994. As a percentage of net sales, cost of sales decreased to 62.7% for the
three months ended January 31, 1995 as compared with 66.4% in the prior fiscal
year quarter. The decrease was primarily due to improved capacity utilization
and greater operating efficiencies resulting from sales volume increases at the
Company's existing facilities in Brookfield, Dallas and Milpitas. This
improvement was offset somewhat by a change in the Company's business mix and
lower margins in the Sunnyvale operation. The Company anticipates that its fixed
operating costs will increase in connection with its planned expansion of
capacity.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 55.8% to $3.5 million for the three months
ended January 31, 1995 compared with $2.3 million for the same period in the
prior fiscal year. The increase was due largely to higher employee incentive
compensation expense provisions as a result of performance and the inclusion of
two months' expenses of the Sunnyvale facility. Furthermore, the Company overall
had increases in staffing levels, as well as general increases in wages and
other expenses. As a percentage of net sales, selling, general and

15
17

administrative expenses increased to 13.5% in the three months ended January 31,
1995 compared with 12.1% in the corresponding fiscal 1994 period.

Research and development expenses. Research and development expenses for
the three months ended January 31, 1995 increased 18.6% to $1.3 million compared
to $1.1 million for the same period for the prior fiscal year, primarily as a
result of several advanced technology photomask projects. However, as a
percentage of net sales, research and development expenses declined to 5.2% for
the three months ended January 31, 1995 compared to 6.0% in the corresponding
prior fiscal year period, reflecting increased net sales. The Company expects to
increase its research and development efforts.

Interest and other income, net. Interest and other income, net, for the
three months ended January 31, 1995 increased to $334,000 compared to $76,000
for the same period for the prior fiscal year due principally to increases in
interest income resulting from higher levels of funds available for investment,
coupled with higher prevailing interest rates. In addition, the Company had net
gains on the disposition of investments during the three months ended January
31, 1995.

Provision for income taxes. For the three months ended January 31, 1995
the Company provided Federal and state income taxes at an estimated combined
effective annual rate of approximately 37% as compared to 32% in the same period
for the prior fiscal year. The increase in the Company's estimated tax rate is
primarily due to a larger portion of income being subject to the 35% incremental
Federal income tax rate and a greater portion of the Company's income being
generated in California. For the three months ended January 31, 1994, the
Company recognized the cumulative effect of the adoption of SFAS 109, resulting
in a benefit of $237,000 or $0.02 per share.

Fiscal years ended October 31, 1994, 1993 and 1992

A significant portion of the changes in each category of the Company's
results of operations for fiscal 1994 as compared to the prior fiscal year is
attributable to the acquisition, on October 1, 1993, of the photomask
manufacturing operations and assets of TPI in Dallas, Texas. As a result of the
acquisition, Texas Instruments became the Company's largest customer in fiscal
1994.

Net sales. Net sales for fiscal 1994 increased 66.8% to $80.7 million
compared with net sales of $48.4 million in the prior fiscal year. The increase
is primarily attributable to the first full year of sales by the Company's new
Texas facility. Furthermore, the Company experienced stronger demand generally
throughout the year from its existing customer base as well as higher export
sales. Approximately 36% of the Company's net sales in fiscal 1994 was derived
from sales to Texas Instruments, and an additional 18% was derived from sales to
the Company's next four largest customers, no one of which accounted for more
than approximately 5% of net sales. Any loss of, or reduction in orders from any
of these customers, particularly Texas Instruments, could have a material
adverse effect on the Company's business and results of operations. See "Risk
Factors--Dependence on Major Customers." Net sales for fiscal 1993 represented
an increase of 17.1% over 1992 sales of $41.3 million. The increase in fiscal
1993 was attributable to various factors including sales, commencing October 1,
1993, from the Company's new Texas facility as well as sales from a company
which became a wholly-owned subsidiary in the second quarter of fiscal 1993.
Shipments to customers from existing facilities were also higher as a result of
stronger demand generally.

Cost of sales. In fiscal 1994, cost of sales increased 59.8% to $51.2
million compared to $32.0 million for the prior fiscal year principally as a
result of the increase in sales. However, as a percentage of sales, cost of
sales decreased to 63.4% compared with 66.3% in fiscal 1993. The decrease was
primarily due to the improved capacity utilization afforded by sales volume
increases and a more favorable product mix. Cost of sales for fiscal 1993
increased 18.1% to $32.0 million compared to $27.1 million for fiscal 1992. As a
percentage of net sales, cost of sales increased to 66.3% in fiscal 1993 from
65.7% in fiscal 1992. This was primarily due to business mix changes which
resulted in higher material costs, as well as higher overhead costs from
substantial renovations, improvements and technological enhancements completed
by the Company.

16
18

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 59.8% to $10.5 million in fiscal 1994 compared
to $6.6 million for fiscal 1993. The increase was due to the Company's new Texas
operations, as well as a provision for higher employee incentive compensation
expense resulting from the Company's performance. In addition, the Company had
increases in staffing levels, coupled with general increases in wages and other
expenses. As a percentage of net sales, selling, general and administrative
expenses decreased to 13.0% for fiscal 1994 compared to 13.6% in the prior
fiscal year. Selling, general and administrative expenses in fiscal 1993
increased 14.5% to $6.6 million compared to $5.7 million for the prior fiscal
year. The increase was primarily attributable to higher personnel costs and the
addition of the Texas operations in October 1993. As a percentage of net sales,
selling, general and administrative expenses remained relatively flat in fiscal
1993 as compared to fiscal 1992.

Research and development expenses. Research and development expenses for
fiscal 1994 increased 72.7% to $4.7 million from $2.7 million for the prior
fiscal year primarily due to the Company's new Texas facility and the
commencement of several projects dealing with advanced technology photomasks. As
a percentage of net sales, such costs were largely unchanged from the prior
fiscal year. Research and development expenses increased 7.7% to $2.7 million in
fiscal 1993 compared to $2.5 million in fiscal 1992. Research and development
expenses declined slightly as a percentage of net sales, however, to 5.6% in
fiscal 1993 from 6.2% of net sales in fiscal 1992.

Interest and other income, net. For fiscal 1994, interest and other
income, net, increased to $1.1 million as compared to $445,000 for the prior
fiscal year. The increase resulted from capital gains on the disposition of
investments in the third and fourth quarters of fiscal 1994. There were no such
gains in fiscal 1993. Beginning October 31, 1994, unrealized gains on
investments are recorded as a separate component of total shareholders' equity.
See Notes 1 and 2 of Notes to Consolidated Financial Statements. Interest and
other income, net, in fiscal 1993 decreased to $445,000 from $851,000 for the
previous fiscal year. The decrease was primarily attributable to lower interest
income due to a shift to tax-favored investments, lower prevailing interest
rates and lower dividends earned.

Provision for income taxes. For fiscal 1994, the Company provided Federal
and state income taxes at an estimated combined effective annual tax rate of
34%. In the first quarter of fiscal 1994, the Company recognized the cumulative
effect of the adoption of SFAS 109. This adoption resulted in a benefit of
$237,000, or $0.02 per share, for fiscal 1994. The Company's effective income
tax rates for fiscal years 1993 and 1992 were 34% and 35%, respectively.

17
19

QUARTERLY RESULTS

The following tables present unaudited quarterly consolidated financial
data for each of the nine quarters in the period ended January 31, 1995 and such
data as a percentage of net sales. This data has been prepared on a basis
consistent with the audited consolidated financial statements appearing
elsewhere in this Prospectus, and in the opinion of management, includes all
necessary adjustments (consisting only of normal recurring adjustments) to
present fairly the unaudited quarterly results when read in conjunction with the
audited consolidated financial statements of the Company and notes thereto
appearing elsewhere in this Prospectus. The results of operations for any
quarter are not necessarily indicative of results to be expected for any future
period.

THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------------------
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1993 1993 1993 1993 1994 1994 1994 1994 1995
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Net sales..... $11,279 $10,644 $ 11,665 $14,775 $18,857 $18,641 $ 21,313 $21,885 $26,176
Costs and
expenses:
Cost of
sales..... 7,625 7,042 7,638 9,743 12,525 12,177 13,096 13,406 16,417
Selling,
general
and
administrative. 1,523 1,502 1,720 1,835 2,274 2,259 3,088 2,896 3,543
Research and
development... 652 672 688 732 1,137 1,105 1,254 1,242 1,348
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Operating
income...... 1,479 1,428 1,619 2,465 2,921 3,100 3,875 4,341 4,868
Interest and
other
income,
net......... 152 121 140 32 76 95 405 488 334
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Income before
income
taxes....... 1,631 1,549 1,759 2,497 2,997 3,195 4,280 4,829 5,202
Provision for
income
taxes(1).... 556 527 598 847 722 1,084 1,515 1,644 1,935
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Net
income(1)... $ 1,075 $ 1,022 $ 1,161 $ 1,650 $ 2,275 $ 2,111 $ 2,765 $ 3,185 $ 3,267
========= ======= ======= ========= ========= ======= ======= ========= =========
Net income per
common
share(1).... $ 0.13 $ 0.13 $ 0.14 $ 0.19 $ 0.23 $ 0.21 $ 0.27 $ 0.31 $ 0.32
========= ======= ======= ========= ========= ======= ======= ========= =========
Weighted
average
number of
common
shares
outstanding
(000s)...... 7,942 8,262 8,240 8,802 9,938 10,034 10,098 10,180 10,256
========= ======= ======= ========= ========= ======= ======= ========= =========

PERCENTAGE OF
NET SALES:
Net sales..... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and
expenses:
Cost of
sales..... 67.6 66.2 65.5 65.9 66.4 65.3 61.4 61.3 62.7
Selling,
general
and
administrative. 13.5 14.1 14.7 12.4 12.1 12.1 14.5 13.2 13.5
Research and
development... 5.8 6.3 5.9 5.0 6.0 6.0 5.9 5.7 5.2
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Operating
income...... 13.1 13.4 13.9 16.7 15.5 16.6 18.2 19.8 18.6
Interest and
other
income,
net......... 1.3 1.1 1.2 0.2 0.4 0.5 1.9 2.2 1.3
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Income before
income
taxes....... 14.4 14.5 15.1 16.9 15.9 17.1 20.1 22.0 19.9
Provision for
income
taxes(1).... 4.9 4.9 5.1 5.7 3.8 5.8 7.1 7.5 7.4
----------- --------- -------- ----------- ----------- --------- -------- ----------- -----------
Net
income(1)... 9.5% 9.6% 10.0% 11.2% 12.1% 11.3% 13.0% 14.5% 12.5%
========= ======= ======= ========= ========= ======= ======= ========= =========

- ---------------
(1) Includes a benefit of $237,000 ($.02 per share) for the three months ended
January 31, 1994 resulting from the cumulative effect of adoption of SFAS
109.

