THERMA WAVE INC, S-1/A, 1999-07-21

THERMA WAVE INC
S-1/A, 1999-07-21
INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL

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As filed with the Securities and Exchange Commission on July 21, 1999
Registration No. 333-76019
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE

AMENDMENT NO. 3
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THERMA-WAVE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 3823 94-3000561
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1250 Reliance Way, Fremont, California 94539
(510) 668-2200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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DR. ALLAN ROSENCWAIG

Chairman and Chief Technology Officer
Therma-Wave, Inc.
1250 Reliance Way, Fremont, California 94539
(510) 668-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications, including communications sent to agent for
service, should be sent to:

<TABLE>
<S> <C>
Eva Herbst Davis, Esq. David B. Walek, Esq.
Kirkland & Ellis Ropes & Gray
300 South Grand Avenue One International Place
Suite 3000 Boston, Massachusetts 02110
Los Angeles, California 90071 (617) 951-7000
(213) 680-8400
</TABLE>

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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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, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of Each Class of Proposed Maximum Aggregate Amount of Registration
Securities to be Registered Offering Price(1)(2) Fee(3)
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<S> <C> <C>
Common Stock, par value
$.01 per share........... $45,540,000 $12,660
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</TABLE>

(1) Includes shares of Common Stock that the Underwriters have the option to
purchase from Therma-Wave to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.

(3) $8,896 of such fee was paid in connection with the filing on Form S-1 on
April 9, 1999.

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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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed without +
+notice. Therma-Wave may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus is not an offer to sell these securities, and Therma-Wave is +
+not soliciting offers to buy these securities in any state where the offer or +
+sale of these securities is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED JULY 21, 1999

3,300,000 Shares

[THERMA-WAVE LOGO]

Common Stock

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Therma-Wave, Inc. is offering shares of stock in a firmly underwritten
offering. This is Therma-Wave's initial public offering, and no public market
currently exists for Therma-Wave's shares. Therma-Wave anticipates that the
initial public offering price for its shares will be between $10.00 and $12.00
per share. After the offering, the market price for Therma-Wave's shares may be
outside of this range.

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The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "TWAV," subject to official notice of issuance.

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Investing in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 9.

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<CAPTION>
Per Share Total
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<S> <C> <C>
Offering Price $ $
Discounts and Commissions to Underwriters $ $
Offering Proceeds to Company $ $
</TABLE>

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Therma-Wave has granted the underwriters the right to purchase up to an
additional 495,000 shares of common stock to cover over-allotments. The
underwriters can exercise this right at any time within thirty days after the
offering.

Banc of America Securities LLC expects to deliver the shares of common stock
to investors on August , 1999.

Banc of America Securities LLC Lehman Brothers

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The date of this prospectus is , 1999.
<PAGE>

[pictures of an Opti-Probe(R) system and a Therma-Probe(R) system]

2
<PAGE>

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

Our fiscal year is a 52 to 53 week year ending on the Sunday on or nearest
preceding March 31 for periods prior to 1997 and the Sunday on or following
March 31 of each year for periods thereafter. Fiscal years 1997, 1998 and 1999
ended on April 6, 1997, April 5, 1998 and April 4, 1999, respectively. Fiscal
years are identified in this prospectus according to the calendar year in which
they end. For example, the fiscal year ended April 4, 1999 is referred to
herein as "fiscal 1999." For convenience, the financial information included in
this prospectus has been presented as ending on the last day of the nearest
calendar month.

TABLE OF CONTENTS

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Page
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Prospectus Summary....................................................... 4
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 18
The Reclassification..................................................... 18
Capitalization........................................................... 19
Dividend Policy.......................................................... 20
Dilution................................................................. 20
Selected Historical Financial Data....................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 33
Management............................................................... 48
Principal Stockholders................................................... 58
Certain Relationships and Related Transactions........................... 59
Description of Indebtedness.............................................. 66
Description of Capital Stock............................................. 70
Shares Eligible for Future Sale.......................................... 74
Underwriting............................................................. 76
Experts.................................................................. 78
Legal Matters............................................................ 78
Change in Independent Accountants........................................ 78
Where You Can Find More Information...................................... 78
Index to Financial Statements............................................ F-1
</TABLE>

Therma-Wave(R), Therma-Probe(R), Opti-Probe(R) and Meta-Probe(R) are
registered trademarks of Therma-Wave. Fab Productivity Enhancement(TM), AE(TM),
BPE(TM) and BPR(TM) are trademarks of Therma-Wave. This prospectus contains
trademarks, service marks and trade names of companies and organizations other
than Therma-Wave.

3
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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
you should consider before investing in our common stock. You should read the
entire prospectus carefully. This prospectus contains forward-looking
statements, which involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements as
a result of various factors, including those set forth in "Risk Factors" and
elsewhere in this prospectus. Unless otherwise stated, the information
contained in this prospectus: (1) assumes no exercise of the underwriters'
over-allotment option and (2) reflects a one-for-0.818 reverse stock split and
the reclassification of all of our classes of common stock into a single class
of common stock which will occur immediately prior to the effectiveness of the
registration statement of which this prospectus forms a part.

Therma-Wave, Inc.

We are a worldwide leader in the development, manufacture, marketing and
service of process control metrology systems used in the manufacture of
semiconductors. Process control metrology is used to monitor process parameters
in order to help enable semiconductor manufacturers to reduce the size of the
circuit patterns or features imprinted on the semiconductor, increase the size
of the raw silicon wafer from which semiconductors are manufactured, increase
their equipment productivity and improve the performance of the semiconductor
device. Our current product families, the Therma-Probe and Opti-Probe, use
proprietary and patented technology to provide precise, non-contact, non-
destructive measurement of two of the most critical and pervasive process steps
in semiconductor manufacturing:

. ion implantation--implanting ions, usually boron, phosphorus or arsenic,
into selected areas of the silicon wafer to alter its electrical
properties; and

. thin film deposition and removal--depositing and removing layers of
conductive or insulating films from the silicon wafer in order to give
the semiconductor the desired performance characteristics.

The demand for semiconductors has continually increased as the use of
semiconductors has expanded beyond personal computers and computer systems to a
wide array of additional applications, including telecommunications and data
communications systems, automotive systems, consumer electronics, medical
products and household appliances. Additionally, the Internet has stimulated
the need for more high performance semiconductor devices. As a result,
semiconductors have become increasingly complex, with smaller feature sizes and
shorter product life cycles, resulting in a more costly and complex
manufacturing process. Increasingly, process control metrology has been used by
semiconductor manufacturers to effectively monitor these complex manufacturing
processes. The semiconductor industry experienced downturns in 1998 and 1996,
during which industry revenues declined by an estimated 8.4% and 6.4%,
respectively, as reported by Dataquest. Dataquest forecasts that sales of
semiconductor capital equipment will decrease by approximately 1.7% in calendar
1999 as compared to calendar 1998. Despite periodic downturns as a result of
the cyclicality of the semiconductor device industry, from 1992 to 1998,
Dataquest reports that sales of process control metrology systems and
instruments have increased at a compound annual growth rate of 20.8% and are
expected to grow at a compound annual growth rate of 22.9% through 2002.

Historically, semiconductor manufacturers have achieved an approximate 25%
to 30% annual reduction in the cost per chip function through productivity
improvements including reduced feature size, increased wafer size and increased
equipment productivity. Although increasing wafer size and yields will continue
to be sources of productivity gains for semiconductor manufacturers,
increasingly, we believe, gains will come from reduced feature size and non-
yield related equipment productivity enhancements, including increased
equipment uptime, reduced manufacturing space requirements, reduced use of
wafers for testing purposes and lower tool maintenance costs. Our strategy,
which we refer to as Fab Productivity Enhancement(TM), is to be a leader in

4
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providing semiconductor manufacturers with enabling technologies to improve
productivity within semi-conductor fabrication facilities. Our current Fab
Productivity Enhancement(TM) solutions, the Therma-Probe and Opti-Probe
systems, enhance fab productivity by helping to enable semiconductor
manufacturers to reduce feature size, increase wafer size and increase
equipment productivity by providing non-contact, non-destructive enabling
technologies extendable over multiple process generations. Our future Fab
Productivity Enhancement(TM) solutions are expected to include:

. Combining separate metrology systems into one tool;

. Implementing in-situ systems to improve the direct control of process
equipment and to provide real-time measurement of product wafers; and

. Networking these systems together.

In-situ systems means systems that measure product wafers and monitor
equipment during the semiconductor fabrication process and within the
semiconductor fabrication equipment.

We believe we are a technology leader in process control metrology and one
of the first companies to pioneer the usage of non-contact, non-destructive
process control metrology technology. We have focused heavily on the
development and protection of our proprietary technology as we hold 51 U.S. and
foreign patents. In addition, we have filed applications for 22 additional U.S.
and foreign patents. We believe we have superior technical resources including
a staff of 46 Ph.Ds, which represents over 13% of our employees. We have
accomplished a number of significant innovations including the development of
patented technologies for:

. the most widely accepted metrology system for measuring the critical ion
implantation process on product wafers;

. a state-of-the-art metrology system for measuring thin films on product
wafers;

. the successful combination of thin film measurement technologies in one
system; and

. metrology software providing for advanced signal processing and data
analysis.

We believe we can leverage our strong intellectual property position and our
core technological expertise in non-contact based process control metrology
systems to provide additional Fab Productivity Enhancement(TM) solutions to
semiconductor manufacturers.

We believe we have achieved leading market share positions in two principal
segments of the process control metrology market. We estimate that we have over
95% of the market segment for the non-destructive measurement of ion
implantation on product wafers and approximately 33% of the thin film
measurement market segment. We sell our products worldwide to leading
semiconductor manufacturers including: Advanced Micro Devices, Inc., Chartered
Semiconductor, Ltd., Intel Corporation, Lucent Technologies, Samsung America,
Inc., Siemens AG, STMicroelectronics N.V., Toshiba Corporation and the UMC
Group. International sales represented approximately 52% and 69% of our net
revenues in fiscal 1998 and 1999, respectively. We have sold our products to
over 70 semiconductor manufacturers located in 14 different countries. We
provide our customers with a worldwide network of sales and support personnel.
We intend to continue to invest in our sales and support network, as we believe
it is an increasingly important competitive factor in today's global
semiconductor capital equipment market.

Therma-Wave was established in 1982 by Dr. Allan Rosencwaig, our current
Chairman and Chief Technology Officer and the principal developer of the field
of thermal wave physics. In fiscal 1992, Therma-Wave was acquired by Toray
Industries, Inc. and Shimadzu Corporation. Through a recapitalization effected
in May 1997, Bain Capital, Inc., Sutter Hill Ventures and our senior management
team collectively acquired securities representing approximately 87% of our
outstanding voting power. Our senior management team currently owns
approximately 21% of our outstanding common stock and holds options to acquire
an additional 12% of the common stock. Such equity ownership represents a
significant economic commitment to, and participation in, the continued success
of Therma-Wave.

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Recent Operating Results

For the first quarter of fiscal 2000, which ended June 30, 1999, our
revenues were $21.1 million, up 14% from the prior fiscal quarter, and up 39%
compared to the same quarter a year ago. Our operating income for the same
period was $1.0 million, representing an increase of 18% from $0.8 million in
the prior fiscal quarter and up $4.5 million from the same quarter a year ago.
These increases were the result of higher revenues as well as cost reductions
implemented last year.

Gross margin for the first quarter of fiscal 2000 was 42%, down from 46% for
the fourth quarter of fiscal 1999 and up from 41% for the first quarter of our
last fiscal year. The decrease from the fourth quarter was the result of lower
average selling prices due to price competition during the semiconductor
industry downturn and higher manufacturing costs associated with the
manufacturing scale-up of new products. The increase versus the first quarter
of fiscal 1999 resulted from headcount reductions in manufacturing and customer
service.

We experienced a net loss of $2.3 million for the first quarter of fiscal
2000, which included interest expense of $3.5 million and other non-operating
expenses of $0.2 million. This was equal to our net loss for the prior fiscal
quarter and, as compared to our net loss for the first quarter of fiscal 1999,
represented an improvement of $3.8 million.

Our new orders for the first quarter of fiscal 2000, which increased across
all geographic regions, totaled $25.6 million, representing a gain of 54% as
compared to the prior fiscal quarter and 151% as compared to the first quarter
of fiscal 1999. Our book to bill ratio was 1.2 to 1 for the quarter and backlog
increased to $20.4 million at June 30, 1999, up $4.4 million from the prior
fiscal quarter and down $8.0 million from the first quarter of fiscal 1999.

Additional Information

Therma-Wave is a Delaware corporation organized in October 1990. Our
principal executive offices are located at 1250 Reliance Way, Fremont,
California 94539, and our telephone number is (510) 668-2200. We maintain a
website on the Internet at www.thermawave.com. Our website, and the information
contained therein, is not a part of this prospectus.

The Offering

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<S> <C>
Common Stock offered by Therma-Wave............. 3,300,000 shares

Common Stock to be outstanding after this
offering....................................... 14,714,837 shares

Use of proceeds................................. To redeem a portion of our 10 5/8% senior
notes. See "Use of Proceeds."

Proposed Nasdaq National Market symbol.......... "TWAV"
</TABLE>

The common stock to be outstanding after this offering is based on shares
outstanding as of March 31, 1999 and excludes: (1) 1,454,475 shares of common
stock issuable upon the exercise of outstanding options granted under our stock
option plans, of which 978,658 were then exercisable, at exercise prices
ranging from $7.33 to $19.43 per share; (2) 800,000 additional shares of common
stock expected to be reserved for future grants, awards or sale under the 1999
Equity Incentive Plan or sale under the 1999 Employee Stock Purchase Plan; and
(3) 612,469 shares of common stock issuable upon the conversion of our
mandatorily redeemable convertible preferred stock. In addition, the common
stock to be outstanding after this offering does not include an aggregate of
497,802 shares of common stock issuable upon the exercise of options granted in
the first quarter of fiscal 2000. See "Management--Stock Plans." The common
stock to be outstanding after this offering assumes a reclassification of our
Class A common stock, Class B common stock and Class L common stock on August
6, 1999. See "The Reclassification."

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Summary Historical Financial Data
(in thousands, except per share data)

Net income (loss) per share
(3):
Basic........................ $ 0.30 $ 0.20 $ 0.35 $ (0.34) $ (2.28)
Diluted...................... $ 0.29 $ 0.20 $ 0.35 $ (0.34) $ (2.28)
Weighted average number of
shares outstanding:
Basic........................ 24,877 37,231 37,231 11,076 7,686
Diluted...................... 25,765 37,231 37,231 11,076 7,686

Pro Forma Statement of
Operations Data (4):
Pro forma net loss............ $(13,132)
Pro forma net loss per share:
Basic and Diluted............ $ (0.96)
Pro forma weighted average
common shares outstanding:
Basic and Diluted............ 13,745

Other Financial Data:
EBITDA (excluding non-
recurring charges) (5)....... $12,496 $17,185 $ 27,113 $ 19,723 $ 974
Cash provided by operating
activities................... 1,876 5,867 11,860 8,113 745
Cash used in investing
activities................... (2,048) (4,965) (1,575) (2,900) (1,389)
Cash provided by (used in)
financing activities......... 5,701 (1,541) (1,234) (1,532) 467
Capital expenditures.......... 1,616 4,361 1,091 2,900 862
</TABLE>

<TABLE>
<CAPTION>
March 31,
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1997 1998 1999 As Adjusted (6)
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Balance Sheet Data:
Cash and cash equivalents......... $16,741 $ 20,422 $ 20,245 $ 20,245
Working capital................... 38,720 43,348 31,394 32,564
Total assets...................... 68,620 89,762 72,352 70,281
Long-term debt.................... 23,100 115,000 115,000 86,472
Mandatorily redeemable convertible
preferred stock (2).............. -- 14,515 15,347 15,347
Stockholders' equity (net capital
deficiency)...................... 20,145 (70,990) (86,971) (59,344)
</TABLE>

Our fiscal year refers to the 52/53 week period ending on the Sunday on or
nearest preceding March 31 of each year for periods prior to 1997 and the
Sunday on or following March 31 of each year for periods thereafter.

On July 16, 1999, the Board of Directors declared a one-for-0.818 reverse
stock split of our common stock, which will occur immediately prior to the
effectiveness of the registration statement of which this prospectus forms a
part. All references throughout this prospectus to number of shares, per share
amounts and stock option data have been restated, giving retroactive effect to
the stock split.

Footnotes to table appear on following page.

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- --------
Footnotes to table on previous page.

(1) On May 16, 1997, we effected the recapitalization. We issued $115.0 million
in aggregate principal amount of 10 5/8% senior notes in connection with
the recapitalization.

(2) We issued shares of mandatorily redeemable convertible preferred stock as
part of the recapitalization. The fair value of the preferred stock at
March 31, 1999 of $15,347 represents the liquidation value plus accrued
dividends. Dividends on the preferred stock accrue at a rate of 6.0% per
annum. The preferred stock has a scheduled redemption date of May 17, 2004
and is otherwise redeemable by us at any time at our sole discretion. See
"Description of Capital Stock--Series A Mandatorily Redeemable Convertible
Preferred Stock."

(3) For the calculation of net loss per share for the years ended March 31,
1998 and 1999: (a) net loss represents the loss attributable to the
weighted average number of shares of Class A common stock, Class B common
stock and, prior to the recapitalization, common stock outstanding after
giving effect to the 12% yield on Class L common stock and (b) weighted
average number of shares outstanding excludes unvested Class B common
stock.

(4) The pro forma statement of operations data gives pro forma effect to: (1)
the reclassification of our three classes of common stock into a single
class and (2) this offering and the application of the net proceeds
therefrom as described under "Use of Proceeds," as if each had occurred as
of the beginning of the periods presented. The unaudited pro forma
statement of operations data does not purport to represent what our results
of operations actually would have been if such transactions had actually
occurred as of the beginning of the periods presented, or what such results
will be for any future periods.

(5) "EBITDA" is defined herein as income (loss) before income taxes, plus
depreciation, amortization, interest expense, interest income and other
non-operating (income) expenses, net. "EBITDA (excluding non-recurring
charges)" in the fiscal years ended March 31, 1998 and 1999 does not
include $4,188 and $1,057 in recapitalization and other non-recurring
expenses, respectively. Including such non-recurring charges, EBITDA for
the period would have been reduced to $15,537 and $(83) for fiscal 1998 and
1999, respectively. We believe EBITDA and EBITDA (excluding non-recurring
charges) are widely accepted financial indicators of a company's historical
ability to service and/or incur indebtedness. However, EBITDA and EBITDA
(excluding non-recurring charges) should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles. Additionally, EBITDA and EBITDA (excluding non-
recurring charges) as defined herein may not be comparable to similarly
titled measures reported by other companies.

(6) Adjusted to reflect the sale of 3,300,000 shares of common stock and the
application of the net proceeds as described under "Use of Proceeds."

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RISK FACTORS

You should carefully consider the following factors in addition to the other
information set forth in this prospectus in analyzing an investment in the
common stock offered hereby. The risks and uncertainties described below are
not the only ones facing us. Additional risks and uncertainties that we do not
presently know about or that we currently believe are immaterial may also
adversely impact our business operations. If any of the following risks
actually occur, our business, financial condition or results of operations
would likely suffer. In such case, the trading price of our common stock could
fall, and you may lose all or part of the money you paid to buy our common
stock.

This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include, but
are not limited to, those identified below as well as those discussed elsewhere
in this prospectus.

We have had significant net losses and we anticipate losses to continue.

We have not reported net income since the first quarter of fiscal 1998. We
reported a net loss for fiscal 1999 of $15.7 million and for fiscal 1998 of
$1.0 million. Due to the recent downturn in the semiconductor industry and the
related downturn in the semiconductor capital equipment industry, weak economic
conditions in the Asia Pacific region, including Japan, and other factors, we
expect to remain unprofitable at least through the end of calendar 1999. We
cannot predict how long we will continue to experience significant net losses
or when we will become profitable.

Our performance is affected by the cyclicality of the semiconductor device
industry which may, from time to time, lead to decreased demand for our
products.

The current downturn in the semiconductor industry has had a material
adverse effect on our recent operating results. Our business depends upon the
capital expenditures of semiconductor manufacturers, which, in turn, depend
upon the current and anticipated market demand for semiconductors and products
utilizing semiconductors. The semiconductor industry is cyclical and has
historically experienced periodic downturns, which have often resulted in a
decrease in the semiconductor industry's demand for capital equipment,
including process control metrology systems. There is typically a six to twelve
month lag between changes in the semiconductor industry and the related impact
on the level of capital expenditures. In most cases, the resulting decrease in
capital expenditures has been more pronounced than the precipitating downturn
in semiconductor industry revenues. The semiconductor industry experienced
downturns in 1998 and 1996, during which industry revenues declined by an
estimated 8.4% and 6.4%, respectively, as reported by Dataquest. Dataquest
forecasts that sales of semiconductor capital equipment will decrease by
approximately 1.7% in calendar 1999 as compared to calendar 1998. Although
there are indications that the semiconductor industry is beginning to recover,
there can be no assurance that:

. the semiconductor industry will improve;

. the semiconductor industry will not experience other, possibly more
severe and prolonged, downturns in the future; or

. any such recovery will result in increased demand for capital equipment
by the semiconductor industry.

The continuation of the current downturn or any future downturn in the
semiconductor industry will have a material adverse effect on our business,
financial condition and results of operations.

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Our quarterly operating results have historically and may, in the future, vary
significantly. This may result in volatility in the market price for our
shares.

Our quarterly operating results have historically and may, in the future,
vary significantly. Some of the factors that may influence our operating
results and that could cause trading in our shares to be subject to extreme
price and volume fluctuations in a given quarter include:

. customer demand, which is influenced by economic conditions in the
semiconductor industry, demand for products that use semiconductors,
market acceptance of our products and those of our customers,
seasonality, changes in product mix, and the timing, cancellation or
delay of customer orders and shipments;

. competition, such as competitive pressures on prices of our products,
the introduction or announcement of new products by us or our
competitors and discounts that may be granted to customers;

. fluctuations in the availability and cost of components, subassemblies
and production capacity;

. expenses incurred in connection with litigation;

. product development costs, such as increased research, development,
engineering and marketing expenses associated with new products or
product enhancements, and the effect of transitioning to new or enhanced
products; and

. levels of fixed expenses relative to revenue levels, including research
and development costs associated with product development.

During a given quarter, a significant portion of our revenue may be derived
from the sale of a relatively small number of systems. Accordingly, a small
change in the number of systems actually shipped may cause significant changes
in operating results. In addition, because of the significantly different gross
margins attributable to our two product lines, changes in product mix may cause
fluctuations in operating results. In addition, we cannot assure you that the
market price of our common stock will not experience significant fluctuations
in the future, including fluctuations that are material, adverse and unrelated
to our performance.

Our largest customers have historically accounted for a significant portion of
our revenues. Accordingly, our business may be adversely affected by the loss
of, or reduced purchases by, one or more of our large customers.

If, for any reason, any of our key customers were to purchase significantly
less of our products in the future, such decreased level of purchases could
have a material adverse effect on our business, financial condition and results
of operations. During fiscal 1999, sales to Intel Corporation and Advanced
Micro Devices, Inc. accounted for approximately 23% and 18% of our net
revenues, respectively, and sales to our top five customers in the aggregate
accounted for approximately 53% of our net revenues. During fiscal 1998, sales
to Intel Corporation accounted for approximately 23% of our net revenues, and
sales to our top five customers in the aggregate accounted for approximately
45% of our net revenues. As customers seek to establish closer relationships
with their suppliers, we expect that our customer base will continue to become
more concentrated with a limited number of customers accounting for a
significant portion of our revenues. See "Business--Customers."

We operate in the highly competitive semiconductor capital equipment industry
and compete against larger companies.

We operate in the highly competitive semiconductor capital equipment
industry and face competition from a number of competitors, some of which have
greater financial, engineering, manufacturing and marketing resources and
broader product offerings than Therma-Wave. We cannot assure you that our
products will be able to compete successfully with the products of our
competitors. Many of our competitors are investing

10
<PAGE>

heavily in the development of new products aimed at applications we currently
serve. Our competitors in each product area can be expected to continue to
improve the design and performance of their products and to introduce new
products with competitive prices and performance characteristics. In addition,
we believe that our competitors sometimes provide demonstration systems to
semiconductor manufacturers at no cost. We could be required to employ similar
promotions in order to remain competitive if this practice becomes more
pervasive in the industry.

Competitive conditions in our industry may require us to reduce our prices.

Due to competitive conditions in our industry, we have selectively reduced
prices on our products in order to maintain our market share. These reductions
are not necessarily permanent nor do they affect all of our products. There can
be no assurance that competitive pressures will not necessitate further price
reductions. Maintaining technological advantages to mitigate the adverse effect
of pricing pressures will require a continued high level of investment by us in
research and development and sales and marketing. There can be no assurance
that we will have sufficient resources to continue to make such investments or
that we will be able to make the technological advances necessary to maintain
such competitive advantages. To the extent our products do not provide
technological advantages over products offered by our competitors, we are
likely to experience increased price competition or loss of market share with
respect to such products.

We encounter difficulties in soliciting customers of our competitors because of
high switching costs in the markets in which we operate.

We believe that once a device manufacturer has selected a particular
vendor's capital equipment, that manufacturer generally relies upon that
vendor's equipment for that specific production line application and, to the
extent possible, subsequent generations of that vendor's systems. Accordingly,
it may be difficult to achieve significant sales to a particular customer once
another vendor's capital equipment has been selected by that customer unless
there are compelling reasons to do so, such as significant performance or cost
advantages.

Our business may be adversely impacted as a result of our substantial leverage,
which requires the use of a substantial portion of our excess cash flow and may
limit our access to additional capital.

We incurred substantial indebtedness in connection with our
recapitalization, which occurred on May 16, 1997. We currently are required to
make annual cash interest payments totaling $12.2 million relating to our
outstanding $115.0 million 10 5/8% senior notes which represented approximately
96% of our operating cash flows during fiscal 1999. Interest payments as a
percentage of operating cash flows can be expected to fluctuate in the future
depending primarily upon our net income (loss) and outstanding debt balance. At
March 31, 1999, on a pro forma basis giving effect to this offering and the
application of the net proceeds therefrom, our total indebtedness would have
been approximately $86.5 million and our net capital deficiency would have been
$59.3 million. In addition, as of March 31, 1999, we had unused borrowing
capacity of $17.0 million under our bank credit facility. Furthermore, subject
to the restrictions in our senior bank credit facility and the indenture
relating to our 10 5/8% senior notes, we may incur additional indebtedness,
including secured indebtedness, from time to time to finance acquisitions,
capital expenditures and working capital, redeem our Series A mandatorily
redeemable convertible preferred stock, make deferred bonus payments to our
executive officers or for other purposes.

The level of our indebtedness could have important consequences for us. The
following summarizes the material consequences:

. a substantial portion of our cash flow from operations must be dedicated
to the repayment of indebtedness and will not be available for other
purposes;

. our future ability to obtain additional debt financing for working
capital, capital expenditures, acquisitions or other purposes may be
limited; and

. our level of indebtedness has in the past, and could in the future,
limit our flexibility in reacting to changes in the industry, general
economic conditions and our ability to withstand a prolonged downturn in
the semiconductor and/or semiconductor capital equipment industries.

11
<PAGE>

Most of our competitors currently operate on a less leveraged basis and have
significantly greater operating and financing flexibility than we do.

A breach of any of the restrictive covenants in our senior notes indenture or
our bank credit facility could result in a default under our senior note
indenture and/or our bank credit facility. If the bank accelerates all amounts
owing under the bank credit facility because of a default under the bank credit
facility and we are unable to pay such amounts, the bank has the right to
foreclose on our assets, including the capital stock pledged as security under
our bank credit facility.

The indenture relating to our senior notes and our bank credit facility
contain restrictive covenants. In addition, our bank credit facility requires
us to maintain specified financial ratios and satisfy financial condition tests
at the end of each fiscal quarter. In June 1998, we amended our bank credit
facility to adjust the financial tests requiring us to maintain minimum levels
of EBITDA during each six-month period ending on the last day of each fiscal
quarter and minimum levels of cumulative EBITDA from April 7, 1996 to the last
day of each fiscal quarter. These amendments were effected in light of the
impact of the downturn in the semiconductor industry on our operating results.
Without these amendments to our bank credit facility, on June 30, 1998, we
would have violated the financial test relating to the maintenance of minimum
levels of EBITDA for the six-month period ending on such date. These
adjustments relate to periods prior to March 31, 2000. For periods after that
time, the financial tests and covenants contained in the original agreement
will apply. Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and there can be no assurance that we
will meet those tests. A breach of any of these covenants could result in a
default under our bank credit facility and/or the indenture relating to our
senior notes. Substantially all of our assets and those of our subsidiaries,
together with all of the capital stock of any domestic subsidiary and 65% of
the capital stock of each of our first-tier foreign subsidiaries, are pledged
as security under our bank credit facility. If the bank accelerates all amounts
owing under the bank credit facility because of a default under the bank credit
facility and we are unable to pay such amounts, the bank has the right to
foreclose on our assets, including the capital stock pledged as security under
our bank credit facility. See "Description of Indebtedness."

Our future growth depends on our ability to develop new and enhanced products
for the semiconductor industry. We cannot assure you that we will be successful
in our product development efforts or that our new products will gain general
market acceptance.

Our future growth will depend, in part, on our ability to design, develop,
manufacture, assemble, test, market and support new products and enhancements
on a timely and cost-effective basis. Our failure to successfully identify new
product opportunities or to develop, manufacture, assemble or introduce new
products could have a material adverse effect on our growth prospects. For
example, we expect our product development efforts to include combining
separate metrology systems into one tool, implementing in-situ systems and
networking these systems together. In-situ systems allow us to measure product
wafers and monitor process equipment during the semiconductor fabrication
process. We are also developing the Meta-Probe system, which is a thin film
metrology system specifically designed to measure the thickness and material
properties of opaque and metallic thin films. We cannot assure you that we will
not experience difficulties or delays in our development efforts with respect
to these products or that we will be successful in developing these products.
In addition, we cannot assure you that these products will gain market
acceptance or that we will not experience reliability or quality problems.

Rapid technological changes in our industry will require us to continually
develop new and enhanced products.

Any failure by us to anticipate or respond adequately to technological
developments and customer requirements, or any significant delays in product
development or introduction could result in a loss of competitiveness and could
materially adversely affect our operating results. There can be no assurance
that we will successfully develop and bring new products to market in a timely
and cost-effective manner, that any product enhancement or new product
developed by us will gain market acceptance, or that products or

12
<PAGE>

technologies developed by others will not render our products or technologies
obsolete or noncompetitive. A fundamental shift in technology in our product
markets could have a material adverse effect on us, particularly in light of
the fact that we currently derive substantially all of our revenues from sales
of our two product families, the Opti-Probe and Therma-Probe.

Our business could be adversely affected if we are unable to protect our
proprietary technology or if we infringe on the proprietary technology of
others.

Our future success and competitive position depend in part upon our ability
to obtain and maintain proprietary technology used in our principal product
families, and we rely, in part, on patent, trade secret and trademark law to
protect that technology. We have obtained a number of patents relating to our
two key product families, the Opti-Probe and Therma-Probe, and have filed
applications for additional patents. There can be no assurance that any of our
pending patent applications will be approved, that we will develop additional
proprietary technology that is patentable, that any patents owned by or issued
to us will provide us with competitive advantages or that these patents will
not be challenged by any third parties. Furthermore, there can be no assurance
that third parties will not design around our patents. Any of the foregoing
results could have a material adverse effect on our business, financial
condition or results of operations.

In addition to patent protection, we rely upon trade secret protection for
our confidential and proprietary information and technology. We routinely enter
into confidentiality agreements with our employees. However, there can be no
assurance that these agreements will not be breached, that we will have
adequate remedies for any breach or that our confidential and proprietary
information and technology will not be independently developed by or become
otherwise known to third parties.

Our commercial success will also depend, in part, on our ability to avoid
infringing or misappropriating any patents or other proprietary rights owned by
third parties. If we are found to infringe or misappropriate a third party's
patent or other proprietary rights, we could be required to pay damages to such
third party, alter our products or processes, obtain a license from the third
party or cease activities utilizing such proprietary rights, including making
or selling products utilizing such proprietary rights. If we are required to do
any of the foregoing, there can be no assurance that we will be able to do so
on commercially favorable terms, if at all. Our inability to do any of the
foregoing on commercially favorable terms could have a material adverse impact
on our business, financial condition or results of operations.

Protection of our intellectual property rights, or third parties seeking to
enforce their own intellectual property rights against us, may result in
litigation, the cost of which could be substantial. We are currently involved
in litigation regarding our thin-film thickness measuring technology.

We may be required to initiate litigation in order to enforce any patents
issued to or licensed to us or to determine the scope and/or validity of a
third party's patent or other proprietary rights. In addition, we may be
subject to lawsuits by third parties seeking to enforce their own intellectual
property rights. Any such litigation, regardless of outcome, could be expensive
and time consuming and, as discussed above in the prior risk factor, could
subject us to significant liabilities or require us to cease using proprietary
third party technology and, consequently, could have a material adverse effect
on our business, financial condition or results of operations. We are currently
involved in litigation with KLA-Tencor Corporation regarding our thin-film
thickness measuring technology. See "Business--Legal Proceedings."

We will need to be able to attract and retain key personnel with knowledge of
instruments used in semiconductor manufacturing processes to help support our
future growth. Competition for such personnel in our industry is high.

Our success depends to a significant degree upon the continued contributions
of key management, engineering, sales and marketing, customer support, finance
and manufacturing personnel. The loss of the services of key personnel, who
would be extremely difficult to replace, could have a material adverse effect
on us. There can be no assurance that the services of such personnel will
continue to be available to us. We have employment agreements with key members
of our senior management team, including Messrs. Rosencwaig,

13
<PAGE>

Schwartz, Christie, Smith, Opsal and Willenborg. In addition, we maintain and
are the named beneficiary under key-man life insurance policies for Messrs.
Rosencwaig, Willenborg and Opsal in the amounts of $500,000, $100,000 and
$250,000, respectively. To support our future growth, we will need to attract
and retain additional qualified employees. Competition for such personnel in
our industry is high, and we cannot assure you that we will be successful in
attracting and retaining such personnel. See "Management--Employment
Agreements."

Our operations are characterized by the need for continued investment in
research and development and, as a result, our ability to reduce costs is
limited.

Our operations are characterized by the need for continued investment in
research and development and extensive ongoing customer service and support
capability. As a result, our operating results could be materially adversely
affected if our level of revenues are below expectations. In addition, because
of our emphasis on research and development and technological innovation, there
can be no assurance that our operating costs will not increase in the future.
We expect the level of research and development expenses to increase in the
near future in both absolute dollar terms and as a percentage of our revenues.

We obtain some of the components and subassemblies included in our systems from
a single source or limited group of suppliers, the partial or complete loss of
which could have at least a temporary adverse effect on our operations.

Some of the components and subassemblies included in our systems are
obtained from a single source or a limited group of suppliers. From time to
time, we have experienced temporary difficulties in receiving orders from some
of these suppliers. Although we seek to reduce dependence on these sole and
limited source suppliers, the partial or complete loss of these sources could
have at least a temporary adverse effect on our results of operations and
damage customer relationships. Further, a significant increase in the price of
one or more of these components or subassemblies could materially adversely
affect our results of operations.

We are subject to risks associated with manufacturing all of our products at a
single facility. Any prolonged disruption in the operations of that facility
could have a material adverse effect on our business.

We produce all of our products in our manufacturing facility located in
Fremont, California. Our manufacturing processes are highly complex, require
sophisticated and costly equipment and a specially designed facility. As a
result, any prolonged disruption in the operations of our manufacturing
facility, whether due to technical or labor difficulties, destruction of or
damage to this facility as a result of an earthquake, fire or any other reason,
could have a material adverse effect on our business, financial condition or
results of operations.

We rely upon manufacturers' sales representatives for a significant portion of
our sales. A disruption in our relationship with any sales representative could
have a material adverse effect on our business.

Approximately 50% of our sales have historically been made through
manufacturers' sales representatives. The activities of these representatives
are not within our control, and they may sell products manufactured by other
manufacturers. In addition, in some locations our manufacturing sales
representatives also provide field service to our customers. A reduction in the
sales efforts or financial viability of such manufacturers' sales
representatives, or a termination of our relationship with such
representatives, could have a material adverse effect our sales, financial
results and ability to support our customers. Although we believe that we
maintain good relations with our sales representatives, there can be no
assurance that such relationships will continue.

Our net sales and results of operations can be adversely affected by the
instability of Asian economies, from which we derive a significant portion of
our revenues.

Our sales to customers in Asian markets represented approximately 40% and
33% of total net revenues for fiscal 1998 and 1999, respectively. Companies in
the Asia Pacific region, including Japan, Korea and Taiwan,

14
<PAGE>

each of which accounts for a significant portion of our business in that
region, have experienced weaknesses in their currency, banking and equity
markets over the last 18 months. These weaknesses began to adversely affect our
sales to semiconductor device and capital equipment manufacturers located in
these regions in the fourth quarter of calendar 1997 and have continued to
adversely affect them in 1998. Although we have recently received an increased
level of orders from customers in the Asia Pacific region, we expect that
turbulence in the Asian markets could adversely affect our sales at least
through the end of calendar 1999.

We are subject to operational, financial, political and foreign exchange risks
due to our significant level of international sales.

. unexpected changes in regulatory requirements;

. tariffs and other market barriers;

. political and economic instability;

. potentially adverse tax consequences;

. outbreaks of hostilities;

. difficulties in accounts receivable collection;

. extended payment terms;

. difficulties in managing foreign sales representatives; and

. difficulties in staffing and managing foreign branch operations.

In addition, the laws of countries in which our products are or may be sold may
not provide our products and intellectual property rights with the same degree
of protection as the laws of the United States.

A substantial portion of our international sales are denominated in U.S.
dollars. As a result, changes in the values of foreign currencies relative to
the value of the U.S. dollar can render our products comparatively more
expensive. Such conditions could negatively impact our international sales.

Our failure to identify and remediate all material Year 2000 risks could
significantly disrupt our business if we are forced to devote substantial
resources to Year 2000 remediation efforts, or if Year 2000 problems among our
suppliers or customers cause delays in shipping or receiving products.

We have implemented a multi-phase Year 2000 project consisting of assessment
and remediation, and testing following remediation. We cannot, however, assure
you that we have identified all of the potential risks. Failure by us to
identify and remediate all material Year 2000 risks could adversely affect our
business, financial condition and results of operations. We have identified the
following risks you should be aware of:

. we cannot assure you that the entities on whom we rely for certain goods
and services that are important for our business will be successful in
addressing all of their software and systems problems in order to
operate without disruption in the year 2000 and beyond;

. our customers or potential customers may be affected by Year 2000 issues
that may, in part:

-- cause a reduction, delay or cancellation of customer orders

-- cause a delay in payments for products shipped

-- cause customers to expend significant resources on Year 2000
compliance matters, rather than investing in our products; and

15
<PAGE>

. we have not developed a contingency plan related to a failure of our, or
a third-party's, Year 2000 remediation efforts and may not be prepared
for such an event.

Further, while we have made efforts to notify our customers who have
purchased potentially non-compliant products, we cannot be sure that such
customers will not assert claims against us alleging that such products should
have been Year 2000 compliant at the time of purchase, which could result in
costly litigation and divert management's attention.

We expect to use all of the net proceeds of this offering to repay indebtedness
and, as a result, we may be unable to meet our future capital and liquidity
requirements.

We expect to use all of the net proceeds of this offering to repay
indebtedness. As a result, none of the net proceeds will be available to fund
future operations. We expect that our principal sources of funds following this
offering will be cash generated from operating activities and, if necessary,
borrowings under our senior bank credit facility. We believe that these funds
will provide us with sufficient liquidity and capital resources for us to meet
our current and future financial obligations, as well as to provide funds for
our working capital, capital expenditures and other needs for the foreseeable
future. No assurance can be given, however, that this will be the case. We may
require additional equity or debt financing to meet our working capital
requirements or to fund our research and development efforts. There can be no
assurance that additional financing will be available when required or, if
available, will be on terms satisfactory to us.

One of our stockholders, Bain Capital, Inc., will continue to have significant
influence over our business after this offering, and could delay, deter or
prevent a change of control or other business combination.

Upon completion of this offering, investment funds affiliated with Bain
Capital, Inc. will hold approximately 44% of our outstanding common stock. If
the underwriters' over-allotment is exercised in full, these funds will hold
approximately 42% of our outstanding common stock. In addition, three of the
eight directors that will serve on our board following this offering will be
representatives of Bain Capital, Inc. By virtue of such stock ownership and
board representation, Bain Capital, Inc. will continue to have a significant
influence over all matters submitted to our stockholders, including the
election of our directors, and to exercise significant control over our
business, policies and affairs. Such concentration of voting power could have
the effect of delaying, deterring or preventing a change of control of Therma-
Wave or other business combination that might otherwise be beneficial to
stockholders.

Provisions of our charter documents and Delaware law could discourage potential
acquisition proposals and could delay, deter or prevent a change in control.

Provisions of our certificate of incorporation and by-laws may inhibit
changes in control of Therma-Wave not approved by our board of directors and
would limit the circumstances in which a premium may be paid for the common
stock in proposed transactions, or a proxy contest for control of the board may
be initiated. These provisions provide for:

. a classified board of directors;

. a prohibition on stockholder action through written consents;

. a requirement that special meetings of stockholders be called only by
our chief executive officer or the board of directors;

. advance notice requirements for stockholder proposals and nominations;

. limitations on the ability of stockholders to amend, alter or repeal the
by-laws; and

. the authority of the board to issue, without stockholder approval,
preferred stock with such terms as the board may determine.

We will also be afforded the protections of Section 203 of the Delaware
General Corporation Law, which could have similar effects. See "Description of
Capital Stock."

16
<PAGE>

You will experience an immediate and significant dilution in the book value of
your investment.

Because the initial public offering price is substantially higher than the
book value per share of common stock, purchasers of the common stock in this
offering will be subject to immediate and substantial dilution of $15.49 per
share. See "Dilution."

Future sales by our existing stockholders could adversely affect the market
price of our common stock.

Future sales of the shares of common stock held by existing stockholders
could have a material adverse effect on the market price of our common stock.
Upon completion of this offering (assuming an August 6, 1999 effective date and
a $30.056 Preference Amount per share of Class L common stock), we expect that:

. 3,300,000 shares of common stock, or 3,795,000 shares if the
underwriters' over-allotment option is exercised in full, sold in this
offering will be freely tradeable without restriction under the
Securities Act, except any such shares which may be acquired by an
"affiliate" of Therma-Wave; and

. 11,414,837 shares of common stock held by our existing stockholders will
be eligible for sale into the public market, subject to compliance with
the resale volume limitations and other restrictions of Rule 144 under
the Securities Act, beginning 180 days after the date of this
prospectus.

Beginning 180 days after the completion of this offering, the holders of an
aggregate of approximately 11,340,010 shares of common stock will have limited
rights to require us to register their shares of common stock under the
Securities Act at our expense.

The forward-looking statements contained in this prospectus are based on our
predictions of future performance. As a result, you should not place undue
reliance on these forward-looking statements.

This prospectus contains forward-looking statements, including, without
limitation, statements concerning the conditions in the semiconductor and
semiconductor capital equipment industries, our operations, economic
performance and financial condition, including in particular statements
relating to our business and growth strategy and product development efforts.
The words "believe," "expect," "anticipate," "intend" and other similar
expressions generally identify forward-looking statements. Potential investors
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of their dates. These forward-looking statements are based
largely on our current expectations and are subject to a number of risks and
uncertainties, including, without limitation, those identified under "Risk
Factors" and elsewhere in this prospectus and other risks and uncertainties
indicated from time to time in our filings with the SEC. Actual results could
differ materially from these forward-looking statements. In addition, important
factors to consider in evaluating such forward-looking statements include
changes in external market factors, changes in our business or growth strategy
or an inability to execute our strategy due to changes in our industry or the
economy generally, the emergence of new or growing competitors and various
other competitive factors. In light of these risks and uncertainties, there can
be no assurance that the matters referred to in the forward-looking statements
contained in this prospectus will in fact occur.

17
<PAGE>

USE OF PROCEEDS

We estimate that our net proceeds from the sale of 3,300,000 shares of
common stock in this offering will be approximately $32.7 million. If the
underwriters' over-allotment option is exercised in full, our net proceeds will
be approximately $37.8 million assuming an initial public offering price of
$11.00 per share, the midpoint of the range set forth on the cover page of this
prospectus. We intend to use all of the net proceeds to redeem or repurchase
senior notes and to pay the redemption premium and accrued and unpaid interest
thereon.

Our senior notes in the aggregate principal amount of $115.0 million mature
on May 15, 2004, and bear interest at the rate of 10 5/8% per annum. Under the
terms of the indenture relating to the senior notes, we are required to use the
net proceeds from this offering to make an offer to redeem up to 35% of the
aggregate principal amount of the senior notes outstanding at a price equal to
110.625% of the principal amount thereof plus accrued and unpaid interest
thereon and, to the extent such offer is not accepted, we may use such proceeds
to redeem up to 35% of the aggregate principal amount of the senior notes
outstanding on the same economic terms. The amount of senior notes we redeem
will be equal to the aggregate amount of net proceeds we receive in the
offering divided by 110.625%, up to a maximum of 35% of the aggregate principal
amount of such notes. Pending such use, we will invest such proceeds in short-
term, interest-bearing, investment-grade securities. See "Description of
Indebtedness--Senior Notes."

THE RECLASSIFICATION

We currently have three classes of common stock, designated as Class A
common stock, Class B common stock and Class L common stock. The Class A common
stock and Class B common stock are identical, except that the Class B common
stock is non-voting and is convertible on a share-for-share basis into Class A
common stock at any time following this offering. The Class L common stock is
identical to the Class A common stock, except that each share of Class L common
stock is entitled to a preferential payment upon any distribution by us to
holders of our capital stock, whether by dividend, liquidating distribution or
otherwise, equal to the original cost of such share ($23.331) plus an amount
which accrues on a daily basis at a rate of 12.0% per annum, compounded
annually. This preferential amount is referred to herein as the "Preference
Amount." On March 31, 1999, the Preference Amount was $28.901 per share of
Class L common stock issued at the time of the recapitalization. On August 6,
1999, the expected effective date of this offering, the Preference Amount will
be $30.056 per share of Class L common stock issued at the time of the
recapitalization.

Immediately prior to the completion of this offering, we will amend our
certificate of incorporation in order to reclassify:

. all of the outstanding shares of Class A common stock and Class B common
stock into a single class of common stock on a share-for-share basis and

. all of the outstanding shares of Class L common stock into one share of
common stock plus an additional number of shares of common stock
determined by dividing the Preference Amount by the value of a share of
common stock based on the initial public offering price.

The foregoing is referred to in this prospectus as the "Reclassification."

At March 31, 1999, assuming an initial public offering price of $11.00 per
share, the mid-point of the range set forth on the cover page of this
prospectus, and a Class L common stock Preference Amount of $28.901 per share,
an aggregate of 2,991,478 shares of common stock would have been issued in
exchange for the outstanding shares of Class L common stock in connection with
the Reclassification. Assuming an initial public offering price of $11.00 per
share and a Class L common stock Preference Amount of $30.056 per share, an
aggregate of 3,078,073 shares of common stock will be issued in exchange for
the outstanding shares of Class L common stock in connection with the
Reclassification. The actual number of shares of common stock that will be
issued as a result of the Reclassification is subject to change based on the
actual offering price and the closing date of this offering. Fractional shares
otherwise issuable as a result of the Reclassification will be rounded to the
nearest whole number. See "Description of Capital Stock."

18
<PAGE>

CAPITALIZATION

The following table sets forth the cash and cash equivalents and the
capitalization of Therma-Wave as of March 31, 1999 on an actual basis and on an
as adjusted basis to reflect: (1) the Reclassification and (2) the sale by us
of 3,300,000 shares of common stock pursuant to this offering, assuming an
offering price of $11.00 per share, the midpoint of the range set forth on the
cover page of this prospectus, and the application of the net proceeds
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with the "Selected Historical Financial Data" included elsewhere in
this prospectus.

<TABLE>
<CAPTION>
March 31, 1999
----------------------
Actual As Adjusted
--------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................... $ 20,245 $ 20,245
========= ========
Long-term obligations:
Bank Credit Facility.................................. $ -- $ --
Senior Notes (1)...................................... 115,000 86,472
Other long-term obligations........................... 2,817 2,817
--------- --------
Total long-term obligations......................... 117,817 89,289
Mandatorily redeemable convertible preferred stock (2).. 15,347 15,347
Stockholders' equity (net capital deficiency):
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued on an actual and as
adjusted basis....................................... -- --
Common stock, $0.01 par value, no shares authorized or
issued on an actual basis; 35,000,000 shares
authorized; 14,628,242 shares issued and outstanding
on an as adjusted basis.............................. -- 146
Class A common stock, $0.01 par value, 20,000,000
shares authorized; 7,422,157 shares issued and
outstanding on an actual basis and no shares
authorized, issued and outstanding on an as adjusted
basis................................................ 74 --
Class B common stock, $0.01 par value, 4,000,000
shares authorized; 914,607 shares issued and
outstanding on an actual basis and no shares
authorized, issued and outstanding on an as adjusted
basis................................................ 9 --
Class L common stock, $0.01 par value, 2,000,000
shares authorized; 824,695 shares issued and
outstanding on an actual basis and no shares
authorized, issued and outstanding on an as adjusted
basis................................................ 8 --
Additional paid-in capital............................ 19,775 52,449
Accumulated deficit (3) .............................. (105,416) (110,518)
Other................................................. (1,421) (1,421)
--------- --------
Total stockholders' equity (net capital
deficiency)........................................ (86,971) (59,344)
--------- --------
Total capitalization................................ $ 46,193 $ 45,292
========= ========
</TABLE>
- --------
(1) Assumes all net proceeds are used to redeem senior notes at a redemption
price of 110.625% of the aggregate principal amount thereof.

(2) We issued shares of preferred stock as part of the recapitalization. The
fair value of the preferred stock at March 31, 1999 of $15,347 represents
the liquidation value plus accrued dividends. Dividends on the preferred
stock accrue at a rate of 6.0% per annum. The preferred stock has a
scheduled redemption date of May 17, 2004 and is otherwise redeemable by us
at any time at our sole discretion. See "Description of Capital Stock--
Series A Mandatorily Redeemable Convertible Preferred Stock."

(3) The As Adjusted, Accumulated deficit balance at March 31, 1999 includes an
extraordinary charge of $5,102 relating to the redemption of a portion of
our senior notes (assuming a redemption premium of 110.625%) and the pro
rata portion of deferred financing costs.

19
<PAGE>

DIVIDEND POLICY

We have not in the past paid, and do not expect for the foreseeable future
to pay, dividends on our common stock. Instead, we anticipate that all of our
earnings in the foreseeable future will be used for working capital purposes
and to reduce indebtedness. The payment of dividends by us to holders of our
common stock is prohibited by our bank credit facility and is restricted by our
indenture relating to the senior notes. Any future determination to pay
dividends will be at the discretion of our board of directors and will depend
upon, among other factors, our results of operations, financial condition,
capital requirements and contractual restrictions.