18
20

Net sales have increased over the last two fiscal years, with significant
quarterly increases in net sales commencing in the fourth quarter of fiscal 1993
and in the first quarter of fiscal 1995 due primarily to the acquisition of the
Company's Texas operations in October 1993 and of the Sunnyvale operations in
December 1994, respectively. Cost of sales as a percentage of net sales
generally decreased in fiscal 1993 and fiscal 1994, from 67.6% in the first
quarter of fiscal 1993 to 61.3% in the fourth quarter of fiscal 1994, primarily
as a result of greater utilization of manufacturing capacity. Cost of sales as a
percentage of net sales increased to 62.7% in the first quarter of 1995,
primarily as a result of higher costs associated with the Sunnyvale operations.

In the past, the Company experienced fluctuations in its quarterly
operating results and it anticipates that such fluctuations will continue and
could intensify in the future. Operating results may fluctuate as a result of
many factors, including size and timing of orders and shipments, product mix,
sales of equipment (which have widely varying gross margins), technological
change, competition, loss of significant customers and general economic
conditions. The Company's customers generally order the Company's products on an
as-needed basis, and substantially all of the Company's net sales in any quarter
are dependent on orders received during that quarter. Since the Company operates
with a limited backlog and the rate of new orders may vary significantly from
month to month, the Company's capital expenditures and overhead expense levels
are based primarily on sales forecasts. Consequently, if anticipated sales and
shipments in any quarter do not occur when expected, capital expenditures and
overhead expense levels could be disproportionately high and the Company's
operating results would be adversely affected. In addition, substantially all of
the Company's net sales are derived from customers in the semiconductor
industry. This industry is highly cyclical and has been characterized by
periodic downturns, which in some cases have had severe effects on suppliers to
the industry. There can be no assurance that any of the foregoing factors will
not have a material adverse effect on the Company's business and results of
operations.

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21

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash, cash equivalents and short-term investments increased
$15.9 million during fiscal 1994. Operating activities contributed $21.0
million, and financing activities provided another $744,000. These increases in
liquidity were offset principally by cash used for deposits on and purchases of
property and equipment aggregating $6.2 million. The Company's cash, cash
equivalents and short-term investments decreased $6.0 million during the three
months ended January 31, 1995. During the first quarter, the Company utilized
cash of $7.4 million for the Micro Mask acquisition. Excluding the Micro Mask
acquisition, investing activities used cash totaling $3.3 million, principally
for deposits on and purchases of property and equipment, and financing
activities used an additional $328,000. These decreases in liquidity were offset
by $3.3 million of cash provided by operating activities after utilizing
approximately $2.0 million for initial working capital at the Sunnyvale site.

Accounts receivable were $9.8 million, $10.2 million and $15.3 million at
October 31, 1993 and 1994 and January 31, 1995, respectively. The increases in
receivables, at October 31, 1994 and at January 31, 1995, from the respective
preceding fiscal period ends reflected increased sales, particularly from the
new Sunnyvale operations in the three months ended January 31, 1995. Inventory,
which declined from $2.9 million at October 31, 1993 to $2.5 million at October
31, 1994, included several manufacturing systems held by the Company's
subsidiary Beta Squared, Inc. ("Beta") which were sold during fiscal 1994.
Inventories increased to $3.5 million at January 31, 1995 as a result of the
addition of the Sunnyvale facility.

Other current assets increased at October 31, 1994 from October 31, 1993
and at January 31, 1995 primarily as a result of increases in various prepaid
expenses because of the first full year of the Company's Texas operations,
together with assets acquired from several captive photomask operations.

Property, plant and equipment and intangible assets at October 31, 1994
decreased from October 31, 1993 due to normal depreciation and amortization,
offset by $4.4 million of fixed and intangible asset additions. Property, plant
and equipment and intangible assets at January 31, 1995 increased from October
31, 1994, principally due to the acquisition of $5.1 million of fixed assets and
$5.7 million of intangible assets in connection with the Micro Mask acquisition.
Other assets increased from October 31, 1993 to October 31, 1994, primarily due
to deposits on property and equipment purchases.

Investments increased from $1.4 million at October 31, 1993 to $11.1
million at October 31, 1994 as a result of unrealized gains recorded in
connection with the adoption of a new accounting principle. See Notes 1 and 2 of
Notes to Consolidated Financial Statements. Investments increased at January 31,
1995 from October 31, 1994 due to additional unrealized gains recorded in the
three months ended January 31, 1995 as a result of the increased fair value of
the Company's investments, net of dispositions, during the quarter.

Accounts payable decreased during fiscal 1994 primarily due to payment of
prior equipment purchases. Accrued salaries and wages increased from October 31,
1993 principally as a result of provisions for incentive and vacation pay
expense. Other accrued liabilities increased mainly due to expenses related to a
full year of the Company's new Texas operations, including commissions to TPI on
certain of those operations' sales. Current income taxes payable increased to
$567,000 due to the results of operations, the Company's tax estimates and its
normal income tax payment practices.

Accounts payable at January 31, 1995 increased from October 31, 1994
primarily due to the addition of the Sunnyvale operations and increased payables
related to equipment purchases. Accrued salaries and wages decreased from
October 31, 1994 principally as a result of the payment during the three months
ended January 31, 1995 of prior year incentive compensation. This decrease was
offset by the addition of the Sunnyvale operations and provisions for incentive
compensation for fiscal 1995. Other accrued liabilities at January 31, 1995
decreased from October 31, 1994 due to the payment, in the three months ended
January 31, 1995, of certain fiscal 1994 expenses, offset by increases resulting
from the addition of the Sunnyvale operations. Current income taxes payable
increased to $1.9 million

20
22

due to the results of operations, the Company's tax estimates and its normal
income tax payment practices.

The current portion of long-term debt decreased at October 31, 1994 from
October 31, 1993 due to a balloon payment which was paid during fiscal 1994.
Long-term debt, less the current portion, declined due to regular debt
retirement requirements. Deferred income taxes increased by $4.5 million to $7.1
million at October 31, 1994. Of this increase, $4.1 million was provided on the
unrealized gains on investments. The balance of the increase in deferred taxes
resulted mainly from the increase in depreciation expense currently deductible
for income tax purposes but not yet deductible for financial reporting purposes.
Other liabilities increased primarily due to the acquisition by Beta of a
license from Texas Instruments related to plasma-based semiconductor
manufacturing equipment activities formerly conducted by Texas Instruments.

As a result of obligations incurred in connection with the Micro Mask
acquisition (including $3.0 million due in June 1995), net of a $400,000 balloon
payment which was paid, short-term debt and the current portion of long-term
debt increased by $2.6 million and long-term debt, less the current portion,
increased $1.4 million (net of imputed interest on the Micro Mask debt) during
the three months ended January 31, 1995. Deferred income taxes at January 31,
1995 increased $1.8 million from October 31, 1994 to $8.9 million largely due to
amounts provided on the unrealized gains on investments. See Notes 1 and 2 of
Notes to Consolidated Financial Statements.

The Company's commitments represent investments in additional manufacturing
capacity, as well as advanced equipment for research and development of the next
generation of high end, more complex photomasks. As of January 31, 1995, the
Company had commitments for the purchase or lease of property, plant and
equipment with an acquisition cost of approximately $24.4 million, of which
approximately $4.8 million had been paid at that date. Included in commitments
are $6.6 million related to the construction of the Company's new facility in
the Dallas area. Additional commitments for construction as well as the
relocation of the Company's current Texas operations and the proposed Singapore
operations will be incurred later in fiscal 1995.

The Company will use its working capital, bank credit lines, leasing
arrangements and the net proceeds of this offering to finance its capital
expenditures. The Company believes that the proceeds of this offering, together
with the currently available resources, are sufficient to satisfy its cash
requirements for the foreseeable future. The manufacture of photomasks requires
a significant investment in capital equipment. There can be no assurance that
the Company will be able to obtain any additional capital it may require on
reasonable terms or at all. See "Risk Factors--Future Capital Needs Uncertain."
In March 1995, the Company entered into a new unsecured revolving credit
facility that provides for borrowings of up to $10 million per year in each of
the next three years, subject to a carryover in the second and third year of up
to the lesser of $3 million and the amount of borrowing capacity not used in the
prior year. Such borrowings are convertible into term loans, payable in equal
quarterly installments over five years. The new facility provides for
essentially the same terms and conditions as the Company's previous revolving
credit agreement, including compliance with and maintenance of certain financial
covenants and ratios.

21
23

BUSINESS

INDUSTRY OVERVIEW

The market for photomasks consists primarily of semiconductor manufacturers
and designers in the United States, Europe and Pacific Rim. According to
Dataquest, in 1994 worldwide semiconductor sales exceeded $100 billion. Based
upon industry estimates, in 1994 photomask sales exceeded $300 million in North
America.

Photomasks are manufactured by independent manufacturers and by captives,
which are semiconductor manufacturers that produce almost exclusively for their
own fabrication of integrated circuits. Since the mid-1980s, there has been in
the United States a trend towards the divestiture or closing of captive
photomask operations by semiconductor manufacturers. The Company believes this
trend was attributable to increasing capital requirements and costs related to
these operations, the presence of a cost-effective source of supply from
independent suppliers and a general desire by semiconductor manufacturers to
focus on core business matters. As a result, the share of the market served by
independents increased significantly. During the same period, due in part to
competitive pressures and increasing capital requirements, the number of
significant independent manufacturers decreased from approximately 12 in the
mid-1980s to four in 1994.

During the early 1990s, the total photomask market was relatively flat.
This resulted from a number of factors, including: (i) recessionary pressures on
the semiconductor industry; (ii) improvements in design technology, which
reduced the number of design iterations required to create a functioning
semiconductor design; and (iii) shortened photomask delivery cycles (sometimes
less than 24 hours), which reduced the need for back-up photomask sets. These
factors, along with excess available capacity, also led to competitive
pressures, forcing manufacturers to reduce prices.

Beginning in late 1993, independent manufacturers experienced increased
demand as a result of several factors. First, the Company believes that
semiconductor design activity increased due both to new generic semiconductor
designs and proliferating use of application-specific integrated circuits
("ASICs"), each of which requires a separate set of photomasks. Furthermore, as
the complexity of integrated circuits has increased, the number of photomasks
used in the manufacture of a single circuit also has increased. According to
industry statistics, a typical 16 Mb DRAM in production today utilizes 18 masks
compared to 14 masks for a 1 Mb DRAM. Finally, the Company believes factors that
adversely affected the photomask industry in the early 1990s were no longer
significantly affecting the growth in demand for photomasks.

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24

STRATEGY

The Company's strategy to expand its position as a leader in the
manufacture of photomasks consists of the following elements:

Ensure Strong Customer Relationships. Critical to the Company's position
as an industry leader is its focus on developing and maintaining high levels of
customer satisfaction. Because each photomask is specific to a particular
circuit design and customers expect rapid delivery, the Company believes that
consistency of product quality and timeliness of delivery are critical to its
success. The Company works closely with each customer to ensure that its
specific needs are properly reflected in the final product.

Maintain Technological Leadership. Maintaining technological leadership in
photomask manufacture is important to the Company's long term success. The
Company believes that it has established the critical mass necessary to support
the increased research and development efforts required by advancing
semiconductor manufacturing technology. The Company recently has invested in
several state-of-the-art manufacturing systems and is devoting significant
resources to the development of technologies for the manufacture of advanced
photomasks, including optical proximity correction and phase-shift photomasks.

Leverage Strategically Located Manufacturing Facilities. The Company
believes that in certain markets proximity to customers is an important
competitive factor. The Company has established multiple manufacturing
facilities in key locations to accelerate delivery times and respond to customer
demands. In addition, the Company currently is in the process of relocating its
Texas facility and establishing operations in Singapore.

Provide Global Solution. As the semiconductor industry becomes
increasingly global, the Company believes that it must be able to satisfy
customers' requirements in multiple markets throughout the world. The Company
has pursued strategic alliances with photomask manufacturers abroad and intends
to establish international manufacturing operations, including its proposed
Singapore operations, in order to achieve these objectives.

PRODUCTS AND SERVICES

The Company's photomasks are manufactured in accordance with circuit
designs provided on a confidential basis by its customers. Each circuit design
consists of a series of separate patterns, each of which is imaged onto a
different photomask. The resulting series of photomasks is then used by the
customer to successively layer the patterns onto a semiconductor wafer.

The Company currently manufactures photomasks using laser-based or electron
beam technologies and, to a lesser degree, optical-based technologies. A
laser-based or electron beam system is capable of producing the finer line
resolution, tighter overlay and larger die size for the larger and more complex
circuits currently being designed. Laser and electron beam generated photomasks
can be used with the most advanced processing techniques to produce very large
scale integrated circuit devices. Compared to laser or electron beam generated
photomasks, the production of photomasks by the optical method is less
expensive, but also less precise. The optical method is traditionally used on
less complex and lower priced photomasks. The Company currently owns a number of
ETEC CORE laser writing systems and ETEC MEBES electron beam systems and has
made commitments to purchase additional advanced systems and system upgrades to
maintain technological superiority. The ETEC CORE laser-based systems and the
ETEC MEBES electron beam systems are the predominant lithography systems used
for photomask manufacture.

The first several levels of photomasks frequently are required to be
delivered by the Company within 24 hours of receiving a customer's design. The
ability to manufacture high quality photomasks within short time periods is
dependent upon efficient manufacturing methods, high yields and high equipment
reliability. The Company has made significant investments in manufacturing and
data processing systems and statistical process control methods to optimize the
manufacturing process and reduce cycle times.

23
25

Quality control is an integral part of the photomask manufacturing process.
Photomasks are manufactured in temperature, humidity and particulate controlled
cleanrooms because of the high level of precision, quality and yields required.
Each photomask is inspected several times during the manufacturing process to
ensure compliance with customer specifications. The Company has made a
substantial investment in equipment to inspect and repair photomasks and to
insure that customer specifications are met. After inspection and any necessary
repair, the Company utilizes technological processes to clean the photomasks
prior to shipment.

In addition to the manufacture of photomasks, the Company, through Beta,
manufactures, sells and services a wafer plasma etching system used in the
processing of semiconductor wafers. The system was developed by Texas
Instruments which licensed the right to manufacture and sell it to Beta. Beta
also sells refurbished semiconductor manufacturing equipment, engineering
services and replacement parts and field service for such equipment on a
third-party basis. Such activities represented less than 4% of the Company's net
sales during fiscal 1994.

SALES AND MARKETING

The Company conducts its marketing activities through a staff of full-time
sales personnel and customer service representatives who work closely with the
Company's general management and technical personnel. In addition to the sales
personnel at the Company's manufacturing facilities in Milpitas and Sunnyvale,
California, Brookfield, Connecticut and Dallas, Texas, the Company has sales
offices in Carlsbad, California, Fort Collins, Colorado, Jupiter, Florida,
Derry, New Hampshire, Raleigh, North Carolina, Beaverton, Oregon, Austin, Texas
and the United Kingdom.

The Company typically negotiates an established price for a customer's
orders based on the customer's specifications in order to expedite the placement
of individual purchase orders. Some of these prices may remain in effect for up
to one year. The Company also negotiates prices, and occasionally enters into
purchase arrangements, based on the understanding that, so long as the Company's
performance is competitive, the Company will receive a specified percentage of
that customer's photomask requirements. As part of the acquisition in October
1993 of operations in Texas, the Company assumed an agreement with Texas
Instruments, which continues until March 31, 2000 and provides that the Company
is Texas Instruments' principal photomask supplier so long as the Company's
price, quality, service and delivery are competitive. The agreement also
requires the Company to insure that prices charged to Texas Instruments are not
less favorable than those otherwise extended by the Company to other customers
with similar specifications, volume, delivery and other requirements.

In addition to sales to domestic customers, the Company has been marketing
its products in international markets. The Company has sub-contract
manufacturing arrangements in France and Taiwan, a sales representative in the
United Kingdom and arrangements with an independent sales representative in
Korea. The Company considers its presence in international markets important to
attracting new customers, to providing global solutions to existing customers
and to servicing certain customers' manufacturing foundries outside of the
United States, principally in the Pacific Rim.

24
26

CUSTOMERS

The Company sells its products primarily to leading semiconductor
manufacturers, including the following:

Advanced Micro Devices, Inc.
Alliance Semiconductor Corp.
American Microsystems, Inc.
Analog Devices, Inc.
Atmel Corporation
Cypress Semiconductor Corporation
Harris Semiconductor
LSI Logic Corporation
Lattice Semiconductor Corporation
Micron Technology, Inc.
Motorola, Inc.
National Semiconductor Corporation
Orbit Semiconductor, Inc.
Raytheon Company
Silicon Systems, Inc.
Symbios Logic Inc. (formerly NCR Microelectronics)
Texas Instruments Incorporated
Toppan Printing Company, Ltd.
VLSI Technology, Inc.
Zilog, Inc.

Since 1987, the Company has expanded its customer base and in fiscal 1994
sold its products and services to approximately 225 customers. However, as a
result of the acquisition of the Texas operations in 1993, Texas Instruments has
become a more significant customer of the Company, representing approximately
36% of net sales in fiscal 1994, and the loss of Texas Instruments or a
significant decrease in the amount of the purchases by Texas Instruments from
the Company could have a material adverse effect on the business and results of
operations of the Company. An additional 18% of net sales in fiscal 1994 was
derived from sales to the Company's next four largest customers, no one of which
accounted for more than approximately 5% of net sales. Foreign sales accounted
for approximately 2% of the Company's net sales in fiscal 1992, 8% in fiscal
1993 and 13% in fiscal 1994. Current international customers include companies
in Taiwan, Singapore, the United Kingdom, Canada, Germany, Japan, Switzerland,
Italy and Australia.

RESEARCH AND DEVELOPMENT

The photomask industry has been and is expected to continue to be
characterized by technological change and evolving industry standards. In order
to remain competitive, the Company will be required to continually anticipate,
respond to and utilize changing technologies. The Company has an ongoing
research and development program which is intended to improve continually the
Company's level of technology and manufacturing efficiency. The Company has
increased its commitment to research and development activities and current
efforts include phase-shift and optical proximity correction photomasks for
advanced semiconductor manufacturing. The Company incurred expenses of $2.5
million, $2.7 million and $4.7 million for research and development in fiscal
1992, 1993 and 1994, respectively. In addition, the Company leverages the
investments in research and development made by its equipment and material
suppliers. See "Risk Factors--Technological Change."

While the Company believes that it possesses valuable proprietary
information, the Company does not believe that patents are a material factor in
the photomask manufacturing business and only holds one patent. The Company
relies on non-disclosure agreements with employees and vendors to protect its
proprietary processes. There can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar processes. In addition, there
can be no assurance that third parties will not claim that the Company's current
or future products infringe on their proprietary rights. Any such claim, with or
without merit, could result in costly litigation or might require the Company to
enter into licensing agreements. Such agreements, if required, may not be
available on terms acceptable to the Company or at all.

25
27

MATERIALS AND SUPPLIES

Raw materials utilized by the Company generally include high precision
quartz plates, which are used as photomask blanks, primarily obtained from Hoya
and Toppan; pellicles, which are protective transparent cellulose membranes; and
electronic grade chemicals used in the manufacturing process. The Company has
established purchasing arrangements with each of Toppan and Hoya pursuant to
which the Company purchases substantially all of its photomask blanks from Hoya
and Toppan so long as their price, quality, delivery and service are
competitive. Any delays or quality problems in connection with significant raw
materials, in particular photomask blanks purchased from either Hoya or Toppan,
could cause delays in shipments of photomasks, which could adversely affect the
Company's business and results of operations. The fluctuation of exchange rates
with respect to prices of significant raw materials used in manufacturing also
could have a material adverse effect on the Company's business and results of
operations, although the Company has not experienced any such effect to date.

COMPETITION

EMPLOYEES

As of January 31, 1995, the Company employed a total of approximately 590
persons on a full-time basis, including 56 engaged in engineering, 416 in
manufacturing and technical services, 45 in sales, and 73 in administrative
activities. The Company believes that it offers competitive compensation and
other benefits and that its employee relations are good. None of the Company's
employees is represented by a union. The Company's success depends upon, in
part, key managerial, engineering and technical personnel, as well as its
ability to continue to attract and retain additional personnel. The loss of
certain key personnel could have a material adverse effect upon the Company's
business and results of operations. See "Risk Factors--Dependence on Management
and Technical Personnel."

PROPERTIES

The Company's principal executive offices are located in Jupiter, Florida.
The Company owns one of the buildings in which its Connecticut manufacturing
facility is located and leases a second building at that site. Both are modern
buildings of approximately 19,600 square feet and 20,000 square feet,
respectively. The building that is owned by the Company is subject to a mortgage
of approximately $520,000 as of January 31, 1995. The second building, which
houses service and manufacturing support functions and general administrative
staff, is leased by the Company until August 2004. The leased building is owned
by a partnership controlled by Constantine S. Macricostas, the Chairman of the
Board and Chief Executive Officer of the Company. The Company leases a parcel of
land contiguous to these buildings, under a lease which expires in November
2005, from an entity controlled by Mr.

26
28

Macricostas. The foregoing leases are at fixed lease rates which were determined
by reference to fair market value rates at the beginning of the respective lease
terms.

The Company's Milpitas, California manufacturing facility is located in two
leased buildings aggregating approximately 49,000 square feet under leases which
expire in March 2001 and March 1996, respectively, subject in each case to one
five-year renewal option. The Company's Sunnyvale, California manufacturing
facility is located in three contiguous buildings owned by the Company with an
aggregate of approximately 40,000 square feet. The Company's manufacturing
facility in Texas currently is located in Dallas in a leased facility of
approximately 32,000 square feet under a lease with Texas Instruments which
expires in June 1995. The Company has purchased property in Allen, Texas, a
suburb of Dallas, and is constructing a facility of approximately 55,000 square
feet to relocate its operations. The Company also leases small amounts of office
and manufacturing space in Dallas, Texas, Carlsbad, California and Austin,
Texas.

Other than new manufacturing systems which have not yet been placed into
service, the Company believes it substantially utilized its facilities during
the 1994 fiscal year.