DILUTION

Our pro forma net tangible book value as of March 31, 1999 was $(95.3)
million, or $(8.41) per share of common stock. Pro forma net tangible book
value (deficiency) per share is determined by dividing our tangible net capital
deficiency by the aggregate number of shares of common stock outstanding,
assuming the Reclassification had taken place on March 31, 1999. For purposes
of the foregoing, we calculated our net capital deficiency by subtracting our
intangible assets and total liabilities from our total assets. After giving
effect to the sale of the shares of common stock offered hereby, at an assumed
offering price of $11.00 per share, the midpoint of the range set forth on the
cover page of this prospectus, and the receipt and application of the net
proceeds therefrom, pro forma net tangible book value as of March 31, 1999
would have been approximately $(65.6) million, or $(4.49) per share. This
represents an immediate increase in pro forma net tangible book value of $3.92
per share to the current stockholders and an immediate dilution in pro forma
net tangible book value of $15.49 per share to purchasers of common stock in
the offering. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $11.00
Pro forma net tangible book value (deficiency) per share at
March 31, 1999.............................................. $(8.41)
Increase per share attributable to new investors............. 3.92
------
Pro forma net tangible book value deficiency per share after
this offering................................................. (4.49)
------
Net tangible book value dilution per share to new
investors (1)................................................. $15.49
======
</TABLE>
- --------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the offering price per share.

The following table summarizes, on a pro forma basis, as of March 31, 1999,
the number of shares purchased, the total consideration paid (or to be paid)
and the average price per share paid (or to be paid) by the existing
stockholders and the purchasers of common stock in the offering, at an assumed
offering price of $11.00 per share, the midpoint of the range set forth on the
cover page of this prospectus, before deducting the estimated offering expenses
and underwriting discounts and commissions:

<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration Per Share
------------------ ------------------- -------------
Number Percent Amount Percent
---------- ------- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 11,328,242 77% $19,866,000 35% $ 1.75
New investors.............. 3,300,000 23 36,300,000 65 $11.00
---------- ----- ----------- -----
Total.................... 14,628,242 100.0% $56,166,000 100.0%
========== ===== =========== =====
</TABLE>

As of March 31, 1999, there were an aggregate of: (1) 1,454,475 shares of
common stock issuable upon the exercise of outstanding options granted under
our stock plans, of which 978,658 were then exercisable, at exercise prices
ranging from $7.33 to $19.43 per share; (2) 800,000 additional shares of common
stock expected to be reserved for grants, awards or sale under the 1999 Equity
Incentive Plan or sale under the 1999 Employee Stock Purchase Plan; and (3)
612,469 shares of common stock issuable upon the conversion of our mandatorily
redeemable convertible preferred stock. In addition, we granted options to
purchase an aggregate of 497,802 shares of common stock in the first quarter of
fiscal 2000. See "Management--Stock Plans."

20
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except per share data)

The following selected historical financial data as of March 31, 1998 and
1999, and for the fiscal years ended March 31, 1997, 1998 and 1999 have been
derived from our audited consolidated financial statements and notes thereto,
which are included elsewhere in this prospectus. The selected historical
financial data as of March 31, 1995, 1996 and 1997 and for the fiscal years
ended March 31, 1995 and 1996 were derived from our audited consolidated
financial statements, which do not appear elsewhere in this prospectus. Our
fiscal year refers to the 52/53 week period ending on the Sunday on or nearest
preceding March 31 of each year for periods prior to 1997 and the Sunday on or
following March 31 of each year for periods thereafter. The selected historical
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and accompanying notes thereto included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
(1):
Net revenues.................. $55,675 $79,293 $109,493 $115,459 $ 66,207
Cost of revenues.............. 25,024 35,027 49,795 55,683 36,827
------- ------- -------- -------- --------
Gross margin.................. 30,651 44,266 59,698 59,776 29,380
Operating expenses:
Research and development..... 5,942 10,072 13,050 19,057 15,130
Selling, general and
administrative.............. 13,299 18,704 22,004 24,589 17,870
Amortization of goodwill and
purchased intangibles....... 1,912 1,912 1,275 -- --
Recapitalization and other
non-recurring expenses...... -- -- -- 4,188 --
Expenses relating to
operating cost
improvements................ -- -- -- -- 1,057
------- ------- -------- -------- --------
Total operating expenses.... 21,153 30,688 36,329 47,834 34,057
------- ------- -------- -------- --------
Operating income (loss)....... 9,498 13,578 23,369 11,942 (4,677)
Interest expense.............. 1,998 1,722 1,621 12,930 14,060
Interest income............... (102) (247) (346) (753) (651)
Other (income) expense, net... 115 138 (14) 194 (6)
------- ------- -------- -------- --------
Income (loss) before provision
for income taxes............. 7,487 11,965 22,108 (429) (18,080)
Provision (benefit) for income
taxes........................ -- 4,684 9,007 604 (2,350)
------- ------- -------- -------- --------
Net income (loss)............. $ 7,487 $ 7,281 $ 13,101 $ (1,033) $(15,730)
======= ======= ======== ======== ========
Net income (loss) attributable
to common stockholders (2)... $ 7,487 $ 7,281 $ 13,101 $ (1,771) $(16,562)
======= ======= ======== ======== ========
Net income (loss) per
share (3):
Basic........................ $ 0.30 $ 0.20 $ 0.35 $ (0.34) $ (2.28)
Diluted...................... $ 0.29 $ 0.20 $ 0.35 $ (0.34) $ (2.28)
Weighted average common shares
outstanding:
Basic........................ 24,877 37,231 37,231 11,076 7,686
Diluted...................... 25,765 37,231 37,231 11,076 7,686

Other Financial Data:
EBITDA (excluding non-
recurring charges) (5)....... $12,496 $17,185 $ 27,113 $ 19,723 $ 974
Cash provided by (used in)
operating activities......... 1,876 5,867 11,860 8,113 745
Cash used in investing
activities................... (2,048) (4,965) (1,575) (2,900) (1,389)
Cash provided by (used in)
financing activities......... 5,701 (1,541) (1,234) (1,532) 467
Capital expenditures.......... 1,616 4,361 1,091 2,900 862
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------
As
1995 1996 1997 1998 1999 Adjusted (6)
------- ------- ------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 8,329 $ 7,690 $16,741 $ 20,422 $ 20,245 $ 20,245
Working capital......... 17,240 23,740 38,720 43,348 31,394 32,564
Total assets............ 45,081 53,056 68,620 89,762 72,352 70,281
Long-term debt.......... 23,100 23,100 23,100 115,000 115,000 86,472
Mandatorily redeemable
convertible preferred
stock (2).............. -- -- -- 14,515 15,347 15,347
Stockholders' equity
(net capital
deficiency)............ (379) 6,903 20,145 (70,990) (86,971) (59,344)
</TABLE>
- --------

(1) On May 16, 1997, we effected the recapitalization. We issued $115.0 million
in aggregate principal amount of 10 5/8% senior notes in connection with
the recapitalization.

(4) The pro forma statement of operations data give pro forma effect to: (1)
the reclassification of our three classes of common stock into a single
class and (2) this offering and the application of the net proceeds
therefrom as described under "Use of Proceeds," as if each had occurred as
of the beginning of the periods presented. The unaudited pro forma
statement of operations data does not purport to represent what our results
of operations actually would have been if such transactions had actually
occurred as of the beginning of the periods presented or what such results
will be for any future periods.

(5) "EBITDA" is defined herein as income before income taxes, plus
depreciation, amortization, interest expense, interest income and other
non-operating (income) expenses, net. "EBITDA (excluding non-recurring
charges)" in the fiscal year ended March 31, 1998 and 1999 does not include
$4,188 and $1,057 in recapitalization and other non-recurring expenses,
respectively. Including such non-recurring charges, EBITDA would have been
reduced to $15,537 and $(83) for fiscal 1998 and 1999, respectively. We
believe EBITDA and EBITDA (excluding non-recurring charges) are widely
accepted financial indicators of a company's historical ability to service
and/or incur indebtedness. However, EBITDA and EBITDA (excluding non-
recurring charges) should not be considered as an alternative to net income
as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles.
Additionally, EBITDA and EBITDA (excluding non-recurring charges) as
defined herein may not be comparable to similarly titled measures reported
by other companies.

(6) Adjusted to reflect the sale of 3,300,000 shares of common stock and the
application of the net proceeds as described under "Use of Proceeds."

22
<PAGE>

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

General

We are a worldwide leader in the development, manufacture, marketing and
service of process control metrology systems for use in the manufacture of
semiconductors. Process control metrology is used to monitor process parameters
in order to enable semiconductor manufacturers to reduce feature size, increase
wafer size, increase equipment productivity and improve device performance. Our
current process control metrology systems are principally used to measure ion
implantation and thin film deposition and removal. We have developed two
product families of process control metrology systems: Therma-Probe systems and
Opti-Probe systems.

Therma-Probe Product Family. Therma-Probe systems utilize our proprietary
thermal wave technology and are the predominant non-destructive process control
metrology systems used to measure the critical ion implantation process on
product wafers in the fabrication of semiconductors.

Opti-Probe Product Family. Opti-Probe systems significantly improve upon
existing thin film metrology systems by successfully integrating different
measurement technologies and utilizing our proprietary optical technologies.

We derive our revenues from system sales, sales of replacement and spare
parts, and service contracts. During the year ended March 31, 1999, we derived
approximately 78% of our revenues from system sales, 12% from sales of
replacement and spare parts, including associated labor, and 10% from service
contracts. In fiscal 1998, we derived approximately 89% of our revenues from
system sales, 6% from sales of replacement and spare parts, including
associated labor, and 5% from service contracts. Revenue from system sales,
replacement and spare parts is generally recognized at the time of shipment.
Revenue on service contracts is deferred and recognized on a straight-line
basis over the period of the contract. During fiscal 1998 and 1999, our two
largest customers were U.S. based companies. These companies contributed to
system, replacement and spare parts, and service contract revenues.

International sales accounted for approximately 52% and 69% of our total
revenues for fiscal 1998 and 1999, respectively. We anticipate that
international sales will continue to account for a significant portion of our
revenue in the foreseeable future. A substantial portion of our international
sales are denominated in U.S. dollars. As a result, changes in the values of
foreign currencies relative to the value of the U.S. dollar can render our
products comparatively more expensive. Although we have not been negatively
impacted in the past by foreign currency changes in Japan, Korea, Taiwan and
Europe, such conditions could negatively impact our international sales in
future periods.

We were acquired by Toray and Shimadzu in fiscal 1992. As a result, we
incurred substantial interest expense and amortization expense from goodwill
and purchased intangibles in periods prior to the recapitalization. In May
1997, we effected the recapitalization. We incurred significant indebtedness in
connection with the recapitalization.

On June 22 and September 24, 1998, we announced and implemented an operating
cost improvement program aimed at bringing operating expenses in line with our
current operating environment. These efforts were in response to the continued
cutbacks in capital equipment investment by semiconductor manufacturers. As a
result of the implementation of this program, we recorded a charge of $1.1
million in fiscal 1999, which consisted principally of severance and other
related charges.

If this offering is completed with net proceeds resulting therefrom of
approximately $32.7 million, we may incur in the second quarter of fiscal 2000
a non-recurring extraordinary charge for early debt extinguishment of a maximum
of approximately $5.0 million, net of tax, relating primarily to the redemption
premium on our senior notes.

23
<PAGE>

Recent Operating Results

For the first quarter of fiscal 2000, which ended June 30, 1999, our
revenues were $21.1 million, up 14% from the prior fiscal quarter, and up 39%
compared to the same quarter a year ago. Our operating income for the same
period was $1.0 million, representing an increase of 18% from $0.8 million in
the prior fiscal quarter, and up $4.5 million from the same quarter a year ago.
These increases were the result of higher revenues as well as cost reductions
implemented last year.

24
<PAGE>

Results of Operations

The following table summarizes our historical results of operations as a
percentage of net revenues for the periods indicated. The historical financial
data for fiscal 1997, 1998 and 1999 were derived from our audited consolidated
financial statements included elsewhere in this prospectus. The information
contained in this table should be read in conjunction with "Selected Historical
Financial Data," and the Consolidated Financial Statements and accompanying
notes thereto included elsewhere in this prospectus.

<TABLE>
<CAPTION>
Fiscal Year
---------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Statement of Operations Data (1):
Net revenues............................................ 100.0% 100.0% 100.0%
Cost of revenues........................................ 45.5 48.2 55.6
----- ----- -----
Gross margin............................................ 54.5 51.8 44.4
Operating expenses:
Research and development expenses..................... 11.9 16.5 22.9
Selling, general and administrative expenses.......... 20.1 21.3 27.0
Amortization of goodwill and purchased intangibles.... 1.2 -- --
Recapitalization and other non-recurring expenses..... -- 3.6 --
Expenses relating to operating cost improvements...... -- -- 1.6
----- ----- -----
Total operating expenses............................ 33.2 41.4 51.5
----- ----- -----
Operating income (loss)................................. 21.3 10.4 (7.1)
Interest expense........................................ 1.5 11.2 21.2
Interest income......................................... (0.4) (0.6) (1.0)
Other expense, net...................................... -- 0.2 --
----- ----- -----
Income (loss) before provision for income taxes......... 20.2 (0.4) (27.3)
Provision (benefit) for income taxes.................... 8.2 0.5 (3.5)
----- ----- -----
Net income (loss)....................................... 12.0% (0.9%) (23.8%)
===== ===== =====
Other Financial Data:
EBITDA (excluding non-recurring charges) (2)............ 24.8% 17.1% (1.5%)
Cash provided by operating activities................... 10.8% 7.0% 1.1%
Cash used in investing activities....................... (1.4%) (2.5%) (2.1%)
Cash provided by (used in) financing activities......... (1.1%) (1.3%) 0.7%
Capital expenditures.................................... 1.0% 2.5% 1.3%
</TABLE>
- --------

(1) On May 16, 1997, we effected the recapitalization. We issued $115.0 million
in aggregate principal amount of 10 5/8% senior notes in connection with
the recapitalization.
(2) "EBITDA" is defined herein as income before taxes, plus depreciation,
amortization, interest expense, interest income and other (income)
expenses, net. "EBITDA (excluding non-recurring charges)" as a percent of
sales for the fiscal year ended March 31, 1998 and 1999 does not include
recapitalization and other non-recurring expenses. Including such non-
recurring charges, EBITDA as a percent of sales would have been 13.5% and
(0.1%) for fiscal 1998 and 1999, respectively.

25
<PAGE>

Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31, 1998

Net Revenues. Net revenues for the fiscal year ended March 31, 1999 and 1998
were $66.2 million and $115.5 million, respectively. Compared to the
corresponding period of fiscal 1998, net revenues decreased $49.3 million or
42.7%. The decline in revenues is attributable to the current downturn in the
global semiconductor industry due primarily to excess dynamic random access
memory ("DRAM") capacity and a slowdown in product demand as a result of lower
than expected sales of high-end personal computers and the economic conditions
in the Asia Pacific region. This slowdown has caused the semiconductor industry
to reduce or delay both purchases of semiconductor manufacturing equipment and
construction of new fabrication facilities. As a result of these industry
factors, both the Therma-Probe and Opti-Probe products experienced lower unit
sales and average selling prices attributing to a decline in system sales from
fiscal 1998 to 1999. The decline in system sales is primarily attributable to
decreased Opti-Probe sales as a result of these industry factors. Therma-Probe
sales decreased at a lesser rate as such systems sales began decreasing during
fiscal 1998 from the decrease in the number of new semiconductor manufacturing
facilities being constructed. Revenue from spare parts and service contracts
increased slightly as our customer base continued to expand and require
servicing.

Net revenues attributable to international sales for the fiscal years ended
March 31, 1998 and 1999 accounted for 52% and 69% of our total revenues for
such periods, respectively. Revenue from the U.S. decreased approximately 60%
from fiscal 1998 to 1999. This decrease was primarily caused by the slowdown in
the personal computer market and increased capital investments in European fab
facilities, thereby resulting in an increase in our European revenues. Revenue
from Asia decreased approximately 53% from fiscal 1998 to 1999 as a result of
the economic conditions in the Asia Pacific region. Our sales to customers in
Asian markets represented approximately 40% and 33% of total net revenues for
fiscal 1998 and 1999, respectively. No single customer in Asia accounted for
more than 10% of our total net revenues in fiscal 1998 or 1999.

Historically, we have experienced volatility from Asian markets. Over the
last 18 months, countries in the Asia Pacific region, including Japan, Korea
and Taiwan, have experienced weaknesses in their currency, banking and equity
markets. These weaknesses began to adversely affect our sales to semiconductor
device and capital equipment manufacturers located in these regions in the
fourth quarter of calendar 1997 and have continued to adversely affect them in
calendar 1999. Although we have recently received an increased level of orders
from customers in the Asia Pacific region, turbulence in the Asian markets
could adversely affect our sales at least through the end of calendar 1999.

Gross Margin. Gross margin decreased 50.8% from $59.8 million in fiscal 1998
to $29.4 million in fiscal 1999. As a percentage of net revenues, gross margin
decreased from 51.8% in fiscal 1998 to 44.4% in fiscal 1999. The decrease in
gross margin was primarily attributable to the decline in revenues. System
gross margins were reduced as a result of lower average selling prices and
relatively fixed manufacturing overhead costs. Replacement and spare parts and
service contract gross margins were reduced as a result of our expanded service
organization. The results of our operating cost improvement program did not
wholly offset the decline in revenues we experienced.

Research and Development ("R&D") Expenses. R&D expenses were $19.1 million
and $15.1 million for fiscal 1998 and 1999, respectively. Compared to the
corresponding period of fiscal 1998, R&D expenses decreased $4.0 million, or
20.6% for fiscal 1999. R&D expenses as a percentage of net revenues for fiscal
1999 increased to 22.9% from 16.5% for fiscal 1998. R&D expenses relating to
the new Opti-Probe 5000 series and 300 millimeter products have decreased from
prior periods as these projects near completion. Although we are currently in a
downturn, we believe that technical leadership is essential to our success and
expect to continue to commit significant resources to R&D projects. In the near
term, we expect our R&D expenses to increase in both absolute dollar terms and
as a percentage of our net revenues.

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses were
$24.6 million and $17.9 million for fiscal 1998 and 1999, respectively.
Compared to the corresponding period of fiscal 1998,

26
<PAGE>

SG&A expenses decreased $6.7 million, or 27.3%. SG&A expenses as a percentage
of net revenues increased to 27.0% in fiscal 1999 from 21.3% in fiscal 1998
primarily due to lower revenue levels. The decrease in SG&A expenses was due
primarily to the decrease in sales commissions as a result of lower revenues
and the decrease in headcount because of the operating cost improvement
program. During fiscal 1999, the decline in overall revenues exceeded the
benefits generated from the operating cost improvement program.

Recapitalization and Other Non-Recurring Expenses. Recapitalization and
other non-recurring expenses were $4.2 million, which consisted mainly of non-
cash charges related to the arrangements for our executive officers in
connection with the recapitalization.

Expenses Relating to Operating Cost Improvements. On June 22 and September
24, 1998, we announced and implemented an operating cost improvement program
aimed at bringing operating expenses in line with our current operating
environment. All terminated employees were notified at the time the program was
announced. Leased facilities in Texas, Arizona and Osaka, Japan were closed,
and fixed assets were consolidated. Total cash outlays for fiscal 1999 were
$832,000. Non-cash charges of $100,000 were primarily for asset write-offs. The
balance of $125,000 at March 31, 1999 primarily represents cash payments and
will be utilized in fiscal 2000.

Interest Expense. Interest expense for fiscal 1998 and 1999 were
$12.9 million and $14.1 million, respectively. As a percentage of net revenues,
interest expense increased from 11.2% in fiscal 1998 to 21.2% in fiscal 1999.
The increased interest expense from the prior fiscal year is attributable to
the additional debt incurred as part of the recapitalization.

Provision for Income Taxes. For fiscal 1998 and 1999, we recorded a
provision for income taxes of $0.6 million and a benefit for income taxes of
$2.4 million, respectively. Our tax benefit for fiscal 1999 reflects a tax
benefit rate of 13% based upon our loss carryback potential.

Net Loss. Net loss for fiscal 1998 and 1999 were $1.0 million and $15.7
million, respectively, for the reasons described above.

Fiscal Year Ended March 31, 1998 Compared to Fiscal Year Ended March 31, 1997

Net Revenues. Net revenues for the fiscal year ended March 31, 1998
increased by $6.0 million, or 5.4%, to $115.5 million from $109.5 million for
the fiscal year ended March 31, 1997. This is primarily attributed to higher
Opti-Probe sales and increased service revenues, partially offset by a decrease
in Therma-Probe sales. Therma-Probe sales decreased as a result of the decrease
in the number of new semiconductor manufacturing facilities being constructed.
International sales, primarily export sales from the United States to foreign
countries, accounted for approximately 52.3% and 59.7% of our total revenues
for fiscal 1998 and 1997, respectively.

Gross Margin. Gross margin for the fiscal year ended March 31, 1998
increased by $0.1 million to $59.8 million from $59.7 million for the fiscal
year ended March 31, 1997. As a percentage of net revenues, gross margin for
the fiscal year ended March 31, 1998 decreased to 51.8% from 54.5% for the
comparable period ended March 31, 1997. This decrease is primarily attributable
to increased investment in our service organization. As our customer base
expanded, our service organization grew to support a rapid increase in the
number of systems in the field in order to maintain a high level of customer
service. This directly affected replacement and spare part, and service
contract gross margins. Gross margins in product sales remained relatively
constant from year to year.

Research and Development Expenses. R&D expenses were $19.1 million and $13.1
million for the fiscal years ended March 31, 1998 and 1997, respectively.
Compared to fiscal year 1997, R&D expenses increased $6.0 million, or 46.0%.
R&D expenses as a percentage of net revenues for the fiscal year ended March
31, 1998 increased to 16.5% from 11.9% for the comparable period ended March
31, 1997. The increase in R&D expenses is due to the increased headcount and
increases in project expense related to new product development. We believe
that technical leadership is essential to our success and expect to continue to
commit significant resources to research and development projects.

27
<PAGE>

Selling, General and Administrative Expenses. SG&A expenses were $24.6
million and $22.0 million and, as a percentage of net revenues, were 21.3% and
20.1% for the fiscal years ended March 31, 1998 and 1997, respectively. The
increase is a result of increased spending in marketing and related expenses
for new products, slightly offset by a decrease in sales commissions.

Amortization of Goodwill and Purchased Intangibles. Amortization of goodwill
and purchased intangibles decreased $1.3 million from the prior year as such
intangibles related to the acquisition of Therma-Wave by Toray and Shimadzu in
December 1991 were fully amortized in fiscal year 1997.

Recapitalization and Other Non-Recurring Expenses. Recapitalization and
other non-recurring expenses for the year ended March 31, 1998 was $4.2
million. Such charges were primarily non-cash charges related to the
arrangements for our executive officers in connection with the
recapitalization.

Operating Income. Operating income for the fiscal year ended March 31, 1998
decreased by $11.5 million, or 48.9%, to $11.9 million from $23.4 million for
the fiscal year ended March 31, 1997. As a percentage of net revenues,
operating income for the fiscal year ended March 31, 1998 decreased to 10.4%
from 21.3% for the comparable period ended March 31, 1997.

Interest Expense. Interest expense for the fiscal year ended March 31, 1998
increased by $11.3 million to $12.9 million from $1.6 million for the year
ended March 31, 1997. As a percentage of net revenues, interest expense for the
fiscal year ended March 31, 1998 was 11.2% as compared to 1.5% for the year
ended March 31, 1997. The increased interest expense is attributed to the
additional debt incurred as part of the recapitalization.

Provisions for Income Taxes. Income taxes for the fiscal year ended March
31, 1998 decreased by $8.4 million, or 93.3%, to $0.6 million from $9.0 million
for the year ended March 31, 1997. The effective tax rate increased to 140.8%
from 40.7%, primarily due to the increase in the valuation allowance and other
items, offset by the benefit from our foreign sales corporation.

Net (Loss) Income. For the reasons stated above, earnings for the fiscal
year ended March 31, 1998 decreased to a net loss of $1.0 million from $13.1
million of net income for the fiscal year ended March 31, 1997.

Quarterly Results of Operations

We have experienced, and expect to continue to experience, significant
fluctuations in our quarterly results. Our expense levels are based, in part,
on expectations of future revenues. If revenue levels in a particular quarter
do not meet expectations, operating results are adversely affected. A variety
of factors could have an influence on the level of our revenues in a particular
quarter. These factors include:

. product and customer mix,
. mix of domestic and international sales,
. specific economic conditions in the semiconductor and/or semiconductor
capital equipment industries,
. the timing of the receipt of orders from major customers,
. customer cancellations or postponement of shipments,
. specific feature requests by customers,
. production delays or manufacturing inefficiencies,
. exchange rate fluctuations,
. management decisions to commence or discontinue product lines,
. our ability to design, introduce and manufacture new products on a cost
effective and timely basis,
. the introduction of new products by us or our competitors,
. the timing of research and development expenditures,
. acquisitions, strategic alliances and the future development of
marketing and service capabilities, and
. increased price competition.

28
<PAGE>

The following table sets forth our unaudited operating results for our last
eight quarters. The information for each of the quarters is unaudited but
includes all adjustments, consisting only of normal recurring adjustments,
which management considers necessary for the basic presentation thereof.

<TABLE>
<CAPTION>
Fiscal Year 1998 Fiscal Year 1999
---------------------------------- ----------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues............ $28,205 $28,286 $29,664 $29,304 $15,246 $15,196 $17,161 $18,604
Gross margin............ 14,942 15,148 15,091 14,595 6,267 6,313 8,204 8,596
Operating income
(loss)................. 2,540 2,313 3,168 3,921 (3,546) (2,586) 608 847
Net income (loss)....... 311 (671) (186) (487) (6,090) (5,010) (2,281) (2,349)

Other Financial Data:
EBITDA (excluding non-
recurring charges)
(1).................... $ 6,257 $ 4,149 $ 4,385 $ 4,932 $(1,876) $ (992) $ 1,823 $ 2,019
Cash provided by (used
in):
Operating activities... (969) 4,817 (506) 4,771 (3,533) (370) (3,752) 8,400
Investing activities... (1,939) (936) (818) 793 (250) (222) (279) (638)
Financing activities... 184 (284) 404 (1,836) (30) 69 593 (165)
</TABLE>
- --------
(1) EBITDA (excluding non-recurring charges) in the first, second and third
quarters of fiscal 1998 does not include $2,888, $1,000 and $300,
respectively, in recapitalization and other non-recurring expenses.
Including such non-recurring charges, EBITDA for such periods would have
been reduced to $3,369, $3,149 and $4,085, respectively. EBITDA (excluding
non-recurring charges) in the first and second quarters of fiscal 1999 do
not include $582 and $475, respectively, in expenses relating to operating
cost improvements. Including such non-recurring charges, EBITDA for such
periods would have been reduced to $(2,458) and $(1,467), respectively.

Backlog

At March 31, 1999, our backlog was $16.0 million compared to $36.5 million
at March 31, 1998. Our backlog consists of product orders for which a customer
purchase order has been received and accepted and which is scheduled for
shipment within six months. Orders that are scheduled for shipment beyond the
six-month window are not included in backlog until they fall within the six-
month window. Orders are subject to rescheduling or cancellation by the
customer, usually without penalty. Backlog also consists of recurring fees
payable under support contracts with our customers and orders for spare parts
and billable service. Because of possible changes in product delivery schedules
and cancellation of product orders and because our sales will sometimes reflect
orders shipped in the same quarter that they are received, our backlog at any
particular date is not necessarily indicative of actual sales for any
succeeding period.

Liquidity and Capital Resources

Our principal liquidity requirements are for working capital, consisting
primarily of accounts receivable, inventories, capital expenditures and debt
service. Since the recapitalization, we have funded our operating activities
principally from funds generated from operations.

Cash flow provided by operating activities was $11.9 million, $8.1 million
and $0.7 million for the years ended March 31, 1997, 1998 and 1999,
respectively. The decrease in cash flow provided by operating activities from
fiscal 1997 to 1999 is mainly due to the increased R&D expenses and decreased
gross margins. This decrease was partially offset by a lower investment in
working capital and by the increase in non-cash recapitalization and other non-
recurring expenses.

Purchases of property and equipment were $1.1 million, $2.9 million and $0.9
million for the years ended March 31, 1997, 1998 and 1999, respectively.
Capital expenditures for fiscal 2000 are expected to be approximately $1.2
million.

In May 1997, we issued $115.0 million in aggregate principal amount of
senior notes that, together with a $20.1 million equity contribution, was used
to finance the recapitalization. In the recapitalization, we used $26.9 million
to repay outstanding borrowings, $96.9 million to redeem a portion of our
common stock, $11.0 million to pay related fees and expenses and $0.3 million
for general working capital purposes.

29
<PAGE>

In conjunction with the recapitalization, we entered into a senior credit
facility with various lending institutions, and Bankers Trust Company, as
agent. The bank credit facility bears interest, at our option, at (1) the base
rate plus 1.75% or (2) the eurodollar rate plus 3.00%. Our borrowings under the
bank credit facility are secured by substantially all of our assets, a pledge
of all of the capital stock of any domestic subsidiaries and a pledge of 65% of
the capital stock of our first-tier foreign subsidiaries. The bank credit
facility matures on May 16, 2002.

During the quarter ended June 30, 1998, we amended the bank credit facility
to have our borrowing availability subject to a borrowing base formula, which
provides a maximum revolving credit facility of $30.0 million, and to adjust
the financial covenants requiring us to maintain minimum levels of EBITDA
during each six-month period ending on the last day of each fiscal quarter and
minimum levels of cumulative EBITDA from April 7, 1996 to the last day of each
fiscal quarter. The adjustments to the financial tests and covenants relate to
periods prior to March 31, 2000. For periods after that time, the financial
tests and covenants contained in the original agreement will apply. These
amendments were effected in light of the impact of the downturn in the
semiconductor industry on our operating results. Without these amendments to
our bank credit facility, on June 30, 1998, we would have violated the
financial test relating to the maintenance of minimum levels of EBITDA for the
six-month period ending on such date. We may borrow amounts under the amended
bank credit facility to finance our working capital requirements and other
general corporate purposes. The amended bank credit facility requires us to
meet financial tests and contains covenants customary for this type of
financing. At March 31, 1999, there was $3.5 million outstanding under a letter
of credit and $17.0 million of unused borrowing capacity under the amended bank
credit facility.

Our principal sources of funds following the offering are anticipated to be
cash on hand ($20.2 million as of March 31, 1999), cash flows from operating
activities and, if necessary, borrowings under the bank credit facility. In
addition, we received a tax refund of $8.3 million in the early part of fiscal
2000. We believe that these funds will provide us with sufficient liquidity and
capital resources for us to meet our current and future financial obligations,
as well as to provide funds for our working capital, capital expenditures and
other needs for at least the next 12 months and, assuming continued improvement
in the semiconductor industry, through the next 24 months. No assurance can be
given, however, that this will be the case. We may require additional equity or
debt financing to meet our working capital requirements or to fund our research
and development activities. There can be no assurance that additional financing
will be available when required or, if available, will be on terms satisfactory
to us.

Disclosure Relating to Market Risks

Interest Rate Risk

As of March 31, 1999, our cash included money market securities. Due to the
short duration of our investment portfolio, an immediate 10% change in interest
rates would not have a material effect on the fair market value of our
portfolio, therefore, we would not expect our operating results or cash flows
to be affected to any significant degree by the effect of a sudden change in
market interest rates on its securities portfolio.

The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates rise.
The interest rate changes affect the fair market value but do not impact
earnings or cash flows. The estimated fair value of our long-term debt at March
31, 1999 was $69.2 million. The effect of an immediate 10% change in interest
rates would not have a material impact on our future operating results or cash
flows. Fair values were determined from quoted market prices.

Foreign Currency Exchange Risk

A substantial portion of our sales are denominated in U.S. dollars and as a
result, we have relatively little exposure to foreign currency exchange risk
with respect to sales made. We do not use forward exchange contracts to hedge
exposures denominated in foreign currencies or any other derivative financial
instruments for trading or speculative purposes. The effect of an immediate 10%
change in exchange rates would not have a material impact on our future
operating results or cash flows.

30
<PAGE>

Year 2000

Many computer systems used by us and our suppliers may not properly
recognize a date using "00" as the year 2000. This could result in
system/program failure or logic errors that could disrupt normal business
activities. We have established a formal project with a project office and
project team to address this issue and achieve year 2000 readiness.

The project is focused on four key readiness areas:

. Internal Infrastructure Readiness, addressing internal hardware,
software and non-information technology systems;

. Supplier Readiness, addressing the preparedness of those suppliers
providing material incorporated into our products;

. Product Readiness, addressing product functionality; and

. Customer Readiness, addressing customer support and transactional
activity.

For each readiness area, we are systematically performing a global risk
assessment, conducting testing and remediation (renovation and implementation),
developing contingency plans to mitigate unknown risk, and communication with
employees, suppliers and customers to raise awareness of the Year 2000 problem.

Internal Infrastructure Readiness Program. We are conducting an assessment
of internal applications and computer hardware. Some software applications have
been made Year 2000 compliant, and resources have been assigned to address
other applications based on their criticality and the time required to make
them Year 2000 compliant. All software remediation is scheduled to be completed
no later than September 30, 1999. The Year 2000 compliance evaluation of
hardware, including network fabric, telecommunications equipment, workstations
and other items is nearing completion.

In addition to applications and information technology hardware, we are
testing and developing remediation plans for facilities and other operations.

Supplier Readiness Program. This program focuses on minimizing the risks
associated with suppliers in two areas: (1) a supplier's business capability to
continue providing products and services; and (2) a supplier's product
integrity. We have identified and contacted key suppliers based on their
relative risks in these two areas. To date, we have received responses from
more than 95% of our key suppliers, most of which indicate that they are in the
process of developing and implementing remediation plans. Based on our
assessment of each supplier's progress to adequately address the Year 2000
issue, we have developed a supplier action list and contingency plans. We will
revisit key suppliers during the third calendar quarter of 1999 to ensure that
supplier commitments have been met. Alternate sources are being investigated
for those few vendors that we have identified as high risk, and such
alternative sources are expected to be in place by November 1, 1999. We have
identified key components of our products and will increase our inventory level
of these items during the fourth calendar quarter of this year. We anticipate
all of these items to be usable in our products, and therefore we do not expect
such additional inventory purchases to have a material adverse effect on our
financial condition.

Product Readiness Program. This program focuses on identifying and resolving
Year 2000 issues existing in our products. The program encompasses a number of
activities including testing, evaluation, engineering and manufacturing
implementation. We have adopted the Sematech guidelines known as Year 2000
readiness testing scenarios as the baseline for our product testing. Sematech
is a consortium of integrated circuit manufacturers that provides guidelines to
equipment suppliers to the semiconductor industry. We believe that the use of
these scenarios should enable our products to meet standards that we believe
are generally accepted across the computer industry for Year 2000 readiness.
The testing, and subsequent remediation, of our products to meet the Sematech
guidelines has not had a material adverse impact on our operations. As of the
fourth calendar quarter of 1998, we believe that all of our products then in
production met the Sematech guidelines for Year 2000 readiness.

31
<PAGE>

Our customers were notified of known risks and remediation plans in the
third calendar quarter of 1998. All customer equipment that is covered by
warranty or contract will be retrofitted by the third calendar quarter of 1999.

Customer Readiness Program. This program is focused on customer support,
including the coordination of retrofit activity, and developing contingency
plans where appropriate, as well as the ability of our customers to continue to
conduct business with us. We are actively working with our customers in this
effort and anticipate completing this program in the third calendar quarter of
1999.

In addition to the above programs, we have identified "worst case" scenarios
and developed appropriate contingency plans. The most reasonably likely worst
case scenario is a breakdown of general infrastructure, such as widespread
power failures. We have investigated most of our exposure in this area and do
not consider the foregoing a high risk. However, we have prepared for short-
term public service interruptions as part of our existing disaster recovery
plan. The plan consists of utilizing emergency power supplies, employing remote
storage facilities for copies of our vital records and using off-site backup
computer systems provided by an independent service supplier. To aid our
customers, emergency response teams are being formed within our organization to
respond to any unexpected product issues that may arise as a result of our or
any third party's failure to be Year 2000 compliant. We are selecting people
for these teams who were trained in troubleshooting all aspects of our
products. We expect these teams to be formed by November 1, 1999.

We estimate that total Year 2000 incremental costs will be approximately
$200,000. Through March 31, 1999, we have spent approximately $110,000 to
address the Year 2000 issue. We are continuing our assessments and developing
alternatives that will necessitate refinement of this estimate over time. There
can be no assurance, however, that there will not be a delay in, or increased
costs associated with, the programs described in this section.

Since the programs described in this section are ongoing, all potential Year
2000 complications may not have yet been identified. Therefore, the potential
impact of these complications on our financial condition and results of
operations cannot be determined at this time. If computer systems used by us or
our suppliers, products provided to us by our suppliers, or the software
applications of hardware used in systems manufactured or sold by us, fail or
experience significant difficulties related to the Year 2000 issue, our results
of operations and financial condition could be materially adversely affected.
We could incur delays in producing and delivering products to our customers,
which could result in order cancellations and lost revenue and profits. We
believe the likelihood of losing revenue and profits from difficulties
resulting from Year 2000 issues is low.

Inflation

The impact of inflation on our business has not been material for the fiscal
years ended March 31, 1997, 1998 and 1999.

Recently Issued Accounting Pronouncements

In June 1998, the FASB issued Statement on Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). SFAS No. 133 establishes a new model for accounting for derivatives
and hedging activities and supersedes and amends a number of existing
accounting standards. SFAS No. 133 requires that all derivatives be recognized
in the balance sheet at their fair market value, and the corresponding
derivative gains or losses be either reported on the statement of operations or
as a deferred item depending on the type of hedge relationship that exists with
respect to such derivative. We currently do not hold any derivative instruments
that will be affected by the adoption of SFAS No. 133.

32
<PAGE>

BUSINESS

Market data used throughout this prospectus were obtained from internal
surveys and from industry publications, including a report generated by
Dataquest. This industry publication generally indicates that the information
contained therein has been obtained from sources believed to be reliable, but
that the accuracy and completeness of such information is not guaranteed. We
have not independently verified such market data. This publication was not
commissioned by, or prepared at the request of, us or any of our affiliates.
Similarly, internal surveys, while believed to be reliable, have not been
verified by any independent source. Our belief as to our share of both the ion
implantation market generally and the non-destructive implantation market
specifically derives from internal estimates of the size of such market and
internal records as to our sales in such market. Our belief as to our share of
the thin film measurement market is derived from industry data as to the size
of such market and internal records as to our sales in such market.

Overview

. ion implantation--implanting ions, usually boron, phosphorus or arsenic,
into selected areas of the silicon wafer to alter its electrical
properties; and

. thin film deposition and removal--depositing and removing layers of
conductive or insulating films from the silicon wafer in order to give
the semiconductor the desired performance characteristics.

Industry Background

. decreases in feature line width, for example, from .25 microns to .18
microns;

. as many as 500 process steps; and

. an increase in the number of metal layers.

Additionally, the life cycle for these devices has compressed from four years
in the early 1990s to approximately two years today. The increase in device
complexity and reduction in product life cycles have led to a more costly and
complex manufacturing process. At the same time, semiconductor manufacturers
have continued to face significant price pressure due to competitive conditions
in the industry. These factors have led semiconductor manufacturers to
intensify efforts to improve fab productivity, including the increased use of
process control metrology. Despite periodic downturns as a result of the
cyclicality of the semiconductor device industry, from 1992 to 1998, Dataquest
reports that sales of process control metrology systems and instruments have
increased at a compound annual growth rate of 20.8% to approximately $1.8
billion in 1998 and are expected to increase at a compound annual growth rate
of 22.9% to approximately $4.1 billion in 2002.

Process control metrology is used to monitor process parameters in order to
enable semiconductor manufacturers to reduce costs and improve device
performance. Historically, semiconductor manufacturers have achieved an
approximate 25% to 30% annual reduction in cost per chip function through
productivity

33
<PAGE>

improvements including reduced feature size, increased wafer size and increased
equipment productivity. Although increasing wafer size and yields will continue
to be sources of productivity gains by semiconductor manufacturers,
increasingly, we believe, gains will come from reduced feature size and non-
yield manufacturing productivity enhancements, including increased equipment
uptime, reduced manufacturing space requirements, reduced use of wafers for
testing purposes and lower tool maintenance costs. According to Sematech, a
consortium of integrated circuit manufacturers that provides research, analysis
and guidelines to equipment suppliers to the semiconductor industry, as
summarized in the following table, the greatest potential for future
productivity gains are expected to come primarily from gains in equipment
productivity and continuing reduction of feature sizes:

Key Drivers of Fab Productivity*

<TABLE>
<CAPTION>
Factor 1980 Present Future
------ ------ ------- -------
<S> <C> <C> <C>
Reduced feature sizes............................... 12% 12-14% 12-14%

Increased wafer sizes............................... 8% 4% <2%

Improved yields..................................... 5% 2% <1%

Other gains in equipment productivity............... 3% 7-10% >10-13%
</TABLE>

--------
* Percentages reflect the annual reduction in the cost per chip
function.
Source: Sematech

To continue to improve fab productivity, semiconductor manufacturers must
increase equipment and overall fab productivity. The following diagram sets
forth the principal areas on which we will focus to enhance semiconductor
manufacturer productivity. Those items in bold correspond to our existing Fab
Productivity Enhancement(TM) solutions. We believe planned new additions to our
Fab Productivity Enhancement(TM) solutions (italics) will significantly enhance
the productivity gains provided by our existing Fab Productivity
Enhancement(TM) solutions (bold) and, in addition, will provide new areas of
productivity gains for semiconductor manufacturers.

[GRAPHIC APPEARS HERE]

34
<PAGE>

The Therma-Wave Solution

We are a worldwide leader in the development, manufacture, marketing and
service of process control metrology systems used in the manufacture of
semiconductors. Our patented solutions help enable semiconductor manufacturers
to reduce feature size, increase wafer size, increase equipment productivity,
obtain higher throughput and improve device performance by providing non-
contact, non-destructive, enabling technologies extendable over multiple
process generations. We believe that our technological capabilities, proven
track record in process control metrology systems and our Fab Productivity
Enhancement(TM) initiatives will allow us to continue to provide industry-
leading fab productivity solutions for semiconductor manufacturers.

Current Industry Leading Metrology Solutions

We have successfully developed Fab Productivity Enhancement(TM) metrology
solutions for two critical and pervasive process steps in semiconductor
manufacturing: ion implantation and thin film deposition and removal.

Ion Implant Metrology

A key process step in the fabrication of semiconductor devices is the
implantation of ions, usually boron, phosphorous or arsenic, into selective
areas of the silicon wafer to alter its electrical properties. Control of the
accuracy and uniformity of the ion implant dose is critical to device
performance and yield. Ion implantation is generally performed several times
during the early phases of the fabrication cycle. As a result, there is
typically a time lag of several weeks between these implant steps and the first
electrical measurements that indicate whether the ion implantation process was
properly executed. Failure to identify improper ion implantation can be
extremely costly to a semiconductor manufacturer if the fabrication cycle is
permitted to continue. To test on a more timely basis whether the ion
implantation was properly executed, semiconductor manufacturers historically
used a four-point probe to perform test wafer monitoring (i.e., testing a non-
production blank wafer that has no devices on it), which measured electrical
resistance and required physical contact between the probe and the silicon
wafer surface. As a result of the high probability of contamination of the
silicon wafer from contact with the probe, this procedure was only used on a
limited number of test wafers. As compared to test wafer monitoring, product
wafer monitoring using our Therma-Probe systems decreases manufacturing costs
by reducing the need for test wafers and pilot runs and shortening the cycle
time between the implant and monitoring steps. In addition, our systems detect
implant processing problems inherent in product wafers that are often missed
when utilizing test wafer monitoring alone.

Therma-Probe Product Family. Therma-Probe systems are the predominant non-
destructive process control metrology system used to measure the critical ion
implantation process in the fabrication of semiconductors. The Therma-Probe
systems employ proprietary thermal wave technology which uses highly focused
but low power laser beams to generate and detect thermal wave signals in the
silicon wafer. Proprietary software correlates the signals to the ion implant
dose. Unlike previous ion implant metrology systems, the Therma-Probe systems
utilize a totally non-contact, non-damaging technology and thus can be used to
monitor product wafers immediately after the ion implantation process. These
features have been integrated into an easy-to-use and reliable package with
automated wafer handling and statistical data processing. Since their
introduction, we believe the Therma-Probe systems have captured over 50% of the
market for ion implant measurement in general and over 95% of the market for
non-destructive ion implantation measurement of product wafers.

Thin Film Measurement

The majority of the 100 to 500 process steps required to fabricate
semiconductors on a silicon wafer involve the deposition and removal of a
variety of insulating and conducting thin films. Thin film metrology measures
the thickness and material properties of these thin films and, because it is
used to measure a large number of process steps, is one of the most important
metrology systems utilized at semiconductor fabrication facilities. The most
widely used technologies to measure the thickness and properties of thin films
have

35
<PAGE>

historically been reflection spectrometry and ellipsometry. Reflection
spectrometers obtain an optical spectrum as a function of wavelength for light
reflected from the surface of a wafer. This spectrum is then analyzed with
appropriate algorithms to obtain film thickness and, in some cases, other
properties of the film. In ellipsometry, the change of polarization of the
reflected light is measured. The polarization change is analyzed with
appropriate algorithms to obtain film thickness, and, in some cases, other
properties of the film.

Increasingly, these systems have been unable to meet the process control
metrology demands of the semiconductor industry. For example, the industry is
rapidly moving toward measuring product wafers rather than test wafers, both
because of the inability to adequately control the manufacturing process using
test wafers alone, and the costs associated with the processing of non-
productive test wafers. Measurements on product wafers, however, must be
performed in small areas, and both spectrometers and ellipsometers generally
require fairly large measurement areas. Additionally, increasing demands for
improved precision and repeatability require the ability to measure thicknesses
that range from extremely thin films, which generally measure below 20
angstroms, to films that are hundreds of thousands times thicker. An angstrom
is equal to one hundred millionth of a centimeter. Reflection spectrometers are
most suitable for measuring thicker films, whereas ellipsometers are most
suitable for measuring very thin films. Thus, neither system alone is capable
of accurate and reliable measurements over the full range of film thicknesses.
Further, the industry is now using film stacks composed of several layers of
different films and many films whose optical properties are functions of the
actual deposition conditions. Generally, spectrometers and ellipsometers alone
generate insufficient data to simultaneously determine the thicknesses and
properties of these film stacks and new films with the precision that
semiconductor manufacturers require. Reflection spectrometers and most
ellipsometers have very limited capabilities for such simultaneous measurements
of both thickness and optical parameters.

Opti-Probe Product Family. Opti-Probe systems significantly improve upon
existing thin film metrology systems by successfully integrating up to five
distinct film measurement technologies, three of which are patented by Therma-
Wave. By combining the measured data from these multiple technologies and
correlating it by using our proprietary software, Opti-Probe systems provide
increased measurement capability leading to higher yields, less misprocessing,
less rework, faster production ramp-up and increased productivity on both test
and product wafers. These techniques of combining optical measurement
technologies and correlating the results have also been patented by Therma-
Wave. We believe Opti-Probe systems have captured approximately 33% of the thin
film measurement market.

New Initiatives to Further Fab Productivity Enhancement(TM)

We believe our process control metrology tools have already significantly
improved fab productivity. We believe our technological capabilities will
enable semiconductor manufacturers to address a broader range of issues that
impact fab productivity. We expect new product developments to come from
combining separate metrology systems into one tool, implementing in-situ
systems to improve the direct control of process equipment and to provide real-
time measurement of product wafers, and networking these systems together.

In light of the industry's drive to reduce costs and improve productivity,
we believe combination products will be of considerable benefit to
semiconductor manufacturers. We believe that combination metrology tools will
significantly reduce capital expenditure requirements, floorplan footprint,
wafer handling and tool maintenance costs while improving equipment
reliability. Additionally, semiconductor manufacturers use in-situ systems to
provide real-time measurement of product wafers and monitoring of process
equipment. Although this market is in its infancy, the industry's need to
improve process tool productivity through reduced set up time, reduced cycle
time, increased uptime and higher equipment utilization is expected to bring
rapid growth to this industry sector. We believe we can leverage our core
competencies of strong intellectual property and technological expertise to
develop a wide range of in-situ systems. In addition, by linking together our
metrology tools, both stand-alone and combination, and in-situ monitoring
systems, we believe we can offer a significant competitive advantage by
allowing manufacturers to address overall fab productivity in addition to the
productivity of individual tools.

36
<PAGE>

We are also developing the Meta-Probe system, which is a thin film metrology
system specifically designed to measure the thickness and material properties
of opaque and metallic thin films. These materials are increasingly being used
by semiconductor manufacturers as the industry moves to 0.25 micron and 0.18
micron feature sizes with an increase in the number and complexity of the metal
layers. In addition, the accelerated drive towards the use of copper rather
than aluminum layers produces a need for better metal metrology products. We
believe that existing metal film metrology systems are unable to perform the
required measurements with the required precision and repeatability.

Competitive Strengths

. Technologically Advanced Capabilities and Products. We have focused
heavily on the development and protection of our proprietary technology
and currently hold 51 U.S. and foreign patents. In addition, we have
filed applications for 22 additional U.S. and foreign patents. We
believe we have superior technical resources, including a staff of 46
Ph.Ds, which represents over 13% of our employees. We believe that our
expertise in engineering, research and development enables us to offer
process control metrology systems with more advanced technical
capabilities and features than those offered by our competitors. Our
systems provide superior measurement capabilities, including resolution,
accuracy, repeatability and reliability. The Therma-Probe product family
employs a patented optically-based thermal wave technology to provide
the industry's only non-contact, non-contaminating ion implant
measurement capability on product wafers. We believe a combination of
measurement technologies is critical to perform advanced thin film
metrology. We are a pioneer in providing products that possess
combination film measurement technologies. We believe we will continue
to be the industry leader as the need for combinations of technologies
grows. Our Opti-Probe systems combine up to five distinct measurement
technologies, three of which we have patented. Additionally, we hold
patents on the use of many of the combinations of these thin film
measurement technologies.

. Leading Market Share. We are one of the world's leading manufacturers of
process control metrology equipment and systems. We believe we are the
largest provider of non-destructive ion implant process control
metrology systems worldwide with over 95% of the market. Our Therma-
Probe systems have become the industry standard for ion implant process
control metrology and are installed in virtually every major
semiconductor fabrication facility. We are also a leading supplier of
thin film measurement metrology systems worldwide. We believe that our
Opti-Probe systems have captured approximately 33% of the market as a
result of technological superiority and lower cost of ownership to our
customers.

. Strong and Diverse Customer Base. We market and sell our products
worldwide to virtually all of the major semiconductor manufacturers,
including: Advanced Micro Devices, Inc., Chartered Semiconductor, Ltd.,
Intel Corporation, Lucent Technologies, Samsung America, Inc., Siemens
AG, STMicroelectronics N.V., Toshiba Corporation and the UMC Group. We
believe our top customers are among the fastest growing manufacturers in
the semiconductor industry. In addition, we have a diverse customer base
in terms of both geographic location and the types of semiconductor
devices manufactured. In the aggregate, we serve more than 70 customers
located in 14 different countries.

. Worldwide Distribution and Strong Customer Support Capabilities. We have
expended considerable resources to create a high-quality worldwide
distribution network with highly trained sales and support personnel.
International sales represented approximately 52%, and 69% of our net
revenues in fiscal 1998 and 1999, respectively. We provide our customers
with comprehensive support before, during and after delivery of our
systems. Our engineers have extensive experience and provide valuable
assistance to our customers, thereby strengthening our relationships
with them. We anticipate we will continue to strengthen and expand our
distribution and customer support organizations worldwide, particularly
in Asia.