On December 1, 1994, the Company acquired substantially all of the assets
of Micro Mask, an independent photomask manufacturer with manufacturing
operations located in Sunnyvale, California. The transaction included the
purchase of land, buildings (described above), inventory and certain assets
other than cash and receivables. In addition, significant manufacturing systems
owned by Micro Mask were leased by the Company from Micro Mask. The acquisition
was financed with the Company's available cash reserves and involved the payment
of approximately $7.2 million in cash at closing and the obligation to pay $3.0
million and $1.8 million, without interest, six months and four years after the
closing, respectively. The lease of the manufacturing systems has terms ranging,
depending on the system leased, from 44 to 62 months, with the right to purchase
the leased system at its then fair market value at the expiration of the lease
period.

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29

MANAGEMENT

The names of the officers and directors of the Company are set forth below,
together with the positions held by each person in the Company and their ages as
of March 23, 1995. All officers are elected annually by the Board of Directors
and serve until their successors are duly elected and qualified.

NAME AGE POSITION
---------------------------- --- -----------------------------------------------

Constantine S. Macricostas 59 Chairman of the Board, Chief Executive Officer
and Director
Michael J. Yomazzo 52 President, Chief Operating Officer and Director
Jeffrey P. Moonan 39 Senior Vice President, General Counsel and
Secretary
Robert J. Bollo 50 Vice President--Finance and Chief Financial
Officer
David C. Heilman 56 Vice President--Sales and Marketing
Barry F. Hopkins 51 Vice President--California Operations
Jack P. Moneta 52 Vice President--Texas Operations
Walter M. Fiederowicz 48 Director
Joseph A. Fiorita, Jr. 50 Director
Masahiro Fujii 63 Director

Constantine S. Macricostas, a founder of the Company, served as Treasurer
and Chief Financial Officer of the Company from 1974 until September 1987 and as
President from 1974 until November 1990. Mr. Macricostas also serves as a
Director of Nutmeg Federal Savings and Loan Association, Colonial Data
Technologies Corp., a distributor of telecommunications equipment, and of Orbit
Semiconductor, Inc., a semiconductor manufacturer and foundry.

Michael J. Yomazzo has served as President and Chief Operating Officer
since January 1994. From November 1990 until January 1994, he served as
Executive Vice President and Chief Financial Officer, and from July 1989 until
November 1990, he served as Senior Vice President--Finance and Planning.

Jeffrey P. Moonan has served as Senior Vice President since January 1994
and General Counsel and Secretary since July 1988. From July 1989 until January
1994, he served as Vice President--Administration.

Robert J. Bollo has served as Vice President--Finance and Chief Financial
Officer since November 1994. From August 1994 to November 1994, he served as
Director of Finance. From April 1992 to July 1994, he was a Principal of CFO
Associates, Inc., a financial management firm. Prior to April 1992, he was with
Kollmorgen Corporation, serving as a Vice President since January 1990 and
Controller and Chief Accounting Officer since February 1985.

David C. Heilman has served as Vice President--Sales and Marketing since
September 1993. Prior to joining the Company, he served in various capacities
for more than five years with DuPont, including as Executive Vice President and
Chief Operating Officer, Vice President, Sales and Marketing and most recently
as General Manager of DuPont's Kokomo, Indiana facility.

Barry F. Hopkins has served as Vice President--California Operations since
April, 1994. From February 1994 until April 1994, he served as Director of
California Operations. Prior to joining the Company he served in various
capacities for more than five years with DuPont, serving as the Manager of their
Rousset, France operation and, most recently, as General Manager of West Coast
Operations.

Jack P. Moneta has served as Vice President--Texas Operations since January
1994. From August 1992 to January 1994, he served as Director of Texas
Operations. He served in various capacities with

28
30

International Business Machines Corporation for 25 years, including most
recently as the General Manager of IBM's U.S. photomask operations with overall
responsibility for coordinating IBM's worldwide photomask operations.

Walter M. Fiederowicz has served as chairman of Colonial Data Technologies
Corp., (a distributor of telecommunications equipment) since August 1994. From
January 1991 until July 1994, he held various positions, including executive
vice president and chairman and served as director of Conning and Company (the
parent company of an investment firm). From 1979 to December 1988, he was a
partner of the law firm of Cummings & Lockwood and from 1989 until September
1990, he was of counsel to such firm. Mr. Fiederowicz was chairman and director
of Covenant Mutual Insurance Company, a property and casualty insurance company
("Covenant"), from 1989 until March 1993, and was president and chief executive
officer of Covenant from 1989 until December 1992. Covenant was placed in
rehabilitation by the Insurance Commissioner of the State of Connecticut in 1993
and subsequently liquidated as a result of losses in connection with insurance
claims relating to Hurricane Andrew.

Joseph A. Fiorita, Jr. has been a partner in Fiorita, Kornhaas and Van
Houten, P.C., independent certified public accountants, for more than the past
five years.

Masahiro Fujii has served as Managing Director of Toppan since June 1993
and for five years prior to June 1993, he served as a director of such company.
Toppan is a diversified manufacturing company with operations in the printing
and electronics industries (including photomask manufacture).

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31

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Common Stock of Photronics, Inc. as of
March 1, 1995 and after giving effect to the offering. Information is presented
with respect to (i) shareholders owning five percent or more of the outstanding
Common Stock and (ii) the Selling Shareholders.

SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
NAME AND ADDRESS OF --------------------- SHARES TO BE ---------------------
BENEFICIAL OWNER NUMBER PERCENT SOLD NUMBER PERCENT
- ----------------------------------- --------- ------- ------------ --------- -------

Constantine S. Macricostas 2,421,291(1) 24.1% 62,500 2,358,791 20.7%
1061 East Indiantown Road
Jupiter, Florida 33477
Toppan Printing Co., Ltd 1,590,000 16.1 -- 1,590,000 14.2
1, Kanda Izumi-cho
Chiyoda-Ku
Tokyo, Japan 101
First Pacific Advisors, Inc.(2) 780,000 7.9 -- 780,000 7.0
11400 West Olympic Boulevard
Suite 1200
Los Angeles, California 90064
Michael J. Yomazzo 241,969(3) 2.4 30,000 211,969 1.9
1061 East Indiantown Road
Jupiter, Florida 33477
Jeffrey P. Moonan 76,875(4) * 10,000 66,875 *
1061 East Indiantown Road
Jupiter, Florida 33477
VLSI Technology, Inc. 7,500(5) * 7,500(5) -- *
1100 McKay Drive
San Jose, California 95131

- ---------------
* Represents less than 1%.

(1) Includes (i) 417,800 shares owned by the Constantine S. Macricostas Personal
Income Trust for the benefit of George Macricostas and the Constantine S.
Macricostas Personal Income Trust for the benefit of Stephen Macricostas
from which Mr. Macricostas currently has the right to receive income, and
260,907 shares owned by two other trusts for the benefit of Mr. Macricostas'
children from which Mr. Macricostas has the right to receive certain
distributions, (ii) 18,000 shares owned by Mr. Macricostas' wife, as to
which Mr. Macricostas disclaims beneficial ownership, and (iii) 193,500
shares of Common Stock subject to currently exercisable stock options and
22,500 shares of Common Stock subject to forfeiture under restricted stock
award grants.

(2) Information based upon Amendment No. 3 to Schedule 13G filed with the
Commission in February 1995.

(3) Includes (i) 94,350 shares of Common Stock subject to currently exercisable
stock options, (ii) 22,500 shares of Common Stock subject to forfeiture
under restricted stock award grants, (iii) 33,000 shares held by Mr.
Yomazzo's wife, and (iv) 3,510 shares owned by Mr. Yomazzo's children. Mr.
Yomazzo disclaims beneficial ownership of the shares held by his wife and
children.

(4) Includes (i) 65,625 shares of Common Stock subject to currently exercisable
stock options and (ii) 7,500 shares of Common Stock subject to forfeiture
under restricted stock award grants.

(5) Represents shares issuable upon exercise of a warrant.

30
32

Mr. Macricostas is Chairman of the Board, Chief Executive Officer and a
Director of the Company. Mr. Yomazzo is President, Chief Operating Officer and a
Director of the Company. Mr. Moonan is Senior Vice President, General Counsel
and Secretary of the Company.

VLSI Technology, Inc. was one of the Company's five largest customers in
fiscal 1994 and has an ongoing purchasing arrangement with the Company.

In October 1993, the Company sold 1,590,000 shares of Common Stock to
Toppan in connection with the Company's acquisition of the photomask
manufacturing business of TPI, a subsidiary of Toppan. Under the terms of the
stock purchase agreement, Toppan may not acquire additional shares of the
Company's Common Stock if, after such acquisition, Toppan beneficially will own
more than 19% of the Company's outstanding Common Stock. The Company has granted
Toppan certain demand and piggyback registration rights with respect to shares
of Common Stock owned by it commencing in 1996. The stock purchase agreement
restricts sales of Common Stock by Toppan until 1998 and grants to the Company
rights of first refusal with respect to proposed sales to unaffiliated third
parties, with certain exceptions. Such restrictions and rights of first refusal
terminate in 1998, or earlier if at any time Toppan owns less than 5% of the
Company's Common Stock or if certain other events occur. Under the stock
purchase agreement, the Company is required to use its best efforts to nominate
a director designated by Toppan for as long as it owns at least 1,500,000 shares
of Common Stock and such holdings represent at least 15% of the outstanding
shares of the Company's Common Stock on a fully diluted basis. Toppan is
required to vote all voting securities of the Company that Toppan beneficially
owns in favor of each nominee for election to the Board who has been recommended
by the Board. As a result of the sale of 1,290,000 shares of Common Stock by the
Company in this offering and the issuance of 47,500 shares of Common Stock upon
the exercise of options and a warrant by certain Selling Shareholders, Toppan
would own 14.2% of the Company's Common Stock.

31
33

UNDERWRITING

The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company, L.P., Prudential Securities Incorporated and
Needham & Company, Inc. (the "Representatives"), have severally agreed with the
Company and the Selling Shareholders, subject to the terms and conditions of the
Underwriting Agreement, to purchase the number of shares of Common Stock set
forth opposite their respective names below. The Underwriters are committed to
purchase and pay for all such shares if any are purchased.

NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------ ---------

Robertson, Stephens & Company, L.P. ..............................
Prudential Securities Incorporated................................
Needham & Company, Inc. ..........................................

---------
Total................................................... 1,400,000
========

The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession of not in excess of $
per share, of which $ may be reallowed to other dealers. After the public
offering, the public offering price, concession and reallowance to dealers may
be varied by the Representatives. No such change shall change the amount of
proceeds to be received by the Company and the Selling Shareholders as set forth
on the cover page of this Prospectus.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 210,000
additional shares of Common Stock, at the same price per share as the Company
and the Selling Shareholders will receive for the 1,400,000 shares that the
Underwriters have agreed to purchase. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of Common Stock to be purchased by it shown in the above table
represents as a percentage of the 1,400,000 shares offered hereby. If purchased,
such additional shares will be sold by the Underwriters on the same terms as
those on which the 1,400,000 shares are being sold. The Underwriting Agreement
contains covenants of indemnity among the Underwriters, the Company and the
Selling Shareholders against certain civil liabilities, including liabilities
under the 1933 Act.