. Experienced and Successful Management Team. We are led by an experienced
senior management team whose members average more than 10 years in the
semiconductor capital equipment

37
<PAGE>

manufacturing industry. Dr. Allan Rosencwaig has over 17 years of
experience in the industry. Our senior management team currently owns
approximately 21% of the outstanding common stock and holds options to
acquire an additional 12% of such common stock. Such equity ownership
represents a significant economic commitment to and participation in our
continued success.

Business and Growth Strategy

Our objective is to be a leader in providing Fab Productivity
Enhancement(TM) solutions to semiconductor manufacturers. Our business and
growth strategy includes the following key initiatives:

. Focus on Fab Productivity Enhancement(TM). We plan to continue to
develop products which enable semiconductor manufacturers to reduce
feature size, increase wafer size and increase equipment productivity.
Although increasing wafer size and yields will continue to be sources of
fab productivity gains by semiconductor manufacturers, increasingly, we
believe, gains will come from reduced feature size and non-yield related
equipment productivity enhancements, including increased equipment
uptime, reduced fab floor footprint requirements, reduced use of test
wafers and lower tool maintenance costs. We believe our technological
capabilities will enable semiconductor manufacturers to address a
broader range of issues that impact fab productivity. We expect our new
product development efforts to include combining separate metrology
systems into one tool, implementing in-situ systems to improve the
direct control of process equipment and provide real-time measurement of
product wafers, and networking these systems together.

. Continue to Focus on Technological Innovation. We intend to continue to
emphasize engineering and research and development in our effort to
anticipate and address technological advances in semiconductor
manufacturing. We currently have a staff of 46 Ph.Ds, which represents
more than 13% of our employees. Our current product development efforts
include combining separate metrology systems into one tool, implementing
in-situ systems and networking all of these systems together.
Additionally, we are developing Meta-Probe, a thin film metrology system
specifically designed to measure the thickness and material properties
of opaque and metallic films. The Meta-Probe system, as a non-contact,
non-destructive metrology system, will reduce the quantity of test
wafers, thereby decreasing the costs of the semiconductor manufacturing
process. We believe that continued product innovation and investment in
research and development will help us strengthen our leadership
position.

. Maintain and Leverage Strong Customer Relationships. We expect to
continue to strengthen our existing customer relationships and foster
working partnerships by providing technologically superior systems and
high levels of customer support. We believe we are the dominant supplier
of ion implant metrology systems to virtually all major semiconductor
manufacturers and have become the primary supplier of thin film
metrology systems to many of our customers. Furthermore, we intend to
continue to capitalize on our strong customer relationships, which have
enabled us to develop new products and applications through close
collaboration with customers. Such collaboration has often resulted in
products and applications which have a broader market appeal.

. Leverage Existing Infrastructure. To support our worldwide growth, we
have expended considerable resources in establishing our infrastructure,
including a worldwide customer support organization and a state-of-the-
art manufacturing facility. We believe we have the opportunity to
improve our operating margins by leveraging our existing infrastructure
through increased sales.

Products and Technology

Our Fab Productivity Enhancement(TM) solutions currently consist of two
major product families of in-line process control metrology systems. Our
Therma-Probe product family was introduced in 1985 as our initial product
line, and our Opti-Probe product family was introduced in 1992. Both product
families feature our proprietary and patented measurement technologies and
offer robotic wafer handling, advanced vision

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<PAGE>

processing, sophisticated but user-friendly software and high throughput and
reliability. The modular design of the hardware and software enables continuous
product enhancement as new advances are made.

Therma-Probe Product Family

Our Therma-Probe systems are the predominant non-contact, non-contaminating
ion implant metrology systems capable of measuring ion implant dose and its
uniformity across the wafer with a high degree of precision and repeatability.
In addition, Therma-Probe systems have unparalleled sensitivity for the most
critical implants. By the end of March 1999, 389 Therma-Probe systems had been
installed in virtually every major semiconductor fab worldwide. A typical
semiconductor fab uses Therma-Probe systems to monitor and control critical ion
implant steps. In addition, all major manufacturers of ion implant equipment
utilize Therma-Probe systems to help develop and qualify their ion implanters.
We believe Therma-Probe systems have captured over 50% of the market for ion
implant measurement in general and over 95% of the market for non-destructive
measurement of ion implantation of product wafers. The selling prices for
Therma-Probe systems typically range from approximately $650,000 to $900,000.
The Therma-Probe product family accounted for approximately 20% of our revenues
for the three-year period ended March 31, 1999.

We believe that our Therma-Probe systems offer technological advantages and
features that distinguish them from the ion implant metrology systems offered
by our competitors:

Proprietary Technology. To provide non-contact, non-contaminating ion
implant measurements on product wafers, our Therma-Probe systems employ
proprietary thermal wave technology, which uses highly focused but low power
laser beams to generate and detect thermal wave signals in the silicon wafer
that can be correlated to the ion implant dose. The thermal wave technology
used to measure the ion implant dose in the silicon wafer is a highly
proprietary and extensively patented technology of ours. We believe that these
patents help to maintain our competitive position.

Ease of Use and Reliability. We believe we have integrated our thermal wave
technology into easy-to-use and reliable process control metrology systems.
These systems are configured specifically for use by semiconductor device
manufacturers and feature automated wafer handling, automated data collection,
statistical data processing and data management.

Installed Base. Virtually all major semiconductor manufacturers use Therma-
Probe systems to monitor and control their ion implant processes. In addition,
virtually all major manufacturers of ion implant equipment utilize Therma-Probe
systems to help develop and qualify their implanters. Additionally, our
engineers have extensive experience in addressing many different types of ion
implant applications and provide valuable assistance to our customers, thereby
strengthening our relationships with them. We believe our significant installed
base of Therma-Probe systems acts as a barrier to entry for current and
potential competitors in the ion implant measurement market.

Continuous Improvement. We continue to develop, manufacture and market new
and improved Therma-Probe systems to enhance system capability and to lower the
cost of ownership to the customer. For example, we recently introduced the TP-
630, which possesses state of the art ion implant measurement technology for
wafer sizes up to 300 millimeters.

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<PAGE>

The following table summarizes our improvements to the Therma-Probe product
family:

<TABLE>
<CAPTION>
Year
System Introduced Description of Innovation/Advancement
------ ---------- -------------------------------------
<C> <C> <S>
TP-200 1985 Introduced first non-destructive process control metrology system
to measure ion implantation.
TP-300 1987 Added cassette-to-cassette wafer handling and automation software
to the capability of the TP-200.
TP-400 1992 Significantly improved repeatability and added second cassette
station for tool calibration.
TP-500 1996 Built on the same platform as the OP-2600, added pattern
recognition and improved
reliability and throughput.
TP-630 1998 Expanded wafer measurement capability to 300 millimeters.
</TABLE>

Opti-Probe Product Family

Our Opti-Probe systems were developed to address the limitations of
conventional thin film metrology systems. Opti-Probe systems combine the thin
film metrology capabilities of spectrometers, reflectometers and ellipsometers
into a single integrated system. We believe a combination of measurement
technologies is critical to perform advanced thin film processes. We are a
pioneer in providing products that possess combination film measurement
technologies. We believe we will continue to be the industry leader as the need
for combinations of technologies grows. By March 31, 1999, 642 Opti-Probe
systems have been installed in major semiconductor fabrication facilities
worldwide. By March 31, 1999, we believe Opti-Probe systems had captured
approximately 33% of the thin film measurement market. The selling prices for
Opti-Probe systems typically range from approximately $450,000 to $900,000. The
Opti-Probe product family accounted for approximately 67% of our revenues for
the three-year period ended March 31, 1999.

We believe our Opti-Probe systems offer technological advantages and
features that distinguish them from thin film metrology systems offered by our
competitors:

Proprietary Technology. Conventional spectrometers and ellipsometers are
unable to meet the current and future requirements of semiconductor fabrication
facilities. These requirements include the ability to measure in very small
areas on product wafers, high precision and repeatability for very thin as well
as thick films, and the ability to simultaneously determine thickness and
optical parameters on one or more films. Our Opti-Probe systems combine up to
five distinct measurement technologies, three of which we have patented.
Additionally, we hold patents on the use of many of the combinations of these
thin film measurement technologies. Because of the wealth of data that can be
obtained from these combined optical technologies, it is possible to determine
the thickness and optical parameters of one or more films simultaneously. In
addition, since our proprietary technologies employ a highly focused laser
beam, Opti-Probe systems can perform measurements with a spot size that is the
smallest in the industry. Although our competitors have now introduced systems
that contain both spectrometers and ellipsometers in one tool, we have patented
the technique of combining the measurement data from these technologies. We
believe our patented technologies, and the patented combinations thereof,
result in a superior product.

Ease of Use and Reliability. We believe our Opti-Probe systems are regarded
as easy-to-use and highly reliable. These systems are configured specifically
for semiconductor device manufacturers and feature automated wafer handling,
advanced image processing, automated data collection, statistical data
processing and data management.

Proprietary Software. We believe our proprietary software incorporated into
Opti-Probe systems is superior to that of the competition. During the
fabrication of semiconductors, many different films and film stacks, consisting
of several layers of different films, are deposited and selectively removed
from the silicon wafer. This, in turn, means that hundreds of film measurement
data analysis algorithms, or recipes, must be developed and stored in the
computer of a thin film metrology system. Thus, the full benefit of a thin film

40
<PAGE>

metrology system to the customer is a result of a combination of superior
measurement capability and superior recipe development. We have a staff of over
fifty experienced applications scientists and engineers stationed worldwide
near all major customers that provides full applications support to develop new
recipes as device manufacturing processes change.

Continuous Improvement. While we have achieved rapid market share growth in
the thin film metrology market with our current Opti-Probe systems, we continue
to develop, manufacture and market new and improved systems. We believe we
provide the semiconductor industry with thin film metrology systems that
operate with greater reliability in the deep ultra-violet region of the optical
spectrum. This is of paramount importance since device manufacturers are now
developing patterning technology utilizing optical radiation in this ultra-
violet region.

In 1998, we introduced the Opti-Probe 5000 series, which integrates up to
two additional measurement technologies into the Opti-Probe product family. As
a result, the Opti-Probe 5000 series has up to five independent, yet fully
integrated measurement technologies. We believe current competitive products
include no more than two independent measurement technologies. The two
additional technologies that have been integrated into the 5000 series are
spectroscopic ellipsometry and absolute laser ellipsometry, each of which has
expanded the Opti-Probe's measurement capabilities and improved measurement
integrity.

Spectroscopic ellipsometry has long been recognized as a powerful thin film
characterization technology. However, we believe that spectroscopic
ellipsometry, by itself, still suffers from slow measurement time and poor
measurement integrity. The poor measurement integrity arises from high
sensitivity to small process changes due to the difficulties in measuring
thickness and material parameters simultaneously with only wavelength dependent
technologies. The Opti-Probe 5000 series has been designed to overcome these
limitations by integrating spectroscopic ellipsometry with up to four other
independent measurement technologies to accelerate the ability to determine the
correct thin film solution. Furthermore, by integrating spectroscopic
ellipsometry, a wavelength dependent measurement, with our proprietary beam
profile reflectometry, or BPR(TM), an angle dependent measurement, we believe
the Opti-Probe 5000 series will overcome the excessive sensitivity to small
process changes.

The addition of absolute laser ellipsometry, or AE(TM), to Opti-Probe
systems enable stable, reference-free absolute measurements on ultra-thin films
with high precision and repeatability. Integrating absolute laser ellipsometry
with our proprietary beam profile ellipsometry, or BPE(TM), provides fast,
precise and small spot size film measurements. We believe the successful market
transition to the Opti-Probe 5000 series will further strengthen our
technological capabilities in the thin film measurement market. We sold our
first Opti-Probe 5000 series system in April 1998 and, as of March 31, 1999,
have sold 18 Opti-Probe 5000 series systems.

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<PAGE>

The following table summarizes our improvements to the Opti-Probe product
family:

<TABLE>
<CAPTION>
Year
System Introduced Description of Innovation/Advancement
------ ---------- -------------------------------------
<C> <C> <S>
OP-1000 1992 Introduced a new patented optical technology, BPR(TM), to measure thin film
deposition and removal.

OP-2000 1993 Integrated BPR(TM) with a new patented optical technology, BPE(TM), to enhance
measurement capabilities.

OP-2600 1994 Integrated BPR(TM), BPE(TM) and Spectrometry to further enhance
measurement capabilities.

OP-2600 DUV 1996 Integrated deep ultra-violet reflectance with the existing system to expand
measurement range.

OP-3260 1996 Increased throughput of Opti-Probe.

OP-3260 DUV 1996 Integrated OP-3260 system with deep ultra-violet reflectance.

OP-5200 Series 1998 Integrated up to five measurement technologies (BPR(TM), BPE(TM) and
deep ultra-violet reflectance with Spectroscopic Ellipsometry and AE(TM)).

OP-5300 Series 1998 Expanded OP-5200 series wafer measurement capability to 300 millimeters.
</TABLE>

New Product Initiatives

We are currently pursuing several new Fab Productivity Enhancement(TM)
product initiatives. We are combining separate metrology systems into one tool.
In addition, we are developing in-situ systems to improve the direct control of
process equipment. Semiconductor manufacturers use in-situ metrology systems in
their process equipment to improve the direct control of process equipment and
to provide real-time measurement of product wafers. Although this market is in
its infancy, the industry's need to improve process tool productivity through
increased uptime and higher equipment utilization is expected to bring rapid
growth to this industry sector. We are also developing solutions to network
these systems. Additionally, we are developing the Meta-Probe system, a thin
film metrology system specifically designed to measure the thickness and
material properties of opaque and metallic films. These materials are
increasingly being used by semiconductor manufacturers as the industry moves to
0.25 micron and 0.18 micron feature sizes with an increase in the number and
complexity of the metal layers. In addition, the accelerated drive towards the
use of copper rather than aluminum layers produces a need for better metal
metrology products. The Meta-Probe system, as a non-contact, non-destructive
metrology system, will reduce the quantity of test wafers thereby decreasing
the cost of the semiconductor manufacturing process. Most existing metal film
metrology systems cannot perform tests on product wafers, and thus, we believe,
our Meta-Probe system will be even more cost effective for the next generation
300 millimeter wafer size.

Customers

Therma-Wave sells its products to leading semiconductor and semiconductor
equipment manufacturers throughout the world. Our top customers are listed
below:

<TABLE>
<S> <C>
Advanced Micro Devices, Inc. (AMD) Siemens AG
Chartered Semiconductor Ltd. STMicroelectronics N.V.
Intel Corporation Taiwan Semiconductor Manufacturing Corp. (TSMC)
Lucent Technologies Toshiba Corporation
Samsung America, Inc. UMC Group
</TABLE>

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<PAGE>

Sales to Intel and AMD represented approximately 23% and 18% of our net
revenues for fiscal 1999. Sales to Intel represented approximately 23% of our
net revenues for fiscal 1998. Sales to Samsung and Intel represented
approximately 10% and 13%, respectively, for fiscal 1997. Our top five
customers accounted for approximately 41%, 45% and 53% of our net revenues in
fiscal 1997, 1998 and 1999.

Sales and Marketing

We maintain sales offices and regional sales representatives throughout the
world. In the United States, we maintain sales offices in California, Florida
and Texas. We also utilize manufacturers' sales representatives to cover those
regions of the United States with too few customers to support a direct sales
effort. In Asia, we maintain sales offices in Japan, Korea, Singapore and
Taiwan. The Japan, Singapore and Taiwan offices work with manufacturers' sales
representatives to sell our products to customers in Japan and Taiwan, while
the Korean office sells to customers directly. We also work with manufacturers'
sales representatives in Singapore, Malaysia, Thailand and China. In Europe, we
maintain a sales office in the United Kingdom and work with manufacturers'
sales representatives throughout the rest of Europe.

In addition, we provide direct customer support in most parts of the world.
In some locations, field service is still provided by the same manufacturers'
sales representative that handles the sales function, but applications support
is provided by our employees in that territory. In the United States, we have
field service and applications engineers located in Arizona, California,
Florida, Massachusetts, New Mexico, Oregon and Texas. Customers, such as Intel,
contract dedicated site-specific field service and applications engineers. In
Asia, we provide customer support in Japan, Taiwan, Korea and Singapore. In
Europe, we maintain a customer support office in the United Kingdom to support
customers there and to assist the field service engineers of our European
manufacturers, sales representatives in the rest of Europe. Applications
personnel supporting continental Europe are located in France, Germany and
Italy.

We provide our customers with comprehensive support before, during and after
delivery of our systems. Prior to shipment, our support personnel typically
assist the customer in site preparation and inspection and typically provide
customers with training at our facilities or at the customer's location. Our
customer training programs include instructions in the maintenance of our
systems and in system hardware and software tools for optimizing the
performance of our systems. Our field support personnel work with the
customers' employees to install the system and demonstrate system readiness. In
addition, we maintain a group of highly skilled applications scientists to
respond to customers' process needs worldwide when a higher level of technical
expertise is required. Our support services accounted for approximately 13% of
our revenues for the three-year period ended March 31, 1999.

We generally warrant our products for a period of up to 12 months from
system acceptance. Installation and initial training are customarily included
in the price of the system. After the warranty period, customers may enter into
support agreements covering both field service and field applications support.
Our field service engineers may also provide customers with repair and
maintenance services on a fee basis. Our applications engineers and scientists
are also available to work with the customers on recipe development.
Additionally, for a fee, we train customers to perform routine maintenance on
their purchased systems. We also provide a 24-hour telephone help-line.

See Note 11 to Notes to Consolidated Financial Statements for a summary of
our operations in the United States, Japan and other foreign geographic areas.

Research and Development and Engineering

The process control metrology market is characterized by continuous
technological development and product innovations. We believe that continued
and timely development of new products and enhancements to existing products is
necessary to maintain our competitive position. Accordingly, we devote a
significant portion of our personnel and financial resources to engineering and
research and development programs. As of March 31, 1999, our research,
development and engineering staff was comprised of 69 persons. We seek to
maintain our close relationships with customers to make improvements in our
products which respond to

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<PAGE>

customers' needs. For example, several of the improvements relating to the
Opti-Probe product family were developed in cooperation with some of our major
customers to address the need for more capable thin film measurement systems.

Software development accounts for a significant portion of our research and
development efforts. We are currently transitioning all of our software
applications from DOS to the Microsoft NT operating system in order to better
serve our customers.

Our ongoing engineering and research and development efforts can be
classified into three categories: new products; feature enhancements, such as
features to improve precision, speed and automation; and customer-driven
product enhancements, such as new measurement recipes or algorithms. We have
research and development and engineering staffs which work both on developing
new products and features and on responding to the particular needs of
customers.

Engineering and research and development expenses were $15.1 million in
fiscal 1999, $19.1 million in fiscal 1998, and $13.1 million in fiscal 1997, or
23%, 17%, and 12% of net revenues for those periods, respectively. We expect
engineering and research and development expenditures will continue to
represent a substantial percentage of our revenues for the foreseeable future.

Manufacturing

Our manufacturing strategy is to produce high quality, cost effective
assemblies and systems. We currently perform the majority of our system
assembly activities in-house. In order to lower production costs in the future,
we intend to perform only those manufacturing activities that add significant
value or that require unique technology or specialized knowledge. As a result,
we expect to rely increasingly on subcontractors and turnkey suppliers to
fabricate components, build assemblies and perform other activities in a cost
effective manner.

Our principal manufacturing activities include assembly and test work, both
of which are conducted at our facility in Fremont, California. Assembly
activities include inspection, subassembly and final assembly. Test activities
include modular testing, system integration and final test. Components and
subassemblies, such as lasers, robots and stages, are acquired from third party
vendors and integrated into our finished systems. These components and
subassemblies are obtained from a limited group of suppliers, and occasionally
from a single source supplier. While we use standard components and
subassemblies wherever possible, most mechanical parts, metal fabrications and
critical components are engineered and manufactured to our specifications. We
have not entered into any formal agreements with such limited source suppliers,
other than long-term purchase orders and, in some cases, volume pricing
agreements. Those parts coming from a limited group of suppliers are monitored
by management to ensure that adequate supplies are available to maintain
manufacturing schedules and to reduce our dependence on these suppliers should
supply lines become interrupted. The partial or complete loss of such suppliers
could increase our manufacturing costs or delay product shipments while we
qualify new suppliers. Additionally, any such loss could require us to redesign
products, thereby having a material adverse effect on our business or customer
relationships. Furthermore, a significant increase in the price of one or more
of these components could adversely affect our financial condition or results
of operations.

We schedule production based upon firm customer commitments and anticipated
orders. We have structured our production process and facility to be driven by
both orders and forecasts and have adopted a modular system architecture to
increase assembly efficiency and test flexibility. Cycle times for our products
are currently two to four months. We believe these cycle times will improve as
we continue to emphasize manufacturability in our new product designs.

We conduct the assembly of some optical components and final testing of our
systems in clean-room environments. This procedure is intended to (1) reduce
the amount of particulates and other contaminants in the final assembled
system; and (2) test our products against our customers' acceptance criteria
prior to shipment. Following the final test, the completed system is packaged
within triple vacuum sealed bags to maintain a high level of cleanliness during
shipment and installation. As part of our ongoing quality program, all systems
are monitored during the installation process.

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<PAGE>

Competition

The market for semiconductor capital equipment is highly competitive. We
face substantial competition from established companies in each of the markets
that we serve. Some of our competitors have greater financial, engineering,
manufacturing and marketing resources and broader product offerings than
Therma-Wave. Significant competitive factors in the market for metrology
systems include system performance, ease of use, reliability, cost of ownership
to the customer, technical support and customer relationships. We believe we
compete favorably on the basis of these factors in each of our served markets.
We compete with both larger and smaller United States and Japanese companies in
the markets we serve. European companies are generally not significant
competitors in markets we serve.

Our Therma-Probe systems compete primarily with other metrology systems
designed to measure ion implant dose, such as contact and destructive four-
point probe measurement systems, including those manufactured by KLA-Tencor
Corporation, Kokusai Electric Ltd. and Bio-Rad Semiconductor Systems. Our
Therma-Probe systems are the semiconductor industry's predominant non-contact,
non-destructive ion implant metrology systems for product wafers. Several years
ago, Jenoptik GmbH introduced a competitive product to our Therma-Probe
systems, which utilized thermal wave technology. In November 1997, we received
a favorable verdict for patent infringement by Jenoptik in the United States.
As a result of the settlement of this litigation, Jenoptik has agreed not to
sell any of such products in the United States and to pay us a royalty fee for
systems sold in Japan. To date, the sale of these products by Jenoptik has not
had a material impact on our market position. Our Opti-Probe systems primarily
compete with thin film metrology systems manufactured by KLA-Tencor, Rudolph
Technologies, Nanometrics and Dai Nippon Screen.

In recent years, there has been significant merger and acquisition activity
among our competitors and potential competitors. Acquisitions by our
competitors and potential competitors could allow them to expand their product
offerings, which could afford such competitors and potential competitors an
advantage in meeting customers' demands. The greater resources, including
financial, marketing and support resources, of competitors engaged in these
acquisitions could permit them to accelerate the development and
commercialization of new products and the marketing of existing products to
their larger installed bases. Accordingly, such business combinations and
acquisitions could have a detrimental impact on both our market share and the
pricing of our products, which could result in a material adverse effect on our
business and results of operations.

Patents and Proprietary Rights

We believe the success of our business depends as much on the technical
competence, creativity and marketing abilities of our employees as on the
protection derived from our patents and other proprietary rights. Nevertheless,
our success will depend, at least in part, on our ability to obtain and
maintain patents and proprietary rights to protect our technology.

We have a policy of seeking patents where appropriate on inventions
concerning new products and improvements as part of our ongoing engineering and
research and development activities. We have acquired a number of patents
relating to our two key product families, the Opti-Probe and Therma-Probe
systems. As of March 31, 1999, we owned 26 U.S. patents with expiration dates
ranging from 2004 to 2017 and had filed applications for eleven additional U.S.
patents. In addition, we owned 25 foreign patents with expiration dates ranging
from 2004 to 2017 and had filed applications for eleven additional foreign
patents.

There can be no assurance that any of our pending patent applications will
be approved, that we will develop additional proprietary technology that is
patentable, that any patents owned by or issued to us will provide us with
competitive advantages or that these patents will not be challenged by any
third parties. Furthermore, there can be no assurance that third parties will
not design around our patents. Any of the foregoing results could have a
material adverse effect on our business, financial condition or results of
operations.

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<PAGE>

As of March 31, 1999, we owned five registered trademarks in the U.S. and
one in Japan and had filed 11 trademark registration applications in the U.S.
and one in Japan.

Facilities

Our executive offices and manufacturing, engineering, research and
development operations are located in a 102,000 square foot building in
Fremont, California with approximately 800 square feet of Class 100 clean rooms
for customer demonstrations and approximately 10,000 square feet of Class 1000
clean rooms for manufacturing. This facility is occupied under a lease expiring
in 2006 at an aggregate annual rental expense of approximately $1.0 million. We
have the option of extending this lease for another 15 years after 2006. We own
substantially all of the equipment used in our facilities. We believe that our
existing facilities and capital equipment are adequate to meet our current
requirements and that suitable additional or substitute space is readily
available if needed.

We also lease sales and customer support offices in California, Florida,
Texas, Japan, Korea, Taiwan and the United Kingdom.

Employees

As of March 31, 1999, we employed 338 persons, including 69 in engineering,
research and development, 83 in manufacturing, 138 in customer support, 21 in
sales and marketing and 27 in executive and administrative functions. Many of
our employees are highly trained and hold advanced post-graduate degrees in
science and engineering. None of our employees are represented by a labor union
or covered by a collective bargaining agreement. We consider our employee
relations to be good. We believe we have low employee turnover relative to our
industry and have been able to attract and retain a highly talented group of
managers, designers and engineers which enables us to continually improve our
products and customer support.

Legal Proceedings

On July 19, 1994, we filed a patent infringement suit against Jenoptik in
the United States District Court for the Northern District of California. We
alleged that the manufacture and sale by Jenoptik of its TWIN and TWIN SC
systems infringed six of our United States patents that are related to our
Therma-Probe ion implant metrology systems. Jenoptik denied infringement and
claimed that our patents were invalid and unenforceable.

On February 1, 1996, we filed a patent infringement suit against Jenoptik in
the Patent Court in Dusseldorf, Germany. We alleged that the manufacture and
sale by Jenoptik of its TWIN and TWIN SC systems infringed our German
counterpart to one of our United States patents being asserted against Jenoptik
in the United States lawsuit. This German counterpart patent was found to be
invalid by a patent court in Munich, Germany.

On November 26, 1997, we received a favorable jury verdict in our United
States patent infringement suit against Jenoptik. The jury found all six of our
patents valid and concluded that Jenoptik infringed all thirty-one claims at
issue from these patents. As a result of the settlement of this litigation,
Jenoptik has agreed not to sell any of such products in the United States and
to pay us a royalty fee for systems sold in Japan. To date, the sale of these
products by Jenoptik has not had a material impact on our market position. This
settlement resolved all outstanding legal claims and pending appeals relating
to these matters.

On June 5, 1998, at our request, the United States Patent Office initiated
an interference proceeding between Therma-Wave and Rudolph Technologies. The
subject matter of the interference relates to ellipsometer technology which
Rudolph employs in its commercial devices. We believe we developed and patented
this technology prior to Rudolph. The interference proceedings will determine
ownership of the

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<PAGE>

technology as between Rudolph Technologies and Therma-Wave. A successful
outcome of the interference proceeding may result in Rudolph being required to
pay us licensing fees. Since we have not commercialized this technology, an
unsuccessful outcome in the interference proceeding would not have a material
adverse effect on our business, financial condition or results of operations.

On September 3, 1998, we were named in a patent infringement suit filed by
KLA-Tencor. KLA-Tencor alleged that it patented an aspect of the thin film
thickness measuring technology that we use in our Opti-Probe product family.
KLA-Tencor is seeking damages and an injunction to stop the sale of the
equipment they allege uses this aspect. We believe none of our products
infringe any of the claims of KLA-Tencor's patent and that their infringement
allegations are unfounded. Nonetheless, KLA-Tencor has made broad allegations
covering technology that accounts for a significant portion of our revenues.
Since we believe these allegations are unfounded, we intend to vigorously
defend our position, and we expect to prevail. We believe that the outcome from
such litigation, even if adverse to us, would not have a material adverse
effect on our business, financial condition or results or operations.

On January 14, 1999, we commenced an action against KLA-Tencor for patent
infringement with respect to one of our fundamental thin film technology
combination patents. The suit seeks damages for patent infringement and a
permanent injunction against any future activities undertaken by KLA-Tencor or
any third party working in conjunction with them, which infringe on our patent.
The suit was filed as a counterclaim in the 1998 infringement action initiated
by KLA-Tencor and described in the prior paragraph and also seeks a declaratory
judgment that KLA-Tencor's patent, which we were alleged of infringing, is
invalid and not infringed by any of our systems.

There can be no assurances, however, that we will prevail in any ongoing
patent litigation described above. We believe, however, the litigation
described above will not have a material adverse effect on our business,
financial condition or results of operations.

Prior to filing its 1998 infringement action described above, KLA-Tencor
notified us that another of its patents covered a different aspect of the thin
film thickness measuring technology that we use in our Opti-Probe product
family. We believe that none of our products infringed any of the claims of
this other KLA-Tencor patent and informed KLA-Tencor of our belief. Recently,
we have learned that KLA-Tencor has obtained a continuation of this other
patent. There can be no assurances that KLA-Tencor will not assert this patent
against us in the future.

We are presently in discussions with Nanometrics regarding patent issues.
Specifically, we believe some of the thin film thickness measuring devices sold
by Nanometrics infringes upon one of our fundamental thin film technology
combination patents. Nanometrics has alleged that an aspect of the thin film
thickness measuring technology that we use in some of our products in our Opti-
Probe family infringes upon a patent which it owns. We believe that none of our
products infringe any of the claims of Nanometrics' patent and that its
infringement allegations are unfounded. We cannot predict the outcome of these
discussions but we believe they will not have a material adverse effect on our
business, financial condition or results of operations. No lawsuit with respect
to any of these matters has been filed by either party.

We are also involved in various legal proceedings from time to time arising
in the ordinary course of business, none of which are expected to have a
material adverse effect on our business or financial condition.

Environmental Matters

Therma-Wave, like all manufacturing companies, is subject to various
federal, state and local environmental statutory requirements. We believe we
are in material compliance with existing applicable environmental laws and
regulations and possess all permits and licenses necessary to conduct our
business.

47
<PAGE>

MANAGEMENT

Executive Officers, Directors and Key Employees

Executive officers, directors and key employees of Therma-Wave are as
follows:

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Allan Rosencwaig.......... 57 Chairman of the Board and Chief Technology
Officer

Martin M. Schwartz........ 54 President, Chief Executive Officer and
Director

L. Ray Christie........... 55 Vice President, Chief Financial Officer and
Secretary

David Mak................. 41 Vice President, Factory Operations

Jon L. Opsal.............. 57 Vice President, Research and Development

Raymond Osofsky........... 48 Vice President, Engineering

W. Lee Smith.............. 49 Vice President, Strategic Marketing

David Willenborg.......... 48 Vice President, Marketing/Software Projects

G. Leonard Baker, Jr ..... 56 Director

David Dominik............. 41 Director

Adam W. Kirsch............ 37 Director

Ian K. Loring............. 33 Director
</TABLE>

We anticipate that two additional directors not otherwise affiliated with us
or any of our stockholders will be elected to the board of directors following
the completion of this offering.

Allan Rosencwaig co-founded Therma-Wave in January 1982 and has served as
our Chairman since that time. Since July 1999, Dr. Rosencwaig has also served
as the Chief Technology Officer of Therma-Wave. In addition, Dr. Rosencwaig
served as President from January 1982 to April 1998, and he served as Chief
Executive Officer from January 1982 to July 1999. Prior to founding Therma-
Wave, Dr. Rosencwaig was a Group Leader at the Lawrence Livermore National
Laboratory from 1977 to 1982 and a Member of Technical Staff at AT&T Bell
Laboratories from 1969 to 1977. Dr. Rosencwaig holds Bachelor of Science,
Master of Science and Ph.D. degrees in physics from the University of Toronto.

Martin M. Schwartz joined Therma-Wave in August 1998 as our President, Chief
Operating Officer and Director, and, since July 1999, has served as our Chief
Executive Officer. Mr. Schwartz served as a director, President and Chief
Executive Officer of Southwall Technologies Inc. from May 1994 to March 1998.
From April 1988 to May 1994, he served as Vice President, Operations of
Southwall. From July 1974 to April 1988, Mr. Schwartz served in various
positions at Raychem Corporation, including Director of Operations. From 1967
to 1974, he served in various positions at Standard Oil of California. Mr.
Schwartz holds a Bachelor of Science in engineering and a Master of Science in
chemical engineering from Cornell University and a Masters of Business
Administration degree in management and finance from California State
University, San Francisco.

L. Ray Christie joined Therma-Wave in August 1998 as our Vice President,
Chief Financial Officer and Secretary. From April 1996 to July 1998, Mr.
Christie served as the Vice President, Chief Financial Officer and Secretary of
Southwall, and from February 1990 to November 1993, as controller for
Southwall. From November 1993 to March 1996, he served in various positions
with a subsidiary of California Microwave, Inc., including Vice President
Finance and Administration. From June 1981 to January 1990, he served as
controller of the Farinon Division of Harris Corporation. From May 1969 to June
1981, he served in various positions of Potlatch Corporation, including
controller of their Packaging Division.

David Mak joined Therma-Wave in October 1992 and has served as our Vice
President, Factory Operations since November 1996. Mr. Mak has also served as
the Manufacturing Manager and Director of Manufacturing. Prior to joining
Therma-Wave, Mr. Mak served in a variety of positions at Tencor Instruments,
including Manufacturing Engineering Manager, Mechanical Design Engineering
Manager and Project

48
<PAGE>

Manager. Mr. Mak also served as Senior Mechanical Engineer for Priam Corp.,
Advisory Engineer for Optimem, and Product Engineer for Memorex Corp. Mr. Mak
holds a Bachelor of Science degree in mechanical engineering from the
Polytechnic Institute of New York.

Jon L. Opsal joined Therma-Wave in September 1982 and has served as our Vice
President, Research and Development since June 1994. Mr. Opsal has served in
several research and management positions since that time, including Senior
Scientist, Manager of Analytical Software, Manager of the Physics Department,
Manager of Research and Development Director of Research and Development. Prior
to joining Therma-Wave, Dr. Opsal was a physicist at the Lawrence Livermore
National Laboratory from 1978 to 1982 and a Research Associate and Assistant
Professor at Michigan State University from 1974 to 1978. Dr. Opsal holds a
Bachelor of Arts degree in physics and mathematics from Eastern Washington
University and Master of Science and Ph.D. degrees in physics from Michigan
State University.

Ray Osofsky joined Therma-Wave in 1993 and has served as Vice President,
Engineering since November 1998. Mr. Osofsky has also served as the Director of
Engineering, Director of Opti-Probe Engineering and Opti-Probe Manager. From
1985 to 1993, Mr. Osofsky was employed by KLA Instruments Corp., most recently
as Director of Engineering. Mr. Osofsky holds a Bachelor of Science in
electrical engineering from the University of California at Davis and a Master
of Science in computer engineering from Santa Clara University.

W. Lee Smith joined Therma-Wave in March 1983 and has served as our Vice
President, Strategic Marketing since June 1995. Mr. Smith has also served as
its Research Group Leader, Applications Manager, Director of Applications, Vice
President, Product Development and Vice President, Marketing. From 1976 to
1983, Dr. Smith was a physicist and Nonlinear Optics Group Leader at the
Lawrence Livermore National Laboratory. Dr. Smith holds a Bachelor of Science
degree in physics from North Carolina State University and a Ph.D. in physics
from Harvard University.

David Willenborg co-founded Therma-Wave with Dr. Rosencwaig in January 1982
and has served as our Vice President, Marketing/Software Projects since October
1998. Mr. Willenborg has also served as Director of Engineering, Vice
President, Engineering, Vice President, Technology and Vice President,
Marketing. Prior to founding Therma-Wave, Mr. Willenborg was an engineer at the
Lawrence Livermore National Laboratory from 1975 to 1982 and at McDonnell-
Douglas Aerospace from 1972 to 1973. Mr. Willenborg holds Bachelor of Science
and Master of Science degrees in electrical engineering from the University of
Illinois.

G. Leonard Baker, Jr. has served as a Director of Therma-Wave since May
1997. Mr. Baker has been a Managing Director of the General Partner of Sutter
Hill Ventures since 1974. Mr. Baker joined Sutter Hill Ventures in 1973, and,
prior to that time, was Manager of Product Planning for Europe, Africa and
India at Cummins Engine Company, where he also held various manufacturing
positions. He serves on the board of several companies primarily in the high-
technology area.

David Dominik has served as a Director of Therma-Wave since May 1997. Mr.
Dominik has been a General Partner of Information Partners, L.P. since January
1990 and Managing Director of Information Partners, Inc. since June 1993. In
addition, Mr. Dominik has been a Managing Director of Bain Capital, Inc. ("Bain
Capital") since May 1993. Mr. Dominik also serves as a director of Oasis
Healthcare Inc., Dynamic Details, Incorporated, Integrated Circuit Systems,
Inc., OneSource Information Services, Inc. and several privately held
companies.

Adam W. Kirsch has served as a Director of Therma-Wave since May 1997. Mr.
Kirsch has been a Managing Director of Bain Capital since May 1993 and a
general partner of Bain Venture Capital since 1990. Mr. Kirsch joined Bain
Venture Capital in 1985 as an associate and, prior to joining Bain Venture
Capital, Mr. Kirsch was a consultant at Bain & Company where he worked in
mergers and acquisitions. He serves on the board of several companies including
Brookstone, Inc., Dade Behring Inc. and Wesley Jessen VisionCare, Inc.

49
<PAGE>

Ian K. Loring has served as a Director of Therma-Wave since May 1999. Mr.
Loring joined Bain Capital in 1996. He has been a Principal since 1997. From
1993 to 1996, Mr. Loring was a Vice President at Berkshire Partners, where he
worked in the specialty manufacturing, technology, and retail industries.

At present, all directors are elected and serve until a successor is duly
elected and qualified or until his or her earlier death, resignation or
removal. All members of the board of directors set forth herein were elected
pursuant to a stockholders agreement that was entered into in connection with
the recapitalization. See "Certain Relationships and Related Transactions--
Stockholders Agreement." There are no family relationships between any of our
directors or executive officers. Our executive officers are elected by, and
serve at the discretion of, the board of directors.

Prior to the completion of this offering, our board will be divided into
three classes, as nearly equal in number as possible, with each director
serving a three-year term and one class being elected at each year's annual
meeting of stockholders. Mr. Loring and the two additional directors
anticipated to be appointed by the board will be in the class of directors
whose term expires at the 2000 annual meeting of our stockholders. Messrs.
Schwartz and Dominik will be in the class of directors whose term expires at
the 2001 annual meeting of our stockholders. Messrs. Rosencwaig, Kirsch and
Baker will be in the class of directors whose term expires at the 2002 annual
meeting of our stockholders. At each annual meeting of our stockholders,
successors to the class of directors whose term expires at such meeting will be
elected to serve for three-year terms or until their respective successors are
elected and qualified.

Compensation of Executive Officers

The following table sets forth information concerning the compensation for
fiscal 1999, 1998 and 1997 for our chief executive officer and our four other
most highly compensated executive officers at the end of our last fiscal year.
For ease of reference, we collectively refer to these executive officers
throughout this section as our "named executive officers."

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Other Annual Securities
Fiscal Bonus Compensation Underlying All Other
Name and Position Year Salary ($) ($) (1) Options (#) Compensation ($)
- ----------------- ------ -------- -------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Allan Rosencwaig........ 1999 $429,236 $ -- -- -- $63,245(2)
Chairman and 1998 417,508 318,623(3) -- 549,594 54,679(2)
Chief Technology
Officer (6) 1997 332,846 243,989(4) -- -- 1,898(5)

Martin M. Schwartz (6).. 1999 161,042 -- -- 163,600 --
President and
Chief Executive Officer

Jon L. Opsal............ 1999 192,532 -- -- -- $ 1,262(7)
Vice President, 1998 186,482 68,247(3) -- 104,423 1,107(7)
Research and 1997 168,184 56,637(4) -- -- --
Development

David Willenborg........ 1999 164,592 -- -- -- $ 6,910(7)
Vice President, 1998 160,368 52,930(3) -- 82,439 6,063(7)
Marketing 1997 154,479 50,778(4) -- -- --

David Mak............... 1999 164,739 -- -- -- --
Vice President, 1998 154,830 58,767(3) -- 31,616 --
Factory Operations 1997 143,453 47,523(4) -- -- --
</TABLE>
- --------
(1) None of the perquisites and other benefits paid to each named executive
officer exceeded the lesser of $50,000 or 10% of the total annual salary
and bonus received by each named executive officer. Does not include
amounts received by the named executive officers during fiscal 1998 from
our prior owner. See "Certain Relationships and Related Transactions--
Payments to Executive Officers."
(2) Includes insurance premiums paid by us on behalf of Dr. Rosencwaig of
$9,669 and $7,671 for fiscal 1998 and fiscal 1999, respectively. The
balance represents imputed interest on outstanding borrowings from Therma-
Wave.

50
<PAGE>

(3) Reflects bonuses paid to Messrs. Rosencwaig, Opsal, Willenborg and Mak in
fiscal 1998 as a result of Therma-Wave achieving performance targets in
fiscal 1998.

(4) Reflects bonuses paid to Messrs. Rosencwaig, Opsal, Willenborg and Mak in
fiscal 1997 as a result of Therma-Wave achieving performance targets in
fiscal 1997.
(5) Reflects insurance premiums paid by us on behalf of Dr. Rosencwaig.

(6) Mr. Schwartz joined Therma-Wave in August 1998 as Therma-Wave's President
and Chief Operating Officer. Dr. Rosencwaig served as our Chief Executive
Officer from January 1982 through July 1999. In July 1999, Mr. Schwartz
began serving as Therma-Wave's Chief Executive Officer and Dr. Rosencwaig
began serving as Therma-Wave's Chief Technology Officer.
(7) Reflects imputed interest on outstanding borrowings from Therma-Wave.

Option Grants in Last Fiscal Year

The following table sets forth information regarding stock options granted
by us to the named executive officers during our last fiscal year. Stock
options are generally granted at 100% of the fair value of Therma-Wave's common
stock as determined by the board of directors on the date of grant. In reaching
the determination of fair value at the time of each grant, the board of
directors considers a range of factors, including Therma-Wave's current
financial position, its recent revenues, results of operations and cash flows,
its assessment of Therma-Wave's competitive position in its markets and
prospects for the future, the status of Therma-Wave's product development and
marketing efforts, current valuations for comparable companies and the
illiquidity of an investment in Therma-Wave's common stock.

<TABLE>
<CAPTION>
Number of
Securities % of Total Potential Realizable
Underlying Options Market Value at Assumed
Options Granted in Exercise or Price on Annual Rate of Stock
Granted Fiscal Base Price Date of Expiration Price Appreciation for
Name (a) Year ($/Share) Grant (b) Date (c) Option Term (d)
---- ---------- ---------- ----------- --------- ---------- -----------------------
5%($) 10%($)
---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allan Rosencwaig........ -- -- -- -- -- -- --
Martin M. Schwartz (e).. 163,600 62.5% $4.89 $4.89 8/3/08 $503,888 $1,274,444
Jon L. Opsal............ -- -- -- -- -- -- --
David Willenborg........ -- -- -- -- -- -- --
David Mak............... -- -- -- -- -- -- --
</TABLE>
- --------
(a) All options listed in the table vest in five equal installments beginning
on the first anniversary of their grant date.
(b) Market price on the date of grant was determined by our board of directors
based upon a good faith estimate.
(c) Options will expire on the earlier of 90 days after the date of termination
of employment or the date indicated above.

(d) Amounts reflect assumed rates of appreciation set forth in the executive
compensation disclosure rules of the SEC. Actual gains, if any, on stock
option exercises depend on future performance of our stock and overall
market conditions. At an annual rate of appreciation of 5% per year for the
option term, the price of the Class B common stock would be approximately
$7.97 per share. At an annual rate of appreciation of 10% per year for the
option term, the price of the Class B common stock would be approximately
$12.68 per share.
(e) Mr. Schwartz joined Therma-Wave in August 1998.

Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

The following table sets forth information for the named executives officers
concerning stock option exercises during our last fiscal year and options
outstanding at the end of the last fiscal year:

<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options Options at
at Fiscal Year End Fiscal Year End ($) (a)
--------------------- -----------------------
Shares Acquired Value Unexercisable/ Unexercisable/
Name on Exercise Realized ($) Exercisable Exercisable
---- --------------- ------------ --------------------- -----------------------
<S> <C> <C> <C> <C>
Allan Rosencwaig........ -- -- 0/549,594 $ 0/0
Martin M. Schwartz (b).. -- -- 163,600/0 733,200/0
Jon L. Opsal............ -- -- 0/104,423 0/0
David Willenborg........ -- -- 0/82,439 0/0
David Mak............... -- -- 0/31,615 0/0
</TABLE>
- --------

(a) Based on an estimated fair market value of the common stock at March 31,
1999.
(b) Mr. Schwartz joined Therma-Wave in August 1998.

51
<PAGE>

Compensation Committee Interlocks and Insider Participation

We currently do not have a compensation committee. The compensation
arrangements for each of our executive officers was established pursuant to the
terms of the respective employment agreements between us and each executive
officer. The terms of the employment agreements were established pursuant to
arms-length negotiations between representatives of Bain Capital and each
executive officer, except those agreements relating to Messrs. Schwartz and
Christie, which were negotiated with Therma-Wave and approved by the board of
directors. See "Certain Relationships and Related Transactions--Employment
Agreements." On a going forward basis, any changes in the compensation
arrangements of our executive officers will be determined by the board of
directors.

Committees of the Board of Directors

Prior to this offering, our board of directors had one committee, the audit
committee. Immediately prior to the completion of this offering, the board of
directors will establish an additional committee, the compensation committee.

The audit committee makes recommendations to the board of directors
regarding the independent auditors to be nominated for election by the
stockholders and reviews the independence of such auditors, approves the scope
of the annual audit activities of the independent auditors, approves the audit
fee payable to the independent auditors and reviews such audit results with the
independent auditors. The audit committee is currently comprised of Messrs.
Dominik and Baker and, following this offering, will be comprised of a majority
of directors not otherwise affiliated with us or any of our principal
stockholders. PricewaterhouseCoopers LLP presently serves as our independent
auditors.

The duties of the compensation committee will be to provide a general review
of our compensation and benefit plans to ensure that they meet corporate
objectives. In addition, the compensation committee will review the chief
executive officer's recommendations on (1) compensation of all of our officers
and (2) adopting and changing major compensation policies and practices, and
report its recommendations to the whole board of directors for approval and
authorization. The compensation committee will administer our stock plans and
is expected to be comprised of at least two non-employee directors (as defined
in Rule 16b-3 under the Exchange Act). The board may also establish other
committees to assist in the discharge of its responsibilities.

Employment Agreements

In connection with the recapitalization, we entered into an employment
agreement with Dr. Allan Rosencwaig. The employment agreement provides that Dr.
Rosencwaig will serve as the Chairman of the Board, President and Chief
Executive Officer for a period that will end on the fifth anniversary of the
consummation of the recapitalization. In August 1998, however, the board and
Dr. Rosencwaig agreed that Mr. Schwartz would be appointed to the position of
President, and in July 1999, the board and Dr. Rosencwaig agreed that Mr.
Schwartz would be appointed to the position of Chief Executive Officer and Dr.
Rosencwaig would be appointed to the position of Chief Technology Officer. The
employment period established under the employment agreement will automatically
terminate upon Dr. Rosencwaig's resignation, death or disability or termination
for good reason, or upon termination by us, with or without cause. Under the
employment agreement, Dr. Rosencwaig will receive:

. an annual base salary of at least $400,000, subject to annual review by
the board and annual increases beginning in 1998;

. an annual bonus based upon our achievement of operating targets and the
attainment of individual goals by Dr. Rosencwaig, each to be determined
by the board on an annual basis; and

. customary fringe benefits.

In addition, Dr. Rosencwaig is also entitled to receive a deferred payment
in the event we achieve operating targets. See "Certain Relationships and
Related Transactions--Management Equity Purchases."

52
<PAGE>

If the employment period is terminated by us without cause, by Dr.
Rosencwaig for good reason or as a result of his disability, Dr. Rosencwaig
will be entitled to receive his then current base salary, a bonus equal to 50%
of his base salary and fringe benefits for 30 months following such
termination. This 30-month period is referred to herein as the "severance
period." If the employment period is terminated by us for cause or if
Dr. Rosencwaig resigns without good reason, Dr. Rosencwaig will be entitled to
receive his then current base salary through the date of termination. Under the
employment agreement, Dr. Rosencwaig has agreed not to:

. compete with us during the period in which he is employed by us;

. disclose any confidential information during the period in which he is
employed by us and for five years thereafter;

. solicit any customer, supplier, licensee, licensor, franchisee or other
business relation of ours while he is employed by us, during the
severance period and for a period of 30 months thereafter; and

. solicit or hire any of our management employees for a period of 30
months following the date of termination.

In addition, Dr. Rosencwaig has agreed to disclose to us any and all
inventions, as defined in such employment agreement, relating to our business
conceived or learned by him during his employment and acknowledge that such
inventions will be our property.

We also entered into substantially similar employment agreements with
Messrs. Willenborg, Smith, Opsal and Lin at the time of the recapitalization
and with Messrs. Schwartz and Christie in August 1998. Mr. Lin's employment
agreement was terminated in July 1998 in connection with his voluntary
resignation. Each of the employment agreements provide that such executive will
serve with Therma-Wave in his current position for a period that will end on
the fifth anniversary of the consummation of the recapitalization or, in the
case of Messrs. Schwartz and Christie, August 2003; provided, however, that
each executive's employment period will automatically terminate upon such
executive's resignation, death or disability or termination for good reason (as
defined therein), or upon termination by Therma-Wave, with or without cause (as
defined therein). Under their respective employment agreement, Messrs.
Schwartz, Christie, Willenborg, Smith and Opsal will receive:

. an annual base salary of at least the following, subject to review by
the board and our president or chief executive officer:

<TABLE>
<CAPTION>
Name Annual Base Salary
---- ------------------
<S> <C>
Martin M. Schwartz................................... $265,000
L. Ray Christie...................................... $155,000
David Willenborg..................................... $168,480
W. Lee Smith......................................... $143,859
Jon L. Opsal......................................... $197,077
</TABLE>

. an annual bonus based upon our achievement of operating targets and the
attainment of individual goals by such executive, each to be determined
by the board and our president or chief executive officer on an annual
basis; and

. customary fringe benefits.

We anticipate that, as a result of his being promoted to Chief Executive
Officer of Therma-Wave, Mr. Schwartz will receive an increase in his annual
base salary to $350,000.

In addition, each executive other than Messrs. Schwartz and Christie is also
entitled to receive a deferred payment in the event we achieve certain
operating results. See "Certain Relationships and Related Transactions--
Management Equity Purchases."

If the executive's employment is terminated by us without cause, by such
executive for good reason or as a result of his disability, the executive will
be entitled to receive his then current base salary, a bonus equal to 30% to
37.5% of base salary and fringe benefits for 15 months or, in the case of Mr.
Christie, 6 months

53
<PAGE>

following such termination and, in the case of Mr. Schwartz, 15 months if he is
terminated after August 3, 2000 and 12 months if he is terminated before such
time. Such 6-month, 15-month and 12-month periods are each referred to herein
as an "executive severance period." If the executive's employment is terminated
by us for cause or if such executive resigns without good reason, such
executive will be entitled to receive his then current base salary through the
date of termination. Under these employment agreements, each executive has
agreed not to:

. compete with us during the period in which he is employed by us;

. disclose any confidential information during the period in which he is
employed by us and for all times thereafter;

. solicit any customer, supplier, licensee, licensor, franchisee or other
business relation of ours while he is employed by us, during the
applicable executive severance period and for two years thereafter; and

. solicit or hire any of our employees for a period of five years
following the date of termination.

In addition, each executive has agreed to disclose to us any and all
inventions, as defined in such employment agreement, relating to our business
conceived or learned by him during his employment with us and acknowledge that
such inventions will be our property.

Compensation of Directors

Directors serving on the board of directors are currently not entitled to
receive any compensation for serving on the board. Directors are reimbursed for
their out-of-pocket expenses incurred in connection with such services.
Following this offering, directors who are not employees of Therma-Wave or who
are not otherwise affiliated with us or our principal stockholders will receive
compensation that is commensurate with arrangements offered to directors of
companies that are similar to Therma-Wave. Compensation arrangements for
independent directors established by our board could be in the form of cash
payments and/or option grants.

Stock Plans

1997 Stock Purchase and Option Plan

In connection with the recapitalization, our board of directors adopted the
Therma-Wave, Inc. 1997 Stock Purchase and Option Plan, or the "1997 Stock
Plan," which authorizes the granting of stock options and the sale of Class A
common stock or Class B common stock to current or future employees, directors,
consultants or advisors of Therma-Wave or its subsidiaries. Under the 1997
Stock Plan, the board is authorized to sell or otherwise issue any class or
classes of common stock at any time prior to the termination of the 1997 Stock
Plan in such quantity, at such price, on such terms and subject to such
conditions as established by board up to an aggregate of 2,454,000 shares of
Class A common stock and 2,454,000 shares of Class B common stock, including
shares of common stock with respect to which options may be granted, subject to
adjustment upon the occurrence of specified events to prevent any dilution or
expansion of the rights of participants that might otherwise result from the
occurrence of such events. As of June 30, 1999, an aggregate of 914,607 shares
of Class B common stock, a portion of which is subject to repurchase, were
outstanding, and options to purchase an aggregate of 1,606,054 shares of Class
B common stock were outstanding, with exercise prices ranging from $4.89 to
$19.43 per share, under the 1997 Stock Plan.

1997 Employee Stock Purchase and Option Plan

On October 31, 1997, the Board of Directors approved the 1997 Employee Stock
Purchase and Option Plan, or the "1997 Employee Stock Plan," which authorizes
the granting of stock options and the sale of Class A common stock or Class B
common stock to current or future employees, directors, consultants or advisors
of Therma-Wave or its subsidiaries. The 1997 Employee Stock Plan authorizes the
granting of stock options up to an aggregate of 563,909 shares of Class A
common stock and 563,909 shares of Class B common stock, subject to adjustment
upon the occurrence of specified events to prevent any dilution or expansion of
the rights of participants that might otherwise result from the occurrence of
such events.

54
<PAGE>

Options to purchase an aggregate of 265,739 shares of Class B common stock
were outstanding as of June 30, 1999 under the 1997 Employee Stock Plan. Such
options will vest and become exercisable in four equal installments beginning
on the first anniversary of the grant date and continuing thereafter on an
annual basis. Unvested options will terminate in the event that the optionee
ceases to be employed with Therma-Wave and vested but unexercised options will
terminate immediately if the optionee is terminated for cause or after 30 days,
or such other period as may be specified in any particular option agreement, if
the optionee ceases to be employed by Therma-Wave for any other reason. As of
the date of this prospectus, most of our option agreements provide that options
will immediately terminate after 90 days if the optionee ceases to be employed
by Therma-Wave for any reason other than cause. All of the options granted have
an exercise price equal to the fair market value of the Class B common stock on
the date of grant.

1997 Special Employee Stock Purchase and Option Plan

On October 31, 1997, our board of directors approved the 1997 Special
Employee Stock Purchase and Option Plan, or the "1997 Special Employee Stock
Plan," which authorizes the granting of stock options and the sale of Class A
common stock or Class B common stock to current or future employees, directors,
consultants or advisors of Therma-Wave or its subsidiaries. The 1997 Special
Employee Stock Plan authorizes the granting of stock options up to an aggregate
of 43,457 shares of Class A common stock and 43,457 shares of Class B common
stock, subject to adjustment upon the occurrence of specified events to prevent
any dilution or expansion of the rights of participants that might otherwise
result from the occurrence of such events.

Options to purchase an aggregate of 38,446 shares of Class B common stock
were outstanding as of June 30, 1999 under the 1997 Special Employee Stock
Plan. Such options will vest and become exercisable in four equal installments
beginning on the first anniversary of the grant date and continuing thereafter
on an annual basis. Unvested options will terminate in the event that the
optionee ceases to be employed by Therma-Wave and vested but unexercised
options will terminate immediately if the optionee is terminated for cause or
after 30 days, or such other period as may be specified in any particular
option agreement, if the optionee ceases to be employed by Therma-Wave for any
other reason. As of the date of this prospectus, most of our option agreements
provide that options will immediately terminate after 90 days if the optionee
ceases to be employed by Therma-Wave for any reason other than cause. All of
the options granted have an exercise price equal to the fair market value of
the Class B common stock on the date of grant.

The 1997 Special Employee Stock Plan and the 1997 Employee Stock Plan are
referred to herein as the "1997 Plans."

1999 Equity Incentive Plan

The 1999 Equity Incentive Plan, or the "1999 Plan," is expected to be
adopted by our board of directors and approved by our stockholders prior to the
completion of this offering. As of the date of this prospectus, no awards have
been made under the 1999 Plan. No future grants will be made under the 1997
Plans upon the effectiveness of the 1999 Plan.

The 1999 Plan provides for the grant of incentive stock options to our
employees (including officers and employee directors) and for the grant of
nonstatutory stock options and to our employees, directors and consultants. The
number of shares of common stock to be reserved under the 1999 Plan has not yet
been finalized. Based upon our preliminary discussions, we estimate that a
total of (1) 300,000 shares of common stock, (2) any shares returned to the
1997 Plans as a result of termination of options and (3) annual increases to be
added on the date of each annual meeting of stockholders of Therma-Wave
commencing in 2000 equal to 1.0% of the outstanding shares of common stock, or
such lesser amount as may be determined by the board of directors, will be
reserved for issuance pursuant to the 1999 Plan.

The administrator of the 1999 Plan has the power to determine the terms of
the options granted, including the exercise price of the option, the number of
shares subject to each option, the exercisability thereof, and the form of
consideration payable upon such exercise. In addition, our board of directors
has the authority to amend, suspend or terminate the 1999 Plan, provided that
no such action may affect any share of common stock previously issued and sold
or any option previously granted under the 1999 Plan.

55
<PAGE>

Options granted under the 1999 Plan are generally not transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
and only by such optionee. Options granted under the 1999 Plan must generally
be exercised within 3 months after the end of an optionee's status as an
employee, director or consultant of Therma-Wave, or within 18 months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option term.

The exercise price of all incentive stock options granted under the 1999
Plan must be at least equal to the fair market value of the common stock on the
date of grant. The exercise price of nonstatutory stock options granted under
the 1999 Plan is determined by the administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price must be at least equal to the fair market value of the common stock on
the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of the outstanding capital
stock of Therma-Wave, the exercise price of any incentive stock option granted
must be at least equal to 110% of the fair market value on the grant date and
the term of such incentive stock option must not exceed five years. The term of
all other options granted under the 1999 Plan may not exceed ten years.

The 1999 Plan provides that in the event of a merger of Therma-Wave with or
into another corporation, or a sale of substantially all of our assets, each
option shall be assumed or an equivalent option substituted for by the
successor corporation. If the outstanding options are not assumed or
substituted for by the successor corporation, the administrator shall provide
for the optionee to have the right to exercise the option as to all of the
optioned stock, including shares as to which it would not otherwise be
exercisable. If the administrator makes an option exercisable in full in the
event of a merger or sale of assets, the administrator shall notify the
optionee that the option shall be fully exercisable for a period of fifteen
(15) days from the date of such notice, and the option will terminate upon the
expiration of such period.

Employee Stock Purchase Plan

The 1999 Employee Stock Purchase Plan, or the "Stock Purchase Plan," will be
adopted by our board of directors and our stockholders prior to the completion
of this offering. The Stock Purchase Plan will be established to give employees
desiring to do so a convenient means of purchasing shares of common stock
through payroll deductions. The Stock Purchase Plan provides an incentive to
participate by permitting purchases at a discounted price. We believe that
ownership of stock by employees will foster greater employee interest in the
success, growth and development of Therma-Wave.

Subject to restrictions, each of our employees is eligible to participate in
the Stock Purchase Plan if he or she has been employed by us for more than six
months. Participation is discretionary with each eligible employee. Based upon
preliminary discussions, we estimate that 500,000 shares of common stock will
be reserved for issuance in connection with the Stock Purchase Plan. Elections
to participate and purchases of stock will be made on a quarterly basis. Each
participating employee contributes to the Stock Purchase Plan by choosing a
payroll deduction in any specified amount. A participating employee may
increase or decrease the amount of such employee's payroll deduction, including
a change to a zero deduction as of the beginning of any calendar quarter.
Elected contributions will be credited to participants' accounts at the end of
each calendar quarter. In addition, employees may make lump sum contributions
at the end of the year to enable them to purchase the maximum number of shares
available for purchase during the plan year. Each eligible employee will be
entitled to purchase a maximum of approximately 1,200 shares per year; provided
that the number of shares subject to an eligible employee's option shall not
exceed 200% of the number of shares determined by dividing 15% of such eligible
employee's compensation over any six-month offering period by 85% of the fair
market value of a share of common stock on the first day of such six-month
offering period.

Set forth below is a summary of how the Stock Purchase Plan will operate:

. Each participating employee's contributions will be used to purchase
shares for the employee's share account within 15 days after the last
day of each calendar quarter.

. The cost per share is 85% of the lower of the closing price of our
common stock on the Nasdaq National Market on the first or the last day
of the calendar quarter.

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<PAGE>

. The number of shares purchased on each employee's behalf and deposited
in his/her share account is based on the amount accumulated in such
participant's cash account and the purchase price for shares with
respect to any calendar quarter.

. Shares purchased under the Stock Purchase Plan carry full rights to
receive dividends declared from time to time.

. Any dividends attributable to shares in the employee's share account are
automatically used to purchase additional shares for such employee's
share account.

. Share distributions and share splits will be credited to the
participating employee's share account as of the record date and
effective date, respectively.

. A participating employee has full ownership of all shares in his/her
share account and may withdraw them for sale or otherwise by written
request to the committee following the close of each calendar quarter.

Subject to applicable federal securities and tax laws, the board of
directors has the right to amend or to terminate the Stock Purchase Plan.
Amendments to the Stock Purchase Plan will not affect a participating
employee's right to the benefit of the contributions made by such employee
prior to the date of any such amendment. In the event the Stock Purchase Plan
is terminated, the committee is required to distribute all shares held in each
participating employee's share account plus an amount of cash equal to the
balance in each participating employee's cash account.

57
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information, as of March 31, 1999, regarding
the beneficial ownership of our shares after giving effect to the one-for-0.818
reverse stock split and the Reclassification, assuming an offering price of
$11.00 per share (the midpoint of the range set forth on the cover of this
prospectus) and a Class L common stock Preference Amount of $30.056 per share,
(a) prior to the offering of 3,300,000 shares of our common stock, and
(b) immediately following the offering, in each case by: (i) each person or
entity known to us to own more than 5% of any class of outstanding voting
securities and (ii) each of our directors, each named executive officer and all
of our directors and executive officers as a group. The actual number of shares
of common stock to be issued to each holder of Class L common stock in the
Reclassification is subject to change based upon changes in the initial public
offering price and the completion date of this offering. See "The
Reclassification." To our knowledge, each of such stockholders has sole voting
and investment power as to the shares shown unless otherwise noted. Beneficial
ownership of the securities listed in the table has been determined in
accordance with the applicable rules and regulations promulgated under the
Securities Exchange Act of 1934.

<TABLE>
<CAPTION>
Shares Beneficially Owned
--------------------------------
Percentage of Class
----------------------
Number of Prior to the After the
Name and Address Shares Offering Offering
---------------- --------- ------------ ---------
<S> <C> <C> <C>
Principal Stockholders:
Bain Capital Funds (1).................... 6,407,539 56.1% 43.5%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Sutter Hill Ventures (2).................. 1,900,635 16.7 12.9
755 Page Mill Road
Palo Alto, California 94304
Toray Industries, Inc. (3)................ 938,572 7.9 6.2
8-1, Mihama 1-chome
Urayasu, Chiba 279, Japan
Shimadzu Corporation (4).................. 274,839 2.4 1.9
1, Nishinokyo-Kuwabaracho
Nakagyo-ku, Kyoto 604, Japan

Directors and Executive Officers:
Allan Rosencwaig (5)...................... 2,248,642 18.8 14.7
Martin M. Schwartz (6).................... -- -- --
Jon L. Opsal (7).......................... 235,960 2.0 1.6
David Willenborg (8)...................... 313,351 2.7 2.1
David Mak (9) ............................ 63,230 * *
G. Leonard Baker, Jr. (10)................ 1,900,635 16.7 12.9
David Dominik (11)........................ 1,886,065 16.5 12.8
Adam W. Kirsch (11)....................... 1,886,065 16.5 12.8
Ian K. Loring (11)........................ 1,886,065 16.5 12.8
All directors and executive officers as a
group (12 persons)....................... 6,880,985 56.1 44.2
</TABLE>
- --------
* Less than one percent.

(1) Includes: 1,254,575 shares of common stock held by Bain Capital Fund V,
L.P. ("Fund V"); 3,266,899 shares of common stock held by Bain Capital
Fund V-B, L.P. ("Fund V-B"); 680,418 shares of common stock held by BCIP
Associates ("BCIP"); and 1,205,647 shares of common stock held by BCIP
Trust Associates, L.P. ("BCIP Trust" and Fund V, Fund V-B and BCIP have
been defined herein as the "Bain Capital Funds").

(2) Also includes shares held by affiliates and related parties of Sutter
Hill.

(3) The 938,572 shares of common stock included in the table represent: (i)
464,827 shares of common stock and (ii) 475,745 shares of preferred stock,
each of which is convertible into 0.818 shares of common stock at any time
at the option of the holder thereof.

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<PAGE>

(4) The 274,839 shares of common stock included in the table represent: (i)
136,115 shares of common stock and (ii) 138,724 shares of preferred stock,
each of which is convertible into 0.818 shares of common stock at any time
at the option of the holder thereof.

(5) The 2,248,642 shares of common stock in the table include: (i) 549,594
shares of common stock which are subject to vesting; and (ii) 549,594
shares of common stock that can be acquired upon the exercise of
outstanding options. The address of Dr. Rosencwaig is c/o Therma-Wave,
Inc., 1250 Reliance Way, Fremont, California 94539.

(6) Mr. Schwartz joined Therma-Wave in August 1998.

(7) The 235,960 shares of common stock in the table include: (i) 104,423
shares of common stock which are subject to vesting; and (ii) 104,423
shares of common stock that can be acquired upon the exercise of
outstanding options.

(8) The 313,351 shares of common stock in the table include: (i) 82,439 shares
of common stock which are subject to vesting; and (ii) 82,439 shares of
common stock that can be acquired upon the exercise of outstanding
options.

(9) The 63,230 shares of common stock in the table include: (i) 31,615 shares
of common stock which are subject to vesting; and (ii) 31,615 shares of
common stock that can be acquired upon the exercise of outstanding
options.

(10) Mr. Baker is a Managing Director of the General Partner of Sutter Hill. As
a result, the shares of common stock acquired by Sutter Hill may be deemed
to be beneficially owned by Mr. Baker, who disclaims beneficial ownership
of any such shares in which he will not have a pecuniary interest. The
address of Mr. Baker is c/o Sutter Hill Ventures, 755 Page Mill Road, Palo
Alto, California 94304.

(11) Messrs. Dominik, Kirsch and Loring are each partners of BCIP and BCIP
Trust and, accordingly, may be deemed to beneficially own shares owned by
such funds. Each such person disclaims beneficial ownership of any such
shares in which he does not have a pecuniary interest. The address of such
persons is c/o Bain Capital, Inc., Two Copley Place, Boston, Massachusetts
02116.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Recapitalization Agreement

On December 18, 1996, the Bain Capital Funds and Toray Industries, Inc.,
Toray Industries (America), Inc. and Shimadzu Corporation and Therma-Wave
entered into a recapitalization agreement. Toray Industries (America) and
Shimadzu Corporation are collectively referred to herein as the "Existing
Stockholders." The recapitalization was effected on May 16, 1997. Pursuant to
the recapitalization agreement:

. we redeemed from the Existing Stockholders approximately 86.6% of their
existing shares of the common stock of Therma-Wave for approximately
$96.9 million in cash;

. the Bain Capital Funds and Sutter Hill purchased shares of our common
stock for an aggregate purchase price of $16.8 million in cash;

. the Existing Stockholders converted all of their shares of common stock
not otherwise redeemed for newly authorized and issued shares of our
preferred stock, Class L common stock and Class A common stock; and

. the Bain Capital Funds and Sutter Hill converted all of their shares of
common stock for newly authorized and issued shares of Class L common
stock and Class A common stock.

As part of the recapitalization, we also repaid substantially all of our
outstanding borrowings under existing loan agreements and paid fees and
expenses related to the financing of the recapitalization. We used
approximately $150.0 million to complete the recapitalization, including the
payment of related fees and expenses. In order to finance the recapitalization,
we:

. issued $115.0 million in aggregate principal amount of 10 5/8% senior
notes due 2004;

. received an equity contribution of $20.0 million in cash from the Bain
Capital Funds, Sutter Hill and members of our senior management team,
including Dr. Allan Rosencwaig, Anthony W. Lin, W. Lee Smith, David
Willenborg and Jon L. Opsal; and

. converted equity securities received from the Existing Stockholders
having a value of $15.0 million for purposes of the recapitalization
into shares of preferred stock and common stock.

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<PAGE>

The Existing Stockholders have jointly agreed to indemnify Therma-Wave, the
Bain Capital Funds and Sutter Hill for any and all losses with respect to taxes
for all taxable periods prior to March 31, 1996 and any breach of the
representation relating to taxes in the recapitalization agreement, subject to
the limitations set forth in the recapitalization agreement. In addition, we
agreed to indemnify the Existing Stockholders against any and all losses
arising out of:

. any employee benefit plan of Therma-Wave;

. the severance of any employee of Therma-Wave or its subsidiaries on or
after the closing date; and

. subject to certain exceptions, violations of environmental laws.

In addition, the Existing Stockholders have agreed for a period of three
years after the closing date of the recapitalization not to compete with us in
the business of manufacturing, marketing or selling:

. measuring equipment used for material characterization, such as ion
implantation monitoring or measurements in metal films;

. thin film measurement equipment; or

. equipment that utilizes our intellectual property.

The Existing Stockholders have also agreed for a period of two years after
the closing date not to solicit the employment of our employees without the
prior written consent of the Bain Capital Funds.

Management Equity Purchases

Bain Capital's investment strategy includes providing senior management with
the opportunity to acquire a significant equity interest in its acquired
businesses. Bain Capital believes that significant equity ownership increases
management's commitment and better aligns the two parties' interests.
Accordingly, at the time of the recapitalization, each of our executive
officers was given the opportunity to participate in the recapitalization. To
do so, each was required to enter into an executive stock agreement with us. In
general, the terms of the stock agreements establish the relative rights and
obligations between Therma-Wave, the management investors and Bain Capital and
the other investors. Pursuant to these stock agreements, we:

. sold shares of common stock to the executives at the same price per
share as paid by the Bain Capital Funds, which are referred to herein as
the "Rollover Stock";

. sold shares of common stock to the executives at the same price per
share as paid by the Bain Capital Funds, which are subject to vesting
over a five year period and are referred to herein as the "Time Vesting
Stock"; and

. granted options to the executives to acquire shares of common stock,
which were divided into five equal tranches with the exercise prices of
$10.92, $13.06, $15.20, $17.33 and $19.43 per share, respectively.

The following table summarizes the shares of common stock purchased by, and
the number of options granted to, our executive officers under the stock
agreements:

<TABLE>
<CAPTION>
No. of Shares Aggregate No. of Options
Name Purchased(2) Purchase Price Granted
---- ------------- -------------- --------------
<S> <C> <C> <C>
Allan Rosencwaig................. 1,699,048 $2,497,608 549,594
Anthony W. Lin (1)............... 151,397 125,611 104,423
Jon L. Opsal..................... 131,537 85,183 104,423
W. Lee Smith..................... 129,584 119,636 82,439
David Willenborg................. 230,912 325,890 82,439
</TABLE>
- --------

(1) Mr. Lin purchased 20,885 shares of vested common stock upon his resignation
from Therma-Wave. We repurchased the remainder of his unvested shares and
cancelled all of his outstanding options. As of March 31, 1999, Mr. Lin
holds 67,859 shares of common stock.

(2) The number of shares presented gives effect to the one-for-0.818 reverse
stock split and the Reclassification, assuming an offering price of $11.00
per share (the midpoint of the range set forth on the cover of this
prospectus) and a Class L common stock Preference Amount of $30.056 per
share.

60
<PAGE>

Substantially all of the purchase price for such shares was funded by cash
payments received by each executive officer from Toray in satisfaction of
Toray's obligations under a pre-existing equity incentive arrangement with such
executive officer. See "Certain Relationships and Related Transactions--
Payments to Executive Officers."

Set forth below is a summary of the material terms of the stock agreements:

Exercisability and Vesting. The options granted under the stock agreements
were immediately exercisable at the exercise prices listed above. The shares of
common stock issuable upon the exercise of such options will vest, regardless
of whether the option has been exercised, on May 16, 2002 provided that the
executive officer has been continuously employed by Therma-Wave during such
period. The shares of common stock that are issuable upon the exercise of the
options are referred to herein as the "Option Shares." In addition, some or all
of such shares of common stock are subject to earlier vesting upon specified
events, including all of such shares vesting immediately on a sale of Therma-
Wave.

Exercise Price and Form of Payment. The aggregate exercise price for all the
options granted to these executives under the stock agreements is approximately
$16.6 million. To date, none of the options granted under the stock agreements
have been exercised. Under the stock agreements, each executive officer is
entitled to pay the exercise price for his options through the issuance of a
promissory note to us. Under the terms of their respective employment
agreements, each of the executive officers is entitled to receive a deferred
payment in an amount that is sufficient to repay the outstanding principal of
such promissory note if our cumulative earnings before interest, taxes,
depreciation and amortization from May 16, 1997 through May 16, 2002 is equal
to or greater than $177 million. Our cumulative earnings before interest,
taxes, depreciation and amortization from May 16, 1997 through May 31, 1999 was
$13.8 million. In the event an executive officer elects to pay the exercise
price for his options with a promissory note, the promissory note will be full
recourse and the executive's obligation will not be in any way altered if we do
not achieve the operating results referred to in the preceding sentence. The
promissory note will be repayable upon the earliest of:

. the consummation of a sale of Therma-Wave;

. the later of (a) the fifth anniversary of its date and (b) the date
which is two weeks after the effectiveness of a registration statement
filed under the Securities Act as a result of the exercise of demand
registration rights granted to such executive officers;

. the termination of the executive officer's employment with Therma-Wave;

. the tenth anniversary of its date; or

. the date such executive officer violates the non-competition provision
of his employment agreement.

The promissory note will bear interest at the lesser of:

. the applicable federal rate at such time or

. the highest rate permitted by applicable law, and will be payable at
such time as the principal under the note is due.

The executive officer will be required to immediately repay the promissory note
to the extent of any net proceeds received from:

. any cash dividends on the Option Shares;

. any proceeds from the transfer of the Option Shares; and

. any deferred payments under such executive officer's employment
agreement.

Repurchase Option. The stock agreements grant us the right to repurchase the
shares of common stock held by the executive officer, including shares received
upon the exercise of options, in the event that the executive officer ceases to
be employed by us. The Bain Capital Funds are granted a similar right under the
stock agreements in the event that we do not elect to exercise our option with
respect to all of such executive's

61
<PAGE>

shares. Following this offering, this repurchase option will only be applicable
to an executive's unvested Option Shares and unvested Time Vesting Stock at a
repurchase price equal to the original cost of such shares. The repurchase
option terminates upon the earlier of a sale of Therma-Wave or May 16, 2002.
This repurchase option is designed to help us to retain our executive officers
by conditioning their equity participation on their continued employment.

Other Provisions. The stock agreements also:

. restrict the transfer of the executive officers' securities, subject to
limited exceptions;

. grant each executive officer the right to participate on a pro rata
basis in any sale or other transfer made by the Bain Capital Funds of
their shares of common stock to an unaffiliated third party; and

. require each executive officer to consent to a sale of Therma-Wave
approved by holders representing a majority of the shares of common
stock held by the Bain Capital Funds.

The transfer restrictions referenced above terminate upon the earlier of a
sale of Therma-Wave or May 16, 2002. The other provisions referenced above will
terminate upon the completion of this offering.

Loans to Executive Officers

In connection with the recapitalization, we made loans in an aggregate
principal amount of $297,931.55 to senior management in connection with their
purchase of shares of capital stock under the stock agreements. These loans are
secured by a pledge of the shares of common stock owned by such executive
officers and bear interest at a rate equal to the applicable federal rate at
the time of the recapitalization. The loans are payable upon a sale of Therma-
Wave or earlier under other similar circumstances.

In addition, we made loans in May 1997 to such executive officers to pay tax
liabilities associated with the distribution they received from Toray. Such
loans do not bear interest and mature upon the consummation of an "approved
sale" of Therma-Wave, which is defined in the stock agreements to include a
sale of all or substantially all of our assets determined on a consolidated
basis or a sale of all of our capital stock to an independent third party or
group of independent third parties, which has been approved by the holders of a
majority of the shares of common stock held by the Bain Group, as defined in
the stock agreements to include the Bain Capital Funds and Randolph Street
Partners. Each loan must be prepaid in the event that such executive officer
receives any cash dividends or distributions on the Rollover Stock or any
proceeds from the transfer of the Rollover Stock. The loans are secured by a
pledge of the Rollover Stock.

The following table sets forth the amount of each of these loans to the
following executive officers:

<TABLE>
<CAPTION>
Amount of Loan
-------------------
Name Stock Loan Tax Loan
---- ---------- --------
<S> <C> <C>
Allan Rosencwaig......................................... $151,172 $874,000
Anthony W. Lin........................................... $ 28,723 $ 35,663
Jon L. Opsal............................................. $ 28,723 $ 20,583
W. Lee Smith............................................. $ 22,676 $ 35,790
David Willenborg......................................... $ 22,676 $112,723
</TABLE>

All of the foregoing loans were outstanding as of March 31, 1999, except the
loans to Mr. Lin, which were repaid in August 1998 in connection with his
resignation.

Advisory Agreement

In connection with the recapitalization, we entered into an Advisory
Agreement with Bain Capital, pursuant to which Bain Capital agreed to provide:

. general executive and management services;

. identification, support, negotiation and analysis of acquisitions and
dispositions;

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<PAGE>

. support, negotiation and analysis of financial alternatives;

. finance, marketing and human resource functions; and

. other services agreed upon by Therma-Wave and Bain Capital.

In exchange for such services, Bain Capital receives:

. an annual management fee of $1.0 million, plus reasonable out-of-pocket
expenses (payable quarterly); and

. a transaction fee in connection with the consummation of each additional
acquisition by us of an additional business in an amount equal to 1% of
the aggregate transaction value.

In connection with the recapitalization, Bain Capital received a transaction
fee of $1.8 million. We paid fees to Bain Capital under the Advisory Agreement
of $750,000 in fiscal 1998 and $1.0 million in fiscal 1999. The Advisory
Agreement has an initial term of ten years, subject to automatic one-year
extensions unless we or Bain Capital provides written notice of termination.

Stockholders Agreement

In connection with the recapitalization, Therma-Wave, the Bain Capital
Funds, Sutter Hill and the Existing Stockholders entered into a stockholders
agreement. Bain Capital Funds and their designees that execute a counterpart to
the stockholders agreement, including Randolph Street Partners, are referred to
herein as the "Bain Group." The stockholders agreement:

. requires that each of the parties thereto vote all of his voting
securities and to take all other necessary or desirable actions to cause
the size of the board of directors to be established at five members and
to cause five designees of the Bain Capital Funds to be elected to the
board of directors;

. grants Therma-Wave and the Bain Group a right of first refusal on any
proposed transfer of shares held by the Existing Stockholders;

. grants the Existing Stockholders and Sutter Hill participation rights in
connection with specified transfers made by the Bain Group; and

. requires the Existing Stockholders and Sutter Hill to consent to a sale
of Therma-Wave to an independent third party if such sale is approved by
holders representing a majority of the shares held by the Bain Group.

In addition, we agreed not to issue, sell or otherwise transfer for
consideration to any member of the Bain Group or Sutter Hill or any affiliates
thereof at any time prior to a registered initial public offering, any shares
of common stock, or securities convertible into or otherwise exercisable or
exchangeable for common stock or securities containing any profit participation
features or options, unless each of the Existing Stockholders is given the
opportunity to subscribe for and purchase their pro rata portion of such
additional shares at the same price and on the same terms.

All of the foregoing provisions of the Stockholders Agreement will terminate
upon the consummation of an initial public offering registered under the
Securities Act.

Interests of Experts

Randolph Street Partners owns 98,261 shares of common stock acquired in the
recapitalization. In connection therewith, Randolph Street Partners entered
into the stockholders agreement and is considered part of the Bain Group under
the stock agreements and the registration agreement. Some partners of Kirkland
& Ellis are partners in Randolph Street Partners. Kirkland & Ellis has provided
legal services to Therma-Wave and Bain Capital from time to time and expects to
continue to do so in the foreseeable future.

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<PAGE>

Payments to Executive Officers

In connection with the recapitalization, our executive officers received the
following amounts of cash from Toray in satisfaction of Toray's obligations
under a pre-existing equity incentive arrangement with such executive officers:

<TABLE>
<CAPTION>
Name Cash
---- ----------
<S> <C>
Allan Rosencwaig................................................ $2,339,718
Anthony W. Lin.................................................. 95,612
Jon L. Opsal.................................................... 55,183
W. Lee Smith.................................................... 95,952
David Willenborg................................................ 302,207
</TABLE>

Voting Agreement

In connection with the recapitalization, Therma-Wave, the Bain Group, Sutter
Hill and key employees of Therma-Wave, including our named executive officers,
entered into a voting agreement pursuant to which each party thereto agreed to
vote his or its voting securities and to take all necessary or desirable
actions to cause the size of the board to be set at five directors and to cause
three designees of the Bain Group and Dr. Rosencwaig, as long as he is employed
by Therma-Wave, and another management employee of Therma-Wave designated by
Dr. Rosencwaig to be elected to the board of directors. The voting agreement
terminates by its terms upon the completion of an initial public offering and
sale of common stock pursuant to an effective registration statement under the
Securities Act.

Option Agreements Among Investors

At the time of the recapitalization, the Bain Group, Sutter Hill, Antares
International Partners, Inc. entered into an option agreement with each of our
executive officers that participated in the recapitalization. Bain Group,
Sutter Hill and Antares International Partners are referred to herein as the
"Investors." Pursuant to these option agreements, the Investors granted these
executive officers options to purchase an aggregate of 2,183,856 shares of the
Investors' common stock at an exercise price equal to $0.287 per share. Such
options become exercisable upon:

. any sale by the Investors of all or a portion of the common stock issued
to the Investors pursuant to the recapitalization, and

. the fifth anniversary of the date of the option agreement.

The number of options exercisable upon an Investor sale described in the
first bullet point or on the fifth anniversary of the option agreements is
dependent upon the fair market value of the Investors' investment in shares of
common stock issued pursuant to the recapitalization and the shares of common
stock issued to such executive officers in the recapitalization. No options are
exercisable until the fair market value of such shares is equal to or greater
than $500 million.

Like the management equity purchases described above, Bain Capital's
investment strategy includes providing senior management with the opportunity
to acquire a significant equity interest in its acquired businesses. Bain
Capital believes that significant equity ownership increases management's
commitment and better aligns the two parties' interests. Unlike the management
equity purchases described above, the options granted pursuant to the option
agreements were entered into with the Investors and not with us, and are
exercisable upon a sale of any Investor's stock as described above if the fair
market value of such shares is equal to or greater than $500 million. These
terms may incentivize management to work toward obtaining a profitable and
growing company with a valuation significantly higher than the initial
investments made by the Investors in our stock. A high valuation would provide
a profit to the Investors (and therefore the executive officers) in the event
of a sale of such Investor's stock.

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Development License Agreement

In 1992, we entered into a development license agreement with Toray and
Shimadzu. The purpose of the development license agreement was to allow the
parties to share patents and technology related to:

. the entire field of thermal wave technology;

. the field of laser technology related to thin film metrology;

. the field of optical processing; and

. any other fields designated by a research and development committee to
be formed by the parties, which are collectively referred to herein as
the "Field of Research."

Under the development license agreement:

. we granted to each of Toray and Shimadzu a royalty-free, non-exclusive
license to use our patents and technology related to the Field of
Research for the purpose of conducting research and new product
development activities in Japan; and

. Toray and Shimadzu granted to Therma-Wave a royalty-free, non-exclusive
license to use those of Toray's and Shimadzu's patents and technology
determined to be useful in connection with development projects for the
purpose of conducting research and new product development activities in
the U.S. and Japan.

The development license agreement requires the parties to take steps to
coordinate their research and development activities. All enhancements,
modifications and improvements to certain of our products existing at the time
the agreement was entered into will be owned by us, regardless of which party
creates such enhancements, modifications and improvements. However, to the
extent any such enhancements, modifications and improvements are based upon
patents and technology owned by Toray or Shimadzu, we will have to pay a
development fee or royalty to those parties. New developments will be jointly
owned by the party or parties who created the new development and the party or
parties whose patents or technology were used in such new development. The
commercialization, marketing and other use of each new development will be
governed by the terms of a separate agreement to be entered into by the
relevant parties on a case-by-case basis. To date, only one new development
agreement has been entered into between the parties, which relates to film
measurement equipment for a non-semiconductor application.

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DESCRIPTION OF INDEBTEDNESS

Bank Credit Facility

In connection with the recapitalization, we entered into our bank credit
facility with Bankers Trust Company. We may borrow amounts under the bank
credit facility to finance our working capital requirements and other general
corporate purposes. All revolving loans incurred under the bank credit
facility will mature on May 16, 2002. During the quarter ended June 30, 1998,
we amended the bank credit facility to have our borrowing availability subject
to a borrowing base formula, which provides a maximum revolving credit
facility of $30.0 million, and to adjust the financial covenants requiring us
to maintain minimum levels of EBITDA during each six-month period ending on
the last day of each fiscal quarter and minimum levels of cumulative EBITDA
from April 7, 1996 to the last day of each fiscal quarter. These amendments
were effected in light of the impact of the downturn in the semiconductor
industry on our operating results. Without these amendments to our bank credit
facility, on June 30, 1998, we would have violated the financial test relating
to the maintenance of minimum levels of EBITDA for the six-month period ending
on such date. At March 31, 1999, there was $3.5 million of an outstanding
letter of credit and $17.0 million of unused borrowing capacity under the
amended bank credit facility.

The bank credit facility provides that all of our indebtedness be secured
by:

. a first priority security interest in all of our receivables, contracts,
contract rights, equipment, intellectual property, inventory and all
other tangible and intangible assets and each of our domestic
subsidiaries, subject to customary exceptions;

. a pledge of all capital stock of any direct and indirect domestic
subsidiaries; and

. a pledge of 65% of the capital stock of each of our first-tier foreign
subsidiaries.

Our borrowings under the bank credit facility bear interest at a floating
rate and may be maintained as base rate loans or, at our option, as eurodollar
loans. Base rate loans bear interest at the base rate plus 1.75%. Eurodollar
loans bear interest at the eurodollar rate applicable for one, two, three, six
or twelve month periods, in each case plus 3.00%. Base rate loans, eurodollar
loans and eurodollar rate are defined in the bank credit facility. The base
rate equals the higher of:

. the applicable prime lending rate of Bankers Trust Company, and

. the Federal Reserve reported certificate of deposit rate plus 1%.

Amounts borrowed under the bank credit facility may be repaid and
reborrowed. We are required to pay to the lenders under the bank credit
facility a commitment fee equal to .50% per annum, payable in arrears on a
quarterly basis, on the average unused portion of the bank credit facility
during such quarter; provided, however, that such commitment fee increases to
.75% per annum if during any quarterly payment period the daily average
outstanding borrowings were less than 1/2 of the total revolving loan
commitment. We are also required to pay to the lenders a letter of credit fee
with respect to each letter of credit outstanding equal to 3.00% per annum of
the average daily stated amount of such letter of credit and an additional
fronting fee of .25% on such average daily stated amount to the lender issuing
such letter of credit, in each case payable in arrears on a quarterly basis.
The agent and the lenders will receive and continue to receive such other fees
as have been separately agreed upon with the agent.

The bank credit facility requires us to meet financial tests, including,
without limitation, minimum levels of EBITDA, minimum interest coverage,
maximum leverage ratio and maximum amount of capital expenditures. The
adjustments to the financial tests and covenants in the June 1998 amendment
relate to periods prior to March 31, 2000. For periods after that time, the
financial tests and covenants contained in the original agreement will apply.
The bank credit facility contains covenants which limit the incurrence of
additional indebtedness, investments, dividends, transactions with affiliates,
asset sales, acquisitions, mergers and consolidations, prepayments of other
indebtedness (including the senior notes), liens and encumbrances and other
matters customarily restricted in such agreements.

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The bank credit facility contains customary events of default, including
without limitation, payment defaults, breaches of representations and
warranties, covenant defaults, cross-defaults to other specified indebtedness
in excess of $1.5 million, certain events of bankruptcy and insolvency,
judgment defaults in excess of $1.5 million that are otherwise not covered by
insurance, failure of any guaranty or security document supporting the bank
credit facility to be in full force and effect and change of control of Therma-
Wave.

The foregoing summary of the material provisions of the bank credit
facility, as amended, is qualified in its entirety by reference to all of the
provisions of the bank credit facility, which has been filed as an exhibit to
the registration statement of which this prospectus forms a part. See "Where
You Can Find More Information."

Senior Notes

The senior notes were issued pursuant to an indenture, dated as of May 15,
1997, by and between us and IBJ Schroder Bank & Trust Company, as trustee. The
senior notes are limited in aggregate principal amount to $115,000,000 and will
mature on May 15, 2004. Interest on the senior notes accrues at the rate of 10
5/8% per annum and is payable semiannually in cash on each May 15 and November
15, to the persons who are registered holders of the senior notes at the close
of business on the May 1 and November 1, respectively, immediately preceding
the applicable interest payment date. The senior notes are not entitled to the
benefit of any mandatory sinking fund. The senior notes are senior unsecured
obligations of Therma-Wave, ranking pari passu in right of payment with all
other senior unsecured obligations of Therma-Wave.

The senior notes are redeemable, at our option, in whole at any time or in
part from time to time, on and after May 15, 2001, upon not less than 30 nor
more than 60 days' notice, at the following redemption prices, expressed as
percentages of the principal amount thereof, if redeemed during the twelve-
month period commencing on May 15 of the year set forth below, plus, in each
case, accrued interest to the date of redemption:

<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001............................................................ 105.313%
2002............................................................ 102.656
2003............................................................ 100.000
</TABLE>

At any time, or from time to time, on or prior to May 15, 2000, we may, at
our option, use the net cash proceeds of one or more equity offerings to redeem
up to 35% of the aggregate principal amount of senior notes originally issued
at a redemption price equal to 110.625% of the principal amount thereof plus
accrued and unpaid interest thereon, if any, to the date of such redemption;
provided that at least $69.0 million aggregate principal amount of senior notes
originally issued remains outstanding immediately after any such redemption.

If we consummate an initial public offering prior to May 15, 2000 in which
we receive net proceeds equal to or greater than $25.0 million, we are required
to apply the net cash proceeds relating to such initial public offering to make
an offer to purchase from all holders on a pro rata basis that amount of senior
notes equal to the net cash proceeds from such initial public offering at a
price equal to 110.625% of the aggregate principal amount of senior notes to be
repurchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase. The aggregate amount of net cash proceeds required to be applied
pursuant to this provision is reduced dollar-for-dollar:

. to the extent such net cash proceeds are used to prepay indebtedness
under our bank credit facility and effect a permanent reduction in the
availability thereunder; and

. by the aggregate amount of net cash proceeds of one or more equity
offerings consummated prior to the consummation of the initial public
offering to the extent used to redeem senior notes.

We are not required pursuant to this provision to redeem an aggregate principal
amount of senior notes in excess of 35% of the aggregate principal amount of
senior notes originally issued. We will be required to use the net proceeds of
this offering to make the repurchase offer described above. See "Use of
Proceeds."

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The indenture provides that, upon the occurrence of a change of control,
each holder will have the right to require that we purchase all or a portion of
such senior notes, at a purchase price equal to 101% of the principal amount
thereof plus accrued interest thereon to the date of purchase. The term "change
of control" is defined under the indenture to include one or more of the
following events:

. any sale, lease, exchange or other transfer, in one transaction or a
series of related transactions, of all or substantially all of our
assets to any person or group of related persons, together with any
affiliates thereof;

. the approval by the holders of our capital stock of any plan or proposal
for the liquidation or dissolution of Therma-Wave, whether or not
otherwise in compliance with the provisions of the indenture;

. any person or group of related person, other than the Bain Capital
Funds, Sutter Hill or their respective related parties, shall become the
owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power
represented by our issued and outstanding capital stock; or

. the first day within any two-year period on which a majority of the
members of the board of directors are not continuing directors.

The following events are defined in the indenture as "events of default":

. the failure to pay interest on any senior notes and such default
continues for a period of 30 days;

. the failure to pay the principal on any senior notes;

. a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a
period of 30 days;

. the failure to pay at final stated maturity the principal amount of any
indebtedness of Therma-Wave or any restricted subsidiary of Therma-Wave
and such failure continues for a period of 20 days or more, if the
aggregate principal amount of such indebtedness, together with the
principal amount of any other such indebtedness in default for failure
to pay principal at final maturity or which has been accelerated,
aggregates $5.0 million or more at any time;

. one or more judgments in an aggregate amount in excess of $5.0 million
shall have been rendered against us or any of our significant
subsidiaries and such judgments remain undischarged, unpaid or unstayed
for a period of 60 days after such judgment or judgments become final
and non-appealable; and

. events of bankruptcy affecting us or any of our significant
subsidiaries.

The indenture contains covenants for the benefit of the holders of the
senior notes that, among other things, limit our ability and any of our
restricted subsidiaries to:

. enter into transactions with affiliates;

. pay dividends or make other restricted payments;

. consummate asset sales;

. incur indebtedness that is senior in right of payment to the senior
notes;

. incur liens;

. impose restrictions on the ability of a subsidiary to pay dividends or
make payments to Therma-Wave and its subsidiaries;

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. merge or consolidate with any other person; or

. sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of Therma-Wave.

The foregoing summary of the material provisions of the indenture is
qualified in its entirety by reference to all of the provisions of the
indenture, which has been filed as an exhibit to the registration statement, of
which this prospectus forms a part. See "Where You Can Find More Information."

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DESCRIPTION OF CAPITAL STOCK

General Matters

Upon completion of this offering, the total amount of our authorized capital
stock will consist of 35,000,000 shares of common stock, 1,000,000 shares of
Series A mandatorily redeemable convertible preferred stock and
5,000,000 shares of one or more additional series of preferred stock. As of
March 31, 1999, we had outstanding 7,422,157 shares of Class A common stock,
914,607 shares of Class B common stock, 824,695 shares of Class L common stock
and 748,739 shares of Series A mandatorily redeemable convertible preferred
stock. Prior to the completion of this offering, all of the outstanding shares
of Class A common stock, Class B common stock and Class L common stock will be
reclassified into a single class of common stock in the Reclassification. See
"The Reclassification."

After giving effect to this offering, assuming an offering price of $11.00
per share (the midpoint of the range set forth on the cover of the prospectus)
and a Class L common stock Preference Amount of $30.056 per share, we will have
14,714,837 shares of common stock (15,209,837 shares if the underwriters' over-
allotment option is exercised in full), 748,739 shares of Series A mandatorily
redeemable convertible preferred stock and no other shares of any series of
preferred stock outstanding. As of March 31, 1999, we had 31 stockholders of
record with respect to our common stock and two stockholders of record with
respect to our Series A mandatorily redeemable convertible preferred stock. The
following summary of provisions of our capital stock describes all material
provisions of, but does not purport to be complete and is subject to, and
qualified in its entirety by, our restated certificate of incorporation and our
amended and restated by-laws, which are included as exhibits to the
registration statement of which this prospectus forms a part, and by the
provisions of applicable law.

The restated certificate and by-laws contain provisions that are intended to
enhance the likelihood of continuity and stability in the composition of the
board of directors and which may have the effect of delaying, deferring or
preventing a future takeover or change in control of Therma-Wave unless such
takeover or change in control is approved by our board of directors.

Common Stock

The issued and outstanding shares of common stock are, and the shares of
common stock to be issued by us in connection with the offering will be,
validly issued, fully paid and nonassessable. Subject to the prior rights of
the holders of any series of preferred stock, the holders of outstanding shares
of common stock are entitled to receive dividends out of assets legally
available therefor at such time and in such amounts as the board of directors
may from time to time determine. See "Dividend Policy." The shares of common
stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any of our securities. Upon liquidation,
dissolution or winding up of Therma-Wave, the holders of common stock are
entitled to receive pro rata our assets which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of any series of preferred stock then
outstanding. Each outstanding share of common stock is entitled to one vote on
all matters submitted to a vote of stockholders. There is no cumulative voting.
Except as otherwise required by law or the restated certificate, the holders of
common stock and the holders of Series A mandatorily redeemable convertible
preferred stock vote together as a single class on all matters submitted to a
vote of stockholders.

The common stock has been approved for inclusion on the Nasdaq National
Market under the symbol "TWAV," subject to official notice of issuance.

Series A Mandatorily Redeemable Convertible Preferred Stock

The Series A mandatorily redeemable convertible preferred stock has a
liquidation preference of $18.40 per share and each share is convertible into
0.818 shares of common stock at the option of the holder thereof. Dividends on
the Series A mandatorily redeemable convertible preferred stock accrue at a
rate of 6.0% per

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annum. The Series A mandatorily redeemable convertible preferred stock has a
scheduled redemption date of May 17, 2004 and is otherwise redeemable by us at
any time in our sole discretion. The Series A mandatorily redeemable
convertible preferred stock entitles the holder thereof to one vote for each
share of common stock issuable upon conversion of such Series A mandatorily
redeemable convertible preferred stock on all matters submitted to a vote of
stockholders. All of the shares of Series A mandatorily redeemable convertible
preferred stock are held by Toray and Shimadzu. The terms of the Series A
mandatorily redeemable convertible preferred stock can not be amended, modified
or waived without the prior written consent of the holders of a majority of the
Series A mandatorily redeemable convertible preferred stock outstanding at the
time such action is taken.

If any of the following occur:

. any member of the Bain Group receives any proceeds in respect of common
stock owned by such member in connection with any registered public
offering of our shares of common stock;

. the Bain Group sells or transfers 25% of the common stock acquired by
the Bain Group pursuant to the Recapitalization Agreement; or

. Therma-Wave or any of its subsidiaries engages in any transaction or
series of transactions which would result in the sale of all or
substantially all of our assets on a consolidated basis,

then the holders of a majority of the Series A mandatorily redeemable
convertible preferred stock then outstanding may require us, upon written
notice, to redeem all of the outstanding shares of Series A mandatorily
redeemable convertible preferred stock at a price of $18.40 per share (plus all
accrued and unpaid dividends thereon). Any redemptions by us of the Series A
mandatorily redeemable convertible preferred stock for the reasons described in
the bullets listed above does not extinguish our obligation to redeem shares of
such stock pursuant to the preceding paragraph.

Other Preferred Stock

Our board of directors may, without further action by our stockholders, from
time to time, direct the issuance of shares of preferred stock in a series and
may, at the time of issuance, determine the rights, preferences and limitations
of each series. Satisfaction of any dividend preferences of outstanding shares
of preferred stock would reduce the amount of funds available for the payment
of dividends on shares of common stock. Holders of shares of preferred stock
may be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of Therma-Wave before any payment is
made to the holders of shares of common stock. The issuance of shares of
preferred stock may render more difficult or tend to discourage a merger,
tender offer or proxy contest, the assumption of control by a holder of a large
block of our securities or the removal of incumbent management. Upon the
affirmative vote of a majority of the total number of directors then in office,
the board of directors, without stockholder approval, may issue shares of
preferred stock with voting and conversion rights which could adversely affect
the holders of shares of common stock. Except for the Series A convertible
preferred stock described above, there are no other shares of preferred stock
outstanding, and we have no present intention to issue any additional shares of
preferred stock.

Other Provisions of the Restated Certificate of Incorporation and By-laws

The restated certificate provides for the board to be divided into three
classes, as nearly equal in number as possible, serving staggered terms.
Approximately one-third of the board will be elected each year. See
"Management." Under the Delaware General Corporation Law, directors serving on
a classified board can only be removed for cause. The provision for a
classified board could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the board until the
second annual stockholders meeting following the date the acquiror obtains the
controlling stock interest. The classified board provision could have the
effect of discouraging a potential acquiror from making a tender offer or
otherwise attempting to obtain control of Therma-Wave and could increase the
likelihood that incumbent directors will retain their positions.

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The restated certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The restated certificate and the by-laws provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called pursuant to a resolution adopted by a majority of the board
of directors or by our chief executive officer. Stockholders will not be
permitted to call a special meeting or to require the board to call a special
meeting.

The by-laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the board. Stockholders at an annual
meeting may only consider proposals or nominations specified in the notice of
meeting or brought before the meeting by or at the direction of the board or by
a stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting and who has given to our
secretary timely written notice, in proper form, of such stockholder's
intention to bring that business before the meeting. Although the by-laws do
not give the board the power to approve or disapprove stockholder nominations
of candidates or proposals regarding other business to be conducted at a
special or annual meeting, the by-laws may have the effect of precluding the
conduct of business at a meeting if the proper procedures are not followed or
may discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of Therma-Wave.

The restated certificate and by-laws provide that the affirmative vote of
holders of at least 66 2/3% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal some of
their provisions, unless such amendment or change has been approved by a
majority of the directors not affiliated or associated with any person or
entity holding 20% or more of the voting power of our outstanding capital
stock, other than the Bain Capital Funds. This requirement of a super-majority
vote to approve amendments to the restated certificate and by-laws could enable
a minority of our stockholders to exercise veto power over any such amendments.

Provisions of Delaware Law Governing Business Combinations

Following the consummation of this offering, we will be subject to the
"Business Combination" provisions of the Delaware General Corporation Law. In
general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder," unless:

. the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained such status;

. upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by (a) persons who
are directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or

. on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested
stockholder."