Each executive officer and director of the Company, and certain other
persons that beneficially own or have dispositive power over shares of the
Company's Common Stock, have agreed with the Representatives until 90 days from
the date of this Prospectus (the "Lock-Up Period"), subject to certain
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of Common Stock,
any options to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock now owned by or hereafter
acquired directly by such holders or with respect to which they have or
hereafter acquire the power of disposition, without the prior written consent of
Robertson, Stephens & Company, which may, in its sole discretion and at anytime
without notice, release all or any portion of the securities subject to lock-up
agreements. In addition, the Company has agreed that during the Lock-Up Period,
the Company will not, without prior written consent of Robertson, Stephens &
Company, subject to certain exceptions, issue, sell, contract to sell or
otherwise dispose of, any shares of Common Stock, any options to purchase any
shares of Common Stock or any securities convertible

32
34

into, exercisable for or exchangeable for shares of Common Stock other than the
Company's sales of shares in this offering.

The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling-off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group, if any, to continue
to make a market in the Company's Common Stock subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not connected
with the offering and that its net purchases on any one trading day not exceed
prescribed limits. Pursuant to these exemptions, certain Underwriters and other
members of the selling group, if any, may engage in passive market making in the
Company's Common Stock during the cooling-off period.

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for the
Company by Reid & Priest LLP, New York, New York. Certain legal matters will be
passed upon for the Underwriters by Wilson, Sonsini, Goodrich & Rosati, P.C.,
Palo Alto, California.

EXPERTS

The consolidated financial statements as of October 31, 1993 and 1994 and
for each of the three years in the period ended October 31, 1994 included in
this Prospectus and the related financial statement schedule incorporated by
reference herein have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and incorporated by
reference herein. Such financial statements and financial statement schedule
have been included herein and incorporated by reference herein in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.

The financial statements of Hoya Micro Mask, Inc. as of March 31, 1993 and
March 31, 1994, and for the years then ended, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the 1933 Act, with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such shares of Common Stock,
reference is hereby made to such Registration Statement and to the exhibits and
schedules thereto. The Company is subject to the informational requirements of
the 1934 Act, and, in accordance therewith, files reports, proxy statements, and
other information with the Commission. Such Registration Statement, reports,
proxy statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: New York Regional Office, Seven World Trade
Center, 13th Floor, New York, New York 10048; and Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.

33
35

(This page intentionally left blank)
36

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PHOTRONICS, INC.

PAGE
----

Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheet at October 31, 1993 and 1994 and unaudited at January 31,
1995................................................................................ F-3
Consolidated Statement of Earnings for the years ended October 31, 1992, 1993 and 1994
and the unaudited three months ended January 31, 1994 and 1995...................... F-5
Consolidated Statement of Shareholders' Equity for the years ended October 31, 1992,
1993 and 1994 and the unaudited three months ended January 31, 1995................. F-6
Consolidated Statement of Cash Flows for the years ended October 31, 1992, 1993 and
1994 and the unaudited three months ended January 31, 1994 and 1995................. F-7
Notes to Consolidated Financial Statements............................................ F-8

F-1
37

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Photronics, Inc.
Jupiter, Florida

We have audited the accompanying consolidated balance sheets of Photronics,
Inc. and its subsidiaries as of October 31, 1993 and 1994, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended October 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Photronics, Inc.
and its subsidiaries as of October 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1994 in conformity with generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in 1994
the Company changed its method of accounting for investments and income taxes.
As discussed in Note 14 to the consolidated financial statements, on March 20,
1995 the Company effected a three-for-two stock split. All applicable share and
per share amounts have been adjusted to reflect the stock split.

DELOITTE & TOUCHE LLP
Hartford, Connecticut
December 13, 1994 (except as to Note 14 which date is March 20, 1995)

F-2
38

PHOTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)

OCTOBER 31,
----------------- JANUARY 31,
1993 1994 1995
------- ------- -----------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents................................... $ 8,226 $25,092 $ 17,361
Short-term investments...................................... 3,496 2,535 4,248
Accounts receivable (less allowance for doubtful accounts of
$115 in 1993, $135 in 1994 and $155 in 1995)............. 9,846 10,218 15,289
Inventories................................................. 2,906 2,469 3,505
Other current assets........................................ 1,102 2,140 2,449
------- ------- -----------
Total current assets................................ 25,576 42,454 42,852
Property, plant and equipment................................. 40,218 36,948 42,066
Intangible assets (less accumulated amortization of $423 in
1993, $1,117 in 1994 and $1,351 in 1995).................... 5,787 5,523 10,989
Investments................................................... 1,425 11,095 15,116
Other assets.................................................. 1,435 2,326 2,153
------- ------- -----------
$74,441 $98,346 $ 113,176
======= ======= =========

See accompanying notes to consolidated financial statements.

F-3
39

PHOTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

JANUARY 31,
OCTOBER 31, 1995
------------------- -----------
1993 1994 (UNAUDITED)
------- -------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt..... $ 646 $ 467 $ 3,034
Accounts payable.......................................... 5,465 5,053 7,695
Accrued salaries and wages................................ 1,341 2,615 1,942
Other accrued liabilities................................. 547 1,423 1,336
Income taxes payable...................................... -- 567 1,938
------- ------- -----------
Total current liabilities......................... 7,999 10,125 15,945
Long-term debt.............................................. 1,051 495 1,855
Deferred income taxes....................................... 2,553 7,077 8,854
Other liabilities........................................... 212 247 239
------- ------- -----------
Total liabilities................................. 11,815 17,944 26,893
------- ------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued and outstanding................ -- -- --
Common stock, $.01 par value, 10,000,000 shares authorized
in 1993 and 1994 and 20,000,000 shares authorized in
1995, 6,483,515 issued in 1993, 6,659,929 issued in
1994 and 10,002,416 issued in 1995..................... 65 67 100
Additional paid-in capital................................ 38,804 41,338 41,419
Retained earnings......................................... 24,002 34,338 37,605
Unrealized gains on investments........................... -- 5,608 8,020
Treasury stock, 91,000 shares in 1993 and 1994 and 136,500
shares in 1995, at cost................................ (245) (245) (245)
Deferred compensation on restricted stock................. -- (704) (616)
------- ------- -----------
Total shareholders' equity........................ 62,626 80,402 86,283
------- ------- -----------
$74,441 $98,346 $ 113,176
======= ======= =========

See accompanying notes to consolidated financial statements.

F-4
40

PHOTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF EARNINGS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------------- -------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------
(UNAUDITED)

Net sales................................ $41,305 $48,363 $80,696 $18,857 $26,176
Costs and expenses:
Cost of sales.......................... 27,142 32,048 51,204 12,525 16,417
Selling, general and administrative.... 5,746 6,580 10,517 2,274 3,543
Research and development............... 2,549 2,744 4,738 1,137 1,348
------- ------- ------- ------- -------
Operating income......................... 5,868 6,991 14,237 2,921 4,868
Interest income.......................... 866 547 568 89 248
Interest expense......................... (102) (101) (75) (21) (32)
Other income (expense), net.............. 87 (1) 571 8 118
------- ------- ------- ------- -------
Income before income taxes and
cumulative effect of change in
accounting
for income taxes....................... 6,719 7,436 15,301 2,997 5,202
Provision for income taxes............... 2,352 2,528 5,202 959 1,935
------- ------- ------- ------- -------
Income before cumulative effect of change
in accounting for income taxes......... 4,367 4,908 10,099 2,038 3,267
Cumulative effect of change in accounting
for income taxes....................... -- -- 237 237 --
------- ------- ------- ------- -------
Net income............................... $ 4,367 $ 4,908 $10,336 $ 2,275 $ 3,267
======= ======= ======= ======= =======
Net income per common share:
Income before cumulative effect of
change in accounting for income
taxes............................... $ 0.55 $ 0.59 $ 1.01 $ 0.21 $ 0.32
Cumulative effect of change in
accounting for income taxes......... -- -- 0.02 0.02 --
------- ------- ------- ------- -------
Net income............................. $ 0.55 $ 0.59 $ 1.03 $ 0.23 $ 0.32
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding............................ 7,998 8,372 10,062 9,938 10,256
======= ======= ======= ======= =======

See accompanying notes to consolidated financial statements.

F-5
41

PHOTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(IN THOUSANDS)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE MONTHS ENDED JANUARY 31,
1995 IS UNAUDITED)

DEFERRED
COMPENSA-
COMMON STOCK ADDITIONAL UNREALIZED TION ON TOTAL
--------------- PAID-IN RETAINED GAINS ON TREASURY RESTRICTED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INVESTMENTS STOCK STOCK EQUITY
------ ------ ---------- -------- ----------- -------- ---------- -------------

Balance at November 1, 1991....... 5,344 $ 53 $ 24,849 $14,727 $ -- $ (245) $ -- $39,384
Net income...................... -- -- -- 4,367 -- -- -- 4,367
Exercise of common stock
warrants and options.......... 37 1 259 -- -- -- -- 260
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at October 31, 1992....... 5,381 54 25,108 19,094 -- (245) -- 44,011
Net income...................... -- -- -- 4,908 -- -- -- 4,908
Issuance of common stock related
to acquisition................ 1,060 11 13,398 -- -- -- -- 13,409
Sale of common stock through
employee stock option and
purchase plans................ 43 -- 298 -- -- -- -- 298
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at October 31, 1993....... 6,484 65 38,804 24,002 -- (245) -- 62,626
Net income...................... -- -- -- 10,336 -- -- -- 10,336
Sale of common stock through
employee stock option and
purchase plans................ 124 1 1,478 -- -- -- -- 1,479
Restricted stock awards......... 52 1 1,056 -- -- -- (1,057) --
Amortization of restricted stock
to compensation expense....... -- -- -- -- -- -- 353 353
Cumulative effect of change in
accounting for investments.... -- -- -- -- 5,608 -- -- 5,608
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at October 31, 1994....... 6,660 67 41,338 34,338 5,608 (245) (704) 80,402
Net income...................... -- -- -- 3,267 -- -- -- 3,267
Sale of common stock through
employee stock option and
purchase plans................ 8 -- 114 -- -- -- -- 114
Amortization of restricted stock
to compensation expense....... -- -- -- -- -- -- 88 88
Unrealized gains on
investments................... -- -- -- -- 2,412 -- -- 2,412
Three-for-two stock split....... 3,334 33 (33) -- -- -- -- --
------ ------ ---------- -------- ----------- -------- ---------- -------------
Balance at January 31, 1995....... 10,002 $100 $ 41,419 $37,605 $ 8,020 $ (245) $ (616) $86,283
====== ======== ========== ======== =========== ======== ========= =============

See accompanying notes to consolidated financial statements.