A "business combination" is defined to include mergers, asset sales and
other transactions resulting in financial benefit to a stockholder. In general,
an "interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of a corporation's voting stock or within three
years did own 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to Therma-Wave and, accordingly, may discourage attempts to acquire
Therma-Wave.

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Limitations on Liability and Indemnification of Officers and Directors

The restated certificate limits the liability of directors to the fullest
extent permitted by the Delaware General Corporation Law. In addition, the
restated certificate provides that we will indemnify our directors and officers
to the fullest extent permitted by such law. We expect to enter into
indemnification agreements with our current directors and executive officers
prior to the completion of the offering and expect to enter into a similar
agreement with any new directors or executive officers.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is BankBoston, N.A.

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there was no market for our common stock. We can
make no predictions as to the effect, if any, that sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of significant amounts of our common stock in
the public market, or the perception that such sales may occur, could adversely
affect prevailing market prices.

Sale of Restricted Shares

Upon completion of this offering, we will have, assuming no exercise of the
underwriters' over-allotment option, an offering price of $11.00 per share (the
midpoint of the range set forth on the cover of the prospectus) and a Class L
common stock Preference Amount of $30.056 per share, 14,714,837 shares of
common stock outstanding. In addition, 978,658 shares of common stock are
issuable upon the exercise of currently exercisable outstanding stock options.
Of the shares outstanding after the offering, 3,300,000 shares of common stock,
or 3,795,000 shares if the underwriters' over-allotment is exercised in full,
are freely tradeable without restriction under the Securities Act, except for
any such shares which may be held or acquired by an "affiliate" of Therma-Wave,
as that term is defined in Rule 144 promulgated under the Securities Act, which
shares will be subject to the volume limitations and other restrictions of Rule
144 described below. An aggregate of 11,414,837 shares of common stock held by
our existing stockholders upon completion of the offering will be "restricted
securities," as that phrase is defined in Rule 144, and may not be resold in
the absence of registration under the Securities Act or pursuant to an
exemption from such registration, including among others, the exemptions
provided by Rule 144 under the Securities Act.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, if a period of at least one year has elapsed since
the later of the date the "restricted securities" were acquired from us or the
date they were acquired from an affiliate, then the holder of such restricted
securities, including an affiliate, is entitled to sell in the public market a
number of shares within any three-month period that does not exceed the greater
of 1% of the then outstanding shares of the common stock or the average weekly
reported volume of trading of the common stock on the Nasdaq National Market
during the four calendar weeks preceding such sale. The holder may only sell
such shares through "brokers' transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144. Sales under Rule 144 are
also subject to requirements regarding providing notice of such sales and the
availability of current public information concerning us. Affiliates may sell
shares not constituting restricted securities in accordance with the foregoing
volume limitations and other requirements but without regard to the one-year
holding period.

Under Rule 144(k), if a period of at least two years has elapsed between the
later of the date restricted securities were acquired from us or the date they
were acquired from an Affiliate, as applicable, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to sell
the shares in the public market without regard to the volume limitations and
other restrictions described above. Beginning 90 days after the date of this
prospectus, approximately 277,581 shares of common stock will be eligible for
sale in the public market pursuant to Rule 144(k).

Securities issued in reliance on Rule 701, such as shares of common stock
acquired upon exercise of options granted under Therma-Wave stock plans, are
also restricted and, beginning 90 days after the effective date of this
prospectus, may be sold by stockholders other than affiliates of Therma-Wave
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year holding period requirement.

Options

We intend to file registration statements on Form S-8 under the Securities
Act to register approximately 2,710,239 shares of common stock issuable under
our stock plans. These registration statements are expected to be filed within
six months of the effective date of the registration statement of which this
prospectus is a part and will be effective upon filing. Shares issued upon the
exercise of stock options after the effective date of the

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Form S-8 registration statements will be eligible for resale in the public
market without restriction, subject to Rule 144 limitations applicable to
Affiliates and the lock-up agreements described below.

Lock-Up Agreements

Notwithstanding the foregoing, Therma-Wave, our executive officers,
directors and substantially all of our existing stockholders and many of our
optionholders who are senior officers have agreed not to offer, sell, contract
to sell or otherwise dispose of any shares of our common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Banc of America Securities LLC, except, in the case of Therma-Wave, for the
shares of common stock to be issued in connection with the offering or pursuant
to employee benefit plans existing on the date of this prospectus or upon the
conversion of the Series A mandatorily redeemable convertible preferred stock,
sales or dispositions to Therma-Wave, permitted transfers to related parties
that agree to be bound by the foregoing restrictions, and permitted sales of
shares acquired in the open market following the completion of the offering.

Registration Agreement

Pursuant to the recapitalization, Therma-Wave, the Bain Group, Sutter Hill,
the Existing Stockholders and our executive officers that participated in the
recapitalization entered into a registration agreement. Under the registration
agreement, the holders of a majority of the registerable securities owned by
the Bain Group have the right at any time, subject to conditions, to require us
to register any or all of their shares of common stock under the Securities Act
on Form S-1, a "Long-Form Registration," on three occasions at our expense or
on Form S-2 or Form S-3, a "Short-Form Registration," on six occasions at our
expense. In addition, at any time after a Public Offering, the holders of a
majority of the registrable securities owned by the Existing Stockholders have
the right, subject to conditions, to require either a Long-Form Registration or
a Short-Form Registration on one occasion at our expense. Further, at any time
after the later of the fifth anniversary of the closing of the recapitalization
and 180 days after a public offering, the executive officers have the right,
subject to conditions, to require either a Long-Form Registration or a Short-
Form Registration, at our expense, with respect to a number of shares of common
stock the proceeds of which, subject to limitations, would be sufficient to pay
taxes incurred by them upon receipt of the deferred bonuses under their
employment contracts. See "Management--Employment Agreements." We are not
required, however, to effect any such Long-Form Registration or Short-Form
Registration within six months after the effective date of a prior demand
registration and may postpone the filing of such registration for up to six
months if we believe that such a registration would reasonably be expected to
have an adverse effect on any proposal or plan by us or any of our subsidiaries
to engage in an acquisition, merger or similar transaction.

In addition, all holders of registerable securities are entitled to request
the inclusion of any shares of common stock subject to the registration
agreement in any registration statement at our expense whenever we propose to
register any of our securities under the Securities Act. Such right to request
inclusion of shares is not permitted:

. in connection with a public offering, unless any holders of registrable
securities are permitted to participate in the public offering;

. pursuant to a demand registration; or

. pursuant to a registration on Form S-4 or S-8.

In connection with all such registrations, we have agreed to indemnify all
holders of registerable securities against liabilities set forth in the
registration agreement, including liabilities under the Securities Act. In
addition, all the parties to the registration agreement have agreed not to make
any public sales of their registerable securities for a period beginning seven
days prior to the effective date of any registration statement and continuing
for a period of 180 days thereafter, other than registerable securities
included in such registration statement. Beginning 180 days after the
completion of the offering, the holders of an aggregate of 11,340,010 shares of
common stock, assuming an offering price of $11.00 per share (the midpoint of
the range set forth on the cover of the prospectus) and a Class L common stock
Preference Amount of $30.056 per share, will have limited rights to require us
to register their shares of common stock under the Securities Act at our
expense.

75
<PAGE>

UNDERWRITING

Therma-Wave is offering the shares of common stock described in this
prospectus through a number of underwriters. Banc of America Securities LLC and
Lehman Brothers Inc. are the representatives of the underwriters. Therma-Wave
has entered into an underwriting agreement with the representatives. Subject to
the terms and conditions of the underwriting agreement, Therma-Wave has agreed
to sell to the underwriters, and each underwriter has severally agreed to
purchase, the number of shares of common stock listed next to its name in the
following table.

<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Banc of America Securities LLC...................................
Lehman Brothers Inc. ............................................
---
Total..........................................................
===
</TABLE>

Shares sold by the underwriters to the public will initially be offered on
the terms set forth on the cover page of this prospectus. The underwriters may
allow to selected dealers a concession of not more than $ per share, and the
underwriters may also allow, and any other dealers may reallow, a concession of
not more than $ per share to other dealers. If all the shares are not sold
at the initial public offering price, the underwriters may change the offering
price and the other selling terms. The common stock is offered subject to
receipt and acceptance by the underwriters and other conditions, including the
right to reject orders in whole or in part.

If the underwriters sell more shares than the total number of shares set
forth in the table above, they have an option to buy up to a maximum of 495,000
additional shares from Therma-Wave to cover such sales. The underwriters have
30 days to exercise this option. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above. If purchased, the underwriters
will offer such additional shares on the same terms as those on which the
3,300,000 shares are being offered. The following table sets forth the per
share and total underwriting discounts and commissions to be paid to the
underwriters assuming both no exercise and full exercise of the underwriters'
option to purchase 495,000 additional shares.

<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share........................................ $ $
---- ----
Total............................................ $ $
==== ====
</TABLE>

Therma-Wave, our executive officers, directors and substantially all of our
existing stockholders as well as holders of options to purchase common stock
who are senior officers have agreed with the underwriters not to dispose of or
hedge any of their common stock or securities convertible into or exchangeable
for shares of common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus without
the prior written consent of Banc of America Securities LLC. At any time and
without notice, Banc of America Securities LLC may, in its sole discretion,
release all or any portion of the securities from these lock-up agreements.

The underwriting agreement provides that Therma-Wave will indemnify the
underwriters against liabilities set forth in such agreement, including civil
liabilities under the Securities Act, or will contribute to payments the
underwriters may be required to make in respect thereof.

At our request, the underwriters have reserved up to 100,000 shares of
common stock offered by this prospectus for sale at the initial public offering
price to persons having business relationships with us. The number of shares of
common stock available to the general public will be reduced to the extent that
these persons purchase the reserved shares. Any reserved shares of common stock
that are not so purchased by

76
<PAGE>

such persons at the closing of the initial public offering, will be offered by
the underwriters to the general public on the same terms as the other shares in
the initial public offering.

In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:

. short sales

. stabilizing transactions

. purchases to cover positions created by short sales

Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.

The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:

. over-allotment

. stabilization

. syndicate covering transactions

. imposition of penalty bids

As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter market or otherwise.

The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.

Prior to this offering, there has been no public market for the common stock
of Therma-Wave. The initial public offering price will be negotiated among
Therma-Wave and the underwriters. Among the factors to be considered in such
negotiations are:

. the history of, and prospects for, Therma-Wave and the industry in which
it competes

. the past and present financial performance of Therma-Wave

. an assessment of Therma-Wave's management

. the present state of Therma-Wave's development

. the prospects for Therma-Wave's future earnings

. the prevailing market conditions of the applicable U.S. securities
market at the time of this offering

. market valuations of publicly traded companies that Therma-Wave and the
representatives believe to be comparable to Therma-Wave

. other factors deemed relevant

The total expenses related to this initial public offering of our common
stock are estimated to be $1,030,000.

77
<PAGE>

EXPERTS

The consolidated financial statements as of March 31, 1999 and for the year
ended March 31, 1999 appearing in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at March 31, 1998, and for each of the two fiscal years in
the period ended March 31, 1998, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
Therma-Wave by Kirkland & Ellis (a partnership that includes professional
corporations), Chicago, Illinois. Some partners of Kirkland & Ellis are
partners in Randolph Street Partners, which owns 98,261 shares of common stock.
Some legal matters in connection with this offering will be passed upon for the
underwriters by Ropes & Gray, Boston, Massachusetts. Kirkland & Ellis and Ropes
& Gray have, from time to time, represented, and may continue to represent,
some of the underwriters in connection with various legal matters and the Bain
Capital Funds and some of their affiliates (including Therma-Wave) in
connection with legal matters.

CHANGE IN INDEPENDENT ACCOUNTANTS

Effective July 16, 1998, we dismissed Ernst & Young LLP as our independent
accountants. Concurrent with such dismissal, we engaged PricewaterhouseCoopers
LLP as our independent accountants. The decision to dismiss Ernst & Young LLP
as our independent accountants was approved by Therma-Wave's board of
directors.

The reports of Ernst & Young LLP on our consolidated financial statements
for each of the two fiscal years in the period ended March 31, 1998 did not
contain an adverse opinion or a disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles.

In connection with the audits of our consolidated financial statements for
each of the two fiscal years in the period ended March 31, 1998, and through
July 16, 1998, there were no disagreements between us and Ernst & Young LLP on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Ernst & Young LLP, would have caused them to make reference to
the matter in their reports.

WHERE YOU CAN FIND MORE INFORMATION

We are currently subject to the informational requirements of the Exchange
Act, and in accordance therewith we are required to file periodic reports and
other information with the SEC. The reports and other information filed by us
with the SEC may be inspected and copied at the public reference facilities
maintained by the SEC as described below.

We have filed with the SEC a registration statement on Form S-1 (the
"Registration Statement," which term shall encompass all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules
and regulations promulgated thereunder, with respect to the shares of common
stock offered hereby. This prospectus, which constitutes part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, parts of which are omitted in accordance with the rules
and regulations of the SEC. For further information with respect to us and the
common stock offered hereby,

78
<PAGE>

reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the
document or matter involved, and each such statement shall be deemed qualified
in its entirety by such reference.

The Registration Statement, including the exhibits thereto, can be inspected
and copied at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 (telephone number: 1-800-
SEC-0330), at the Regional Offices of the SEC at 7 World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of
such site is http://www.sec.gov.

We intend to furnish our stockholders with annual reports containing
financial statements audited by an independent accounting firm, and to make
available quarterly reports containing unaudited financial information for the
first three quarters of each fiscal year.

79
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Therma-Wave, Inc. Audited Consolidated Financial Statements

Report of Independent Accountants........................................ F-2

Report of Ernst & Young LLP, Independent Auditors........................ F-3

Consolidated Balance Sheets as of March 31, 1998 and 1999................ F-4

Consolidated Statements of Operations for the years ended March 31, 1997,
1998 and 1999........................................................... F-5

Consolidated Statements of Mandatorily Redeemable Convertible Preferred
Stock and Stockholders' Equity (Net Capital Deficiency) for the years
ended March 31, 1997, 1998 and 1999..................................... F-6

Consolidated Statements of Cash Flows for the years ended March 31, 1997,
1998 and 1999........................................................... F-7

Notes to Consolidated Financial Statements............................... F-8
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of
Therma-Wave, Inc.

The reverse stock split described in Note 12 to the consolidated financial
statements has not been consummated at March 31, 1999. Upon the effective date
of this Registration Statement, we will be in a position to furnish the
following report:

"In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of mandatorily redeemable
convertible preferred stock and stockholders' equity (net capital
deficiency) and of cash flows present fairly, in all material respects,
the financial position of Therma-Wave, Inc. and its subsidiaries at March
31, 1999, and the results of their operations and their cash flows for the
year then ended March 31, 1999 in conformity with generally accepted
accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing
standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above."

PricewaterhouseCoopers LLP
San Jose, California
April 27, 1999

F-2
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Therma-Wave, Inc.

We have audited the accompanying consolidated balance sheet of Therma-Wave,
Inc. as of March 31, 1998, and the related consolidated statements of
operations, mandatorily redeemable convertible preferred stock and
stockholders' equity (net capital deficiency), and cash flows for each of the
two years in the period ended March 31, 1998. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Therma-Wave, Inc. at March 31, 1998 and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
March 31, 1998, in conformity with generally accepted accounting principles.

Ernst & Young LLP

San Jose, California

May 1, 1998, except as to Note 12,as to which the date is July 20, 1999

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

The foregoing report is in the form that will be signed upon the completion
of the reverse stock split described in Note 12 to the financial statements.

/s/ Ernst & Young LLP

San Jose, California

July 20, 1999

F-3
<PAGE>

THERMA-WAVE, INC.

CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity
(Net Capital
March 31, Deficiency)
------------------- at March 31,
1998 1999 1999
-------- --------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 20,422 $ 20,245
Accounts receivable, net of allowance for
doubtful accounts of $3,016 and $1,911 at
March 31, 1998 and 1999, respectively..... 22,098 12,180
Inventory.................................. 21,292 15,369
Deferred income taxes...................... 7,693 2,254
Other current assets....................... 245 7,505
-------- ---------
Total current assets...................... 71,750 57,553
Property and equipment, net................ 6,241 4,513
Deferred financing costs, net.............. 9,956 8,349
Other assets............................... 1,815 1,937
-------- ---------
Total assets.............................. $ 89,762 $ 72,352
======== =========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL
DEFICIENCY)
Current liabilities:
Accounts payable........................... $ 4,019 $ 4,034
Accrued liabilities........................ 22,198 20,495
Deferred revenue .......................... 2,111 1,556
Capital lease obligations, current
portion................................... 74 74
-------- ---------
Total current liabilities................. 28,402 26,159
Long term debt.............................. 115,000 115,000
Capital lease obligations, long-term
portion.................................... 315 201
Deferred income taxes....................... 1,716 2,254
Deferred rent and other..................... 804 362

Commitments and contingencies (Note 7)

Mandatorily redeemable convertible preferred
stock, $.01 par value; 1,000,000 shares
authorized; 748,739 shares issued and
outstanding at March 31, 1998 and 1999
(aggregate liquidation preference of
$15,347)................................... 14,515 15,347

Stockholders' equity (net capital
deficiency)
Preferred stock, no shares issued and
outstanding at March 31, 1998 and 1999;
$0.01 par value, 5,000,000 authorized; no
shares issued or outstanding on a pro
forma basis (unaudited)................... -- -- $ --
Common stock, no shares issued and
outstanding at March 31, 1998 and 1999;
$.01 par value, 35,000,000 shares
authorized, 11,328,242 shares issued and
outstanding at March 31, 1999 on a pro
forma basis (unaudited)................... -- -- 113
Class A common stock, $.001 par value;
20,000,000 shares authorized;
7,422,157 shares issued and outstanding at
March 31, 1998 and 1999, and no shares
authorized, issued or outstanding at
March 31, 1999 on a pro forma
basis (unaudited)......................... 74 74 --
Class B common stock, $.001 par value;
4,000,000 shares authorized; 1,055,044 and
914,607 shares issued and outstanding at
March 31, 1998 and 1999, respectively; no
shares authorized, issued or outstanding
at March 31, 1999 on a pro forma basis
(unaudited)............................... 10 9 --
Class L common stock, $.001 par value;
2,000,000 shares authorized;
824,695 shares issued and outstanding at
March 31, 1998 and 1999; no shares
authorized, issued or outstanding at March
31, 1999 on a pro forma basis
(unaudited)............................... 8 8 --
Additional paid-in capital................. 20,647 19,775 19,753
Accumulated deficit........................ (89,686) (105,416) (105,416)
Notes receivable from stockholders......... (288) (241) (241)
Accumulated other comprehensive loss....... (1,755) (1,180) (1,180)
-------- --------- ---------
Total stockholders' equity (net capital
deficiency)............................... (70,990) (86,971) $ (86,971)
-------- --------- =========
Total liabilities and stockholders' equity
(net capital deficiency).................. $ 89,762 $ 72,352
======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

THERMA-WAVE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net revenues.................................. $ 109,493 $ 115,459 $ 66,207
Cost of revenues.............................. 49,795 55,683 36,827
--------- --------- ---------
Gross margin.................................. 59,698 59,776 29,380
Operating expenses:
Research and development.................... 13,050 19,057 15,130
Selling, general and administrative......... 22,004 24,589 17,870
Amortization of goodwill and purchased
intangibles................................ 1,275 -- --
Recapitalization and other non-recurring
expenses................................... -- 4,188 --
Expenses relating to operating cost
improvements............................... -- -- 1,057
--------- --------- ---------
Total operating expenses...................... 36,329 47,834 34,057
--------- --------- ---------
Operating income (loss)....................... 23,369 11,942 (4,677)
Other (income) expense:
Interest expense............................ 1,621 12,930 14,060
Interest income............................. (346) (753) (651)
Other (income) expense...................... (14) 194 (6)
--------- --------- ---------
(1,261) (12,371) (13,403)
--------- --------- ---------
Income (loss) before provision for income
taxes........................................ 22,108 (429) (18,080)
Provision (benefit) for income taxes.......... 9,007 604 (2,350)
--------- --------- ---------
Net income (loss)............................. $ 13,101 (1,033) (15,730)
=========
Preferred stock dividends..................... 738 832
--------- ---------
Net loss attributable to common stockholders.. $ (1,771) $ (16,562)
========= =========
Net income (loss) per share:
Basic....................................... $ 0.35 $ (0.34) $ (2.28)
Diluted..................................... $ 0.35 $ (0.34) $ (2.28)
Weighted average number of shares outstanding:
Basic....................................... 37,231 11,076 7,686
Diluted..................................... 37,231 11,076 7,686
Pro forma basic and diluted net loss per share
(unaudited).................................. $ (1.59)
Weighted average number of shares outstanding
in pro forma basic and diluted net loss per
share calculation (unaudited)................ 10,445
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

THERMA-WAVE, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
(in thousands, except share data)

Class A Class B Class L
Preferred Stock Common Stock Common Stock Common Stock Common Stock Additional
---------------- ------------------- ---------------- ----------------- -------------- Paid-In
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital
------- ------- ----------- ------ --------- ------ --------- ------ ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March
31, 1996......... -- $ -- 37,231,547 $ 37 -- $ -- -- $ -- -- $ -- $ 60,473
Net income....... -- -- -- -- -- -- -- -- -- -- --
Currency
translation
adjustments...... -- -- -- -- -- -- -- -- -- -- --
Comprehensive
income..........
Repayment of
notes receivable
from
shareholders..... -- -- -- -- -- -- -- -- -- -- --
------- ------- ----------- ----- --------- ----- --------- ----- ------- ----- --------
Balance at March
31, 1997......... -- -- 37,231,547 37 -- -- -- -- -- -- 60,473
Net loss......... -- -- -- -- -- -- -- -- -- -- --
Currency
translation
adjustments...... -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............
Recapitalization
Transactions:.... -- -- 7,047,068 7 -- -- -- -- -- -- 17,104
Conversion of
outstanding
Common Stock into
shares of Class A
and Class L
Common Stock..... -- -- (7,047,068) (7) 5,942,151 59 -- -- 660,248 7 (59)
Conversion of
outstanding
Common Stock into
shares of
Preferred Stock,
Class A and Class
L Common Stock... 750,000 13,800 (4,990,824) (5) 416,717 4 -- -- 46,303 -- (8,099)
Redemption of
Common Stock..... -- -- (32,240,723) (32) -- -- -- -- -- -- (52,842)
Issuances of
Class A, B and L
Common Stock..... -- -- -- -- 1,055,229 11 1,091,944 10 117,248 1 3,333
Conversion of
Preferred Stock
into Class A
Common Stock..... (1,261) (23) -- -- 8,060 -- -- -- 896 -- 23
Recapitalization
related expenses
paid by Toray and
Shimadzu......... -- -- -- -- -- -- -- -- -- -- 2,888
Forgiveness of
receivable from
Toray and
Shimadzu......... -- -- -- -- -- -- -- -- -- -- (1,425)
Preferred stock
dividends........ -- 738 -- -- -- -- -- -- -- -- (738)
Repurchased
shares........... -- -- -- -- -- -- (36,891) -- -- -- (11)
------- ------- ----------- ----- --------- ----- --------- ----- ------- ----- --------
Balance at March
31, 1998......... 748,739 14,515 -- -- 7,422,157 74 1,055,053 10 824,695 8 20,647
Net loss......... -- -- -- -- -- -- -- -- -- -- --
Currency
translation
adjustments...... -- -- -- -- -- -- -- -- -- -- --
Comprehensive
loss............
Preferred stock
dividends........ -- 832 -- -- -- -- -- -- -- -- (832)
Repurchased
shares........... -- -- -- -- -- -- (140,446) (1) -- -- (40)
------- ------- ----------- ----- --------- ----- --------- ----- ------- ----- --------
Balance at March
31, 1999......... 748,739 $15,347 -- $ -- 7,422,157 $ 74 914,607 $ 9 824,695 $ 8 $ 19,775
======= ======= =========== ===== ========= ===== ========= ===== ======= ===== ========
<CAPTION>
Accumu-
lated
Other
Notes Compre- Compre-
Receivable hensive hensive
Accumulated from Income Income
Deficit Stockholders (Loss) Total (Loss)
----------- ------------ -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at March
31, 1996......... $ (52,028) $(524) $(1,055) $ 6,903
Net income....... 13,101 -- -- 13,101 $ 13,101
Currency
translation
adjustments...... -- -- (383) (383) (383)
---------
Comprehensive
income.......... $ 12,718
=========
Repayment of
notes receivable
from
shareholders..... -- 524 -- 524
----------- ------------ -------- ---------
Balance at March
31, 1997......... (38,927) -- (1,438) 20,145
Net loss......... (1,033) -- -- (1,033) $ (1,033)
Currency
translation
adjustments...... -- -- (317) (317) (317)
---------
Comprehensive
loss............ $ (1,350)
=========
Recapitalization
Transactions:.... -- -- -- 17,111
Conversion of
outstanding
Common Stock into
shares of Class A
and Class L
Common Stock..... -- -- -- --
Conversion of
outstanding
Common Stock into
shares of
Preferred Stock,
Class A and Class
L Common Stock... (5,700) -- -- (13,800)
Redemption of
Common Stock..... (44,026) -- -- (96,900)
Issuances of
Class A, B and L
Common Stock..... -- (299) -- 3,056
Conversion of
Preferred Stock
into Class A
Common Stock..... -- -- -- 23
Recapitalization
related expenses
paid by Toray and
Shimadzu......... -- -- -- 2,888
Forgiveness of
receivable from
Toray and
Shimadzu......... -- -- -- (1,425)
Preferred stock
dividends........ -- -- -- (738)
Repurchased
shares........... -- 11 -- --
----------- ------------ -------- ---------
Balance at March
31, 1998......... (89,686) (288) (1,755) (70,990)
Net loss......... (15,730) -- -- (15,730) $(15,730)
Currency
translation
adjustments...... -- -- 575 575 575
---------
Comprehensive
loss............ $(15,155)
=========
Preferred stock
dividends........ -- -- -- (832)
Repurchased
shares........... -- 47 -- 6
----------- ------------ -------- ---------
Balance at March
31, 1999......... $(105,416) $(241) $(1,180) $(86,971)
=========== ============ ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

THERMA-WAVE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................... $13,101 $ (1,033) $(15,730)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation................................... 1,382 2,102 2,590
Amortization................................... 2,362 1,493 2,004
Amortization of deferred financing costs....... -- 1,385 1,607
Deferred income taxes.......................... (2,214) (2,106) 5,977
Noncash recapitalization and related expenses.. -- 3,888 --
Loss on disposal of property, plant and
equipment..................................... -- 400 --
Changes in assets and liabilities:
Accounts receivable........................... (1,277) (1,991) 9,918
Inventories................................... (5,006) (4,956) 4,310
Other assets.................................. (44) 78 (4,136)
Accounts payable.............................. 732 (57) 15
Accrued and other liabilities................. 2,572 8,497 (5,368)
Other long-term liabilities................... 252 413 (442)
------- -------- --------
Net cash provided by operating activities.... 11,860 8,113 745
------- -------- --------
Investing activities:
Purchases of property and equipment............ (1,091) (2,900) (862)
Other.......................................... (484) -- (527)
------- -------- --------
Net cash used in investing activities........ (1,575) (2,900) (1,389)
------- -------- --------
Financing activities:
Issuance of Senior Notes....................... -- 115,000 --
Proceeds from notes payable.................... 250 -- --
Repayment of notes payable..................... (1,435) (26,934) --
Principal payments under capital lease
obligations................................... (190) (128) (114)
Redemption of common stock..................... -- (96,900) --
Proceeds from issuance of common stock......... -- 20,169 --
Deferred financing costs....................... -- (11,341) --
Other.......................................... 141 (1,398) 581
------- -------- --------
Net cash (used in) provided by financing
activities.................................. (1,234) (1,532) 467
------- -------- --------
Net (decrease)/increase in cash and cash
equivalents..................................... 9,051 3,681 (177)
Cash and cash equivalents at beginning of
period.......................................... 7,690 16,741 20,422
------- -------- --------
Cash and cash equivalents at end of period....... $16,741 $ 20,422 $ 20,245
======= ======== ========
Supplementary disclosures:
Cash paid for interest......................... $ 2,059 $ 6,323 $ 12,469
======= ======== ========
Cash paid for income taxes..................... $10,661 $ 2,764 $ 293
======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Therma-Wave, Inc. (the "Company") was incorporated in California on March
11, 1986 and reincorporated in Delaware on October 16, 1990 and subsequently
amended its certificate of incorporation on May 16, 1997. The Company develops,
manufactures, and markets process control metrology systems for use in the
manufacture of semiconductors. These systems are based on the Company's
proprietary thermal wave and optical technologies. The Company markets and
sells its products worldwide to major semiconductor manufacturers.

Basis of Presentation

The Company's fiscal year is a 52 to 53-week year ending on the Sunday on or
following March 31 of each year. Fiscal years 1997, 1998 and 1999 ended on
April 6, 1997, April 5, 1998 and April 4, 1999, respectively. For convenience,
the accompanying financial statements have been presented as ending on the last
day of the nearest calendar month.

Certain items previously reported in specific financial statement captions
have been reclassified to conform with the March 31, 1999 presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Therma-Wave, Inc. and its wholly owned subsidiaries. All significant
intercompany transactions and balances are eliminated in consolidation.

Recapitalization

In December 1996, the Board of Directors approved the Recapitalization
Agreement (the "Recapitalization Agreement"). Pursuant to the Recapitalization
Agreement, which closed on May 16, 1997, the Company: (i) redeemed from Toray
Industries, Inc., ("Toray") and Shimadzu Corporation ("Shimadzu") approximately
86.6% of its outstanding capital stock for $96.9 million; (ii) converted its
remaining outstanding capital stock of 6.1 million shares to newly issued
shares of preferred stock and common stock; (iii) repaid substantially all of
its outstanding borrowings of approximately $26.9 million; (iv) canceled its
receivable from Toray and Shimadzu of $1.4 million which was recorded as a
reduction of additional paid-in capital; and (v) paid the estimated fees and
expenses of approximately $11.3 million related to the Recapitalization. In
order to finance the transactions effected by the Recapitalization Agreement,
the Company: (i) issued $115.0 million in aggregate principal amount of senior
notes in a private debt offering; (ii) received an equity contribution of
approximately $20.0 million in cash from an investor group, including
investment funds associated with Bain Capital, Inc. ("Bain"), and members of
the Company's senior management team; and (iii) converted equity securities of
Toray and Shimadzu having a value of $15.0 million into newly issued shares of
preferred stock and common stock.

Revenue Recognition

Revenue from system sales and spare parts is generally recognized at the
time of shipment. Revenue on service contracts is deferred and recognized on a
straight-line basis over the period of the contract. Estimated contractual
warranty obligations are recorded when related sales are recognized.

F-8
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Concentration of Credit Risk/Major Customers

The Company sells its products to major semiconductor manufacturing
companies throughout the world. The Company performs continuing credit
evaluations of its customers and, generally, does not require collateral.
Letters of credit may be required from its customers in certain circumstances.

Sales to customers representing 10% or more of net revenues were as
follows:

<TABLE>
<CAPTION>
Year Ended
March 31,
----------------
Customer 1997 1998 1999
-------- ---- ---- ----
<S> <C> <C> <C>
A............................................................. 13% 23% 23%
B............................................................. 10% -- --
C............................................................. -- -- 18%
</TABLE>

Certain of the components and subassemblies included in the Company's
systems are obtained from a single source or a limited group of suppliers.
Although the Company seeks to reduce dependence on those sole and limited
source suppliers, the partial or complete loss of certain of these sources
could have at least a temporary adverse effect on the Company's results of
operations and damage customer relationships. Further, a significant increase
in the price of one or more of these components could adversely affect the
Company's results of operations.

Accounts receivable from three customers accounted for approximately 31%,
10% and 9% of total accounts receivable at March 31, 1998. Accounts receivable
from three customers accounted for approximately 26%, 12% and 11% of total
accounts receivable at March 31, 1999.

Risks and Uncertainties

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates, and such
differences could affect the results of operations reported in future periods.

Foreign Currency Translations and Transactions

The Company has determined that the functional currency of its foreign
operations is the local foreign currency. The accumulated effects of foreign
translation rate changes related to net assets located outside the United
States are included as a component of stockholders' equity (net capital
deficiency). Foreign currency transaction gains (losses) are included in other
income and expense in the accompanying consolidated statements of operations
and amounted to $74,000, $(275,000) and $(23,000) for the years ended
March 31, 1997, 1998 and 1999.

Cash and Cash Equivalents

The Company maintains its cash and cash equivalents in depository accounts,
money market accounts and certificates of deposit with several financial
institutions. The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method.

F-9
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are provided on the straight-
line basis over the estimated useful lives of the respective assets, generally
three to five years. Leasehold improvements and assets recorded under capital
leases are amortized on the straight-line basis over the shorter of the assets'
useful lives or lease terms. Depreciation and amortization expense for fiscal
years 1997, 1998 and 1999 are $1,382,000, $2,102,000, and $2,590,000,
respectively.

Long-lived Assets

The Company reviews for the impairment of long-lived assets whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss would be recognized when estimated
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. No such impairment losses have
been identified by the Company.

Deferred Financing Costs

Deferred financing costs represent the costs incurred in connection with the
issuance of the Senior Notes. These amounts are stated net of accumulated
amortization and amortized on the straight-line basis over the term of the
related notes.

Research and Development Expenses

Expenditures for research and development are expensed as incurred.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The Company accounts for employee stock options
in accordance with Accounting Principles Board Opinion No. 25 and has adopted
the "disclosure only" alternative described in SFAS No. 123.

Income Taxes

The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be
recovered or settled. The measurement of deferred tax assets is reduced, if
necessary, by the amount of any tax benefits that, based on available evidence,
are not expected to be realized.

Unaudited Pro Forma Stockholders' Equity (Net Capital Deficiency)

Prior to the closing of the Company's initial public offering, each
outstanding share of Class L common stock (the "Class L Stock") will be
reclassified into one share of Class A common stock (the "Class A Stock") plus
an additional number of shares of Class A Stock (determined by dividing the
preference amount for such share by the assumed initial public offering price
of $11.00 per share) and each share of Class B common stock (the "Class B
Stock") will be reclassified into one share of Class A Stock. In addition, the
Company will file a Restated Certificate of Incorporation which will authorize
35,000,000 shares of Common Stock.

F-10
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net Income (Loss) Per Share and Unaudited Pro Forma Net Loss Per Share

The Company had adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). SFAS No. 128
requires the Company to report both basic net income (loss) per share, which
is based on the weighted-average number of common shares outstanding excluding
contingently issuable or returnable shares such as unvested Class B Stock or
shares that contingently convert into Common Stock upon certain events, and
diluted net income (loss) per share, which is based on the weighted average
number of common shares outstanding and dilutive potential common shares
outstanding. Class A Stock, Class B Stock and Class L Stock share ratably in
the net income (loss) remaining after giving effect to the 12% yield on Class
L Stock. Net loss for the years ended March 31, 1998 and 1999 used in the net
loss per share calculation represents the loss attributable to the weighted
average number of shares of Class A Stock, Class B Stock and Common Stock
outstanding after giving effect to the 12% yield on Class L Stock. As a result
of the losses incurred by the Company during fiscal years 1998 and 1999, all
potential common shares were anti-dilutive and excluded from the diluted net
income (loss) per share calculation.

Unaudited pro forma basic and diluted net loss per share for the year ended
March 31, 1999 have been calculated based on net loss applicable to all
classes of Common Stock and assuming the reclassification of the Company's
Class B and L Stock prior to the completion of this offering, as if such
reclassification had occurred at the beginning of the period, or the issuance
of the stock, if later. Each share of Class L Stock will be reclassified into
one share of Class A Stock plus an additional number of shares of Class A
Stock (determined by dividing the preference amount for such share by the
assumed initial public offering price of $11.00 per share). Each share of
Class B Stock will then be reclassified into one share of Class A Stock.

Advertising Costs

The Company expenses advertising and promotional costs, which are not
material, as they are incurred.

Recently Issued Accounting Standards

In June 1998, the FASB issued Statement on Financial Accounting Standards
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities and supercedes and amends a number of
existing accounting standards. SFAS No. 133 requires that all derivatives be
recognized in the balance sheet at their fair market value, and the
corresponding derivative gains or losses be either reported in the statement
of operations or as a deferred item depending on the type of hedge
relationship that exists with respect to such derivative. The Company
currently does not hold any derivative instruments that will be affected by
the adoption of SFAS No. 133.

F-11
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. BALANCE SHEET COMPONENTS

<TABLE>
<CAPTION>
March 31,
------------------
1998 1999
-------- --------
(in thousands)
<S> <C> <C>
Inventory:
Purchased materials........................................ $ 9,958 $ 6,678
Systems in process......................................... 7,146 5,302
Finished systems........................................... 4,188 3,389
-------- --------
$ 21,292 $ 15,369
======== ========
Property and equipment:
Laboratory and test equipment.............................. $ 3,786 $ 4,096
Office furniture and equipment............................. 5,423 5,766
Machinery and equipment.................................... 1,766 1,816
Leasehold improvements..................................... 3,145 3,154
-------- --------
14,120 14,832
Accumulated depreciation and amortization.................. (7,879) (10,319)
-------- --------
$ 6,241 $ 4,513
======== ========
Accrued liabilities:
Interest payable........................................... $ 5,074 $ 4,932
Accrued compensation and related expenses.................. 4,051 2,313
Accrued warranty costs..................................... 6,671 4,733
Commissions payable........................................ 1,389 1,311
Other accrued liabilities.................................. 5,013 7,206
-------- --------
$ 22,198 $ 20,495
======== ========
</TABLE>

3. NET INCOME (LOSS) PER SHARE

The following tables set forth the computation of net income (loss) per
share of common stock:

<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Numerator (in thousands):
Net income (loss).................................. $13,101 $(1,033) $(15,730)
Less: Preferred stock dividend..................... -- (738) (832)
Less: Income attributable to Class L Stock......... -- (1,947) (944)
------- ------- --------
$13,101 $(3,718) $(17,506)
======= ======= ========
Denominator (in thousands):
Common Stock....................................... 37,231 4,551 --
Class A Stock...................................... -- 6,494 7,422
Class B Stock (vested)............................. -- 31 264
------- ------- --------
Weighted average shares outstanding used for basic
and diluted income (loss) per share............... 37,231 11,076 7,686
======= ======= ========
</TABLE>

F-12
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes securities outstanding as of each period end
which were not included in the calculation of diluted net loss per share since
their inclusion would be anti-dilutive.

<TABLE>
<CAPTION>
March 31,
------------------------
1997 1998 1999
---- --------- ---------
<S> <C> <C> <C>
Class B Stock Subject to Repurchase (unvested)........ -- 972,605 627,482
Mandatorily Redeemable Convertible Preferred Stock.... -- 612,469 612,469
Stock Options......................................... -- 1,444,145 1,454,474
</TABLE>

The stock options outstanding at March 31, 1998 and 1999, had a weighted
average exercise price of $13.07, and $11.78, respectively. Upon the completion
of an initial public offering, Class L Stock is convertible into one share of
Class A Stock plus an additional number of shares of Class A Stock (determined
by dividing the preference amount for such share by the assumed initial public
offering price).

4. FINANCING ARRANGEMENTS

Senior Notes

The $115.0 million of senior notes ("Senior Notes") issued to finance the
Recapitalization are senior unsecured obligations of the Company and will
mature on May 15, 2004. Interest on the Senior Notes will accrue at the rate of
10 5/8% per annum and is payable semiannually in cash on each May 15 and
November 15 to registered holders at the close of business on May 1 and
November 1, respectively, immediately preceding the applicable interest payment
date. The Senior Notes are not entitled to the benefit of any mandatory sinking
fund and are redeemable at the Company's option in whole at any time or in part
from time to time, on and after May 15, 2001, upon not less than 30 nor more
than 60 days notice, at specified redemption prices. If the Company completes
an initial public offering, with net proceeds equal to or in excess of $25.0
million, the Company is required to make an offer to redeem up to 35% of the
aggregate principal amount of the Senior Notes outstanding at a price equal to
110.625% of the principal amount thereof plus accrued and unpaid interest
thereon. At any time, or from time to time, if the Company completes one or
more equity offerings (not considered an initial public offering) on or prior
to May 15, 2000, the Company may, at its option, use the net cash proceeds to
redeem up to 35% of the aggregate principal amount of Senior Notes originally
issued at a redemption price equal to 110.625% of the principal amount thereof
plus accrued and unpaid interest.

Based upon the terms of the original notes, the Company issued new notes
with substantially identical terms as the old notes except that the new notes
are registered under the Securities Act and therefore do not bear legends
restricting their transfer.

Bank Credit Facility

In conjunction with the Recapitalization, the Company entered into the
Credit Agreement among Therma-Wave, Inc., various lending institutions, and
Bankers Trust Company, as Agent (the "Bank Credit Facility"), which provided
for a revolving credit facility of $30.0 million. During the quarter ended June
30, 1998, the Company entered into the First Amendment to the Credit Agreement
among Therma-Wave, Inc., various lending institutions, and Bankers Trust
Company, as Agent (the "Amended Bank Credit Facility"), to have its borrowing
availability subject to a borrowing base formula, which provides a maximum
revolving credit facility of $30.0 million, and to make certain necessary
adjustments to the financial tests and covenants contained therein in light of
current market conditions. The Company may borrow amounts under the Amended
Bank Credit Facility to finance its working capital requirements and other
general corporate purposes. The Amended Bank Credit Facility requires the
Company to meet certain financial tests and contains covenants customary for
this type of financing. At March 31, 1999, there was $3.5 million of an
outstanding letter of credit and unused borrowing capacity under the Amended
Bank Credit Facility of $17.0 million. The interest rate under the Amended Bank
Credit Facility is at the lenders base rate plus 1.25% (9.5% at March 31,
1999).

F-13
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

At March 31, 1997, the Company had a credit agreement with a Japanese bank
for an unsecured, renewable note payable with an outstanding principal balance
of $3.8 million and $23.1 million of unsecured long-term debt under four
separate loan agreements with banks. These notes payable were repaid in
conjunction with the Recapitalization Agreement.

The fair value of the Company's long-term debt is based on quoted market
prices. The estimated fair value of long-term debt is $69,162,000 at March 31,
1999.

5. INCOME TAXES

The domestic and foreign components of income (loss) before provision
(benefit) for income taxes are as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year Ended March
31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Domestic......................................... $19,419 $ (436) $(19,016)
Foreign.......................................... 2,689 7 936
------- ------- --------
Total.......................................... $22,108 $ (429) $(18,080)
======= ======= ========

The components of the provision (benefit) for income taxes are as follows
(in thousands):

<CAPTION>
Fiscal Year Ended March
31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ 9,696 $ 2,314 $ (8,344)
State........................................... 1,525 396 4
Foreign......................................... -- -- 13
------- ------- --------
11,221 2,710 (8,327)
Deferred:
Federal......................................... (1,921) (1,710) 5,807
State........................................... (293) (396) --
Foreign......................................... -- -- 170
------- ------- --------
(2,214) (2,106) 5,977
------- ------- --------
$ 9,007 $ 604 $ (2,350)
======= ======= ========
</TABLE>

F-14
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A rate reconciliation between income tax provisions at the U.S. federal
statutory rate and the effective rate reflected in the statements of operations
is as follows:

<TABLE>
<CAPTION>
Fiscal Year
Ended March 31,
-------------------
1997 1998 1999
---- ----- -----
<S> <C> <C> <C>
Provision at statutory rate.......................... 35.0% (35.0)% (35.0)%
State taxes, net of federal benefit.................. 3.6 -- --
Amortization of goodwill and purchased intangibles... 2.0 -- --
Utilization of net operating loss and credit
carryforwards....................................... (3.2) -- (5.5)
Foreign sales corporations........................... (0.9) (40.5) --
Other changes in valuation allowances................ -- 195.4 26.1
Other................................................ 4.2 20.9 1.4
---- ----- -----
40.7% 140.8% (13.0)%
==== ===== =====
</TABLE>

For the year ended March 31, 1999 the Company realized an income tax benefit
from the carryback of its net operating loss to recover substantially all
income taxes paid during the carryback period. At March 31, 1999, the Company
recorded an income tax receivable of $7,351,000 which is included in other
current assets.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):

<TABLE>
<CAPTION>
March 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued costs and expenses................................ $ 5,935 $ 3,241
State taxes............................................... 117 1
Other..................................................... 2,441 3,156
Net operating loss and tax credits........................ 491 1,866
------- -------
Total gross deferred tax assets........................... 8,984 8,264
Less: valuation allowance.................................. (1,291) (6,010)
------- -------
Total gross deferred tax assets........................... 7,693 2,254
------- -------
Deferred tax liabilities:
Deferred revenue on foreign sales......................... (1,281) (1,139)
Depreciation and amortization............................. -- (834)
Other..................................................... (435) (281)
------- -------
Net deferred tax liabilities.............................. (1,716) (2,254)
------- -------
Total net deferred tax assets............................. $ 5,977 $ --
======= =======
</TABLE>

The net changes in the total valuation allowance for the years ended March
31, 1998 and 1999 were $800,000 and $4,719,000, respectively. The change in
valuation allowance for the year ended March 31, 1998 is primarily due to state
income tax temporary differences and foreign net operating losses. At March 31,
1999, management believes it is more likely than not that the net deferred tax
assets will not be fully realizable and has provided a full valuation against
its net deferred tax assets.

At March 31, 1999, the Company has net operating loss carryforwards for
foreign income tax purposes of approximately $390,000, which expire in varying
amounts through 2003.

F-15
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. EXPENSES RELATING TO OPERATING COST IMPROVEMENTS

On June 22 and September 24, 1998, the Company announced and implemented an
operating cost improvement program aimed at bringing operating expenses in line
with the Company's current operating environment. All terminated employees were
notified of their severance and related benefits at the time the program was
announced. This program resulted in a reduction of approximately 100 employees
primarily involved in customer service and manufacturing positions. Certain
leased facilities and fixed assets were consolidated. Total cash outlays for
fiscal 1999 were $832,000. Non-cash charges of $100,000 are primarily for asset
write-offs. The balance of $125,000 at March 31, 1999 primarily represents cash
payments and will be utilized in fiscal 2000. Expenses relating to operating
cost improvements are summarized as follows:

<TABLE>
<CAPTION>
Provision
Year Ended Balance
March 31, 1999 Utilized March 31, 1999
-------------- -------- --------------
<S> <C> <C> <C>
Severance............................. $ 837 $762 $ 75
Facilities............................ 120 70 50
Other................................. 100 100 --
------ ---- ----
$1,057 $932 $125
====== ==== ====
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

The Company leases its facilities under noncancellable operating leases
which require the Company to pay maintenance and operating expenses, such as
taxes, insurance and utilities. The Company is required pursuant to the terms
of a facility lease to maintain a $3,500,000 standby letter of credit.

Property and equipment includes equipment recorded under capital leases of
approximately $895,000 and related accumulated amortization of $506,000 and
$620,000 at March 31, 1998 and 1999 respectively.

Rent expense was approximately $1,524,000, $1,629,000 and $1,661,000 for the
fiscal years ended March 31, 1997, 1998 and 1999, respectively.

At March 31, 1999, future minimum lease payments under capital and
noncancellable operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Fiscal Year
2000....................................................... $ 90 $1,378
2001....................................................... 88 1,165
2002....................................................... 212 1,180
2003....................................................... -- 1,229
2004....................................................... -- 1,191
Thereafter................................................. -- 2,184
----- ------
Future Minimum Lease Payments.............................. 390 $8,327
======
Less: Amounts Representing Interest........................ (115)
-----
Present Value of Minimum Lease Payments.................... 275
Less: Current Portion...................................... (74)
-----
$ 201
=====
</TABLE>

F-16
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Deferred Bonus Arrangements

Pursuant to the terms of certain management bonus arrangements, the Company
may be obligated to pay up to an aggregate of $12.4 million after May 16, 2002
based upon achieving certain operating results and each employee's continued
employment. The Company must achieve a minimum cumulative EBITDA (as defined in
such bonus agreements) of $177.0 million for the five year period ended May 15,
2002 in order for the deferred bonus of $12.4 million to be payable. If the
Company achieves cumulative EBITDA levels from $133.3 million to $177.0 million
for the five year period ended May 15, 2002, a fraction of the deferred bonus
is payable based on the amount EBITDA exceeds $133.3 million, up to the maximum
deferred bonus amount of $12.4 million. No amounts have been accrued to date as
the achievement of the required operating results is not considered probable as
of March 31, 1999.

Legal Proceedings

On September 3, 1998, the Company was named in a patent infringement suit
filed by KLA-Tencor Corporation ("KLA-Tencor"). KLA-Tencor alleged that it
patented an aspect of the thin film thickness measuring technology that the
Company uses in its Opti-Probe product family. KLA-Tencor is seeking damages
and an injunction to stop the sale of the equipment they allege uses this
aspect. The Company believes none of its products infringe any of the claims of
KLA-Tencor's patent and that their infringement allegations are unfounded. The
Company intends to vigorously defend its position and expects to prevail.

On January 14, 1999, the Company commenced an action against KLA-Tencor for
patent infringement with respect to one of the Company's fundamental thin film
technology combination patents. The suit seeks damages for patent infringement
and a permanent injunction against any future activities undertaken by KLA-
Tencor or any third party working in conjunction with them, which infringes on
the Company's patent. The suit was filed as a counterclaim in the infringement
action initiated by KLA-Tencor and also seeks a declaratory judgment that KLA-
Tencor's patent, which the Company was alleged of infringing, is invalid and
not infringed by any of the Company's systems.

There can be no assurances, however, that the Company will prevail in any
patent litigation. The Company believes that the outcome of any resultant
litigation will not have a material adverse effect on the Company's financial
condition or results of operations.

The Company is involved in various other legal proceedings from time to time
arising in the ordinary course of business, none of which management expects to
have a material adverse effect on the Company's results of operations or
financial condition.

8. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)

Mandatorily Redeemable Convertible Preferred Stock

The Series A Mandatorily Redeemable Convertible Voting Preferred Stock
("Preferred Stock") has a liquidation preference of $18.40 and is convertible
at any time into 0.818 of one share of Class A Common Stock at the option of
the holder. Dividends on each share of the Preferred Stock shall be cumulative
and accrue at the rate of 6% per annum. The Preferred Stock has a scheduled
redemption on May 17, 2004, and is otherwise redeemable by the Company at any
time from time after the earlier of (a) June 30, 1998 or (b) an initial public
offering. Each share of Preferred Stock is convertible into 0.818 of one share
of Class A Common Stock (as adjusted for stock splits, stock dividends,
recapitalizations and similar transactions). The Preferred Stock entitles the
holder to one vote for each share of Class A Common Stock issuable upon
conversion of the Preferred

F-17
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Stock. Upon any liquidation, dissolution or winding up of the Company, each
holder of the Preferred Stock shall be entitled to be paid before any
distribution or payment is made upon any capital stock or other equity
securities of the Company.

We issued shares of Preferred Stock as part of the Recapitalization. The
fair value of the Preferred Stock at March 31, 1999 of $15,347 represents the
liquidation value plus accrued dividends.

Common Stock

Immediately after the Recapitalization, the outstanding equity securities of
the Company consisted of 7,422,157 shares of Class A Common; 1,091,944 shares
of Class B Common; 824,695 shares of Class L Common; and 748,739 shares of
Preferred Stock. The shares of Class A Stock and Class L Stock each entitle the
holder to one vote per share on all matters to be voted upon by the
stockholders of the Company and are otherwise identical, except that the shares
of Class L Stock are entitled to a preference over Class A Stock with respect
to any distribution by the Company to holders of its capital stock equal to the
original cost of such share ($23.331) plus an amount which accrues on a daily
basis at a rate of 12% per annum, compounded annually. The Class B Stock is
identical to the Class A Stock except that the Class B Stock is non-voting and
is convertible into Class A Stock at any time following an initial public
offering by the Company at the option of the holder.

All unvested shares of Class B Stock are subject to repurchase by the
Company if the holder is no longer employed by the Company. Such shares vest
over five years from the date of issuance. During the fiscal year ended March
31, 1999, 140,445 shares of Class B Stock were repurchased by the Company. As
of March 31, 1999, 287,125 shares of Class B Stock were vested and
627,482 shares of Class B Stock were subject to repurchase by the Company at
the paid-in amount.

Stock Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related
interpretations in accounting for its employee stock awards because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123") requires use of option valuation models
for use in valuing employee stock options. Under APB No. 25, when the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

During fiscal year 1998, the Company adopted several stock option plans (the
"Plans") whereby the Board of Directors may grant incentive stock options and
nonstatutory stock options to employees, directors or consultants. The Company
has reserved 3,061,365 shares of Class A Stock and 3,061,365 shares of Class B
Stock for issuance under the Plans. Unless terminated sooner, the Plans will
terminate automatically in May 2007. Vesting provisions for stock options
granted under the Plans are determined by the Board of Directors. Unless the
Board of Directors specifically determines otherwise at the time of the grant,
the option shall vest 25% on each of the first four anniversaries from the date
of grant. Stock options expire no later than ten years from the date of grant.
Common shares issued on exercise of options prior to vesting are subject to
repurchase by the Company if the holder is no longer employed by the Company.

F-18
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

A summary of the Company's stock option activity, and related information
for the years ended March 31, 1998 and 1999 are as follows:

<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Weighted Average
Shares Number of Exercise Price
Available Shares per Share
---------- --------- ----------------
<S> <C> <C> <C>
Balance at March 31, 1997............ -- -- $ --
Authorized.......................... 6,122,730 -- --
Granted............................. (1,502,163) 1,502,163 13.04
Exercised........................... -- -- --
Canceled............................ 58,018 (58,018) 12.32
---------- ---------
Balance at March 31, 1998............ 4,678,585 1,444,145 13.07
Granted............................. (261,842) 261,842 5.43
Exercised........................... -- -- --
Canceled............................ 251,512 (251,512) 12.57
---------- ---------
Balance at March 31, 1999............ 4,668,255 1,454,475 $11.78
========== =========
</TABLE>

The following table summarizes information about stock options outstanding
as of March 31, 1999:

<TABLE>
<CAPTION>
Options Outstanding
--------------------------------
Weighted
Average Weighted
Remaining Average
Number Contractual Exercise
Outstanding Life Price
----------- ----------- --------
<S> <C> <C> <C>
Range of exercise prices:
$4.89.................................... 220,860 9.32 $ 4.89
$7.33-$8.56.............................. 346,223 8.75 $ 7.46
$10.92-$19.43............................ 887,392 8.13 $15.18
---------
1,454,475
=========
</TABLE>

At March 31, 1999, there were 91,266 vested shares and 978,658 shares were
exercisable.

Pro forma information regarding net loss and net loss per share is required
by FAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
March 31, 1996 under the fair value method. The fair value for these options
was estimated using the Black-Scholes option pricing model.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's options have characteristics significantly different from
those of options of publicly traded companies and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
the opinion of management, the existing models do not necessarily provide a
reliable single measure of the fair value of its options.

For the years ended March 31, 1998 and 1999, the fair value of each option
grant was estimated on the date of the grant using the Black-Scholes option-
pricing model using a dividend yield of 0% for both periods and the following
additional weighted-average assumptions: volatility of zero and expected life
of an option of 5 years and a risk-free interest rate of 7.0% and 5.0%,
respectively. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the option's vesting period.

F-19
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Had compensation costs been determined based upon the fair value at the
grant date for awards under these plans, consistent with the methodology
prescribed under SFAS No. 123, the Company's pro forma net loss attributable to
common stockholders and pro forma basic and diluted net loss per share under
SFAS No. 123 would have been $(1,856,000) and $(0.34) for the year ended March
31, 1998 and $(16,717,000) and $(2.30) for the year ended March 31, 1999,
respectively.

The weighted average fair value of options granted during the years ended
March 31, 1998 and 1999 with exercise prices equal to the market price at the
date of grant is $0.55 and $1.17 per share, respectively.

9. RELATED PARTY TRANSACTIONS

Transactions with Toray & Shimadzu are as follows (in thousands):

<TABLE>
<CAPTION>
Fiscal Year
Ended
March 31,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue...................................................... $590 $ 82 $ 31
Purchases of inventories..................................... 94 -- --
</TABLE>

The Company incurred expenses of approximately $559,000, $75,000 and
$118,000 for the fiscal years ended March 31, 1997, 1998 and 1999,
respectively, for employees loaned to the Company by Toray and Shimadzu.

On March 31, 1999, the Company had loans to management of $241,000 used to
acquire the Company's capital stock (notes receivable from stockholders) and
$1,043,000 used to pay certain tax liabilities incurred by certain executives
in connection with the Recapitalization (the Tax Notes). The notes receivable
from stockholders bear interest at the applicable federal rate in effect at the
time of the Recapitalization. The Tax Notes do not bear interest. The
executives have pledged their stock as security for the notes.

In connection with the Recapitalization, the Company entered into an
Advisory Agreement with Bain Capital, a majority stockholder, pursuant to which
Bain Capital agreed to provide management services. The management fees
incurred, excluding out-of pocket expenses, during the fiscal years ended March
31, 1998 and 1999 were $750,000 and $1,000,000, respectively.

10. RETIREMENT PLAN

The Company has a retirement plan under Section 401(k) of the Internal
Revenue Code covering substantially all employees. Discretionary company
contributions, which are based on achieving certain operating profit goals,
were $540,000, $566,000 and $0 in fiscal 1997, 1998 and 1999, respectively.

11. SEGMENT INFORMATION

The Company operates in one segment as it manufactures, markets and services
process control metrology systems within the semiconductor equipment market.
All products and services are marketed within the geographic regions in which
the Company operates. The Company's current product offerings qualify for
aggregation under SFAS No. 131 as its products are manufactured and distributed
in the same manner, have similar long-term gross margins and are sold to the
same customer base.

F-20
<PAGE>

THERMA-WAVE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following is a summary of operations in geographic areas (in thousands):

<TABLE>
<CAPTION>
Other
U.S. Japan Foreign Eliminations Consolidation
-------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Fiscal year ended March
31, 1997
Sales to unaffiliated
customers............... $ 97,237 $ 9,730 $2,526 $ -- $109,493
Transfers between
geographic locations.... 3,859 1,261 2,028 (7,148) --
-------- ------- ------ ------- --------
Total net sales.......... $101,096 $10,991 $4,554 $(7,148) $109,493
Operating income (loss).. $ 21,965 $ 1,633 $ 136 $ (365) $ 23,369
Long-lived assets........ $ 5,732 $ 739 $ 510 $ -- $ 6,981
All other identifiable
assets.................. 54,868 6,758 2,869 (2,856) 61,639
-------- ------- ------ ------- --------
Total assets............. $ 60,600 $ 7,497 $3,379 $(2,856) $ 68,620
======== ======= ====== ======= ========

Fiscal year ended March
31, 1998
Sales to unaffiliated
customers............... $110,098 $ 2,645 $2,716 $ -- $115,459
Transfers between
geographic locations.... (1,929) 1,706 2,572 (2,349) --
-------- ------- ------ ------- --------
Total net sales.......... $108,169 $ 4,351 $5,288 $(2,349) $115,459
Operating income (loss).. $ 11,661 $ 103 $ 458 $ (280) $ 11,942
Long-lived assets........ $ 16,974 $ 624 $ 414 $ -- $ 18,012
All other identifiable
assets.................. 69,237 2,841 3,030 (3,358) 71,750
-------- ------- ------ ------- --------
Total assets............. $ 86,211 $ 3,465 $3,444 $(3,358) $ 89,762
======== ======= ====== ======= ========
Fiscal year ended March
31, 1999
Sales to unaffiliated
customers............... $ 60,355 $ 2,542 $3,310 $ -- $ 66,207
Transfers between
geographic locations.... (2,811) 1,047 3,620 (1,856) --
-------- ------- ------ ------- --------
Total net sales.......... $ 57,544 $ 3,589 $6,930 $(1,856) $ 66,207
Operating income (loss).. $ (5,652) $ 338 $ 634 $ 3 $ (4,677)
Long-lived assets........ $ 13,893 $ 555 $ 351 $ -- $ 14,799
All other identifiable
assets.................. 53,645 2,482 3,775 (2,349) 57,553
-------- ------- ------ ------- --------
Total assets............. $ 67,538 $ 3,037 $4,126 $(2,349) $ 72,352
======== ======= ====== ======= ========
</TABLE>

Other foreign areas include the United Kingdom, Taiwan and Korea, each of
which are individually not material for separate disclosure.

Revenue in each geographic area is recognized upon shipment from the
locations within a designated geographic region. Transfers and commission
arrangements between geographic areas are at prices sufficient to recover a
reasonable profit. Export sales were $54,390,000, $56,006,000 and $39,892,000
of the net sales in fiscal 1997, 1998 and 1999, respectively.

12. SUBSEQUENT EVENT

On July 16, 1999, the Board of Directors declared a one-for-0.818 reverse
stock split of the common stock, which will occur immediately prior to the
effectiveness of the registration statement of which these financial statements
form a part. All references throughout these accompanying financial statements
to the number of shares, per share amounts and stock option data have been
restated, giving retroactive effect to the stock split.

F-21
<PAGE>

[pictures of an Opti-Probe(R) system and a Therma-Probe(R) system]

<PAGE>

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

3,300,000 Shares

[THERMA-WAVE(R) LOGO]

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

Prospectus

, 1999

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

Banc of America Securities LLC

Lehman Brothers

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following is a statement of estimated expenses, to be paid solely by
Therma-Wave, of the issuance and distribution of the securities being
registered hereby:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 12,660
NASD filing fee................................................. 5,054
Nasdaq National Market listing fee.............................. 88,500
Blue Sky fees and expenses (including attorneys' fees and
expenses)...................................................... 10,000
Printing expenses............................................... 180,000
Accounting fees and expenses.................................... 375,000
Transfer agent's fees and expenses.............................. 3,000
Legal fees and expenses......................................... 350,000
Miscellaneous expenses.......................................... 5,786
----------
Total......................................................... $1,030,000
==========
</TABLE>

Item 14. Indemnification of Directors and Officers.

General Corporation Law

We are incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (the "General Corporation Law"), inter
alia, provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, with respect
to any criminal action or proceeding, had no reasonable cause to believe that
his conduct was illegal. A Delaware corporation may indemnify any persons who
are, were or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reasons of
the fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable
to the corporation. Where an officer, director, employee or agent is successful
on the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.

Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability

II-1
<PAGE>

asserted against him and incurred by him in any such capacity, arising out of
his status as such, whether or not the corporation would otherwise have the
power to indemnify him under Section 145.

Certificate of Incorporation and By-Laws

Our Certificate of Incorporation and By-laws provides for the
indemnification of officers and directors to the fullest extent permitted by
the General Corporation Law.

Item 15. Recent Sales of Unregistered Securities.

During the last three years, Therma-Wave has issued the following securities
without registration under the Securities Act of 1933, as amended (the
"Securities Act"):

(1) Therma-Wave completed the recapitalization on May 16, 1997. In connection
with the recapitalization, Therma-Wave issued:

(a) an aggregate of 5,693,309 shares of common stock to the Bain Capital
Funds and Sutter Hill (which were later converted into an aggregate of
5,942,145 shares of Class A common stock and an aggregate of 660,239
shares of Class L common stock) for an aggregate of $17.1 million;

(b) an aggregate of (i) 1,226,331 shares of Class A common stock; (ii)
111,459 shares of Class L common stock; and (iii) 923,317 shares of
Class B common stock to the management investors for an aggregate of
$2.9 million;

(c) an aggregate of (i) 416,716 shares of Class A common stock; (ii) 46,302
shares of Class L common stock; and (iii) 750,000 shares of Series A
mandatorily redeemable convertible preferred stock to the Existing
Stockholders in exchange for their 4,990,824 shares of common stock;

(d) an aggregate of (i) 8,060 shares of Class A common stock and (ii) 896
shares of Class L common stock to the Existing Stockholders in exchange
for an aggregate of 1,261 shares of Series A mandatorily redeemable
convertible preferred stock; and

(e) 52,090 shares of Class A common stock and 5,788 shares of Class L
common stock to Antares International Partners for an aggregate of
$150,000.

(2) To finance a portion of the recapitalization, Therma-Wave sold an aggregate
of $115.0 million aggregate principal amount of 10 5/8% Senior Notes due
2004 to BT Securities Corporation pursuant to a Purchase Agreement, dated
May 16, 1997.

(3) On July 15, 1997, Therma-Wave sold an aggregate of 168,611 shares of Class
B common stock to certain employees of Therma-Wave for an aggregate of
$48,440.

The sales and issuances listed above in paragraphs (1)(a), (1)(b), (1)(e),
(2) and (3) were deemed exempt from registration under the Securities Act by
virtue of Section 4(2) thereof, as transactions not involving a public
offering. The issuance of securities listed in paragraphs (1)(c) and(1)(d) were
deemed exempt from registration under the Securities Act by virtue of Section
3(a)(9). Certain defined terms used herein not otherwise defined have the
meanings ascribed to them in the prospectus, which forms a part of this
Registration Statement.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits.

<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.

*2.1 Recapitalization Agreement, dated as of December 18, 1996, by and
among Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP
Associates, BCIP Trust Associates, L.P., Toray Industries, Inc., Toray
Industries (America), Inc. and Shimadzu Corporation as amended by
Amendment No. 1 and Supplement to Recapitalization Agreement, dated
May 16, 1997, by and among Therma-Wave, Inc., Toray Industries, Inc.,
Toray Industries (America), Inc., Shimadzu Corporation and Bain
Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP Trust
Associates and BCIP Trust Associates, L.P.

*3.1 Restated Certificate of Incorporation of Therma-Wave.

*3.2 Amended and Restated By-Laws of Therma-Wave.

3.3 Form of Restated Certificate of Incorporation of Therma-Wave.

3.4 Form of Amended and Restated By-Laws of Therma-Wave.

*4.1 Purchase Agreement, dated as of May 16, 1997, by and among Therma-Wave
and BT Securities Corporation.

*4.2 Indenture, dated as of May 15, 1997, by and among Therma-Wave and IBJ
Schroder Bank & Trust Company, as trustee.

*4.3 Form of 10 5/8% Senior Notes.

*4.4 Form of Series B 10 5/8% Senior Notes.

*4.5 Registration Rights Agreement, dated as of May 15, 1997, by and among
Therma-Wave and BT Securities Corporation, as Initial Purchaser.

4.6 Form of certificate representing shares of Common Stock.

**5.1 Opinion of Kirkland & Ellis.

*10.1 Employment Agreement, dated as of May 16, 1997, by and between Therma-
Wave and Dr. Allan Rosencwaig.

*10.2 Employment Agreement, dated as of May 16, 1997, by and between Therma-
Wave and David L. Willenborg.

*10.3 Employment Agreement, dated as of May 16, 1997, by and between Therma-
Wave and W. Lee Smith.

*10.4 Employment Agreement, dated as of May 16, 1997, by and between Therma-
Wave and Jon L. Opsal.

*10.5 Employment Agreement, dated as of May 16, 1997, by and between Therma-
Wave and Anthony W. Lin.

*10.6 Executive Stock Agreement, dated as of May 16, 1997, by and between
Therma-Wave and Dr. Allan Rosencwaig.

*10.7 Executive Stock Agreement, dated as of May 16, 1997, by and between
Therma-Wave and David L. Willenborg.

*10.8 Executive Stock Agreement, dated as of May 16, 1997, by and between
Therma-Wave and W. Lee Smith.

*10.9 Executive Stock Agreement, dated as of May 16, 1997, by and between
Therma-Wave and Jon L. Opsal.

*10.10 Executive Stock Agreement, dated as of May 16, 1997, by and between
Therma-Wave and Anthony W. Lin.

*10.11 Stockholders Agreement, dated as of May 16, 1997, by and among Therma-
Wave and certain stockholders named therein.
</TABLE>

II-3
<PAGE>

<TABLE>

<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
*10.12 Development License Agreement, dated June 12, 1992, by and among
Therma-Wave and Therma-Wave K.K., Toray Industries, Inc. and Shimadzu
Corporation.

*10.13 New Development Agreement, dated December 22, 1995, by and between
Therma-Wave and Toray Industries, Inc.

*10.14 Lease Agreement, dated as of May 26, 1995, by and between Therma-Wave
and Sobrato Interests.

*10.15 Advisory Agreement, dated as of May 16, 1996, between Therma-Wave and
Bain Capital, Inc.

*10.16 Voting Agreement, dated as of May 16, 1997, between Therma-Wave and
certain stockholders named therein.

*10.17 Credit Agreement, dated as of May 16, 1997, between Therma-Wave and
Bankers Trust Company, as agent, and certain financial institutions
named therein.

*10.18 Pledge Agreement, dated as of May 16, 1997, between Therma-Wave and
Bankers Trust Company, as agent.

*10.19 Security Agreement, dated as of May 16, 1997, between Therma-Wave and
Bankers Trust Company, as agent.

*10.20 Therma-Wave, Inc. 1997 Stock Purchase and Option Plan.

*10.21 Registration Agreement, dated as of May 16, 1997, between Therma-Wave
and the stockholders named therein.

*10.22 Stock Repurchase Agreement, dated as of January 26, 1996, between
Toray Industries, Inc. and the key employees of Therma-Wave named
therein.

*10.23 Key Employee Stock Agreement, dated as of October 30, 1991 and amended
as of December 16, 1994, by and among Toray Industries, Inc., TS
Subsidiary Corp., Therma-Wave, Inc. and the key employees named
therein.

10.24 Form of Therma-Wave, Inc. 1999 Equity Incentive Plan.

10.25 First Amendment to Credit Agreement, dated as of June 30, 1998,
between Therma-Wave and Bankers Trust Company, as agent, incorporated
herein by reference to Exhibit 10.1 of Therma-Wave's Quarterly Report
on Form 10-Q for the quarter ended July 5, 1998.

10.26 Employment Agreement, dated as of August 3, 1998, by and between
Therma-Wave and Martin M. Schwartz.

10.27 Employment Agreement, dated as of August 10, 1998, by and between
Therma-Wave and L. Ray Christie.

10.28 Form of 1999 Employee Stock Purchase Plan.

*21.1 Subsidiaries of Therma-Wave.

23.1 Consent of Ernst & Young LLP, Independent Auditors.

23.2 Consent of Independent Accountants.

23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).

24.1 Powers of Attorney (included in Part II to the Registration Statement
previously filed).

27.1 Financial Data Schedule.
</TABLE>
- --------
* Incorporated herein by reference to the same numbered exhibit to Therma-
Wave's Registration Statement on Form S-4 (Registration No. 333-29871).

** Previously filed.

+ Therma-Wave agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to such agreement upon request by the
Commission.

II-4
<PAGE>

(b) Financial Statement Schedule.

<TABLE>
<CAPTION>
Index
-----
<S> <C>
Report of Independent Accountants on Financial Statement Schedule.. S-1
Schedule II--Valuation and Qualifying Accounts..................... S-2
</TABLE>

All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore has been omitted.

Item 17. Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters
at closing specified in the underwriting agreement certificates in such
denominations and registered in such manner as requested by the underwriters to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act of
1933 (the "Securities Act"), 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 shall be deemed to be
part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
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.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 20 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
Securities 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
Securities Act and will be governed by the final adjudication of such issue.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Therma-Wave,
Inc. has duly caused this Pre-Effective Amendment No. 3 to Registration
Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fremont, State of California, on July 21, 1999.

Therma-Wave, Inc.

By: /s/ Allan Rosencwaig
-----------------------------------
Allan Rosencwaig
Chairman of the Board

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Allan Rosencwaig, Martin M. Schwartz, L. Ray
Christie, Adam W. Kirsch and Ian K. Loring, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments (including post-effective amendments)
to this registration statement (and any registration statement filed pursuant
to Rule 462(b) under the Securities Act of 1933, as amended, for the offering
which this Registration Statement relates), and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

* * * *

Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 3 to Registration Statement on Form S-1 has been signed
by the following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Allan Rosencwaig Chairman of the Board and July 21, 1999
______________________________________ Chief Technology Officer
Allan Rosencwaig

* President, Chief Executive July 21, 1999
______________________________________ Officer and Director
Martin M. Schwartz (Principal Executive
Officer)

* Vice President and Chief July 21, 1999
______________________________________ Financial Officer
L. Ray Christie (Principal Financial and
Accounting Officer)

* Director July 21, 1999
______________________________________
G. Leonard Baker, Jr.
</TABLE>

II-6
<PAGE>

<TABLE>
<S> <C> <C>
* Director July 21, 1999
______________________________________
David Dominik

* Director July 21, 1999
______________________________________
Adam W. Kirsch

/s/ Ian Loring Director July 21, 1999
______________________________________
Ian K. Loring
</TABLE>

* The undersigned, by signing his name hereto, does hereby sign and execute
this Pre-Effective Amendment No. 3 to Registration Statement on Form S-1 on
behalf of the above named officers and directors of Therma-Wave pursuant to the
Power of Attorney executed by such officer and/or director on the Registration
Statement on Form S-1 previously filed with the SEC on April 9, 1999.

<TABLE>
<S> <C>
By: /s/ Allan Rosencwaig July 21, 1999
------------------------------
Allan Rosencwaig
Attorney-in-Fact
</TABLE>

II-7

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Therma-Wave, Inc.

Our audit of the consolidated financial statements as of March 31, 1999 and for
the year then ended referred to in our report dated April 27, 1999 appearing on
page F-2 of the consolidated financial statements in this Registration
Statement on Form S-1 also included an audit of the Financial Statement
Schedule for the year ended March 31, 1999 listed in Item 16(b) in this
Registration Statement on Form S-1. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP

San Jose, California
April 27, 1999

S-1
<PAGE>

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
THERMA-WAVE, INC.
(in thousands)

<TABLE>
<CAPTION>
Additions
---------------------
Charged to
Balance at Charged to Other
Beginning Costs and Accounts-- Deductions-- Balance at
Description of Period Expenses Describe Describe End of Period
- ----------- ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year ended March 31,
1999:
Reserves and allowances
deducted from asset
accounts; Allowance
for Doubtful
Accounts.............. $3,016 $ (631) $ -- $ 474 $1,911

Year ended March 31,
1998:
Reserves and allowances
deducted from asset
accounts; Allowance
for Doubtful
Accounts.............. $1,622 $1,394 $ -- $ -- $3,016

Year ended March 31,
1997:
Reserves and allowances
deducted from asset
accounts; Allowance
for Doubtful
Accounts.............. $ 284 $1,338 $ -- $ -- $1,622
</TABLE>

S-2

<PAGE>

BANC OF AMERICA SECURITIES LLC

____________ Shares

Therma-Wave, Inc.

Common Stock

Underwriting Agreement

dated ____________ __, 1999
<PAGE>

Table of Contents

<TABLE>
<CAPTION>
<S> <C>
Section 1. Representations and Warranties of the Company...................... 2
(a) Compliance with Registration Requirements.......................... 2
(b) Offering Materials Furnished to Underwriters....................... 3
(c) Distribution of Offering Material By the Company................... 4
(d) The Underwriting Agreement......................................... 4
(e) Authorization of the Common Shares................................. 4
(f) No Applicable Registration or Other Similar Rights................. 4
(g) No Material Adverse Change......................................... 4
(h) Independent Accountants............................................ 5
(i) Preparation of the Financial Statements............................ 5
(j) Incorporation and Good Standing of the Company and its Subsidiaries 5
(k) Capitalization and Other Capital Stock Matters..................... 6
(l) Nasdaq National Market Quotation................................... 6
(m) Non-Contravention of Existing Instruments;
No Further Authorizations or Approvals Required.................... 6
(n) Compliance with Laws............................................... 7
(o) No Material Actions or Proceedings................................. 7
(p) Intellectual Property Rights....................................... 8
(q) All Necessary Permits, etc......................................... 8
(r) Title to Properties................................................ 9
(s) Tax Law Compliance................................................. 9
(t) Company Not an "Investment Company"................................ 9
(u) Insurance.......................................................... 9
(v) No Price Stabilization or Manipulation............................. 10
(w) Related Party Transactions......................................... 10
(x) No Unlawful Contributions or Other Payments........................ 10
(y) Company's Accounting System........................................ 10
(z) ERISA Compliance................................................... 10
(aa) Year 2000.......................................................... 11
(bb) Environmental Laws................................................. 11
(cc) Lock-Up Agreements................................................. 12
(dd) Officer's Certificates............................................. 12

Section 2. Purchase, Sale and Delivery of the Common Shares................... 13
(a) The Firm Common Shares............................................. 13
(b) The First Closing Date............................................. 13
(c) The Optional Common Shares; the Second Closing Date................ 13
(d) Public Offering of the Common Shares............................... 14
(e) Payment for the Common Shares...................................... 14
(f) Delivery of the Common Shares...................................... 14
</TABLE>

-ii-
<PAGE>

<TABLE>
<S> <C>
(g) Delivery of Prospectus to the Underwriters......................... 15

Section 3. Additional Covenants of the Company................................ 15
(a) Representatives' Review of Proposed Amendments and Supplements 15
(b) Securities Act Compliance.......................................... 15
(c) Compliance with NASD Rules......................................... 16
(d) Amendments and Supplements to the Prospectus and
Other Securities Act Matters....................................... 16
(e) Copies of any Amendments and Supplements to the Prospectus......... 16
(f) Blue Sky Compliance................................................ 16
(g) Capitalization; Use of Proceeds.................................... 17
(h) Transfer Agent..................................................... 17
(i) Quotation.......................................................... 17
(j) Rule 158 Earnings Statement........................................ 17
(k) Periodic Reporting Obligations..................................... 17
(l) Agreement Not to Offer or Sell Additional Securities............... 17
(m) Compliance with Rule 463........................................... 18
(n) Future Reports to the Representatives.............................. 18

Section 4. Payment of Expenses................................................ 18

Section 5. Conditions of the Obligations of the Underwriters.................. 19
(a) Accountants' Comfort Letter........................................ 19
(b) Compliance with Registration Requirements; No Stop Order;
No Objection from NASD............................................. 19
(c) No Material Adverse Change or Ratings Agency Change................ 20
(d) Opinion of Counsel for the Company................................. 20
(e) Opinion of Counsel for the Underwriters............................ 21
(f) Officers' Certificate.............................................. 21
(g) Secretary's Certificate............................................ 22
(h) Bring-down Comfort Letter.......................................... 22
(i) The Bank Credit Facility Amendment................................. 22
(j) Reclassification and Stock-Split................................... 22
(k) Additional Documents............................................... 22

Section 6. Reimbursement of Underwriters' Expenses............................ 23

Section 7. Effectiveness of this Agreement.................................... 23

Section 8. Indemnification.................................................... 23
(a) Indemnification of the Underwriters................................ 23
(b) Indemnification of the Company, its Directors and Officers 25
(c) Notifications and other Indemnification Procedures................. 26
</TABLE>

-iii-
<PAGE>

<TABLE>
<S> <C>
(d) Settlements............................................... 27
(e) Indemnification for Reserved Securities................... 27

Section 9. Contribution.............................................. 27

Section 10. Default of One or More of the Several Underwriters........ 29

Section 11. Termination of this Agreement............................. 29

Section 12. Representations and Indemnities to Survive Delivery....... 30

Section 13. Default by the Company.................................... 30

Section 14. Notices................................................... 30

Section 15. Successors................................................ 31

Section 16. Partial Unenforceability.................................. 32

Section 17. Governing Law Provisions.................................. 32
(a) Governing Law............................................. 32
(b) Consent to Jurisdiction................................... 32
(c) Waiver of Immunity........................................ 32

Section 18. General Provisions........................................ 32
</TABLE>

Schedules
- ---------
Schedule A Schedule of Underwriters
Schedule B Schedule of Patents and Trademarks
Schedule C Schedule of Persons and Entities Subject to Lock-Up

Exhibits
- --------
Exhibit A Form of Opinion of Counsel for the Company
Exhibit B Form of Opinion of Intellectual Property Counsel for the Company
Exhibit C Form of Lock-Up Agreement

-iv-
<PAGE>

___________ Shares

THERMA-WAVE, INC.

Common Stock

UNDERWRITING AGREEMENT
----------------------

_______________,1999

BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS INC.
As Representatives of the several Underwriters
c/o BANC OF AMERICA SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111

Ladies and Gentlemen:

Therma-Wave, Inc., a Delaware corporation (the "Company"), proposes to
-------
issue and sell to the several underwriters named in Schedule A (the
"Underwriters") an aggregate of [____] shares (the "Firm Common Shares") of its
- ------------- ------------------
Common Stock, $.01 par value per share (the "Common Stock"). In addition, the
------------
Company has granted to the Underwriters an option to purchase up to an
additional [____] shares (the "Optional Common Shares") of Common Stock, as
----------------------
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares". Banc of America Securities LLC ("Banc of America") and Lehman
- -------------- ---------------
Brothers Inc. have agreed to act as representatives of the several Underwriters
(in such capacity, the "Representatives") in connection with the offering and
---------------
sale of the Common Shares.

The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
----------
333-76019), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
--------------
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
----------------------
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
----------------------------------
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
----------------------
<PAGE>

Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
----------
however, if the Company has, with the consent of Banc of America, elected to
rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
----------
the Company's prospectus subject to completion (each a "preliminary prospectus")
----------------------
dated [______] (such preliminary prospectus is called the "Rule 434 preliminary
--------------------
prospectus"), together with the applicable term sheet (the "Term Sheet")
- ---------- ----------
prepared and filed by the Company with the Commission under Rules 434 and 424(b)
under the Securities Act and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. All references in this
Agreement to the Registration Statement, the Rule 462(b) Registration Statement,
a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or
supplements to any of the foregoing, shall include any copy thereof filed with
the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
-----

The Company and the Underwriters agree that up to [________] shares of the
Common Stock to be purchased by the Underwriters (the "Reserved Shares") shall
---------------
be reserved for sale by the Underwriters to certain eligible employees and
persons having business relationships with the Company, as part of the
distribution of the Common Shares by the Underwriters, subject to the terms of
this Agreement, the applicable rules, regulations and interpretations of the
National Association of Securities Dealers, Inc. (the "NASD") and all other
----
applicable laws, rules and regulations. To the extent that such Reserved Shares
are not orally confirmed for purchase by such eligible employees and persons
having business relationships with the Company by the end of the first business
day after the date of this Agreement, such Reserved Shares may be offered to the
public as part of the public offering contemplated hereby. Any capitalized
term used but not otherwise defined herein is used herein with the meaning
ascribed to such term in the Registration Statement.

The Company hereby confirms its agreements with the Underwriters as
follows:

Section 1. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents, warrants and covenants to each Underwriter as follows:

(a) Compliance with Registration Requirements. Each of the Registration
-----------------------------------------
Statement and any Rule 462(b) Registration Statement has been declared effective
by the Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the Registration Statement
or any 462(b) Registration Statement is in effect and, to the best knowledge of
the Company, no proceedings for such purpose have been instituted or are pending
or are contemplated or threatened by the Commission.

Each preliminary prospectus and the Prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Securities Act, complied when so filed
in all material respects with the Securities Act

-2-
<PAGE>

and, if filed by electronic transmission pursuant to EDGAR (except as may be
permitted by Regulation S-T under the Securities Act), was identical to the copy
thereof delivered to the Underwriters for use in connection with the offer and
sale of the Common Shares.

Each of the Registration Statement, any Rule 462(b) Registration Statement
and any post-effective amendment thereto, at the time it became effective and at
all subsequent times up to and including the First Closing Date (and, if any
Optional Common Shares are purchased, the Second Closing Date, if applicable),
complied and will comply in all material respects with the Securities Act and
did not and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus, any preliminary
prospectus and any supplement thereto or prospectus wrapper prepared in
connection therewith, at their respective dates and at all subsequent times up
to and including the First Closing Date (and, if any Optional Common Shares are
purchased, the Second Closing Date, if applicable), complied and will comply in
all material respects with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus and such preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with the
offer and sale of Reserved Securities. The Prospectus, any preliminary
prospectus, and any supplement thereto or prospectus wrapper prepared in
connection therewith, each as amended or supplemented, as of its date and as of
the First Closing Date (and, if any Optional Common Shares are purchased, as of
the Second Closing Date, if applicable), did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. If Rule 434 is used, the Company will comply
with the requirements of Rule 434 and the Prospectus shall not be "materially
different", as such term is used in Rule 434, from the prospectus included in
the Registration Statement at the time it became effective. The representations
and warranties set forth in the two immediately preceding sentences do not apply
to statements in or omissions from the Registration Statement, any preliminary
prospectus or the Prospectus, or any amendments or supplements thereto, made in
reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by the Representatives expressly for use
therein. There are no contracts or other documents required to be described in
the Prospectus or to be filed as exhibits to the Registration Statement which
have not been described or filed as required.

(b) Offering Materials Furnished to Underwriters. The Company has
--------------------------------------------
delivered to each of the Representatives and counsel for the Underwriters,
without charge, one complete manually signed copy of the Registration Statement
(including all exhibits filed therewith or incorporated therein by reference)
and signed copies of each consent and certificate of experts filed as a part
thereof, and conformed copies of the Registration Statement (without exhibits)
and preliminary prospectuses and the Prospectus, as amended or supplemented, in
such quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters. The copies of the Registration Statement
and each amendment thereto furnished

-3-
<PAGE>

to the Underwriters are identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.

(c) Distribution of Offering Material By the Company. The Company has not
------------------------------------------------
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Common Shares, any offering material in connection with the offering and
sale of the Common Shares other than a preliminary prospectus, the Prospectus or
the Registration Statement.

(d) The underwriting Agreement. This Agreement has been duly authorized,
--------------------------
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.

(e) Authorization of the Common Shares. The Common Shares to be purchased
----------------------------------
by the Underwriters from the Company have been duly authorized for issuance and
sale pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set forth
herein, will be validly issued, fully paid and nonassessable. The Common Stock
conforms to all statements relating thereto contained in the Prospectus and such
description conforms in all material respects to the rights set forth in the
instruments defining the same; no holder of the Common Shares will be subject to
personal liability by reason of being such a holder; and the issuance of the
Common Shares is not subject to any preemptive rights, rights of first refusal
or other similar rights to subscribe for or purchase securities of the Company.

(f) No Applicable Registration or Other Similar Rights. There are no
--------------------------------------------------
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement included in the
offering contemplated by this Agreement or otherwise by the Company under the
Securities Act, except for such rights as have been duly waived, which rights,
if any, are described in the Prospectus under the heading "Shares Eligible for
Future Sale -- Registration Rights Agreement".

(g) No Material Adverse Change. Except as otherwise disclosed in the
--------------------------
Prospectus, subsequent to the respective dates as of which information is given
in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the financial condition, or in the earnings, business, operations or
prospects, whether or not arising from transactions in the ordinary course of
business, of the Company and its subsidiaries, considered as one entity (any
such change is called a "Material Adverse Change"); and (ii) the Company and its
-----------------------
subsidiaries, considered as one entity, have not incurred any material liability
or obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement

-4-
<PAGE>

not in the ordinary course of business. Since December 18, 1996, there has been
no dividend or distribution of any kind declared, paid or made by the Company
or, except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.

(h) Independent Accountants. PricewaterhouseCoopers LLP and Ernst & Young
-----------------------
LLP, who have each expressed their opinion with respect to the financial
statements (which term as used in this Agreement includes the related notes
thereto) and supporting schedules filed with the Commission as a part of the
Registration Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act.

(i) Preparation of the Financial Statements. The financial statements
---------------------------------------
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations, stockholders' equity and cash flows for the periods specified.
Such financial statements and supporting schedules have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary--Summary
Historical Financial Data", "Selected Historical Financial Data",
"Capitalization", "Dilution", "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" and "-- Quarterly
Results of Operations" fairly present in all material respects the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.

(j) Incorporation and Good Standing of the Company and its Subsidiaries.
-------------------------------------------------------------------
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation and has corporate power and the authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and, in the case of the Company, to enter into and perform its
obligations under this Agreement. The Company and each subsidiary of the
Company is duly qualified as a foreign corporation to transact business and is
in good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions where the failure to so
qualify or to be in good standing would not reasonably be expected to,
individually or in the aggregate, result in a Material Adverse Change. All of
the issued and outstanding capital stock of each subsidiary of the Company has
been duly authorized and validly issued, is fully paid and nonassessable and is
owned by the Company, directly or through its subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance, equity or other
claim. The Company does not own or control, directly or

-5-
<PAGE>

indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21.1 to the Registration Statement.

(k) Capitalization and Other Capital Stock Matters. The authorized,
----------------------------------------------
issued and outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to employee benefit plans
described in the Prospectus or upon exercise of outstanding options described in
the Prospectus), and the Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the Prospectus.
All of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with federal and state securities laws. None of the
outstanding shares of Common Stock were issued in violation of any preemptive
rights, rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. There are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other rights to
purchase, or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its subsidiaries
other than those described in the Prospectus. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the options
or other rights granted thereunder, set forth in the Prospectus accurately and
fairly presents in all material respects the information required to be shown
with respect to such plans, arrangements, options and rights.

(l) Nasdaq National Market Quotation. The Common Shares have been
--------------------------------
approved for quotation on the Nasdaq National Market, subject only to official
notice of issuance.

(m) Non-Contravention of Existing Instruments; No Further Authorizations or
-----------------------------------------------------------------------
Approvals Required. Neither the Company nor any of its subsidiaries is in
- ------------------
violation of its charter or by-laws or is in default (or, with the giving of
notice or lapse of time, would be in default) (each a "Default") in the
-------
performance or observance of any obligation, agreement, covenant or other
condition contained in any indenture, mortgage, deed of trust, loan or credit
agreement, note, contract, franchise, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or any of
them may be bound, or to which any of the property or assets of the Company or
any of its subsidiaries is subject (each, an "Existing Instrument"), except for
-------------------
such Defaults as would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Change. The Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus (including the issuance and sale of
the Common Shares and the use of proceeds from the sale of the Common Shares as
described in the Prospectus under the caption "Use of Proceeds" and the
reclassification (the "Reclassification") and stock-split (the "Stock-Split"),
as described in the Prospectus under the caption "The Reclassification") and
compliance by the Company with its obligations hereunder (i) have been duly
authorized by all necessary corporate action and do not and will not result in
any violation of the provisions of the charter or by-laws of the Company or any
of its subsidiaries, (ii) do

-6-
<PAGE>

not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or Default or Repayment
Event (as defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, or require the consent of any other party to, any
Existing Instrument or employee benefit or similar plan of the Company or any of
its subsidiaries, except for such conflicts, breaches, Defaults, Repayment
Events, liens, charges or encumbrances as would not, individually or in the
aggregate, result in a Material Adverse Change, and (iii) will not result in any
violation of any law, statute, rule, judgment, order, writ, administrative
regulation or administrative or court decree applicable to the Company or any of
its subsidiaries, except for such violations as would not, individually or in
the aggregate, result in a Material Adverse Change. No consent, approval,
authorization or other order of, or registration or filing with, any court or
other governmental or regulatory authority or agency, is required for the
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (including the
offering, issuance and sale of the Common Shares, the Reclassification and the
Stock Split), except (i) such as have been obtained or made by the Company and
are in full force and effect under the Securities Act, applicable state
securities or blue sky laws and from the NASD, and (ii) such as have been
obtained under the laws and regulations of jurisdictions outside the United
States in which Reserved Securities are offered. As used herein, a "Repayment
---------
Event" means any event or condition which gives the holder of any note,
- -----
debenture or other evidence of indebtedness (or any person acting on such
holder's behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any of its subsidiaries.

(n) Compliance with Laws. The Company and each of its subsidiaries are
--------------------
conducting their business in compliance with all the local, state, federal and
foreign laws, rules and regulations of the jurisdictions in which each of the
Company and its subsidiaries is conducting business, except where failure to be
so in compliance, singly or in the aggregate, would not result in a Material
Adverse Change.

(o) No Material Actions or Proceedings. There are no legal or governmental
----------------------------------
actions, suits or proceedings pending or, to the best of the Company's
knowledge, threatened and, to the best of the Company's knowledge, there are no
inquiries or investigations pending or threatened, in each case (i) against or
affecting the Company or any of its subsidiaries, (ii) which has as the subject
thereof any officer or director of, or property owned or leased by, the Company
or any of its subsidiaries or (iii) relating to environmental or discrimination
matters, where in any such case, if determined adversely to the Company or any
subsidiary, would reasonably be expected to result in a Material Adverse Change
or adversely affect the consummation of the transactions contemplated by this
Agreement. No material labor dispute with the employees of the Company or any
of its subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent and the Company is not aware of any existing or imminent
labor disturbance by the employees of any of its or any subsidiary's principal
suppliers, manufacturers, customers or contractors, which, in either case, may

-7-
<PAGE>

reasonably be expected to result in a Material Adverse Change. The aggregate
outcome of all pending legal or governmental proceedings to which the Company or
any of its subsidiaries is a party or of which any of their respective property
or assets is the subject which are not described in the Registration Statement,
including ordinary routine litigation incidental to the business, would not
reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Change.

(p) Intellectual Property Rights. The Company and its subsidiaries own or
----------------------------
possess sufficient trademarks, trade names, service marks, patents, patent
rights, copyrights, licenses, approvals, inventions, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and intellectual
property including specifically, but without limitation, the patents and
trademarks listed on Schedule B (collectively, "Intellectual Property Rights")
----------------------------
necessary to conduct their businesses as now conducted; and the expected
expiration of any of such Intellectual Property Rights would not result in a
Material Adverse Change. Except as otherwise disclosed in the Prospectus,
neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict nor is otherwise aware of any infringement or conflict
with asserted rights of others with respect to any Intellectual Property Rights
or of any facts or circumstances which would render any Intellectual Property
Rights invalid or inadequate to protect the interests of the Company or any of
its subsidiaries therein, and which infringement or conflict, if the subject of
an unfavorable decision, ruling, or finding, or invalidity or inadequacy, singly
or in the aggregate would reasonably be expected to result in a Material Adverse
Change. The Company has good and marketable title to the patents and patent
applications referenced in the Prospectus.

(q) All Necessary Permits, etc. The Company and each subsidiary possess
---------------------------
such valid and current certificates, licenses, authorizations or permits
(collectively, "Governmental Licenses") issued by the appropriate state, federal
---------------------
or foreign regulatory agencies or bodies necessary to conduct their respective
businesses (other than any the absence of which would not, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Change), the
Company and its subsidiaries are in compliance with the terms and conditions of
all such Governmental Licenses, except where the failure so to comply would not,
singly or in the aggregate, reasonably be expected to result in a Material
Adverse Change, all of the Governmental Licenses are valid and in full force and
effect, except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
reasonably be expected to result in a Material Adverse Change, and neither the
Company nor any subsidiary has received any notice, or is otherwise aware, of
proceedings relating to the revocation or modification of, or non-compliance
with, any such certificate, license, authorization or permit which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would reasonably be expected to result in a Material Adverse Change.

-8-
<PAGE>

(r) Title to Properties. The Company and each of its subsidiaries has
-------------------
good and marketable title to all real property owned by the Company and its
subsidiaries and has good title to all other properties and assets reflected as
owned in the financial statements referred to in Section 1(i) above (or
elsewhere in the Prospectus) and has good title to all other properties owned by
them, in each case, except as disclosed in the Prospectus, free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims and other
defects, except such as do not materially and adversely affect the Company or
its subsidiaries. The real property, improvements, equipment and personal
property held under lease by the Company or any subsidiary are held under valid
and enforceable leases, with such exceptions as are not material to the Company
or its subsidiaries and neither the Company nor any of its subsidiaries has any
notice of any claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any of its subsidiaries under any of the leases or
subleases referred to above, or affecting or questioning the rights of the
Company or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease except for such notices of
claims as would not reasonably be expected to result in a Material Adverse
Change.

(s) Tax Law Compliance. The Company and its subsidiaries have filed all
------------------
necessary federal, state and foreign income and franchise tax returns or have
properly requested extensions thereof and have paid all taxes required to be
paid by any of them and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them except as may be being contested in
good faith and by appropriate proceedings. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(i) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company or
any of its subsidiaries has not been finally determined.

(t) Company Not an "Investment Company". The Company is not, and after the
-----------------------------------
issuance and sale of, and the receipt of payment for, the Common Shares and the
application of the net proceeds therefrom as described in the Prospectus will
not be, an "investment company" or an entity "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended
(the "Investment Company Act"), and will conduct its business in a manner so
----------------------
that it will not become subject to the Investment Company Act.

(u) Insurance. Each of the Company and its subsidiaries are insured by
---------
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as the Company has
reasonably deemed adequate and customary for its businesses including, but not
limited to, policies covering personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, and acts of vandalism.

-9-
<PAGE>

(v) No Price Stabilization or Manipulation. Neither the Company, nor any
--------------------------------------
of the Company's affiliates, has taken or will take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Common Shares.

(w) Related Party Transactions. There are no business relationships or
--------------------------
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.

(x) No Unlawful Contributions or Other Payments. Neither the Company nor
-------------------------------------------
any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.

(y) Company's Accounting System. The Company maintains a system of
---------------------------
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

(z) ERISA Compliance. The Company and its subsidiaries and any "employee
----------------
benefit plan" (as defined under the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, its
-----
subsidiaries or their ERISA Affiliates (as defined below) are in compliance in
all material respects with ERISA. "ERISA Affiliate" means, with respect to the
---------------
Company or a subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
----
which the Company or such subsidiary is a member. Except as would not
reasonably be expected to result in a Material Adverse Change, there is (i) no
"reportable event" (as defined under ERISA) that has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates,
and (ii) no "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA Affiliates that, if such "employee
benefit plan" were terminated, would have any "amount of unfunded benefit
liabilities" (as defined under ERISA). Neither the Company, its subsidiaries
nor any of their ERISA Affiliates has incurred or reasonably expects to incur
any liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code, except, in each case, such as would not reasonably be
expected to

-10-
<PAGE>

result in a Material Adverse Change. Each "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates
that is intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to act, which
would cause the loss of such qualification, except where the failure to so
qualify would not reasonably be expected to result in a Material Adverse Change.

(aa) Year 2000. The Company has not incurred significant operating
---------
expenses or costs to ensure that its information systems will be Year 2000
Compliant (as defined below), other than as disclosed in the Prospectus. The
statements made under the caption "Year 2000" in the Prospectus are true,
complete and correct in all material respects and accurately reflect the
Company's state of readiness with respect to (i) all of the systems used in the
business, products, services or operations of the Company and its subsidiaries,
and (ii) all of the software, hardware, firmware and other technology that
constitute any part of the products and services manufactured, marketed,
licensed or sold in the past or present (or to be sold in the future) by the
Company or any of its subsidiaries. The Company is not aware of any failure to
be Year 2000 Compliant of (i) any third-party system used in connection with the
business, products, services or operations of the Company or any of its
subsidiaries, or (ii) any vendor, co-venturer, service provider or customer,
except in each case for such failures to be Year 2000 Compliant as would not
result in a Material Adverse Change.

For purposes of this Agreement, "Year 2000 Compliant" means that, without
-------------------
human intervention, the applicable system, application, product, service or
item: (A) will accurately receive, record, store, provide, recognize, recall and
process all date and time data; (B) will accurately perform all date- or time-
dependent calculations and operations; and (C) will not malfunction, cease to
function or provide invalid or incorrect results as a result of (i) any
calendar change; (ii) any date or time data; or (iii) the occurrence of any
particular date.

(bb) Environmental Laws. Except as would not, singly or in the aggregate,
------------------
result in a Material Adverse Change, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign statute,
law, rule, regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating to the
emission, discharge, release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the manufacture,
-------------------
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "Environmental Laws"), which
------------------
violation includes, but is not limited to, noncompliance with any permits or
other governmental authorizations required for the operation of the business of
the Company or its subsidiaries under applicable Environmental Laws, or
noncompliance with the terms and conditions thereof, nor has the Company or any
of its subsidiaries received any written communication, whether from a
governmental authority,

-11-
<PAGE>

citizens group, employee or otherwise, that alleges that the Company or any of
its subsidiaries is in violation of any Environmental Law, (B) the Company and
its subsidiaries have all permits, authorizations and approvals required under
any applicable Environmental Laws and are each in compliance with their
requirements, (C) there is no claim, action or cause of action filed with a
court or governmental authority or any administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigation or proceedings with respect to which the Company has
received written notice, and no written notice to the Company by any person or
entity alleging potential liability for investigatory costs, cleanup costs,
governmental responses costs, natural resources damages, property damages,
personal injuries, attorneys' fees or penalties arising out of, based on or
resulting from the presence, or release into the environment, of any Hazardous
Materials at any location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental Claims"),
------------- ------
pending or, to the best of the Company's knowledge, threatened against the
- ------
Company or any of its subsidiaries or any person or entity whose liability for
any Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law nor are there any events or
circumstances that might reasonably be expected to form the basis for an
Environmental Claim, and (D) to the best of the Company's knowledge, there are
no past or present actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission, discharge,
presence or disposal of any Hazardous Materials, that reasonably could result in
a violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or any of its subsidiaries or against
any person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or by
operation of law.

(cc) Lock-Up Agreements. The Company has caused each person listed on
------------------
Schedule C hereto to furnish to you, on or prior to the date of this agreement,
a letter or letters, substantially in the form of Exhibit C hereto (the "Lock-Up
-------
Agreement"), pursuant to which each such person shall have agreed that during a
- ---------
period of 180 days from the date of the Prospectus, such person will not,
without the prior written consent of Banc of America Securities LLC, (i)
directly or indirectly, offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file or cause to be filed any registration
statement under the Securities Act with respect to any of the foregoing, or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise and such agreements are in full force and
effect. The foregoing sentence shall not apply to the Common Shares to be sold
hereunder.

(dd) Officer's Certificates. Any certificate signed by an officer of the
----------------------
Company or

-12-
<PAGE>

any of its subsidiaries delivered to the Representatives or to counsel for the
Underwriters in connection with the consummation of the transactions
contemplated hereby and dated the date hereof, the First Closing Date or the
Second Closing Date shall be deemed to be a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.

Section 2. Purchase, Sale and Delivery of the Common Shares.
------------------------------------------------

(a) The Firm Common Shares. The Company agrees to issue and sell to the
----------------------
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[____] per share.

(b) The First Closing Date. Delivery of certificates for the Firm Common
----------------------
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Banc of America, 600 Montgomery Street, San Francisco, California
(or such other place as may be agreed to by the Company and the Representatives)
at 6:00 a.m. San Francisco time, on [____], or such other time and date not
later than 10:30 a.m. San Francisco time, on [____] as the Representatives shall
designate by notice to the Company (the time and date of such closing are called
the "First Closing Date"). The Company hereby acknowledges that circumstances
------------------
under which the Representatives may provide notice to postpone the First Closing
Date as originally scheduled include, but are in no way limited to, any
determination by the Company or the Representatives to recirculate to the public
copies of any amended or supplemented Prospectus or a delay as contemplated by
the provisions of Section 10.