F-6
42

PHOTRONICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)

THREE MONTHS ENDED
YEARS ENDED OCTOBER 31, JANUARY 31,
------------------------------- -------------------
1992 1993 1994 1994 1995
------- ------- ------- ------- -------

(UNAUDITED)
Cash flows from operating activities:
Net income......................................... $ 4,367 $ 4,908 $10,336 $ 2,275 $ 3,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant
and equipment.................................. 5,182 5,538 7,953 2,009 2,069
Amortization of intangible assets................ 52 102 694 161 234
Gain on disposition of investments............... -- -- (831) -- (388)
Deferred income taxes............................ (142) 339 847 (229) (54)
Cumulative effect of change in accounting for in-
come taxes..................................... -- -- (237) (237) --
Other............................................ 213 355 403 -- 258
Changes in assets and liabilities, net of effects
of acquisitions:
Accounts receivable............................ 944 (4,911) (372) 466 (5,071)
Inventories.................................... (229) (292) 437 354 (156)
Other current assets........................... (713) 374 (533) (722) (141)
Accounts payable and accrued liabilities....... (427) 4,081 1,738 (1,971) 1,882
Income taxes payable........................... -- -- 567 1,131 1,371
------- ------- ------- ------- -------
Net cash provided by operating activities.......... 9,247 10,494 21,002 3,237 3,271
------- ------- ------- ------- -------
Cash flows from investing activities:
Acquisitions of photomask operations............. -- (5,308) -- -- (7,400)
Expenditures for property, plant and
equipment...................................... (11,664) (8,801) (4,123) (1,576) (1,308)
Deposits on equipment............................ (1,250) (1,367) (2,064) -- (656)
Proceeds from sale of property, plant
and equipment ................................. -- 322 23 -- --
Net change in short-term investments............. 5,910 3,535 961 1,087 (1,713)
Proceeds from sale of investments................ 901 -- 615 -- 410
Other............................................ (5) 25 (292) (6) (7)
------- ------- ------- ------- -------
Net cash used in investing activities.............. (6,108) (11,594) (4,880) (495) (10,674)
------- ------- ------- ------- -------
Cash flows from financing activities:
Repayment of long-term debt...................... (699) (644) (735) (161) (442)
Proceeds from issuance of common stock........... 260 298 1,479 158 114
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities....................................... (439) (346) 744 (3) (328)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 2,700 (1,446) 16,866 2,739 (7,731)
Cash and cash equivalents at beginning of period... 6,972 9,672 8,226 8,226 25,092
------- ------- ------- ------- -------
Cash and cash equivalents at end of period......... $ 9,672 $ 8,226 $25,092 $10,965 $17,361
======== ======== ======== ======== ========

See accompanying notes to consolidated financial statements.

F-7
43

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying consolidated financial statements include the accounts of
Photronics, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.

Cash Equivalents

Cash equivalents include all highly liquid investments purchased with an
original maturity of three months or less.

Investments

Investments with maturities greater than three months are considered
short-term investments and are carried at cost, which approximates market value.

The Company adopted Statement of Financial Accounting Standards No. 115
(SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities,"
as of October 31, 1994. Under the provisions of SFAS 115, the Company's
"available-for-sale" debt and equity investments are carried at fair value.
Unrealized gains and losses, net of tax, are reported as a separate component of
Shareholders' Equity. Gains and losses are included in income when realized,
determined based on the disposition of specifically identified investments.
Prior to October 31, 1994, investments were carried at cost.

Inventories

Inventories, principally raw materials, are stated at the lower of cost,
determined under the first-in, first-out (FIFO) method, or market.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated
depreciation. Repairs and maintenance as well as renewals and replacements of a
routine nature are charged to operations as incurred, while those which improve
or extend the lives of existing assets are capitalized. Upon sale or other
disposition, the cost of the asset and accumulated depreciation are eliminated
from the accounts, and any resulting gain or loss is reflected in income.

For financial reporting purposes, depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
related assets. Buildings and improvements are depreciated over 15 to 30 years,
machinery and equipment over 3 to 10 years and furniture, fixtures and office
equipment over 3 to 5 years. Leasehold improvements are amortized over the life
of the lease or the estimated useful life of the improvement, whichever is less.
For income tax purposes, depreciation is computed using various accelerated
methods and, in some cases, different useful lives than those used for financial
reporting.

Intangible Assets

Goodwill represents the excess of cost over fair value of assets acquired
and is being amortized on a straight-line basis over 15 to 20 years. Costs
allocated to sales, non-compete and technology

F-8
44

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agreements arising from business acquisitions and other intangible assets are
being amortized on a straight-line basis over the respective agreement periods
which range from 3 to 10 years. The future economic benefit of the carrying
value of goodwill is reviewed periodically and any change in its useful life or
impairment in its value would be recorded in the period so determined.

Income Taxes

The provision for income taxes is computed on the basis of consolidated
financial statement income. The Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes,"
effective November 1, 1993. SFAS 109 requires an asset and liability approach
for financial reporting rather than the deferral method previously required.
Deferred income taxes reflect the tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. The cumulative effect of adopting SFAS 109
was an increase in income of $237, or $0.02 per share, for fiscal 1994 and the
three months ended January 31, 1994.

Net Income Per Common Share

Net income per common and common equivalent share is calculated using the
weighted average number of common and common equivalent shares outstanding
during each year. When dilutive, stock options and stock purchase warrants are
included as common equivalent shares using the treasury stock method. See Note
14, "Subsequent Events."

NOTE 2 -- INVESTMENTS

Short-term investments consist principally of municipal bond holdings and
money market and bond funds. It is the Company's policy to maintain a
diversified investment portfolio consisting of high quality financial
instruments in order to limit its credit exposure.

Other investments consist of equity securities of publicly traded
technology companies. The Company is a supplier to one of the investee
companies. Unrealized gains on investments were determined as follows:

OCTOBER 31, JANUARY 31,
1994 1995
----------- -----------

Fair value................................................. $11,095 $15,116
Cost....................................................... 1,342 1,168
----------- -----------
9,753 13,948
Income tax effect.......................................... 4,145 5,928
----------- -----------
Net unrealized gains....................................... $ 5,608 $ 8,020
========== =========

F-9
45

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

OCTOBER 31,
--------------------- JANUARY 31,
1993 1994 1995
-------- -------- -----------

Land.............................................. $ 467 $ 900 $ 2,200
Buildings and improvements........................ 5,126 5,253 8,318
Machinery and equipment........................... 53,953 57,546 59,987
Leasehold improvements............................ 4,518 4,743 5,100
Furniture, fixtures and office equipment.......... 701 924 948
-------- -------- -----------
64,765 69,366 76,553
Less accumulated depreciation and amortization.... (24,547) (32,418) (34,487)
-------- -------- -----------
Property, plant and equipment..................... $ 40,218 $ 36,948 $ 42,066
======== ======== =========

NOTE 4 -- LONG-TERM DEBT

Long-term debt consists of the following:

OCTOBER 31,
--------------- JANUARY 31,
1993 1994 1995
------ ---- -----------

Acquisition indebtedness payable December 1, 1998, net
of interest of $431 imputed at 7.45%................. $ -- $ -- $ 1,369
Industrial development bonds secured by equipment,
payable in December 1994, with interest at 70% of
prime rate (6% at October 31, 1993 and 7.75% at
October 31, 1994).................................... 1,138 434 --
Industrial development mortgage note, secured by
building, with interest at 6.58%, payable through
November 2005........................................ 559 528 520
------ ---- -----------
1,697 962 1,889
Less current portion................................... 646 467 34
------ ---- -----------
Long-term debt......................................... $1,051 $495 $ 1,855
====== ==== =========

The industrial development bonds were issued through the Connecticut
Development Authority and the proceeds were used for the purchase of equipment.
Under the terms of the agreements, a portion of the Company's property, plant
and equipment was pledged as collateral and the Company was required to comply
with certain financial covenants including maintaining certain financial ratios.
The bonds were also guaranteed by a significant shareholder of the Company.

At January 31, 1995, long-term debt matures as follows: 1996--$27;
1997--$38; 1998--$41; 1999--$1,413; years after 1999--$336.

At October 31, 1994, the Company maintained an unsecured revolving credit
agreement with a bank under which it could borrow up to $6.5 million in calendar
year 1994. Borrowings under such agreement were convertible into five-year term
loans payable in twenty equal consecutive quarterly

F-10
46

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 4 -- LONG-TERM DEBT (CONTINUED)
installments. The Company was required to pay a commitment fee of 0.25% per
annum on the average unused amount of the available credit and had to comply
with certain financial covenants, including maintaining certain financial
ratios. At October 31, 1994, the Company had not borrowed any amounts under this
agreement. See Note 14, "Subsequent Events."

Cash paid for interest was $102, $101 and $75 in 1992, 1993 and 1994,
respectively, and $21 and $13 for the three months ended January 31, 1994 and
1995, respectively.

NOTE 5 -- SHAREHOLDERS' EQUITY

On October 1, 1993, the Company issued 1,590,000 shares of common stock as
part of the acquisition price for the assets and operations of Toppan
Printronics (USA), Inc. See Note 6, "Acquisition of Photomask Operations of
Toppan Printronics (USA), Inc."

In 1987, the Company issued warrants to acquire an aggregate of 240,000
shares of common stock at exercise prices which ranged from $4.53 to $6.40. In
1991, 210,000 warrants were exercised, and in 1992, the remaining 30,000
warrants were exercised.

Warrants to purchase 7,500 shares of common stock at $5.24 per share until
expiration on December 31, 1996, were issued in fiscal 1992 and were outstanding
and exercisable at October 31, 1994.

NOTE 6 -- ACQUISITION OF PHOTOMASK OPERATIONS OF TOPPAN PRINTRONICS (USA), INC.

In October 1993, the Company acquired the photomask manufacturing
operations and assets of Toppan Printronics (USA), Inc. ("TPI") located in
Dallas, Texas. The acquisition was financed through the issuance of 1,590,000
shares of common stock of the Company valued at $13.4 million, the payment of
$4.7 million in cash and the agreement to pay commissions on certain sales.
Additionally, the Company incurred $0.7 million in expenses in connection with
the acquisition. The operations and assets acquired encompassed a full service
state-of-the-art photomask manufacturing facility. Under the terms of the
agreement, the Company is required to pay TPI annual commissions of from 1% to
2.5% of sales over $3 million to Texas Instruments Incorporated, over a ten-year
period. Such commissions amounted to $0.3 million in 1994.

The acquisition was accounted for as a purchase and, accordingly, the
acquisition price was allocated to property, plant and equipment as well as
certain intangible assets based on relative fair value. The consolidated
statement of earnings includes the operating results of the acquisition of TPI's
operations from October 1, 1993, the effective date of the acquisition.

The following unaudited consolidated pro forma information reflects the
results of the Company's operations for each of the two years ended October 31,
1993 as though the purchase had been made as of the beginning of the year:

1992 1993
------- -------

Net sales........................................................ $62,899 $72,046
Net income....................................................... 4,202 6,313
Net income per share............................................. $ 0.44 $ 0.64

F-11
47

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 6 -- ACQUISITION OF PHOTOMASK OPERATIONS OF TOPPAN PRINTRONICS (USA), INC.
(CONTINUED)
The pro forma results of operations are not necessarily indicative of the
actual operating results that would have occurred had the transaction been
consummated at the beginning of the year, or of the future operating results of
the combined companies.