(c) The Optional Common Shares; the Second Closing Date. In addition,
---------------------------------------------------
on the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [_____] Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing
-------------

-13-
<PAGE>

Date" shall refer to the time and date of delivery of certificates for the Firm
- ----
Common Shares and the Optional Common Shares). Such time and date of delivery,
if subsequent to the First Closing Date, is called the "Second Closing Date" and
-------------------
shall be determined by the Representatives and shall not be earlier than three
nor later than five full business days after delivery of such notice of
exercise. If any Optional Common Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Optional Common
shares (subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Optional Common Shares to be purchased as the number of Firm Common
Shares set forth on Schedule A opposite the name of such Underwriter bears to
the total number of Firm Common Shares. The Representatives may cancel the
option at any time prior to its expiration by giving written notice of such
cancellation to the Company.

(d) Public Offering of the Common Shares. The Representatives hereby
------------------------------------
advise the Company that the Underwriters intend to offer for sale to the
public, as described in the Prospectus, their respective portions of the Common
Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in their sole
judgment, have determined is advisable and practicable.

(e) Payment for the Common Shares. Payment for the Common Shares shall be
-----------------------------
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.

It is understood that the Representatives have been authorized, for their
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
Banc of America, individually and not as the Representatives of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter but such payment
shall not relieve such Underwriter from any of its obligations under this
Agreement.

(f) Delivery of the Common Shares. The Company shall deliver, or cause to
-----------------------------
be delivered, to the Representatives for the accounts of the several
Underwriters certificates, if any, for the Firm Common Shares at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor set forth herein.
The Company shall also deliver, or cause to be delivered, to the Representatives
for the accounts of the several Underwriters, certificates, if any, for the
Optional Common Shares the Underwriters have agreed to purchase at the First
Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor set forth herein. The certificates, if
any, for the Common Shares shall be in definitive form and registered in such

-14-
<PAGE>

names and denominations as the Representatives shall have requested at least two
full business days prior to the First Closing Date (or the Second Closing Date,
as the case may be) and shall be made available for inspection on the business
day preceding the First Closing Date (or the Second Closing Date, as the case
may be) at a location in New York City as the Representatives may designate.
Time shall be of the essence, and delivery at the time and place specified in
this Agreement is a further condition to the obligations of the Underwriters.

(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
------------------------------------------
p.m. on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall deliver
or cause to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall reasonably request.

Section 3. Additional Covenants of the Company. The Company further covenants
-----------------------------------
and agrees with each Underwriter as follows:

(a) Representatives' Review of Proposed Amendments and Supplements.
--------------------------------------------------------------
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
-------------------
Period"), prior to amending or supplementing the Registration Statement
- ------
(including any registration statement filed under Rule 462(b) under the
Securities Act), any Term Sheet or the Prospectus, the Company shall furnish to
the Representatives for review a copy of each such proposed amendment or
supplement a reasonable amount of time prior to such proposed filing, and the
Company shall not file any such proposed amendment or supplement to which the
Representatives or counsel for the Underwriters reasonably object.

(b) Securities Act Compliance. After the date of this Agreement, the
-------------------------
Company shall promptly advise the Representatives in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information from,
the Commission, (ii) of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date that any
post-effective amendment to the Registration Statement becomes effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which it is listed for trading or included or designated for
quotation, or of the threatening, to the extent known by the Company, or
initiation of any proceedings for any of such purposes. If the Commission shall
enter any such stop order at any time, the Company will use its reasonable best
efforts to obtain the lifting of such order at the earliest possible moment.
Additionally, the Company agrees that it shall comply with the provisions of
Rules 424(b), 430A and 434, as applicable, under the Securities Act and will use
its reasonable best

-15-
<PAGE>

efforts to confirm that any filings made by the Company under such Rule 424(b)
were received in a timely manner by the Commission.

(c) Compliance with NASD Rules. The Company hereby agrees that it will
--------------------------
ensure that the Reserved Securities will be restricted as required by the NASD
or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of this Agreement. The Underwriters
will notify the Company as to which persons will need to be so restricted. At
the request of the Underwriters, the Company will direct the transfer agent to
place a stop transfer restriction upon such securities for such period of time.
Should the Company release, or seek to release, from such restrictions any of
the Reserved Securities, the Company agrees to reimburse the Underwriters for
any reasonable expenses (including, without limitation, legal expenses) they
incur in connection with such release.

(d) Amendments and Supplements to the Prospectus and Other Securities Act
---------------------------------------------------------------------
Matters. If, during the Prospectus Delivery Period, any event shall occur or
- -------
condition exist as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the reasonable opinion of the Representatives or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus to
comply with law, the Company agrees to promptly prepare (subject to Section 3(a)
hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law. The Underwriters shall cease to use the Prospectus upon receiving
notice from the Company that an amendment or supplement is required under this
paragraph.

(e) Copies of any Amendments and Supplements to the Prospectus. The
----------------------------------------------------------
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any amendments
and supplements thereto as the Representatives may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

(f) Blue Sky Compliance. The Company shall cooperate with the
-------------------
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
state securities or blue sky laws or Canadian provincial securities laws and
applicable securities laws of other jurisdictions (domestic or foreign)
reasonably designated by the Representatives, and shall comply with such laws
and shall continue such qualifications, registrations and exemptions in effect
so long as required for the distribution of the Common Shares. The Company shall
not be required to qualify as a foreign corporation or to take any action that
would subject it to general service of process in

-16-
<PAGE>

any such jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation in a jurisdiction in which it is
not currently subject to taxation as a foreign corporation. The Company will
advise the Representatives promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of any order
suspending such qualification, registration or exemption, the Company shall use
its reasonable best efforts to obtain the withdrawal thereof at the earliest
possible moment.

(g) Capitalization; Use of Proceeds. After giving effect to the
-------------------------------
assumptions set forth in the Prospectus under the caption "Capitalization", the
authorized, issued and outstanding Capital Stock of the Company is as set forth
in the Prospectus. The Company shall apply the net proceeds from the sale of the
Common Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.

(h) Transfer Agent. The Company shall engage and maintain, at its
--------------
expense, a registrar and transfer agent for the Common Stock.

(i) Quotation. The Company will use its best efforts to effect and
---------
maintain the quotation of the Common Shares on the Nasdaq National Market and
will file with the Nasdaq National Market all documents and notices required by
the Nasdaq National Market of companies that have securities that are traded in
the over-the-counter market and quotations for which are reported by the Nasdaq
National Market.

(j) Rule 158 Earnings Statement. As soon as practicable, the Company will
---------------------------
make generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [_____] that satisfies the provisions of, and provides the benefits
contemplated by, Section 11(a) of the Securities Act.

(k) Periodic Reporting Obligations. During the Prospectus Delivery
------------------------------
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
------------

(l) Agreement Not to Offer or Sell Additional Securities. During the
----------------------------------------------------
period of 180 days following the date of the Prospectus, the Company will not,
without the prior written consent of Banc of America (which consent may be
withheld at the sole discretion of Banc of America), directly or indirectly,
sell, offer, contract or grant any option to sell, pledge, transfer or establish
an open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the offering of,
or file any registration statement under the Securities Act in respect of, any
shares of Common Stock, options or warrants to acquire shares of the Common
Stock or securities exchangeable or exercisable for or convertible into shares
of Common Stock, whether now owned or

-17-
<PAGE>

hereafter acquired (other than as contemplated by this Agreement with respect to
the Common Shares); provided, however, that the Company may (i) issue shares of
its Common Stock or options to purchase shares of its Common Stock, or Common
Stock upon exercise of options, pursuant to any stock option, stock bonus or
other stock plan or arrangement described in the Prospectus, (ii) following the
90th day after the date of this Agreement, file one or more Registration
Statements on Form S-8, and (iii) issue shares in connection with any
acquisition if the recipients thereof agree in writing (on terms no less
favorable to Banc of America than as set forth in the Lock-Up Agreement) not to
sell, offer, dispose of or otherwise transfer any such shares during such 180
day period without the prior written consent of Banc of America (which consent
may be withheld at the sole discretion of the Banc of America).

(m) Compliance with Rule 463. The Company will file with the Commission
------------------------
such reports and information as may be required pursuant to Rule 463 under the
Securities Act.

(n) Future Reports to the Representatives. During the period of two
-------------------------------------
years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San Francisco, CA 94111 Attention: Rex Sherry: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.

Section 4. Payment of Expenses. The Company agrees to pay all costs, fees and
-------------------
expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus, any Term Sheet and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, reasonable attorneys' fees and reasonable expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the state securities or blue sky
laws or the provincial securities laws of Canada or securities laws of any other
jurisdiction, and, if requested by the Representatives, preparing and printing

-18-
<PAGE>

a "Blue Sky Survey" or memorandum, and any supplements thereto, and advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with the listing and inclusion
of the Common Shares on the Nasdaq National Market, (ix) all costs and expenses
of the Underwriters, including the reasonable fees and disbursements of counsel
for the Underwriters not to exceed $10,000, in connection with matters related
to the Reserved Securities which are designated by the Company for sale to
employees and others having a business relationship with the Company, and (x)
all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.

Section 5. Conditions of the Obligations of the Underwriters. The obligations
-------------------------------------------------
of the several Underwriters to purchase and pay for the Common Shares as
provided herein on the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Optional Common shares, as of the Second Closing
Date as though then made, or in certificates of any officer of the Company or
any of its subsidiaries delivered pursuant to the provisions hereof, and to the
timely performance by the Company of its covenants and other obligations
hereunder, and to each of the following additional conditions:

(a) Accountants' Comfort Letter. On the date hereof, the Representatives
---------------------------
shall have received from PricewaterhouseCoopers LLP, independent public or
certified public accountants for the Company, a letter dated the date hereof
addressed to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered according
to Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus (and the
Representatives shall have received an additional 4 conformed copies of such
accountants' letter for each of the several Underwriters).

(b) Compliance with Registration Requirements; No Stop Order; No
------------------------------------------------------------
Objection from NASD. The Registration Statement (including any Rule 462(b)
- -------------------
Registration Statement) shall have become effective and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:

(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act) in
the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed

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<PAGE>

a post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon Rule 434 under
the Securities Act and obtained the Representatives' consent thereto, the
Company shall have filed a Term Sheet with the Commission in the manner and
within the time period required by such Rule 434(b);

(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no proceedings
for such purpose shall have been instituted or threatened by the Commission and
any request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of the Underwriters; and

(iii) the NASD shall have confirmed that it will not raise any
objection to the fairness and reasonableness of the underwriting terms and
arrangements.

(c) No Material Adverse Change or Ratings Agency Change. For the period
---------------------------------------------------
from and after the date of this Agreement and prior to the First Closing Date
and, with respect to the Optional Common Shares, the Second Closing Date:

(i) in the judgment of the Representatives there shall not have
occurred any Material Adverse Change; and

(ii) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any securities of the Company or any of its
subsidiaries by any "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Securities Act.

(d) Opinion of Counsel for the Company. On each of the First Closing
----------------------------------
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Kirkland & Ellis, counsel for the Company, dated as of such
closing date, reasonably satisfactory to the Representatives with respect to the
matters set forth in Exhibit A attached hereto and to such further effect as
counsel for the Underwriters may reasonably request. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Limbach & Limbach L.L.P., intellectual property counsel
for the Company, dated as of such closing date, reasonably satisfactory to the
Representatives with respect to the matters set forth in Exhibit B attached
hereto and to such further effect as counsel for the Underwriters may reasonably
request. In each case, the Representatives shall have received an additional 4
conformed copies of such counsels' legal opinions for each of the several
Underwriters.

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<PAGE>

(e) Opinion of Counsel for the Underwriters. On each of the First Closing
---------------------------------------
Date and the Second Closing Date, if any, the Representatives shall have
received the favorable opinion of Ropes & Gray, counsel for the Underwriters,
dated as of such closing date, with respect to the matters set forth in
paragraphs (i), (v), (vi), (viii) (with respect to the captions "Description of
Capital Stock" and "Underwriting" under subparagraph (viii) only) and the next-
to-last paragraph of Exhibit A and the Representatives shall have received an
additional 4 conformed copies of such counsel's legal opinion for each of the
several Underwriters. In giving such opinion such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of The
Commonwealth of Massachusetts and the federal law of the United States and the
General Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its subsidiaries
and certificates of public officials.

(f) Officers' Certificate. On each of the First Closing Date and the
---------------------
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b) and (c)(ii) of this Section 5, and further to the effect
that:

(i) for the period from and after the date of this Agreement and
prior to such closing date, there has not occurred any Material Adverse Change;

(ii) the representations, warranties and covenants of the Company
set forth in Section 1 of this Agreement are true and correct with the same
force and effect as though expressly made on and as of such closing date;

(iii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to such
closing date;

(iv) the Registration Statement of the Company on Form S-1
(Registration No. 333-76019), in the form in which it was declared effective by
the Commission on [_____ __], 1999, and the Prospectus dated [________ __],
1999, contain all statements which are required to be stated therein in
accordance with the Securities Act and the rules and regulations of the
Commission thereunder. The Registration Statement does not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Prospectus does not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; and

(v) the Company has not waived and will not, during a period of 180
days from the date of the Prospectus, waive the provisions of the Registration
Agreement between the

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<PAGE>

Company and the investors party thereto described in the Prospectus under
the caption "Shares Eligible for Future Sale--Registration Agreement" regarding
lock-up agreements and, the Company has issued stop-transfer orders to the
transfer agent preventing the transfer of shares for a period of 180 days from
the date of the Prospectus with respect to all of the shares owned by such
investors and subject to the terms of the Registration Agreement.

(g) Secretary's Certificate. On each of the First Closing Date and the
-----------------------
Second Closing Date, if any, the Representatives shall have received a
certificate or certificates of the Secretary of the Company in form and
substance reasonably satisfactory to the Representatives. .

(h) Bring-down Comfort Letter. On each of the First Closing Date and the
-------------------------
Second Closing Date the Representatives shall have received from
PricewaterhouseCoopers LLP, independent public or certified public accountants
for the Company, a letter dated such date, in form and substance satisfactory to
the Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional 4 conformed copies of such accountants' letter for each
of the several Underwriters).

(i) The Bank Credit Facility Amendment. Prior to the date hereof, the
----------------------------------
Representatives shall have received a written notification from the Company and
Bankers Trust Company, as the lead bank under the Bank Credit Facility, that the
Bank Credit Facility has been amended to permit the consummation of the
transactions contemplated hereby without triggering a Default thereunder.

(j) Reclassification and Stock-Split. On or prior to the First Closing
--------------------------------
Date, all of the outstanding shares of Class A Common Stock, $.01 par value per
share, Class B Common Stock, $.01 par value per share, and Class L Common Stock,
$.01 par value per share (the "Class L Common Stock") will be converted into
--------------------
shares of Common Stock, $.01 par value per share, and a Stock-Split will be
effected as to all of the then outstanding shares of Common Stock. Prior to the
Stock-Split, each outstanding share of Class L Common Stock will be reclassified
into one share of Common Stock plus an additional number of shares having a
value, based on the initial offering price per share of the Common Shares, as
set forth on the cover of the Prospectus, equal to the Preference Amount, as
such term is defined in the Prospectus, of the Class L Common Stock. Fractional
shares otherwise issuable as a result of the Reclassification and Stock-Split
will be rounded to the nearest whole number.

(k) Additional Documents. On or before each of the First Closing Date and
--------------------
the Second Closing Date, the Representatives and counsel for the Underwriters
shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Common Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the

-22-
<PAGE>

satisfaction of any of the conditions or agreements, herein contained and all
proceedings taken by the Company in connection with the issuance and sale of the
Common Shares as herein contemplated shall be satisfactory in form and substance
to the Representatives and counsel for the Underwriters.

If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time on or
prior to the Second Closing Date, which termination shall be without liability
on the part of any party to any other party, except that Section 1, Section 4,
Section 6, Section 8 and Section 9 shall at all times be effective and shall
survive such termination.

Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
---------------------------------------
terminated by the Representatives pursuant to Section 5, Section 7, or Section
11(iv) or 11(v), or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by the Representatives
and the Underwriters in connection with the proposed purchase and the offering
and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, delivery,
facsimile and telephone charges.

Section 7. Effectiveness of this Agreement. This Agreement shall not become
-------------------------------
effective until the later of (i) the execution of this Agreement by the parties
hereto and (ii) notification by the Commission to the Company and the
Representatives of the effectiveness of the Registration Statement under the
Securities Act.

Prior to such effectiveness, this Agreement may be terminated by any party
by notice to each of the other parties hereto, and any such termination shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to
the Company, or (c) any party hereto to any other party except that the
provisions of Section 1, Section 8 and Section 9 shall at all times be effective
and shall survive such termination.

Section 8. Indemnification.
---------------

(a) Indemnification of the Underwriters. The Company agrees to indemnify
-----------------------------------
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act or
the Exchange Act against any loss, claim, damage, liability or expense
whatsoever, as incurred, to which such

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<PAGE>

Underwriter or such controlling person may become subject under the Securities
Act, the Exchange Act or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus or the Prospectus, or any amendment or supplement
thereto, or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; or (iii) upon the
violation of any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered to eligible employees and persons having
business relationships with the Company; or (iv) upon the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any violation of the nature referred to in Section 8(a)(iii) hereof;
provided that (subject to Section 8(e) below) any such settlement is effected
with the written consent of the Company; or (v) upon the investigation,
preparation or defense against (including the fees and disbursements of counsel
chosen by Banc of America) any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission or in connection with any violation of law, to the
extent that any such expense is not paid under (i), (ii), (iii) or (iv) above;
or (vi) in whole or in part upon any inaccuracy in the representations and
warranties of the Company contained herein; or (vii) in whole or in part upon
any failure of the Company to perform its obligations hereunder or under law; or
(viii) upon any act or failure to act or any alleged act or failure to act by
any Underwriter or any person controlling such Underwriter within the meaning of
the Securities Act or the Exchange Act in connection with, or relating in any
manner to, the Common Stock or the offering contemplated hereby, and which is
included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon any matter covered by clause (i) or (ii)
above (provided that the Company shall not be liable under this clause (viii) to
the extent that a court of competent jurisdiction shall have determined by a
final judgment that such loss, claim, damage, liability or action resulted
directly from any such acts or failures to act undertaken or omitted to be taken
by such Underwriter or such controlling person through its bad faith or willful
misconduct), and the Company agrees to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Banc of America) as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense

-24-
<PAGE>

to the extent, but only to the extent, arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by the Representatives expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling such
Underwriter, if the Company identified the untrue statement or omission in
writing to the Underwriters and copies of the Prospectus were timely delivered
to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.

(b) Indemnification of the Company, its Directors and Officers. Each
----------------------------------------------------------
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The Company
hereby acknowledges that the only information that the Underwriters have
furnished to the Company expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) are the

-25-
<PAGE>

statements set forth in the table after the first paragraph and in the second
(insofar as it relates to concessions and reallowances), seventh, ninth, tenth,
eleventh (solely with respect to the second and third sentences thereof) and
twelfth paragraphs under the caption "Underwriting" in the Prospectus, and the
Underwriters confirm that such statements are correct. The indemnity agreement
set forth in this Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.

(c) Notifications and other Indemnification Procedures. Promptly after
--------------------------------------------------
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
materially prejudiced as a proximate result of such failure. In case any such
action is brought against any indemnified party and such indemnified party seeks
or intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (Banc of America in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel employed by the indemnified party shall be at the
expense of the indemnifying party.

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<PAGE>

(d) Settlements. The indemnifying party under this Section 8 shall not be
-----------
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party as contemplated by Section 8(c) hereof, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding contemplated
by Section 8(a) effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 8 or Section 9 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.

(e) Indemnification for Reserved Securities. In connection with the offer
---------------------------------------
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold harmless the Underwriters from and against any
and all losses, liabilities, claims, damages and expenses incurred by them as a
result of the failure of eligible employees and persons having business
relationships with the Company to pay for and accept delivery of Reserved
Securities which, by the end of the first business day following the date of
this Agreement, were subject to a properly confirmed agreement to purchase.

Section 9. Contribution. If the indemnification provided for in Section 8 is
------------
for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, from the offering of the Common Shares pursuant
to this Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as

-27-
<PAGE>

well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Underwriters, on the other
hand, in connection with the offering of the Common Shares pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company, and the total underwriting
discount received by the Underwriters, in each case as set forth on the front
cover page of the Prospectus (or, if Rule 434 under the Securities Act is used,
the corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set forth on such cover. The
relative fault of the Company, on the one hand, and the Underwriters, on the
other hand, shall be determined by reference to, among other things, whether any
such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company, on the one hand, or the Underwriters, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission or any violation of the nature
referred to in Section 8(a)(iii).

The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.

Notwithstanding the provisions of this section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
pursuant to Section 8 or Section 9. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act or the Exchange Act shall have the same rights to
contribution as such

-28-
<PAGE>

Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company with the meaning of the Securities Act or the Exchange Act shall have
the same rights to contribution as the Company.

Section 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the First
--------------------------------------------------
Closing Date or the Second Closing Date, as the case may be, any one or more of
the several Underwriters shall fail or refuse to purchase Common Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Common Shares to be purchased on such date, the other Underwriters shall be
obligated, severally and not jointly, in the proportions that the number of Firm
Common Shares set forth opposite their respective names on Schedule A bears to
the aggregate number of Firm Common Shares set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 1, Section 4, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.

As used in this Agreement, the term "Underwriter" shall be deemed to
-----------
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

Section 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date this
-----------------------------
Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission, the NASD or any other
governmental

-29-
<PAGE>

authority; (ii) a general banking moratorium shall have been declared by any
federal, New York, Delaware or California authorities; (iii) there shall have
occurred any outbreak or escalation of national or international hostilities or
any crisis or calamity, or any change in the United States or international
financial markets, or any substantial change or development involving a
prospective substantial change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives is
material and adverse and makes it impracticable to market the Common Shares in
the manner and on the terms described in the Prospectus or to enforce contracts
for the sale of securities; (iv) in the judgment of the Representatives there
shall have occurred any Material Adverse Change; or (v) the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as in the judgment of the Representatives may interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 11 shall be without liability on the part of (a) the
Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Section 4 and Section 6 hereof, (b) any Underwriter to the Company, or (c) of
any party hereto to any other party except that the provisions of Section 1,
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.

Section 12. Representations and Indemnities to Survive Delivery. The respective
---------------------------------------------------
indemnities, agreements, representations, warranties and other statements of the
Company (including its subsidiaries), of its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Common Shares sold hereunder and any termination
of this Agreement.

Section 13. Default by the Company. If the Company shall fail on the First
----------------------
Closing Date to sell the number of Common Shares that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any nondefaulting party; provided, however, that the provisions of Sections
-------- -------
1, 4, 8, 9 and 12 shall remain in full force and effect. No action taken
pursuant to this Section 13 shall relieve the Company from liability, if any, in
respect of such default.

Section 14. Notices. All communications hereunder shall be in writing and shall
-------
be mailed, hand delivered or telecopied and confirmed to the parties hereto as
follows:

If to the Representatives:

Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 913-5516

-30-
<PAGE>

Attention: Rex Sherry

with copies to:

Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 913-6241
Attention: Jeff Lapic, Esq.

and copies to:

Ropes & Gray
One International Place
Boston, Massachusetts 02110
Facsimile: (617) 951-7050
Attention: David B. Walek, Esq.

If to the Company:

Therma-Wave, Inc.
1250 Reliance Way
Fremont, California 94539
Facsimile: (510) 226-6834
Attention: Dr. Allan Rosencwaig

with a copy to:

Kirkland & Ellis
300 S. Grand Avenue
Los Angeles, California 90071
Facsimile: (213) 626-0100
Attention: Eva Herbst Davis, Esq.

Section 15. SUCCESSORS. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder.

The term "successors" shall not include any purchaser of the Common Shares
----------
as such from any of the Underwriters merely by reason of such purchase.

-31-
<PAGE>

Section 16. Partial Unenforceability. The invalidity or unenforceability of
------------------------
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.

Section 17. Governing Law Provisions.
------------------------

(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.

(b) Consent to Jurisdiction. Any legal suit, action or proceeding
-----------------------
arising out of or based upon this Agreement or the transactions contemplated
hereby "Related Proceedings") may be instituted in the federal courts of the
-------------------
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
----------------
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
-------
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
- --------
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.

(c) Waiver of Immunity. With respect to any Related Proceeding, each
------------------
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.

Section 18. General Provisions. This Agreement constitutes the entire
------------------
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This

-32-
<PAGE>

Agreement may be executed in two or more counterparts, each one of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement may not be amended or modified
unless in writing by all of the parties hereto, and no condition herein (express
or implied) may be waived unless waived in writing by each party whom the
condition is meant to benefit. The Table of Contents and the Section headings
herein are for the convenience of the parties only and shall not affect the
construction or interpretation of this Agreement.

Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.

If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.

Very truly yours,

THERMA-WAVE, INC.

By: ___________________________
Name:
Title:

-33-
<PAGE>

The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.

BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS INC.

Acting as Representatives of the
several Underwriters named in
the attached Schedule A.

By: BANC OF AMERICA SECURITIES LLC

By: ___________________________
Name:
Title:
<PAGE>

SCHEDULE A

Schedule of Underwriters

Number of Firm
Common Shares
Underwriter to be Purchased

Banc of America Securities LLC.......................
Lehman Brothers Inc..................................
_____________

TOTAL UNDERWRITERS (__)
<PAGE>

SCHEDULE B

Schedule of Patents and Trademarks
<PAGE>

SCHEDULE C

Schedule of Persons and Entities
Subject to Lock-up

G. Leonard Baker, Jr.
Wells Fargo Bank, as Trustee
FBO G. Leonard Baker, Jr., Acct. #503405
David Dominik
Martin Schwartz
Adam W. Kirsch
L. Ray Christie
David Mak
Jon L. Opsal
Ray Osofsky
Allan Rosencwaig
W. Lee Smith
David Willenborg
Antares International Partners, Inc.
Bain Capital Fund V, L.P.
Bain Capital Fund V-B, L.P.
BCIP Associates
BCIP Trust Associates, L.P.
Randolph Street Partners
Sutter Hill Ventures, L.P.
Sutter Hill Associates, L.P.
Shimadzu Corporation
Toray Industries, Inc.

<PAGE>

EXHIBIT A

Form of Opinion of
Counsel for the Company
<PAGE>

The final opinion in draft form should be attached as Exhibit A at the
time this Agreement is executed.

Opinion of counsel for the Company to be delivered pursuant to Section
5(d) of the Underwriting Agreement.

References to the Prospectus in this Exhibit A include any supplements
thereto at the First Closing Date and the Second Closing Date.

(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.

(ii) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof set
forth in the Registration Statement and the Prospectus. All of the outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable and, to the best of such counsel's knowledge, have been
issued in compliance with the registration and qualification requirements of
federal and state securities laws. The form of certificate used to evidence the
Common Stock is in due and proper form and complies with all applicable
requirements of the charter and by-laws of the Company and the General
Corporation Law of the State of Delaware. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.

(iii) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company and is enforceable against the Company in
accordance with the terms thereof.

(iv) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable and, to the
knowledge of such counsel, the issuance of the Common Shares by the Company is
not subject to any preemptive or similar rights.

(v) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the Commission
under the Securities Act. To the knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the Rule
462(b) Registration Statement, if any, has been issued under the Securities Act
and no proceedings for such purpose have been instituted or are pending or are
contemplated or threatened by the Commission. Any required filing of the
Prospectus and
<PAGE>

any supplement thereto pursuant to Rule 424(b) under the Securities Act has been
made in the manner and within the time period required by such Rule 424(b).

(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or supplement to the
Registration Statement and the Prospectus, as of their respective effective or
issue dates (other than the financial statements and supporting schedules
included therein or in exhibits to or excluded from the Registration Statement,
as to which no opinion need be rendered) comply as to form in all material
respects with the applicable requirements of the Securities Act.

(vii) The Common Shares have been approved for listing on the Nasdaq
National Market.

(viii) The statements (i) in the Prospectus under the captions "Risk
Factors--Certain provisions of our charter documents and Delaware law. . .",
"The Reclassification", "Management's Discussion and Analysis and Results of
Operations--Liquidity and Capital Resources", "Business--Legal Proceedings",
"Business--Patents and Proprietary Rights", "Management--Employment Agreements",
"Management--Stock Plans", "Management--Employee Stock Purchase Plan", "Certain
Relationships and Related Transactions", "Description of Capital Stock",
"Description of Certain Indebtedness", "Shares Eligible for Future Sale" and
"Underwriting" and (ii) in Item 14 and Item 15 of the Registration Statement,
insofar as such statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, has been reviewed by such counsel and fairly
present and summarize, in all material respects, the matters referred to
therein.

(ix) To the knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or overtly threatened which
are required to be disclosed in the Registration Statement, other than those
disclosed therein.

(x) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all material
respects.

(xi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated thereby
and by the Prospectus, except as required under the Securities Act, applicable
state securities or blue sky laws and from the NASD.
<PAGE>

(xii) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder (i)
have been duly authorized by all necessary corporate action on the part of the
Company; (ii) will not result in any violation of the provisions of the charter
or by-laws of the Company or any subsidiary; (iii) will not constitute a breach
of, or Default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company pursuant to any
Existing Instrument filed as an exhibit to the Registration Statement; or (iv)
to the knowledge of such counsel and other than performance by the Company of
its obligations under the indemnification section of the Underwriting Agreement,
as to which no opinion need be rendered, will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary.

(xiii) The Company is not, and after receipt of payment for the sale
of the Common Shares and the application of the net proceeds thereof, will not
be, an "investment company" within the meaning of Investment Company Act.

(xiv) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.

(xv) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of California and each
jurisdiction in which such qualification is required by reason of the ownership
or leasing of property, except for such jurisdictions (other than the State of
California) where the failure to so qualify or to be in good standing would not,
individually or in the aggregate, result in a Material Adverse Change.

(xvi) Each significant subsidiary incorporated in the United States
(as defined in Rule 405 under the Securities Act) has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and, to the best knowledge of such counsel, is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.

(xvii) All of the issued and outstanding capital stock of each such
significant subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or, to the best knowledge of such counsel, any pending or threatened
claim.
<PAGE>

(xviii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe for
or purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or (ii) to the best knowledge of such counsel, otherwise.

(xix) Except as disclosed in the Prospectus under the caption "Shares
Eligible for Future Sale", to the knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, except for such rights
as have been duly waived.

(xx) To the best knowledge of such counsel, neither the Company nor
any subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary or is in Default in the performance or observance of
any obligation, agreement, covenant or condition contained in any material
Existing Instrument, except in each such case for such violations or Defaults as
would not, individually or in the aggregate, result in a Material Adverse
Change.

In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).

In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware or the federal law of the United
States, to the extent they deem proper and specified in such opinion, upon the
opinion (which shall be dated the First Closing Date or the Second Closing Date,
as the case may be, shall be satisfactory in form and substance to the
<PAGE>

Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Representatives) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials.
<PAGE>

EXHIBIT B

Form of Opinion of Intellectual
Property Counsel for the Company
<PAGE>

The final opinion in draft form should be attached as Exhibit B at the time
this Agreement is executed.

Opinion of counsel for the Company to be delivered pursuant to Section 5(d)
of the Underwriting Agreement.

References to the Prospectus in this Exhibit B include any supplements
thereto at the Closing Date.

[Letterhead]

_____________, 1999

Banc of America Securities LLC
Lehman Brothers Inc.
As Representatives of the several Underwriters
named in Schedule A to the Underwriting
Agreement referred to below
c/o Banc of America Securities LLC
600 Montgomery Street
San Francisco, CA 94111

Ladies and Gentlemen:

At the request of Therma-Wave, Inc., a Delaware corporation (the
"Company"), for which we act as patent and trademark counsel, we are rendering
the opinions set forth below.

This opinion is being furnished pursuant to section 5(d) of the
Underwriting Agreement, dated __________, 1999, (the "Underwriting Agreement")
among Banc of America Securities LLC, on behalf of the Representatives and the
several underwriters named in Schedule A thereto (the "Underwriters"), and the
Company providing for the sale to you by the Company of __________ shares of
common stock, par value $0.01 per share, of the Company (the "Common Stock").

In connection with this opinion, we have examined signed copies of the
registration statement of the Company on Form S-1 (No. 333-76019), filed by the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
with Securities and Exchange Commission (the "Commission") on April 9, 1999,
Amendment No. 1 thereto, including all exhibits filed therewith, filed with the
Commission on May 19, 1999, Amendment No. 2 thereto, including all exhibits
filed therewith, filed with the Commission on June 14, 1999, and Amendment No. 3
thereto, including all exhibits filed therewith, filed with the Commission on
<PAGE>

___________ __, 1999 (the registration statement as amended at the time when it
became effective, including the information deemed to be part thereof at the
time of effectiveness pursuant to Rule 430A of the rules and regulations of the
Commission under the Securities Act, being hereinafter referred to as the
"Registration Statement"), the Preliminary Prospectus dated __________, 1999 and
the final Prospectus dated __________, 1999 (in the form in which it was filed
pursuant to Rule 424(b) of the Commission under the Securities Act, being
hereinafter referred to as the 'Prospectus"), an executed copy of the
Underwriting Agreement, and copies of patent applications filed on behalf of the
Company or any of its subsidiaries. In addition, we have reviewed such other
documents and certificates as we deemed relevant and necessary as a basis for
the opinions hereinafter expressed.

We are familiar with the technology used by the Company in its business and
have read the portions of the Registration Statement and the Prospectus headed:
"Risk Factors - Reliance on Patents and Other Intellectual Property," "Business
- - Patents and Proprietary Rights" and "Business - Legal Proceedings"
(collectively, the "Technology Portion"). Based upon the foregoing and subject
to the assumptions, exceptions and qualifications set forth herein, we are of
the opinion that:

1. To the best of our knowledge, neither the Registration Statement nor
the Prospectus (A) contains any untrue statement of a material fact with respect
to trademarks, trade names, patents, patent applications, mask works,
copyrights, licenses, trade secrets or other intellectual property rights owned
or used by the Company, or the manner of its use thereof, or any allegation on
the part of any person or entity that the Company is infringing any trademarks,
trade names, patents, patent applications, mask works, copyrights, licenses,
trade secrets or other intellectual property rights of any such person or
entity, or (B) omits to state a material fact relating to trademarks, trade
names, patents, patent applications, mask works, copyrights, licenses, trade
secrets or other intellectual property rights owned or used by the Company, or
the manner of its use thereof, or any allegations of which we have knowledge,
that is required to be stated in the Registration Statement or the Prospectus or
is necessary to make the statements therein not misleading.

2. We have no knowledge of any facts which would preclude the Company from
having clear title to its patents or patent applications referenced in the
Technology Portion of the Prospectus. To the best of our knowledge, the Company
owns or possesses sufficient licenses or other rights to use all trademarks,
trade names, patents, copyrights, licenses, trade secrets, know-how and other
intellectual property necessary to conduct the business now conducted or
proposed to be conducted by the Company as described in the Prospectus.

3. To the best of our knowledge, the Company is not infringing or
otherwise violating and has not infringed or otherwise violated any trademarks,
trade names, patents, patent applications, mask works, copyrights, licenses,
trade secrets or other intellectual property rights of others, and, except as
described in the Technology Portion of the Prospectus, has not received any
notice of infringement or conflict with asserted rights of
<PAGE>

others with respect to any patents, patent applications, trademarks, trade
names, mask works, copyrights, licenses, trade secrets, or other intellectual
property rights which could result in any material adverse effect upon the
Company. To the best of our knowledge, there are no infringements by others of
any of the Company's trademarks, trade names, patents, patent applications, mask
works, copyrights, licenses, trade secrets or other intellectual property
rights.

4. To the best of our knowledge, there are no legal or governmental
proceedings pending relating to trademarks, trade names, patents, patent
applications, mask works, copyrights, licenses, trade secrets or other
intellectual property rights which could result in any material adverse effect
upon the Company other than as described in the Technology Portion of the
Prospectus and the prosecution by the Company of its patent applications before
the United States Patent and Trademark Office and appropriate foreign government
agencies, and to the best of our knowledge no such proceedings are threatened or
contemplated by governmental authorities or others.

5. The statements in the Technology Portion of the Prospectus, insofar as
such statements constitute a summary of documents referred to therein or matters
of law (other than the statements therein concerning the Company's government
contracts and grants, as to which we express no opinion), are accurate summaries
and fairly and correctly present, in all material respects, the information
called for with respect to such documents and matters.

6. The Company duly and properly holds the patents and trademarks/service
marks, and has duly and properly filed the United States patent and/or
trademark/service mark applications and patent cooperation treaty applications
listed or otherwise referenced in the Technology Portion of the Prospectus.

7. We do not know of any contract or other document relating to the
Company's intellectual property of a character required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus that has not been filed or described as
required.

Very truly yours,

<PAGE>

EXHIBIT C

Form of Lock-Up Agreement
<PAGE>

____________, 1999

Banc of America Securities LLC
Lehman Brothers Inc.

As Representatives of the several Underwriters
c/o Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111

Re: Therma-Wave, Inc. (the "Company")
---------------------------------

Ladies & Gentlemen:

The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
------------
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
--------
representatives of the underwriters. The undersigned recognizes that the
offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the offering and in entering into underwriting arrangements with
the Company with respect to the Offering.

In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Banc of America
Securities LLC (which consent may be withheld in its sole discretion), directly
or indirectly, sell, offer, contract or grant any option to sell (including
without limitation any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-l(h) under the Securities
Exchange Act of 1934, or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock, or securities
exchangeable or exercisable for or convertible into shares of Common Stock
currently or hereafter owned either of record or beneficially (as defined in
Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 180 days after the date of the Prospectus. The
foregoing sentence shall not apply to a distribution to partners or shareholders
of the undersigned, provided that such distribution shall be conditioned upon
such distributees executing and delivering an executed lock-up agreement, in the
form of this agreement, to Banc of America Securities LLC prior to the
commencement of any such distribution. The undersigned also agrees and consents
to the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of
<PAGE>

Common Stock or securities convertible into or exchangeable or exercisable for
Common Stock held by the undersigned except in compliance with the foregoing
restrictions.

With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of 1933, as amended, of
any Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.

This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.

By: ____________________________

______________________________________
Printed Name of Person Signing (and
indicate capacity of person signing if
signing as custodian, trustee, or on
behalf of an entity)

<PAGE>

EXHIBIT 3.3

RESTATED CERTIFICATE OF INCORPORATION

THERMA-WAVE, INC.

ARTICLE ONE

The name of the Corporation is Therma-Wave, Inc.

ARTICLE TWO

The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
19801. The name of its registered agent at such address is The Corporation
Trust Company.

ARTICLE THREE

The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.

ARTICLE FOUR

A. AUTHORIZED SHARES
-----------------

The total number of shares of capital stock which the Corporation has
authority to issue is 41,000,000 shares, consisting of:

(1) 1,000,000 shares of Series A Convertible Preferred Stock, par
value $.01 per share ("Series A Preferred");
------------------

(2) 5,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"); and
---------------

(3) 35,000,000 shares of Common Stock, par value $.01 per share
("Common Stock").
------------
<PAGE>

The Series A Preferred, Preferred Stock and the Common Stock shall have the
rights, preferences and limitations set forth below. Capitalized terms used but
not otherwise defined in Part A, Part B, Part C or Part D of this Article IV are
defined in Part E.

B. SERIES A PREFERRED
------------------

Section 1. Dividends.
---------

1A. General Obligation. When and as declared by the Corporation's
------------------
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends in cash to the
holders of the Series A Preferred (the "Series A Preferred") as provided in this
------------------
Section 1. Dividends on each share of the Series A Preferred (a "Share") shall
-----
be cumulative and accrue at the rate of 6% per annum of the sum of the
Liquidation Value thereof plus all accumulated and unpaid dividends thereon from
and including the date of issuance of such Share to and including the first to
occur of (i) the date on which the Liquidation Value of such Share (plus all
accrued and unpaid dividends thereon) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of such
Share by the Corporation, (ii) the date on which such Share is converted into
shares of Conversion Stock hereunder or (iii) the date on which such share is
otherwise acquired by the Corporation. Such dividends shall accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
The date on which the Corporation initially issues any Share shall be deemed to
be its "date of issuance" regardless of the number of times transfer of such
Share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
Share.

1B. Dividend Reference Dates. To the extent not paid on May 16 of
------------------------
each year, beginning May 16, 1998 (the "Dividend Reference Date"), all dividends
-----------------------
which have accrued on each Share outstanding during the year ending upon each
such Dividend Reference Date shall be accumulated and shall remain accumulated
dividends with respect to such Share until paid to the holder thereof.

1C. Distribution of Partial Dividend Payments. Except as otherwise
-----------------------------------------
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A Preferred, such payment
shall be distributed pro rata among the holders thereof based upon the number of
Shares held by each such holder.

Section 2. Liquidation. Upon any liquidation, dissolution or winding
-----------
up of the Corporation (whether voluntary or involuntary), each holder of Series
A Preferred shall be entitled to be paid, before any distribution or payment is
made upon any Junior Securities, an amount in cash equal to the greater of (a)
the aggregate Liquidation Value of all Shares held by such holder (plus all
accrued and unpaid dividends thereon, which for all purposes hereof shall
include dividends

2
<PAGE>

which have accrued since the last Dividend Reference Date) and (b) the amount
that such holder would have received had such holder converted such Shares into
shares of Class A Common immediately prior to such liquidation, dissolution or
winding up, and the holders of Series A Preferred shall not be entitled to any
further payment. If upon any such liquidation, dissolution or winding up of the
Corporation the Corporation's assets to be distributed among the holders of the
Series A Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid under this Section 2, then
the entire assets available to be distributed to the Corporation's stockholders
shall be distributed pro rata among such holders based upon the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of the Series A
Preferred held by each such holder. Not less than 30 days prior to the payment
date stated therein, the Corporation shall mail written notice of any such
liquidation, dissolution or winding up to each record holder of Series A
Preferred, setting forth in reasonable detail the amount of proceeds to be paid
with respect to each Share and each share of Common Stock in connection with
such liquidation, dissolution or winding up.

Section 3. Priority of Series A Preferred on Dividends and
-----------------------------------------------
Redemptions. So long as any Series A Preferred remains outstanding, without the
- -----------
prior written consent of the holders of a majority of the outstanding shares of
Series A Preferred, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, nor shall the Corporation directly or indirectly pay or
declare any dividend or make any distribution upon any Junior Securities;
provided that the Corporation may repurchase shares of Common Stock from former
employees of the Corporation and its Subsidiaries to the extent permitted by the
Corporation's agreements related to the Corporation's indebtedness, including
without limitation any indenture, whether entered into in connection with
transactions contemplated by the Recapitalization Agreement or thereafter, and
including any extensions or refinancings thereof.

Section 4. Redemptions.
-----------

4A. Scheduled Redemption. On May 17, 2004 (the "Scheduled Redemption
-------------------- --------------------
Date"), the Corporation shall redeem all outstanding Shares of Series A
- ----
Preferred at a price per Share equal to the Liquidation Value thereof (plus
accrued and unpaid dividends thereon).

4B. Optional Redemptions. The Corporation may, at any time and from
--------------------
time to time after the first to occur of (i) June 30, 1998 and (ii) the
Corporation's initial Public Offering, redeem all or any portion of the Shares
of Series A Preferred then outstanding at a price per Share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon). Any
partial redemption pursuant to this paragraph shall be for a number of Shares,
the aggregate Liquidation Value of which, together with accrued and unpaid
dividends thereon, is at least $5,000,000, and redemptions made pursuant to this
paragraph shall not relieve the Corporation of its obligation to redeem Shares
on the Scheduled Redemption Dates.

3
<PAGE>

4C. Redemption Payments. For each Share which is to be redeemed
-------------------
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in cash equal to
the Liquidation Value of such Share (plus all accrued and unpaid dividends
thereon). If the funds of the Corporation legally available for redemption of
Shares on any Redemption Date are insufficient to redeem the total number of
Shares to be redeemed on such date, those funds which are legally available
shall be used to redeem the maximum possible number of Shares pro rata among the
holders of the Shares to be redeemed based upon the aggregate Liquidation Value
of such Shares held by each such holder (plus all accrued and unpaid dividends
thereon). At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Shares, such funds shall immediately be
used to redeem the balance of the Shares which the Corporation has become
obligated to redeem on any Redemption Date but which it has not redeemed.

4D. Notice of Redemption. Except as otherwise provided herein, the
--------------------
Corporation shall mail written notice of each redemption of any Series A
Preferred (other than a redemption at the request of a holder or holders of
Series A Preferred) to each record holder thereof not more than 60 nor less than
30 days prior to the date on which such redemption is to be made. In case fewer
than the total number of Shares represented by any certificate are redeemed, a
new certificate representing the number of unredeemed Shares shall be issued to
the holder thereof without cost to such holder within five business days after
surrender of the certificate representing the redeemed Shares.

4E. Determination of the Number of Each Holder's Shares to be
---------------------------------------------------------
Redeemed. The number of Shares of Series A Preferred to be redeemed from each
- --------
holder thereof in redemptions hereunder shall be the number of Shares determined
by multiplying the total number of Shares to be redeemed times a fraction, the
numerator of which shall be the total number of Shares then held by such holder
and the denominator of which shall be the total number of Shares then
outstanding.

4F. Dividends After Redemption Date. No Share shall be entitled to
-------------------------------
any dividends accruing after the date on which the Liquidation Value of such
Share (plus all accrued and unpaid dividends thereon) is paid to the holder of
such Share. On such date, all rights of the holder of such Share shall cease,
and such Share shall no longer be deemed to be issued and outstanding.

4G. Redeemed or Otherwise Acquired Shares. Any Shares which are
-------------------------------------
redeemed or otherwise acquired by the Corporation shall be canceled and retired
to authorized but unissued shares and shall not be reissued, sold or
transferred.

4H. Special Redemptions.
-------------------

(i) If, in connection with or after any Public Offering, any member
of the Bain Group receives any proceeds in respect of Common Stock owned by such
member, the Corporation

4
<PAGE>

shall give prompt written notice to the holders of the Series A Prefer red of
such event. The holder or holders of a majority of the Series A Preferred then
outstanding may require the Corporation to redeem all outstanding shares of
Series A Preferred at a price per Share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon) by giving written notice to the
Corporation of such election within 30 days after the receipt of such notice
from the Corporation. Upon receipt of such election, the Corporation shall be
obligated to redeem the outstanding Shares of Series A Preferred on a date fixed
by the Corporation, which date shall be not more than 30 days after the
Corporation's receipt of such notice.

(ii) If a Change in Ownership has occurred or the Corporation obtains
knowledge that a Change in Ownership is proposed to occur, the Corporation shall
give prompt written notice of such Change in Ownership describing in reasonable
detail the material terms and date of consummation thereof to each holder of
Series A Preferred. The holder or holders of a majority of the Series A
Preferred then outstanding may require the Corporation to redeem all outstanding
shares of Series A Preferred at a price per Share equal to the Liquidation Value
thereof (plus all accrued and unpaid dividends thereon) by giving written notice
to the Corporation of such election prior to the later of (a) 30 days after
receipt of the Corporation's notice and (b) five days prior to the consummation
of the Change in Ownership (the "Expiration Date").
---------------

Upon receipt of such election, the Corporation shall be obligated to
redeem the outstanding Shares of Series A Preferred on the later of (a) the
occurrence of the Change in Ownership or (b) five days after the Corporation's
receipt of such election(s). If any proposed Change in Ownership does not
occur, all requests for redemption in connection therewith shall be
automatically rescinded.

The term "Change in Ownership" means any sale or transfer or series of
-------------------
sales or transfers by the Bain Group (other than to any Affiliate of any member
of the Bain Group) of at least 25% of the Common Stock purchased by the Bain
Group pursuant to the Recapitalization Agreement, determined on the basis of the
cost of such Common Stock.

(iii) If a Fundamental Change is proposed to occur, the Corporation
shall give written notice of such Fundamental Change describing in reasonable
detail the material terms and date of consummation thereof to each holder of
Series A Preferred not more than 45 days nor less than 20 days prior to the
consummation of such Fundamental Change, and the Corporation shall give each
holder of Series A Preferred prompt written notice of any material change in the
terms or timing of such transaction. The holder or holders of a majority of the
Series A Preferred then outstanding may require the Corporation to redeem all
outstanding Shares of Series A Preferred at a price per Share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends thereon) by
giving written notice to the Corporation of such election prior to the later of
(a) five days prior to the consummation of the Fundamental Change or (b) 30 days
after receipt of notice from the Corporation.

5
<PAGE>

Upon receipt of such election, the Corporation shall be obligated to
redeem the outstanding Shares of Series A Preferred upon the consummation of
such Fundamental Change. If any proposed Fundamental Change does not occur, all
requests for redemption in connection therewith shall be automatically
rescinded.

The term "Fundamental Change" means any sale or transfer of all or
------------------
substantially all of the assets of the Corporation and its Subsidiaries on a
consolidated basis in any transaction or series of related transactions.

(iv) Redemptions made pursuant to this paragraph 4H shall not relieve
the Corporation of its obligation to redeem Series A Preferred on the Scheduled
Redemption Dates pursuant to paragraph 4A above.

4I. Partial Redemptions. Notwithstanding anything to the contrary
-------------------
contained herein, any redemption by the Corporation of less then all of the
Shares of Series A Preferred then held by each holder must be a number of Shares
of Series A Preferred sufficient, in the good faith opinion of counsel to the
holder, to not be treated as a dividend under Section 302 of the Internal
Revenue Code of 1986, as amended (or any comparable successor provision), as to
such holder.

Section 5. Voting Rights. The holders of the Series A Preferred
-------------
shall be entitled to notice of all stockholders meetings in accordance with the
Corporation's bylaws, and the holders of the Series A Preferred shall be
entitled to vote on all matters submitted to the stockholders for a vote
together with the holders of the Common Stock voting together as a single class
with each share of Common Stock entitled to one vote per share and each Share of
Series A Preferred entitled to one vote for each share of Common Stock issuable
upon conversion of the Series A Preferred as of the record date for such vote
or, if no record date is specified, as of the date of such vote.

Section 6. Conversion.
----------

6A. Conversion Procedure.
--------------------

(i) At any time, any holder of Series A Preferred may convert all of
the Series A Preferred held by such holder into shares of Conversion Stock.
Each Share of Series A Preferred shall be convertible into 0.818 share of
Conversion Stock (as such amount is adjusted for stock splits, stock dividends,
recapitalizations and similar transactions).

(ii) Except as otherwise provided herein, each conversion of Series A
Preferred shall be deemed to have been effected as of the close of business on
the date on which the certificate or certificates representing the Series A
Preferred to be converted have been surrendered for conversion at the principal
office of the Corporation. At the time any such conversion has been effected,
the rights of the holder of the Shares converted as a holder of Series A
Preferred (including the right to receive accrued and unpaid dividends on the
Series A Preferred) shall cease and the

6
<PAGE>

Person or Persons in whose name or names any certificate or certificates for
shares of Conversion Stock are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Conversion Stock
represented thereby.

(iii) The conversion rights of any Share subject to redemption
hereunder shall terminate on the Redemption Date for such Share unless the
Corporation has failed to pay to the holder thereof the Liquidation Value of
such Share (plus all accrued and unpaid dividends thereon).

(iv) Notwithstanding any other provision hereof, if a conversion of
Series A Preferred is to be made in connection with a Public Offering, a Change
in Ownership, a Fundamental Change or other transaction affecting the
Corporation, the conversion of any Shares of Series A Preferred may, at the
election of the holder thereof, be conditioned upon the consummation of such
transaction, in which case such conversion shall not be deemed to be effective
until such transaction has been consummated.