NOTE 7--INCOME TAXES

The provision for income taxes consists of the following:

1992 1993 1994
------ ------ ------

Current:
Federal................................................ $2,135 $1,877 $3,722
State.................................................. 359 312 633
------ ------ ------
2,494 2,189 4,355
------ ------ ------
Deferred:
Federal................................................ (129) 275 832
State.................................................. (13) 64 15
------ ------ ------
(142) 339 847
------ ------ ------
$2,352 $2,528 $5,202
====== ====== ======

The provision for income taxes differs from the amount computed by applying
the statutory U.S. Federal income tax rate to income before taxes as a result of
the following:

1992 1993 1994
------ ------ ------

U.S. Federal income tax at statutory rate................ $2,284 $2,528 $5,255
State income taxes, net of Federal benefit............... 228 245 428
Tax benefits of tax exempt income........................ -- (141) (168)
Other, net............................................... (160) (104) (313)
------ ------ ------
$2,352 $2,528 $5,202
====== ====== ======

F-12
48

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 7--INCOME TAXES (CONTINUED)
The Company's net deferred tax liability consists of the following:

NOVEMBER 1, OCTOBER 31, JANUARY 31,
1993 1994 1995
----------- ----------- -----------

Deferred income tax liabilities:
Property, plant and equipment.............. $ 1,947 $ 3,072 $ 3,085
Investments................................ -- 4,145 5,928
Other...................................... 29 38 36
----------- ----------- -----------
Total deferred tax liability....... 1,976 7,255 9,049
----------- ----------- -----------
Deferred income tax assets:
Reserves not currently deductible.......... 197 445 490
Other...................................... 163 203 222
----------- ----------- -----------
Total deferred tax asset........... 360 648 712
----------- ----------- -----------
Net deferred tax liability.............. $ 1,616 $ 6,607 $ 8,337
=========== ========== =========

Cash paid for income taxes was $2.1 million, $2.2 million and $3.7 million
in 1992, 1993 and 1994, respectively, and $19 and $567 for the three months
ended January 31, 1994 and 1995, respectively.

NOTE 8 -- EMPLOYEE STOCK PURCHASE AND OPTION PLANS

In March 1994, the shareholders approved the adoption of the 1994 Stock
Option Plan which includes provisions allowing for the award of qualified and
non-qualified stock options and the granting of restricted stock awards. A total
of 450,000 shares of common stock may be issued pursuant to options or
restricted stock awards granted under the Plan. Restricted stock awards do not
require the payment of any cash consideration by the recipient, but shares
subject to an award may be forfeited unless conditions specified in the grant
are satisfied.

The Company has adopted a series of other stock option plans under which
incentive and non-qualified stock options for a total of 1,350,000 shares of the
Company's common stock may be granted to employees and directors. All plans
provide that the exercise price may not be less than the fair market value of
the common stock at the date the options are granted and limit the maximum term
of options granted to a range of from five to ten years.

F-13
49

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 8 -- EMPLOYEE STOCK PURCHASE AND OPTION PLANS (CONTINUED)
The following table summarizes activity under the stock option plans:

EXERCISE
STOCK OPTIONS PRICES
------------- --------------

Balance at November 1, 1991.................................... 558,845 $ 1.83-10.50
Granted...................................................... 476,550 6.17- 8.17
Exercised.................................................... (25,575) 1.83- 3.50
Cancelled.................................................... (153,488) 1.83-10.50
-------------
Balance at October 31, 1992.................................... 856,332 1.83- 6.17
Granted...................................................... 155,400 7.50- 8.67
Exercised.................................................... (39,015) 1.83- 6.17
Cancelled.................................................... (8,100) 2.50- 6.17
-------------
Balance at October 31, 1993.................................... 964,617 1.83- 8.67
Granted...................................................... 247,650 10.17-14.83
Exercised.................................................... (166,017) 1.83- 8.67
Cancelled.................................................... (123,862) 6.17-13.42
-------------
Balance at October 31, 1994.................................... 922,388 1.83-14.83
Granted...................................................... 94,140 18.67
Exercised.................................................... (12,562) 3.50- 7.50
Cancelled.................................................... (17,438) 6.17-14.83
-------------
Balance at January 31, 1995.................................... 986,528 $ 1.83-18.67
============

At October 31, 1994, 277,838 stock options were available for grant.

In 1994, restricted stock awards representing a total of 78,750 shares were
awarded to certain key employees. The market value of the grant amounted to $1.1
million at the date of grant and was charged to "Deferred Compensation on
Restricted Stock," a component of Shareholders' Equity. Such amount is amortized
as compensation expense over the three-year period during which the shares under
these awards are subject to forfeiture.

In 1992, the shareholders approved the Company's adoption of an Employee
Stock Purchase Plan (Purchase Plan), under which 300,000 shares of common stock
are reserved for issuance. The Purchase Plan enables eligible employees to
subscribe, through payroll deductions made over a twelve-month period, to
purchase shares of the Company's common stock at a purchase price equal to 85%
of the lower of the fair market value on the commencement date of the offering
and the last day of the twelve-month payment period. At October 31, 1994, 45,118
shares had been issued and 18,162 shares were subject to outstanding
subscriptions under the Purchase Plan.

NOTE 9--EMPLOYEE BENEFIT PLANS

The Company maintains a 401(k) Savings and Profit-Sharing Plan (the "Plan")
which covers all employees who have completed six months of service and are
eighteen years of age or older. Under the terms of the Plan, an employee may
contribute up to 15% of their compensation which will be matched

F-14
50

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
by the Company at 50% of the employee's contributions which are not in excess of
4% of the employee's compensation. Employee and employer contributions vest
fully upon contribution. Employer contributions amounted to $0.2 million, $0.2
million and $0.3 million in 1992, 1993 and 1994, respectively.

The Company maintains a cafeteria plan to provide eligible employees with
the option to receive non-taxable medical, dental, disability and life insurance
benefits. The cafeteria plan is offered to all active full-time employees and
their qualifying dependents. The Company's contribution amounted to $1.0 million
in 1992, $0.9 million in 1993 and $1.2 million in 1994.

NOTE 10--LEASES

The Company leases various real estate and equipment under non-cancelable
operating leases. Rental expense under such leases amounted to $1.1 million in
1992, $1.0 million in 1993, and $2.0 million in 1994. Included in such amounts
were $0.2 million in 1992, $0.1 million in 1993, and $0.1 million in 1994 to
affiliated entities, which are owned, in part, by certain significant
shareholders of the Company.

Future minimum lease payments under non-cancelable operating leases with
initial or remaining terms in excess of one year amounted to $3.6 million at
October 31, 1994, as follows:

1995......................... $631 1998......................... $ 449
1996......................... 576 1999......................... 431
1997......................... 456 Thereafter................... 1,056

Included in such future lease payments are amounts to affiliated entities
of $0.1 million in each year from 1995 to 1999, and $0.6 million in years
thereafter.

NOTE 11--COMMITMENTS AND CONTINGENCIES

The Company and a significant shareholder have jointly guaranteed a loan
totaling approximately $0.7 million as of October 31, 1994, on certain real
estate which is being leased by the Company.

On October 27, 1994, the Company agreed to acquire certain assets of an
independent photomask manufacturer in Sunnyvale, California (see Note 13). In
addition, at October 31, 1994, the Company had commitments for the purchase or
lease of equipment with an acquisition cost of approximately $12.0 million and
against which approximately $2.0 million was paid in fiscal 1994.

Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables and temporary cash investments. The
Company sells its products primarily to manufacturers in the semiconductor and
computer industries in North America, Europe and Asia. Sales to customers in
California accounted for 52%, 50% and 36% of the Company's total net sales in
1992, 1993 and 1994, respectively. Foreign sales accounted for less than 2% of
sales in 1992, 8% in 1993 and approximately 13% in 1994. The Company's largest
single customer represented approximately 10% of total net sales in 1993 and 36%
in 1994. No single customer represented more than 10% of net sales in 1992. The
Company believes that the concentration of credit risk in its trade receivables
is substantially mitigated by the Company's ongoing credit evaluation process
and relatively short

F-15
51

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
collection terms. The Company does not generally require collateral from
customers. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information. Historically, the Company has not incurred any significant
credit related losses.

NOTE 12--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table sets forth certain unaudited quarterly financial data:

FIRST SECOND THIRD FOURTH YEAR
------- ------- ------- ------- -------

1993:
Net sales...................... $11,279 $10,644 $11,665 $14,775 $48,363
Gross profit................... 3,654 3,602 4,027 5,032 16,315
Net income..................... $ 1,075 $ 1,022 $ 1,161 $ 1,650 $ 4,908
Net income per share........... $ 0.13 $ 0.13 $ 0.14 $ 0.19 $ 0.59

1994:
Net sales...................... $18,857 $18,641 $21,313 $21,885 $80,696
Gross profit................... 6,332 6,464 8,217 8,479 29,492
Net income..................... $ 2,275(1) $ 2,111 $ 2,765 $ 3,185 $10,336(1)
Net income per share........... $ 0.23(1) $ 0.21 $ 0.27 $ 0.31 $ 1.03(1)

- ---------------
(1) Includes a benefit of $237 ($0.02 per share) resulting from the cumulative
effect of adoption of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."

NOTE 13--ACQUISITION OF PHOTOMASK OPERATIONS OF HOYA MICRO MASK, INC.

On December 1, 1994, the Company acquired certain assets held by Hoya Micro
Mask, Inc. ("Micro Mask"), an independent photomask manufacturer with
manufacturing operations located in Sunnyvale, California. The transaction
included the purchase of the land, buildings, inventory and certain assets other
than cash and receivables. In addition, significant manufacturing systems owned
by Micro Mask were leased by the Company from Micro Mask. The acquisition was
financed through available cash reserves and involved the payment of
approximately $7.2 million in cash at closing and the obligation to pay $3.0
million and $1.8 million, without interest, six months and four years after the
closing, respectively. The operating lease of the significant manufacturing
systems has a term ranging from 44 to 62 months and includes the right to
purchase the systems at fair market value at the end of the lease.

The acquisition was accounted for as a purchase and, accordingly, the
acquisition price was allocated to property, plant and equipment as well as
certain intangible assets based on relative fair value. Certain items and
contingencies with respect to the acquisition are still pending and additional
costs may be incurred which could affect the final purchase price.

The consolidated statement of earnings includes the operating results of
Micro Mask's operations from December 1, 1994. The consolidated results of the
Company's operations on a pro forma basis

F-16
52

PHOTRONICS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION AS OF JANUARY 31, 1995 AND FOR THE THREE
MONTHS ENDED JANUARY 31, 1994 AND 1995 IS UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 13--ACQUISITION OF PHOTOMASK OPERATIONS OF HOYA MICRO MASK, INC.
(CONTINUED)
(unaudited) for the year ended October 31, 1994, as though the purchase had been
made as of the beginning of the year, would have reflected sales of
approximately $106 million and net income of approximately $11 million, or $1.10
per common share before the change in accounting for income taxes. The pro forma
results of operations are not necessarily indicative of the actual operating
results that would have occurred had the transaction been consummated at the
beginning of the year, or of the future operating results of the combined
companies.

As a result of the Micro Mask transaction, the Company is committed to
additional future minimum lease payments aggregating $11.8 million under
non-cancelable operating leases (see Note 10) of $2.5 million in 1995, $2.7
million in 1996 and 1997, $2.4 million in 1998, $1.2 million in 1999 and $0.3
million in 2000.

NOTE 14--SUBSEQUENT EVENT

In January 1995, the Company's Board of Directors approved a three-for-two
stock split which became effective on March 20, 1995. On March 16, 1995, the
shareholders approved an amendment to the Company's Certificate of Incorporation
increasing the number of common shares, $.01 par value, which the Company is
authorized to issue from 10 million shares to 20 million shares. Shareholders of
record on March 20, 1995 received three shares of commons stock for each two
they owned on that date. A total of 3.3 million shares were issued in connection
with the stock split which was effected in the form of a dividend. The
accompanying financial statements have been adjusted to give effect to the stock
split as though it had taken place in the first quarter of 1995. All applicable
share and per share data reflected in the financial statements have been
adjusted to reflect the stock split.

In March 1995, the Company entered into a new unsecured revolving credit
facility that provides for borrowings of up to $10 million per year in each of
the next three years, subject to a carryover in the second and third year of up
to the lesser of $3 million and the amount of borrowing capacity not used in the
prior year. Such borrowings are convertible into term loans, payable in equal
quarterly installments over five years. The new facility provides for
essentially the same terms and conditions as the Company's previous revolving
credit agreement, including compliance with and maintenance of certain financial
covenants and ratios.

F-17
53

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Inside Back Cover

* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* *
* *
* *
* *
* Person sitting at machine *
* console *
* *
* *
* *
* *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Demand for photomasks is driven both * * * * * * * * * * * * * * *
by semiconductor design activity and the * *
increase in the complexity of integrated * *
circuits. As the complexity of integrated * *
circuits has increased, the number of * Rendering of an *
photomasks used in the manufacture of * integrated *
a single circuit has also increased. * circuit *
* *
* *
* *
* *
* * * * * * * * * * * * * * *
32 BIT MICROPROCESSOR
16 PHOTOMASK LEVELS

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * *
* * * *
* * * *
* Rendering of an * * Rendering of an *
* integrated * * integrated *
* circuit * * circuit *
* * * *
* * * *
* * * *
* * * *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
256 MB DRAM 64 MB DRAM
27 PHOTOMASK LEVELS 23 PHOTOMASK LEVELS
57

[LOGO]

PHOTRONICS
58

PART II.

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are:

Securities and Exchange Commission registration fee............... $ 18,737
NASD filing fee................................................... 5,934
Legal fees and expenses........................................... 80,000*
Accounting fees and expenses...................................... 65,000*
Blue Sky fees and expenses (including fees of counsel)............ 15,000
Printing and engraving fees....................................... 50,000*
Miscellaneous..................................................... 15,329*
--------
Total........................................................ $250,000*
========

-----------------------

* Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Connecticut Stock Corporation Act (the "Act") provides for
indemnification of directors, officers, shareholders, employees and agents of a
corporation. Under the Act, a corporation is required to indemnify a director
against judgments and other expenses of litigation when he is sued by reason of
his being a director in any proceeding brought, other than on behalf of the
corporation, if a director is successful on the merits in defense, or acted in
good faith and in a manner reasonably believed to be in the best interests of
the corporation, or in a criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. In a proceeding brought on behalf of a
corporation (a derivative action), a director is entitled to be indemnified by
the corporation for reasonable expenses of litigation, if the director is
finally adjudged not to have breached his duty to the corporation. In addition,
a director is entitled to indemnification for both derivative and non-derivative
actions, if a court determines, upon application, that the director is fairly
and reasonably entitled to be indemnified.

Article Ninth of the Company's Certificate of Incorporation limits
directors' monetary liability for actions or omissions made in good faith, which
are later determined to be a breach of their duty as directors of the Company.
Article Ninth does not eliminate or limit a director's liability for breaches of
fiduciary duty for actions or omissions which (i) involved a knowing and
culpable violation of law; (ii) enabled a director or an associate (as defined
in the Act) to receive an improper personal economic gain; (iii) showed a lack
of good faith and conscious disregard for his duty as a director under
circumstances where the director was aware that his actions created an
unjustifiable risk of serious injury to the Company; (iv) constituted a
sustained and unexcused pattern of inattention that amounted to an abdication of
his duty; or (v) involved the improper distribution of Company assets to its
shareholders or an improper loan to an officer, director or 5% shareholder.
Article Ninth also does not preclude suits for equitable relief, such as an
injunction, nor would it shield directors from liability for violations of the
federal securities laws. Moreover, Article Ninth does not limit the liability of
directors for any act or omission that occurred prior to the date the Article
became effective and does not limit the potential liability of officer-directors
in their capacity as officers.

The Company has purchased directors' and officers' liability insurance
covering certain liabilities incurred by its directors in connection with the
performance of their duties.

The Underwriting Agreement filed herewith as Exhibit 1 contains provisions
by which the Underwriters agree to indemnify the Company, each person who
controls the Company within the

II-1
59

meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, each
director of the Company, and each officer of the Company who signs this
Registration Statement with respect to information furnished in writing by the
Underwriters for use in the Registration Statement.

ITEM 16. EXHIBITS.

1. -- Proposed form of Underwriting Agreement.(2)
4. -- Form of Stock Certificate.(1)
5. -- Opinion of Reid & Priest LLP.
23(a). -- Consent of Deloitte & Touche LLP.(2)
23(b). -- Consent of Reid & Priest LLP (Included in Exhibit 5).
23(c). -- Consent of KPMG Peat Marwick LLP.(2)
24. -- Power of Attorney.(2)

- ---------------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1,
File Number 33-11694, which was declared effective by the Commission on
March 10, 1987, and incorporated herein by reference.

(2) Previously filed.

ITEM 17. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(b) The undersigned Registrant hereby undertakes:

(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this registration statement as of the time it was declared
effective.

(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

(c) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.

II-2
60

(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

II-3
61

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Brookfield, State of Connecticut, on the 14th day of
April, 1995.

PHOTRONICS, INC.

By /s/ JEFFREY P. MOONAN
------------------------------------
Senior Vice President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.

SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- ---------------

/s/ * Chairman of the Board of April 14, 1995
- ------------------------------------------ Directors, Chief Executive Officer
Constantine S. Macricostas and Director (Principal Executive
Officer)

/s/ * President and Director April 14, 1995
- ------------------------------------------
Michael J. Yomazzo

/s/ * Vice President/Finance Chief April 14, 1995
- ------------------------------------------ Financial Officer (Principal
Robert J. Bollo Financial and Accounting Officer)

/s/ * Director April 14, 1995
- ------------------------------------------
Walter M. Fiederowicz

/s/ * Director April 14, 1995
- ------------------------------------------
Joseph A. Fiorita, Jr.

/s/ * Director April 14, 1995
- ------------------------------------------
Masahiro Fujii

*By: /s/ Jeffrey P. Moonan April 14, 1995
- ------------------------------------------
Jeffrey P. Moonan
as Attorney-In-Fact

II-4
62

INDEX TO EXHIBITS

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------- -------------------------------------------------------------- ------------

5. -- Opinion of Reid & Priest LLP.
23(b). -- Consent of Reid & Priest LLP (Included in Exhibit 5).

   1
                                                                       Exhibit 5


                               Reid & Priest LLP
                              40 West 57th Street
                            New York, New York 10019




                                                            New York, New York
                                                            April 13, 1995



Photronics, Inc.
1061 East Indiantown Road, Suite 318
Jupiter, Florida 33477


                 Re:      Photronics, Inc.
                          Registration Statement on Form S-3 


Dear Sirs:

                 We have acted as counsel for Photronics, Inc., a Connecticut
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-3 and amendments thereto under the Securities
Act of 1933, as amended (the "Act"), with respect to the proposed offering of
up to 1,610,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), including (i) 1,500,000 shares of Common Stock to be issued and sold
by the Company, including 210,000 shares of Common Stock that are the subject
of an over-allotment option granted to the Underwriters, and (ii) 110,000
shares of Common Stock by certain selling shareholders (the "Selling
Shareholders"), including (a) 40,000 shares of Common Stock (the "Option
Shares") to be issued by the Company upon the exercise of certain currently
exercisable stock options (the "Stock Options") and (b) 7,500 shares of Common
Stock (the "Warrant Shares") to be issued by the Company upon the exercise of a
warrant (the "Warrant") and sold by certain Selling Shareholders.

                 We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Certificate of Incorporation and By-laws
of the Company, each as amended, and the proposed underwriting agreement among
the Company, the Selling Shareholders and the





   2
Photronics, Inc.
April 13, 1995
Page 2



representatives of the several Underwriters in the form filed as Exhibit 1 to
the Registration Statement (the "Underwriting Agreement") and such other
documents, corporate records, certificates of public officials and instruments
as we have considered necessary or advisable for the purpose of this opinion.
We have assumed the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
copies.  We have not independently verified such information and assumptions.

        We are not members of the Bar of any jurisdiction other than the State
of New York, and we express no opinion as to the law of any jurisdiction other
than the laws of the State of New York.  Insofar as our opinion concerns
Connecticut law, we have relied upon the opinion of Cohen and Wolf, P.C. and our
opinion is subject to such qualifications and assumptions set forth in such
opinion, which are incorporated herein.

                 Subject to the foregoing, and based on such examination and
review, we are of the opinion that:

                 1.       The Company is a corporation organized and existing
in good standing under the laws of the State of Connecticut.

                 2.       The 1,500,000 shares of Common Stock proposed to be
offered by the Company, when issued and delivered upon payment therefor in
accordance with the terms and conditions of the Underwriting Agreement, will be
duly authorized, validly issued, fully paid and non-assessable.

                 3.       Of the 110,000 shares of Common Stock proposed to be
offered by the Selling Shareholders (i) 62,500 shares of Common Stock have been
duly authorized, are validly issued, fully paid and non-assessable, (ii) 40,000
shares of Common Stock issuable upon exercise of the Stock Options have been
duly authorized and reserved for issuance, and, when issued in accordance with
the terms and conditions thereof, such Option Shares will be validly issued,
fully paid and non-assessable and (iii) 7,500 shares of Common Stock issuable
upon exercise of the Warrant have been duly authorized and



   3
Photronics, Inc.
April 13, 1995
Page 3


reserved for issuance, and, when issued in accordance with the terms and
conditions thereof, such Warrant Shares will be validly issued, fully paid and
non-assessable.

                 We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement, and amendments thereto, and to the reference to
us contained under the heading "Legal Matters" in the Prospectus which forms
part of the Registration Statement.  In giving the foregoing consent, we do not
thereby admit that we belong to the category of persons whose consent is
required under Section 7 of the Act, or the rules and regulations promulgated
by the Securities and Exchange Commission thereunder.

                                                   Very truly yours,


                                                   /s/ Reid & Priest LLP