(v) As soon as possible after a conversion has been effected, the
Corporation shall deliver to the converting holder a certificate or certificates
representing the number of shares of Conversion Stock issuable by reason of such
conversion in such name or names and such denomination or denominations as the
converting holder has specified.

(vi) The issuance of certificates for shares of Conversion Stock
upon conversion of Series A Preferred shall be made without charge to the
holders of such Series A Preferred for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Conversion Stock. Upon conversion of each
Share of Series A Preferred, the Corporation shall take all such actions as are
necessary in order to insure that the Conversion Stock issuable with respect to
such conversion shall be validly issued, fully paid and nonassessable, free and
clear of all taxes, liens, charges and encumbrances with respect to the issuance
thereof.

(vii) The Corporation shall not close its books against the transfer
of Series A Preferred or of Conversion Stock issued or issuable upon conversion
of Series A Preferred in any manner which interferes with the timely conversion
of Series A Preferred. The Corporation shall assist and cooperate with any
holder of Shares required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Shares
hereunder (including, without limitation, making any filings required to be made
by the Corporation).

(viii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock,
solely for the purpose of issuance upon the conversion of the Series A
Preferred, such number of shares of Conversion Stock issuable upon the
conversion of all outstanding Series A Preferred. All shares of Conversion
Stock which are so issuable shall, when issued, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Corporation shall take all such actions as may be necessary to assure that all
such shares of Conversion Stock may be so issued without violation of any
applicable

7
<PAGE>

law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Conversion Stock may be listed (except for
official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any action
which would cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of the Series A Preferred.

6B. Notices. The Corporation shall give written notice to all
-------
holders of Series A Preferred at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offer to holders of Common Stock or (c) for determining rights to vote with
respect to any dissolution or liquidation.

Section 7. Reorganization, Reclassification, Consolidation, Merger or
----------------------------------------------------------
Sale. Any recapitalization, reorganization, reclassification, consolidation,
- ----
merger, sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions to insure that each of the holders of Series A Preferred shall
thereafter have the right to acquire and receive, in lieu of or in addition to
(as the case may be) the shares of Conversion Stock immediately theretofore
acquirable and receivable upon the conversion of such holder's Series A
Preferred, such shares of stock, securities or assets as such holder would have
received in connection with such Organic Change if such holder had converted its
Series A Preferred immediately prior to such Organic Change.

Section 8. Registration of Transfer. The Corporation shall keep at
------------------------
its principal office a register for the registration of Series A Preferred.
Upon the surrender of any certificate representing Series A Preferred at such
place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series A Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Series A Preferred
represented by the surrendered certificate.

Section 9. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing Shares of Series A Preferred, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation (provided that if the holder is a financial
institution or other institutional investor or an original party to the
Recapitalization Agreement its own agreement shall be satisfactory), or, in the

8
<PAGE>

case of any such mutilation upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Series A Preferred represented by such new certificate from
the date to which dividends have been fully paid on such lost, stolen, destroyed
or mutilated certificate.

Section 10. Amendment and Waiver. No amendment, modification or
--------------------
waiver shall be binding or effective with respect to any provision of Sections 1
to 11 of this Part B without the prior written consent of the holders of a
majority of the Series A Preferred outstanding at the time such action is taken;
provided that no change in the terms hereof may be accomplished by merger or
consolidation of the Corporation with another corporation or entity unless the
Corporation has obtained the prior written consent of the holders of a majority
of the Series A Preferred then outstanding.

Section 11. Notices. Except as otherwise expressly provided
-------
hereunder, all notices referred to herein shall be in writing and shall be
delivered by registered or certified mail, return receipt requested and postage
prepaid, or by reputable overnight courier service, charges prepaid, and shall
be deemed to have been given when so mailed or sent (i) to the Corporation, at
its principal executive offices and (ii) to any stockholder, at such holder's
address as it appears in the stock records of the Corporation (unless otherwise
indicated by any such holder).

C. PREFERRED STOCK
---------------

The Preferred Stock may be issued from time to time and in one or more
series. The Board of Directors of the Corporation is authorized to determine or
alter the powers, preferences and rights, and the qualifications, limitations
and restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock, and within the limitations or restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series of Preferred Stock, to increase or decrease
(but not below the number of shares of any such series of Preferred Stock then
outstanding) the number of shares of any such series of Preferred Stock, and to
fix the number of shares of any series of Preferred Stock. In the event that
the number of shares of any series of Preferred Stock shall be so decreased, the
shares constituting such decrease shall resume the status which such shares had
prior to the adoption of the resolution originally fixing the number of shares
of such series of Preferred Stock subject to the requirements of applicable law.

D. COMMON STOCK
------------

Section 1. Dividends. Except as otherwise provided by the Delaware
---------
General Corporation Law or this Restated Certificate of Incorporation (the
"Restated Certificate"), the holders of Common Stock: (i) subject to the rights
--------------------
of holders of the Series A Preferred and any series of Preferred Stock, shall
share ratably in all dividends payable in cash, stock or otherwise and other
distributions, whether in respect of liquidation or dissolution (voluntary or
involuntary) or otherwise

9
<PAGE>

and (ii) are subject to all the powers, rights, privileges, preferences and
priorities of the Series A Preferred and any series of Preferred Stock as
provided herein or in any resolution or resolutions adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of Part
C of this Article Four.

Section 2. Conversion Rights. The Common Stock shall not be
-----------------
convertible into, or exchangeable for, shares of any other class or classes or
of any other series of the same class of the Corporation=s capital stock.

Section 3. Preemptive Rights. No holder of Common Stock shall have
-----------------
any preemptive, subscription, redemption, conversion or sinking fund rights with
respect to the Common Stock, or to any obligations convertible (directly or
indirectly) into stock of the Corporation whether now or hereafter authorized.

Section 4. Voting Rights. Except as otherwise provided by the
-------------
Delaware General Corporation Law or the Restated Certificate and subject to the
rights of holders of the Series A Preferred and any series of Preferred Stock,
all of the voting power of the stockholders of the Corporation shall be vested
in the holders of the Common Stock, and each holder of Common Stock shall have
one vote for each share held by such holder on all matters voted upon by the
stockholders of the Corporation.

Section 5. Registration or Transfer. The Corporation shall keep at
------------------------
its principal office (or such other place as the Corporation reasonably
designates) a register for the registration of Common Stock. Upon the surrender
of any certificate representing shares of any class of Common Stock at such
place, the Corporation shall, at the request of the registered holder of such
certificate, execute and deliver a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares of such class
represented by the surrendered certificate, and the Corporation forthwith shall
cancel such surrendered certificate. Each such new certificate will be
registered in such name and will represent such number of shares of such class
as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate. The issuance of
new certificates shall be made without charge to the holders of the surrendered
certificates for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such issuance.

Section 6. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Corporation (an affidavit of the registered holder will be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing one or more shares of any class of Common Stock, and
in the case of any such loss, theft or destruction, upon receipt of indemnity
reasonably satisfactory to the Corporation (provided that if the holder is a
financial institution or other institutional investor or an original party to
the Recapitalization Agreement, its own agreement will be satisfactory), or, in
the case of any such mutilation upon surrender of such certificate, the
Corporation shall (at its expense) execute and deliver in lieu of such
certificate a new certificate of

10
<PAGE>

like kind representing the number of shares of such class represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.

Section 7. Notices. All notices referred to herein shall be in
-------
writing, shall be delivered personally or by first class mail, postage prepaid,
and shall be deemed to have been given when so delivered or mailed to the
Corporation at its principal executive offices and to any stockholder at such
holder's address as it appears in the stock records of the Corporation (unless
otherwise specified in a written notice to the Corporation by such holder).

Section 8. Fractional Shares. In no event will holders of fractional
-----------------
shares be required to accept any consideration in exchange for such shares other
than consideration which all holders of Common Stock are required to accept.

Section 5. Reclassification of Existing Common Stock.
-----------------------------------------

(i) Upon the effectiveness of this Restated Certificate, each
outstanding share of common stock of the Corporation shall, without any action
by the holder thereof, be reclassified as follows:

(A) each outstanding share of Class A Common Stock, par value
$.01 per share (the "Class A Common") into one share of
--------------
Common Stock;

(B) each outstanding share of Class B Common Stock, par value
$.01 per share (the "Class B Common") into one share of
--------------
Common Stock; and

(C) each outstanding share of Class L Common Stock, par value
$.01 per share (the "Class L Common" and, together with the
--------------
Class A Common and Class B Common, the "Existing Common
---------------
Stock") into a number of shares of Common Stock equal to
-----
the sum of (i) one and (ii) the result of (x) the
Unreturned Cost plus Unpaid Yield of such share of Class L
Common divided by (y) the price per share of the Common
Stock in the Public Offering (in each case before giving
effect to any stock split declared in connection with such
Public Offering.

(ii) As soon as Possible after a conversion has been effected, the
Corporation shall deliver to the converting holder a certificate or certificates
representing the number of shares of Common Stock issuable by reason of such
conversion in such name or names and such denomination or denominations as the
converting holder has specified.

(iii) The issuance of certificates for shares of Common Stock upon
conversion of the Existing Common Stock shall be made without charge to the
holders of such Existing Common Stock for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection

11
<PAGE>

with such conversion and the related issuance of shares of Common Stock. Upon
conversion of each share of the Existing Common Stock , the Corporation shall
take all such actions as are necessary in order to insure that the Common Stock,
issuable with respect to such conversion shall be validly issued, fully paid and
nonassessable, free and clear of all taxes, liens, charges and encumbrances with
respect to the issuance thereof.

(iv) The Corporation shall not close its books against the transfer of
the Existing Common Stock or of Common Stock issued or issuable upon conversion
of the Existing Common Stock in any manner which interferes with the timely
conversion of the Existing Common Stock. The Corporation shall assist and
cooperate with any holder of shares required to make any governmental filings or
obtain any governmental approval prior to or in connection with any conversion
of shares hereunder (including, without limitation, making any filings required
to be made by the Corporation).

(v) All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Corporation shall take all such actions as
may be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Common Stock to be less than the number of such shares
required to be reserved hereunder for issuance upon conversion of the existing
Common Stock.

E. DEFINITIONS
-----------

"Affiliate" means, with respect to any Person, any other Person,
---------
entity or investment fund controlling, controlled by or under common control
with such Person and, in the case of a Person which is a partnership, any
partner of such Person.

"Bain Group" means, collectively, Bain Capital Fund V, L.P., Bain
----------
Capital Fund V-B, L.P., BCIP Associates, BCIP Trust Associates, L.P., and
Randolph Street Partners.

"Change in Ownership" has the meaning set forth in paragraph 4H of
-------------------
Part B hereof.

"Common Stock" means, collectively, the Corporation's Common Stock and
------------
any other class of capital stock of the Corporation hereafter authorized which
is not limited to a fixed sum or percentage of par or stated value in respect to
the rights of the holders thereof to participate in dividends or in the
distribution of assets upon any liquidation, dissolution or winding up of the
Corporation, other than the Series A Preferred.

"Conversion Stock" means shares of the Corporation's Common Stock, par
----------------
value $.01 per share; provided that if there is a change such that the
securities issuable upon conversion of the

12
<PAGE>

Series A Preferred are issued by an entity other than the Corporation or there
is a change in the type or class of securities so issuable, then the term
"Conversion Stock" shall mean the securities issuable upon conversion of the
Series A Preferred.

"Cost" of each share of Class L Common shall be equal to $23.331 per
----
share (as proportionally adjusted for all stock splits, stock dividends and
other recapitalizations affecting the Class L Common).

"Distribution" means each distribution made by the Corporation to
------------
holders of Common Shares, whether in cash, property, or securities of the
Corporation and whether by dividend, liquidating distributions or otherwise;
provided that neither of the following shall be a Distribution: (a) any
redemption or repurchase by the Corporation of any Common Shares for any reason
or (b) any recapitalization or exchange of any Common Shares, or any subdivision
(by stock split, stock dividend or otherwise) or any combination (by stock
split, stock dividend or otherwise) of any outstanding Common Shares.

"Fundamental Change" has the meaning set forth in paragraph 4H of Part
------------------
B hereof.

"General Corporation Law" means the General Corporation Law of the
-----------------------
State of Delaware, as amended from time to time.

"Junior Securities" means any capital stock or other equity securities
-----------------
of the Corporation, except for the Series A Preferred.

"Liquidation Value" of any Share of Series A Preferred as of any
-----------------
particular date shall be equal to $18.40.

"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.

"Public Offering" means any offering by the Corporation of its capital
---------------
stock or equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force; provided that for
purposes of paragraph 4H of Part B hereof, a Public Offering shall not include
an offering made in connection with a business acquisition or combination or an
employee benefit plan.

"Recapitalization Agreement" means the Recapitalization Agreement
--------------------------
dated as of December 18, 1996 among the Corporation, the Bain Group, Toray
Industries, Inc., Toray Industries (America), Inc. and Shimadzu Corporation.

"Redemption Date" as to any Share means the date specified in the
---------------
notice of any redemption at the Corporation's option or at the holder's option
or the applicable date specified

13
<PAGE>

herein in the case of any other redemption; provided that no such date shall be
a Redemption Date unless the Liquidation Value of such Share (plus all accrued
and unpaid dividends thereon and any required premium with respect thereto) is
actually paid in full on such date, and if not so paid in full, the Redemption
Date shall be the date on which such amount is fully paid.

"Subsidiary" means any corporation of which a majority of the shares
----------
of outstanding capital stock possessing the voting power (under ordinary
circumstances) in electing the board of directors are, at the time as of which
any determination is being made, owned by the Corporation either directly or
indirectly through Subsidiaries.

"Unpaid Yield" of any share of Class L Common means an amount equal to
------------
the excess, if any, of (a) the aggregate Yield accrued on such share, over (b)
the aggregate amount of Distributions made by the Corporation that constitute
payment of Yield on such share.

"Unreturned Cost" of any share of Class L Common means an amount equal
---------------
to the excess, if any, of (a) the Cost of such share, over (b) the aggregate
amount of Distributions made by the Corporation that constitute a return of the
Cost of such share.

"Yield" means, with respect to each outstanding share of Class L
-----
Common for each calendar year, the amount accruing on such share each day during
such year at the rate of 12% per annum of the sum of (a) such share's Unreturned
Cost, plus (b) Unpaid Yield thereon for all prior years. In calculating the
amount of any Distribution to be made to the Class L Common during a calendar
year, the portion of a Class L Common share's Yield for such portion of such
year elapsing before such Distribution is made shall be taken into account.

ARTICLE FIVE

The Corporation is to have perpetual existence.

ARTICLE SIX

Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.

ARTICLE SEVEN

The number of directors which constitute the entire Board of Directors of
the Corporation shall be designated in the Bylaws of the Corporation.

ARTICLE EIGHT

In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.

14
<PAGE>

ARTICLE NINE

(a) To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as it may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.

(b) The corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.

(c) Neither any amendment nor repeal of this Article, nor the adoption of
any provision of this Restated Certificate inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, proceeding, suit or claim accruing or
arising, or that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.

ARTICLE TEN

Section 1. Classification of Directors. At each annual meeting of
---------------------------
stockholders, directors of the Corporation shall be elected to hold office until
the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified; except that if any such
election shall be not so held, such election shall take place at stockholders=
meeting called and held in accordance with the Delaware General Corporation Law.
The directors of the Corporation shall be divided into three classes as nearly
equal in size as is practicable, hereby designated Class I, Class II and Class
III. The term of office of the initial Class I directors shall expire at the
next succeeding annual meeting of stockholders, the term of office of the
initial Class II directors shall expire at the second succeeding annual meeting
of stockholders and the term of office of the initial Class III directors shall
expire at the third succeeding annual meeting of the stockholders. For the
purposes hereof, the initial Class I, Class II and Class III directors shall be
those directors elected by the stockholders of the Corporation in connection
with the adoption of this Restated Certificate. At each annual meeting after
the first annual meeting of stockholders, directors to replace those of a Class
whose terms expire at such annual meeting shall be elected to hold office until
the third succeeding annual meeting and until their respective successors shall
have been duly elected and qualified. If the number of directors is hereafter
changed, any newly created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as practicable.

Section 2. Vacancies. Vacancies occurring on the Board of Directors for
---------
any reason may be filled by vote of a majority of the remaining members of the
Board of Directors, although less than a quorum, at any meeting of the Board of
Directors. A person so elected by the Board of

15
<PAGE>

Directors to fill a vacancy shall hold office until the next succeeding annual
meeting of stockholders of the Corporation and until his or her successor shall
have been duly elected and qualified.

ARTICLE ELEVEN

Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.

ARTICLE TWELVE

The stockholders of the Corporation may not take any action by written
consent in lieu of a meeting, and must take any actions at a duly called annual
or special meeting of stockholders and the power of stockholders to consent in
writing without a meeting is specifically denied. Special meetings of
stockholders of the Corporation may be called only by either the Board of
Directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of directors then in office or by the chief
executive officer of the Corporation.

ARTICLE THIRTEEN

Notwithstanding any other provisions of this Restated Certificate or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of the capital stock required by
law or this Restated Certificate, the affirmative vote of the holders of at
least two-thirds (2/3) of the combined voting power of all of the then
outstanding shares of the Corporation eligible to be cast in the election of
directors shall be required to alter, amend or repeal Articles Ten or Twelve
hereof, or this Article Thirteen, or any provision thereof or hereof, unless
such amendment shall be approved by a majority of the directors of the
Corporation not affiliated or associated with any person or entity holding (or
which has announced an intention to obtain) twenty percent (20%) or more of the
voting power of the Corporation=s outstanding capital stock (other than the Bain
Group).

ARTICLE FOURTEEN

The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.

IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of
Incorporation to be executed for and on behalf of the Corporation and in its
name by Dr. Allan Rosencwaig, its Chief Executive Officer, as attested by L. Ray
Christie, its Secretary.

16
<PAGE>

THERMA-WAVE, INC.

_________________________________
Name: Dr. Allan Rosencwaig
Title: Chief Executive Officer

ATTEST:

THERMA-WAVE, INC.

_________________________________
Name: L. Ray Christie
Title: Secretary

<PAGE>

BY-LAWS

THERMA-WAVE, INC.

A Delaware Corporation
(Adopted as of July __, 1999)

ARTICLE I
---------

OFFICES
-------

Section 1. Registered Office. The registered office of Therma-Wave, Inc.
---------- -----------------
(the "Corporation") in the State of Delaware shall be located at 1209 Orange
-----------
Street, Wilmington, Delaware, County of New Castle 19805. The name of the
Corporation's registered agent at such address shall be The Corporation Trust
Company. The registered office and/or registered agent of the Corporation may
be changed from time to time by action of the Board of Directors.

Section 2. Other Offices. The Corporation may also have offices at such
---------- -------------
other places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.

ARTICLE II
----------

MEETINGS OF STOCKHOLDERS
------------------------

Section 1. Annual Meeting. An annual meeting of the stockholders shall
---------- --------------
be held each year within 150 days after the close of the immediately preceding
fiscal year of the Corporation or at such other time specified by the Board of
Directors for the purpose of electing Directors and conducting such other proper
business as may come before the annual meeting. At the annual meeting,
stockholders shall elect Directors and transact such other business as properly
may be brought before the annual meeting pursuant to Section 11 of ARTICLE II
----------
hereof.

Section 2. Special Meetings. Special meetings of the stockholders may
---------- ----------------
only be called in the manner provided in the Restated Certificate of
Incorporation.
<PAGE>

Section 3. Place of Meetings. The Board of Directors may designate any
---------- -----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the Corporation. If for any reason any annual
meeting shall not be held during any year, the business thereof may be
transacted at any special meeting of the stockholders.

Section 4. Notice. Whenever stockholders are required or permitted to
---------- ------
take action at a meeting, written or printed notice stating the place, date,
time and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the Board of Directors, the chairman of the board, the president or the
secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.

Section 5. Stockholders List. The officer having charge of the stock
---------- -----------------
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

Section 6. Quorum. The holders of a majority of the outstanding shares of
---------- ------
capital stock entitled to vote, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders, except as otherwise
provided by the General Corporation Law of the State of Delaware or by the
Restated Certificate of Incorporation. If a quorum is not present, the holders
of a majority of the shares present in person or represented by proxy at the
meeting, and entitled to vote at the meeting, may adjourn the meeting to another
time and/or place. When a specified item of business requires a vote by a class
or series (if the Corporation shall then have outstanding shares of more than
one class or series) voting as a class or series, the holders of a majority of
the shares of such class or series shall constitute a quorum (as to such class
or series) for the transaction of such item of business.

-2-
<PAGE>

Section 7. Adjourned Meetings. When a meeting is adjourned to another
---------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than 30 days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.

Section 8. Vote Required. When a quorum is present, the affirmative vote
---------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
Restated Certificate of Incorporation a different vote is required, in which
case such express provision shall govern and control the decision of such
question, or (ii) the subject matter is the election of Directors, in which case
Section 2 of ARTICLE III hereof shall govern and control the approval of such
-----------
subject matter.

Section 9. Voting Rights. Except as otherwise provided by the General
---------- -------------
Corporation Law of the State of Delaware, the Restated Certificate of
Incorporation of the Corporation or any amendments thereto or these By-laws,
every stockholder shall at every meeting of the stockholders be entitled to one
vote in person or by proxy for each share of capital stock held by such
stockholder.

Section 10. Proxies. Each stockholder entitled to vote at a meeting of
----------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. Any proxy is suspended when the person
executing the proxy is present at a meeting of stockholders and elects to vote,
except that when such proxy is coupled with an interest and the fact of the
interest appears on the face of the proxy, the agent named in the proxy shall
have all voting and other rights referred to in the proxy, notwithstanding the
presence of the person executing the proxy. At each meeting of the
stockholders, and before any voting commences, all proxies filed at or before
the meeting shall be submitted to and examined by the secretary or a person
designated by the secretary, and no shares may be represented or voted under a
proxy that has been found to be invalid or irregular.

Section 11. Business Brought Before an Annual Meeting. At an annual
----------- -----------------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the

-3-
<PAGE>

notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (ii) brought before the meeting by or at the direction
of the Board of Directors or (iii) otherwise properly brought before the meeting
by a stockholder. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 70 days' notice
-------- -------
or prior public announcement of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the date on which
such notice of the date of the annual meeting was mailed or such public
announcement was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the annual
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-laws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this section. The
presiding officer of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this section; if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. For purposes of this
section, "public announcement" shall mean disclosure in a press release reported
--------------------
by Dow Jones News Service, Associated Press or a comparable national news
service. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
------------

ARTICLE III
-----------

Directors
---------

Section 1. General Powers. The business and affairs of the Corporation
---------- --------------
shall be managed by or under the direction of the Board of Directors. In
addition to such powers as are herein and in the Restated Certificate of
Incorporation expressly conferred upon it, the Board of Directors shall have
and may exercise all the powers of the Corporation, subject to the provisions of
the laws of Delaware, the Restated Certificate of Incorporation and these By-
laws.

Section 2. Number, Election and Term of Office. Subject to any rights of
---------- -----------------------------------
the holders of any series of Preferred Stock to elect additional Directors under
specified circumstances, the number of Directors which shall constitute the
Board of Directors shall be fixed from time to time by resolution

-4-
<PAGE>

adopted by the affirmative vote of a majority of the total number of Directors
then in office. The Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote in the election of Directors; provided that, whenever the holders of any
class or series of capital stock of the Corporation are entitled to elect one or
more Directors pursuant to the provisions of the Restated Certificate of
Incorporation of the Corporation (including, but not limited to, for purposes of
these By-laws, pursuant to any duly authorized certificate of designation), such
Directors shall be elected by a plurality of the votes of such class or series
present in person or represented by proxy at the meeting and entitled to vote in
the election of such Directors. The Directors shall be elected and shall hold
office only in the manner provided in the Restated Certificate of Incorporation.

Section 3. Removal and Resignation. No Director may be removed from
---------- -----------------------
office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock
entitled to vote generally in the election of Directors voting together as a
single class; provided, however, that if the holders of any class or series of
capital stock are entitled by the provisions of the Restated Certificate of
Incorporation (it being understood that any references to the Restated
Certificate of Incorporation shall include any duly authorized certificate of
designation) to elect one or more Directors, such Director or Directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote.
Any Director may resign at any time upon written notice to the Corporation.

Section 4. Vacancies. Vacancies and newly created directorships resulting
---------- ---------
from any increase in the total number of Directors may be filled only in the
manner provided in the Restated Certificate of Incorporation.

Section 5. Nominations.
---------- -----------

(a) Only persons who are nominated in accordance with the
procedures set forth in these By-laws shall be eligible to serve as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders (i) by or at the direction of the Board
of Directors or (ii) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of notice provided for in this By-law, who is
entitled to vote generally in the election of Directors at the meeting and who
shall have complied with the notice procedures set forth below in Section 5(b).

(b) In order for a stockholder to nominate a person for election
to the Board of Directors of the Corporation at a meeting of stockholders, such
stockholder shall have delivered timely notice of such stockholder's intent to
make such nomination in writing to the secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than 60

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<PAGE>

nor more than 90 days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
-------- -------
meeting is changed by more than 30 days from such anniversary date, notice by
the stockholder to be timely must be so received not later than the close of
business on the 10th day following the earlier of the day on which notice of the
date of the meeting was mailed or public disclosure of the meeting was made, and
(ii) in the case of a special meeting at which Directors are to be elected, not
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
of the meeting was made. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election as a Director
at such meeting all information relating to such person that is required to be
disclosed in solicitations of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a Director if elected); (ii) as to the
stockholder giving the notice (A) the name and address, as they appear on the
Corporation's books, of such stockholder and (B) the class and number of shares
of the Corporation which are beneficially owned by such stockholder and also
which are owned of record by such stockholder; and (iii) as to the beneficial
owner, if any, on whose behalf the nomination is made, (A) the name and address
of such person and (B) the class and number of shares of the Corporation which
are beneficially owned by such person. At the request of the Board of Directors,
any person nominated by the Board of Directors for election as a Director shall
furnish to the secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.

(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
section. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this section, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded. A
stockholder seeking to nominate a person to serve as a Director must also comply
with all applicable requirements of the Exchange Act, and the rules and
regulations thereunder with respect to the matters set forth in this section.

Section 6. Annual Meetings. The annual meeting of the Board of Directors
---------- ---------------
shall be held without other notice than this By-law immediately after, and at
the same place as, the annual meeting of stockholders.

Section 7. Other Meetings and Notice. Regular meetings, other than the
---------- -------------------------
annual meeting, of the Board of Directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the Board of Directors. Special meetings of the Board of Directors may be
called by the chairman of the board, the president (if the president is a
Director) or, upon the written request of at least a majority of the Directors
then in office, the secretary of the

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<PAGE>

Corporation on at least 24 hours notice to each Director, either personally, by
telephone, by mail or by telecopy.

Section 8. Chairman of the Board, Quorum, Required Vote and Adjournment.
---------- ------------------------------------------------------------
The Board of Directors shall elect, by the affirmative vote of a majority of the
total number of Directors then in office, a chairman of the board, who shall
preside at all meetings of the stockholders and Board of Directors at which he
or she is present and shall have such powers and perform such duties as the
Board of Directors may from time to time prescribe. If the chairman of the
board is not present at a meeting of the stockholders or the Board of Directors,
the president (if the president is a Director and is not also the chairman of
the board) shall preside at such meeting, and, if the president is not present
at such meeting, a majority of the Directors present at such meeting shall elect
one of their members to so preside. A majority of the total number of Directors
then in office shall constitute a quorum for the transaction of business.
Unless by express provision of an applicable law, the Restated Certificate of
Incorporation or these By-laws a different vote is required, the vote of a
majority of Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. If a quorum shall not be present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.

Section 9. Committees. The Board of Directors may, by resolution passed
---------- ----------
by a majority of the total number of Directors then in office, designate one or
more committees, each committee to consist of one or more of the Directors of
the Corporation, which to the extent provided in such resolution or these By-
laws shall have, and may exercise, the powers of the Board of Directors in the
management and affairs of the Corporation, except as otherwise limited by law.
The Board of Directors may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors upon request.

Section 10. Committee Rules. Each committee of the Board of Directors may
----------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the Board of
Directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the Board of Directors, of such committee is or are
absent or disqualified, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in place of any such absent or disqualified member.

-7-
<PAGE>

Section 11. Communications Equipment. Members of the Board of Directors
----------- ------------------------
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.

Section 12. Waiver of Notice and Presumption of Assent. Any member of the
----------- ------------------------------------------
Board of Directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action.

Section 13. Action by Written Consent. Unless otherwise restricted by the
----------- -------------------------
Restated Certificate of Incorporation, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof, may
be taken without a meeting if all members of such board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.

ARTICLE IV
----------

OFFICERS
--------

Section 1. Number. The officers of the Corporation shall be elected by
---------- ------
the Board of Directors and shall consist of a chairman of the board, a chief
executive officer, a president, one or more vice-presidents, a secretary, a
chief financial officer and such other officers and assistant officers as may be
deemed necessary or desirable by the Board of Directors. Any number of offices
may be held by the same person, except that neither the chief executive officer
nor the president shall also hold the office of secretary. In its discretion,
the Board of Directors may choose not to fill any office for any period as it
may deem advisable, except that the offices of president and secretary shall be
filled as expeditiously as possible.

Section 2. Election and Term of Office. The officers of the Corporation
---------- ---------------------------
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any

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<PAGE>

meeting of the Board of Directors. Each officer shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.

Section 3. Removal. Any officer or agent elected by the Board of
---------- -------
Directors may be removed by the Board of Directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.

Section 4. Vacancies. Any vacancy occurring in any office because of
---------- ---------
death, resignation, removal, disqualification or otherwise may be filled by the
Board of Directors.

Section 5. Compensation. Compensation of all executive officers shall be
---------- ------------
approved by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a Director of the
Corporation; provided however, that compensation of all executive officers may
-------- -------
be determined by a committee established for that purpose if so authorized by
the unanimous vote of the Board of Directors.

Section 6. Chairman of the Board. The chairman of the board shall preside
---------- ---------------------
at all meetings of the stockholders and of the Board of Directors and shall have
such other powers and perform such other duties as may be prescribed to him or
her by the Board of Directors or provided in these By-laws.

Section 7. Vice-Chairman of the Board. Whenever the chairman of the board
---------- --------------------------
in unable to serve, by reason of sickness, absence, or otherwise, the vice-
chairman shall have the powers and perform the duties of the chairman of the
board. The vice-chairman shall have such other powers and perform such other
duties as may be prescribed by the chairman of the board, the board of directors
or these By-laws.

Section 8. Chief Executive Officer. The chief executive officer shall
---------- -----------------------
have the powers and perform the duties incident to that position. Subject to
the powers of the Board of Directors and the chairman of the board, the chief
executive officer shall be in the general and active charge of the entire
business and affairs of the Corporation, and shall be its chief policy making
officer. The chief executive officer shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors or provided in
these By-laws. The chief executive officer is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. Whenever the president is unable to serve, by reason of
sickness, absence or otherwise, the chief executive officer shall perform all
the duties and responsibilities and exercise all the powers of the president.

-9-
<PAGE>

Section 9. The President. The president of the Corporation shall, subject
---------- -------------
to the powers of the Board of Directors, the chairman of the board and the chief
executive officer, have general charge of the business, affairs and property of
the Corporation, and control over its officers, agents and employees. The
president shall see that all orders and resolutions of the Board of Directors
are carried into effect. The president is authorized to execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The president shall have such other powers and perform such
other duties as may be prescribed by the chairman of the board, the chief
executive officer, the Board of Directors or as may be provided in these By-
laws.

Section 10. Vice-Presidents. The vice-president, or if there shall be
----------- ---------------
more than one, the vice-presidents in the order determined by the Board of
Directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the Board of Directors, the chairman of the board, the
chief executive officer, the president or these By-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive vice-
presidents or senior vice-presidents, as the Board of Directors may from time to
time prescribe.

Section 11. The Secretary and Assistant Secretaries. The secretary shall
----------- ---------------------------------------
attend all meetings of the Board of Directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose or shall ensure that
his or her designee attends each such meeting to act in such capacity. Under
the chairman of the board's supervision, the secretary shall give, or cause to
be given, all notices required to be given by these By-laws or by law; shall
have such powers and perform such duties as the Board of Directors, the chairman
of the board, the chief executive officer, the president or these By-laws may,
from time to time, prescribe; and shall have custody of the corporate seal of
the Corporation. The secretary, or an assistant secretary, shall have authority
to affix the corporate seal to any instrument requiring it and when so affixed,
it may be attested by his or her signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, any of
the assistant secretaries, shall in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chairman of the board, the chief executive officer, the president, or secretary
may, from time to time, prescribe.

Section 12. The Chief Financial Officer. The chief financial officer
----------- ---------------------------
shall have the custody of the corporate funds and securities; shall keep full
and accurate all books and accounts of the Corporation as shall be necessary or
desirable in accordance with applicable law or

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<PAGE>

generally accepted accounting principles; shall deposit all monies and other
valuable effects in the name and to the credit of the Corporation as may be
ordered by the chairman of the board or the Board of Directors; shall cause the
funds of the Corporation to be disbursed when such disbursements have been duly
authorized, taking proper vouchers for such disbursements; and shall render to
the Board of Directors, at its regular meeting or when the Board of Directors so
requires, an account of the Corporation; shall have such powers and perform such
duties as the Board of Directors, the chairman of the board, the chief executive
officer, the president or these By-laws may, from time to time, prescribe. If
required by the Board of Directors, the chief financial officer shall give the
Corporation a bond (which shall be rendered every six years) in such sums and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of the office of chief financial
officer and for the restoration to the Corporation, in case of death,
resignation, retirement or removal from office of all books, papers, vouchers,
money and other property of whatever kind in the possession or under the control
of the chief financial officer belonging to the Corporation.

Section 13. Other Officers, Assistant Officers and Agents. Officers,
----------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these By-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the Board of Directors.

Section 14. Absence or Disability of Officers. In the case of the absence
----------- ---------------------------------
or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may by resolution delegate the powers and
duties of such officer to any other officer or to any Director, or to any other
person selected by it.

ARTICLE V
---------

CERTIFICATES OF STOCK
---------------------

Section 1. Form. Every holder of stock in the Corporation shall be
---------- ----
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the chief executive officer or the president and the
secretary or an assistant secretary of the Corporation, certifying the number of
shares owned by such holder in the Corporation. If such a certificate is
countersigned (i) by a transfer agent or an assistant transfer agent other than
the Corporation or its employee or (ii) by a registrar, other than the
Corporation or its employee, the signature of any such chairman of the board,
chief executive officer, president, secretary or assistant secretary may be
facsimiles. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation whether because of
death, resignation or otherwise before such certificate

-11-
<PAGE>

or certificates have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile signature
or signatures have been used thereon had not ceased to be such officer or
officers of the Corporation. All certificates for shares shall be consecutively
numbered or otherwise identified. The name of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the books of the Corporation. Shares of stock of the
Corporation shall only be transferred on the books of the Corporation by the
holder of record thereof or by such holder's attorney duly authorized in
writing, upon surrender to the Corporation of the certificate or certificates
for such shares endorsed by the appropriate person or persons, with such
evidence of the authenticity of such endorsement, transfer, authorization and
other matters as the Corporation may reasonably require, and accompanied by all
necessary stock transfer stamps. In that event, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates and record the transaction on its books. The
Board of Directors may appoint a bank or trust company organized under the laws
of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the Corporation.

Section 2. Lost Certificates. The Board of Directors may direct a new
---------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his or her legal representative, to give the Corporation a bond sufficient to
indemnify the Corporation against any claim that may be made against the
Corporation on account of the loss, theft or destruction of any such certificate
or the issuance of such new certificate.

Section 3. Fixing a Record Date for Stockholder Meetings. In order that
---------- ---------------------------------------------
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is first given. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

Section 4. Fixing a Record Date for Other Purposes. In order that the
---------- ---------------------------------------
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or

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<PAGE>

allotment or any rights or the stockholders entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purposes of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than 60 days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.

Section 5. Registered Stockholders. Prior to the surrender to the
---------- -----------------------
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the Corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications and otherwise to exercise all the rights and
powers of an owner. The Corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.

Section 6. Subscriptions for Stock. Unless otherwise provided for in the
---------- -----------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
Board of Directors. Any call made by the Board of Directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.

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<PAGE>

ARTICLE VI
----------

INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------

Section 1. Nature of Indemnity. Each person who was or is made a party or
---------- -------------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer, of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the corporation to the fullest extent which it is empowered to
do so unless prohibited from doing so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than said law permitted
the corporation to provide prior to such amendment) against all expense,
liability and loss (including attorneys' fees actually and reasonably incurred
by such person in connection with such proceeding) and such indemnification
shall inure to the benefit of his heirs, executors and administrators; provided,
however, that, except as provided in Section 2 hereof, the corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of the corporation. The right to indemnification
conferred in this Article VI shall be a contract right and, subject to Sections
2 and 5 hereof, shall include the right to be paid by the corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition. The corporation may, by action of its board of directors, provide
indemnification to employees and agents of the corporation with the same scope
and effect as the foregoing indemnification of directors and officers.

Section 2. Procedure for Indemnification of Directors and Officers. Any
---------- -------------------------------------------------------
indemnification of a director or officer of the corporation under Section 1 of
this Article VI or advance of expenses under Section 5 of this Article VI shall
be made promptly, and in any event within thirty (30) days, upon the written
request of the director or officer. If a determination by the corporation that
the director or officer is entitled to indemnification pursuant to this Article
VI is required, and the corporation fails to respond within sixty (60) days to a
written request for indemnity, the corporation shall be deemed to have approved
the request. If the corporation denies a written request for indemnification or
advancing of expenses, in whole or in part, or if payment in full pursuant to
such request is not made within thirty (30) days, the right to indemnification
or advances as granted by this Article VI shall be enforceable by the director
or officer in any court of competent jurisdiction. Such person's costs and
expenses incurred in connection with successfully establishing his right to
indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any, has been tendered to the corporation) that the claimant has not met the
standards

-14-
<PAGE>

of conduct which make it permissible under the General Corporation Law of the
State of Delaware for the corporation to indemnify the claimant for the amount
claimed, but the burden of such defense shall be on the corporation. Neither the
failure of the corporation (including its board of directors, independent legal
counsel or it stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the corporation (including its board of directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.

Section 3. Article Not Exclusive. The rights to indemnification and the
---------- ---------------------
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article VI shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.

Section 4. Insurance. The corporation may purchase and maintain insurance
---------- ---------
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary or agent of the corporation or was serving at the request of
the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the corporation would have the power to indemnify such
person against such liability under this Article VI.

Section 5. Expenses. Expenses incurred by any person described in Section
---------- --------
1 of this Article VI in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.

Section 6. Employees and Agents. Persons who are not covered by the
---------- --------------------
foregoing provisions of this Article VI and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.

Section 7. Contract Rights. The provisions of this Article VI shall be
---------- ---------------
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity

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<PAGE>

at any time while this Article VI and the relevant provisions of the General
Corporation Law of the State of Delaware or other applicable law are in effect,
and any repeal or modification of this Article VI or any such law shall not
affect any rights or obligations then existing with respect to any state of
facts or proceeding then existing.

Section 8. Merger or Consolidation. For purposes of this Article VI,
---------- -----------------------
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
VI with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.

ARTICLE VII
-----------

GENERAL PROVISIONS
------------------

Section 1. Dividends. Dividends upon the capital stock of the
---------- ---------
Corporation, subject to the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, in accordance with applicable law. Dividends may be paid in
cash, in property or in shares of the capital stock, subject to the provisions
of the Restated Certificate of Incorporation. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or any other purpose and the Directors may modify or abolish any
such reserve in the manner in which it was created.

Section 2. Checks, Drafts or Orders. All checks, drafts or other orders
---------- ------------------------
for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors or a duly
authorized committee thereof.

-16-
<PAGE>

Section 3. Contracts. In addition to the powers otherwise granted to
---------- ---------
officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any
----------
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.

Section 4. Loans. The Corporation may lend money to, or guarantee any
---------- -----
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
Director of the Corporation or its subsidiaries, whenever, in the judgment of
the Directors, such loan, guaranty or assistance may reasonably be expected to
benefit the Corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the Board
of Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this section shall be deemed to deny,
limit or restrict the powers of guaranty or warranty of the Corporation at
common law or under any statute.

Section 5. Fiscal Year. The fiscal year of the Corporation shall be fixed
---------- -----------
by resolution of the Board of Directors.

Section 6. Corporate Seal. The Board of Directors may provide a corporate
---------- --------------
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.

Section 7. Voting Securities Owned By Corporation. Voting securities in
---------- --------------------------------------
any other Corporation held by the Corporation shall be voted by the chief
executive officer, the president or a vice-president, unless the Board of
Directors specifically confers authority to vote with respect thereto, which
authority may be general or confined to specific instances, upon some other
person or officer. Any person authorized to vote securities shall have the
power to appoint proxies, with general power of substitution.

Section 8. Inspection of Books and Records. The Board of Directors shall
--------- -------------------------------
have power from time to time to determine to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.

-17-
<PAGE>

Section 9. Section Headings. Section headings in these By-laws are for
--------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.

Section 10. Inconsistent Provisions. In the event that any provision of
---------- -----------------------
these By-laws is or becomes inconsistent with any provision of the Restated
Certificate of Incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.

ARTICLE VIII
------------

AMENDMENTS
----------

In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend, change, add to or repeal these By-laws by the affirmative vote of
a majority of the total number of Directors then in office. Any alteration or
repeal of these By-laws by the stockholders of the Corporation shall require the
affirmative vote of a majority of the outstanding shares of the Corporation
entitled to vote on such alteration or repeal; provided, however, that Section
-------- -------
11 of ARTICLE II and Sections 2, 3, 4 and 5 of ARTICLE III and this ARTICLE VIII
---------- ----------- ------------
of these By-laws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least two thirds (2/3) of the combined voting power of all of the
then outstanding shares of the Corporation entitled to vote on such alteration
or repeal unless such amendment shall be approved by a majority of the directors
of the Corporation not affiliated or associated with any person or entity
holding (or which has announced an intention to obtain) twenty percent (20%) or
more of the voting power of the Corporation's outstanding capital stock (other
than the Bain Group).

-18-

COMMON STOCK COMMON STOCK

THERMA-WAVE

<S> <C> <C>
THIS CERTIFICATE IS TRANSFERABLE IN INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
BOSTON, MA OR NEW YORK, NY
</TABLE>

This Certifies that CUSIP 88343A 10 8

is the record holder of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF

- -----------------------------THERMA-WAVE, INC.----------------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.

Dated:

<TABLE>
<S> <C> <C>
/s/ [SIGNATURE ILLEGIBLE] [SEAL APPEARS HERE] /s/ [SIGNATURE ILLEGIBLE]
VICE PRESIDENT, CHIEF FINANCIAL OFFICER CHAIRMAN OF THE BOARD AND
AND SECRETARY CHIEF EXECUTIVE OFFICER
</TABLE>

COUNTERSIGNED AND REGISTERED:

BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR

BY /s/ [SIGNATURE ILLEGIBLE]

AUTHORIZED SIGNATURE

<PAGE>

THERMA-WAVE, INC.

A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.

The following abbreviations, when used in the inscription of the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - .................Custodian.................
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minor
survivorship and not as tenants Act........................................
in common (State)
UNIF TRF MIN ACT - ............Custodian (until age..........)
(Cust)
................... under Uniform Transfers
(Minor)
to Minors Act .............................
(State)
</TABLE>

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, ___________________________ hereby sell, assign and
transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

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

________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

________________________________________________________________________________

__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated __________________________________

X ______________________________________

X ______________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By _____________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17AD-15.

<PAGE>

EXHIBIT 10.24

THERMA-WAVE, INC.

1999 STOCK INCENTIVE PLAN

1. Purposes of the Plan. The purposes of this Stock Incentive Plan are:
--------------------

. to attract and retain the best available personnel for positions of
substantial responsibility,

. to provide additional incentive to Employees, Directors and
Consultants, and

. to promote the success of the company's business.

Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.

2. Definitions. As used herein, the following definitions shall apply:
-----------

(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.

(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.

(d) "Change in Control" means the occurrence of any of the following:

(1) When any "person" as defined in Section 3(a)(9) of the Exchange
Act and as used in Sections 13(d) and 14(d) thereof, including a "group" as
defined in Section 13(d) of the Exchange Act but excluding the Company and any
Subsidiary and any employee benefit plan sponsored or maintained by the Company
or any Subsidiary (including any trustee of such plan acting as trustee),
directly or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act, as amended from time to time), after the effective date
of the Plan, of securities of the Company representing 50 percent or more of the
combined voting power of the Company's then outstanding securities;

(2) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any reason other than
-------------------
death to constitute at least a majority thereof,
<PAGE>

provided, however, that a director who was not a director at the beginning of
such 24-month period shall be deemed to have satisfied such 24-month requirement
(and be an Incumbent Director) if such director was elected by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as Incumbent Directors either actually (because they were
directors at the beginning of such 24-month period) or by prior operation of
this provision; or

(iii) The approval by the stockholders of the Company of a
transaction involving the acquisition of the Company by an entity other than the
Company or a Subsidiary through purchase of assets, by merger, or otherwise.

(f) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.

(g) "Common Stock" means the Common Stock, par value $0.01 per share,
of the Company.

(h) "Company" means Therma-Wave, Inc., a Delaware corporation.

(i) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.

(j) "Director" means a member of the Board.

(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.

(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a Director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

(n) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:

2
<PAGE>

(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;

(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or

(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

(o) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.

(q) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option. The Notice of Grant is
part of the Option Agreement.

(r) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(s) "Option" means a stock option granted pursuant to the Plan.

(t) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.

(u) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.

(v) "Optioned Stock" means the Common Stock subject to an Option.

(w) "Optionee" means the holder of an outstanding Option granted
under the Plan.

(x) "Parent" means a "parent" corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.

(y) "Plan" means this 1998 Stock Incentive Plan.

3
<PAGE>

(z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.

(aa) "Section 16(b)" means Section 16(b) of the Exchange Act.

(bb) "Service Provider" means an Employee, Director or Consultant.

(cc) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.

(dd) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.

3. Shares Subject to the Plan. Subject to the provisions of Section 12 of
--------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is (a) 300,000 Shares, plus (b) any Shares returned to the
Company's existing stock option plans (the "Existing Plans") as a result of
termination of options under the Existing Plans, plus (c) an annual increase to
be added on the date of each annual meeting of the stockholders of the Company,
beginning with the 2000 annual meeting of the stockholders, equal to one
percent (1.0%) of the outstanding Shares on such date or such lesser amount
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.

If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated); provided,
however, that Shares that have actually been issued under the Plan, whether upon
exercise of an Option shall not be returned to the Plan and shall not become
available for future distribution under the Plan.

4. Administration of the Plan.
--------------------------

(a) Procedure.
---------

(i) Multiple Administrative Bodies. The Plan may be administered
------------------------------
by different Committees with respect to different groups of Service Providers.

(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

(iii) Rule 16b-3. To the extent desirable to qualify transactions
----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.

4
<PAGE>

(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom Options may be
granted hereunder;

(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;

(iv) to approve forms of agreement for use under the Plan;

(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

(vi) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;

(vii) to institute an Option Exchange Program;

(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;

(x) to modify or amend each Option (subject to Section 14(c)
of the Plan), including the discretionary authority to extend the post-
termination exercisability period of Options longer than is otherwise provided
for in the Plan;

(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the amount required to be withheld. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be

5
<PAGE>

withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;

(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator; and

(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.

(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options.

5. Eligibility. Nonstatutory Stock Options and may be granted to Service
-----------
Providers. Incentive Stock Options may be granted only to Employees.

6. Limitations.
-----------

(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.

(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.

(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.

(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.

6
<PAGE>

(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 12), the canceled Option will be counted against the limits
set forth in subsections (i) and (ii) above. For this purpose, if the exercise
price of an Option is reduced, the transaction will be treated as a cancellation
of the Option and the grant of a new Option.

7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 14 of the Plan.

8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.

9. Option Exercise Price and Consideration.
---------------------------------------

(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.

(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.

(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.

7
<PAGE>

(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.

(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

(i) cash;

(ii) check;

(iii) promissory note;

(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;

(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

(vii) any combination of the foregoing methods of payment; or

(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.
------------------

(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.

An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name

8
<PAGE>

of the Optionee and his or her spouse. Until the Shares are issued (as evidenced
by the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such Shares promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 13 of the Plan.

Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.

(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee' ath, Disability
or retirement, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of

9
<PAGE>

descent or distribution. If the Option is not so exercised within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.

(e) Retirement of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's voluntary retirement, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of retirement
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's retirement. If, on the date of retirement, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after retirement, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan. This Section 10(e) shall only apply to an Optionee who voluntarily
retires from the Company or a Subsidiary on or after the date on which such
Optionee has attained the age of 59 2. Notwithstanding anything in this Section
10(e) or an Option Agreement to the contrary, if the Committee determines in the
good faith exercise of its judgment that any Optionee who has retired engages in
any conduct detrimental to the Company, upon such determination by the
Committee, such Option shall immediately and without further action on the part
of the Company, expire and become unexercisable. No notice of such determination
need to be given to any Optionee in such circumstance.

(f) Change in Control. In the event of a Change in Control, only if
-----------------
provided in the Option Agreement, any Option awarded under this Plan to the
extent not previously exercisable shall immediately become fully exercisable.
The Administrator in its sole discretion may direct the Company to cash out all
outstanding Options as of the date a Change in Control occurs or such other date
as the Administrator may determine prior to the Change in Control.

(g) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.

11. Non-Transferability of Options. Unless determined otherwise by the
------------------------------
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
decent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------

(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the

10
<PAGE>

number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.

(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.

(c) Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and shall be assumed or an equivalent
option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the Option, the Optionee shall
fully vest in and have the right to exercise the Option as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested or
exercisable. If an Option becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option shall be fully vested and exercisable for a period of fifteen (15) days
from the date of such notice, and the Option shall terminate upon the expiration
of such period. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option, for each Share of Optioned Stock subject to the Option,
to be solely common stock of the successor corporation or its Parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger or sale of assets.

11
<PAGE>

13. Date of Grant. The date of grant of an Option shall be, for all
-------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

14. Amendment and Termination of the Plan.
-------------------------------------

(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.

(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

15. Conditions Upon Issuance of Shares.
----------------------------------

(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.

16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.

17. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

18. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted by the Board. Such stockholder approval shall be obtained in the manner
and to the degree required under Applicable

12
<PAGE>

Laws. The Plan shall terminate in the event that it is not approved by the
stockholders of the Company within the time period set forth herein. In
addition, all of the Options granted under this Plan prior to its approval by
the stockholders of the Company shall be granted subject to, and conditioned
upon, such approval and shall automatically terminate in the event that the Plan
has not been approved by the stockholders within the time period set forth
herein.

13
<PAGE>

EXHIBIT A

1999 STOCK INCENTIVE PLAN

EXERCISE NOTICE

Therma-Wave, Inc.
1250 Reliance Way
Fremont, California 94539

Attention: Chief Financial Officer

1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Therma-Wave, Inc. (the "Company") under
and pursuant to the 1999 Stock Incentive Plan (the "Plan") and the Stock Option
Agreement dated _____________, _____ (the "Option Agreement"). The purchase
price for the Shares shall be $_____________, as required by the Option
Agreement.

2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.

3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.

4. Rights as Stockholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.

5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.

6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing

14
<PAGE>

signed by the Company and Purchaser. This agreement is governed by the internal
substantive laws, but not the choice of law rules, of California.

Submitted by: Accepted by:

PURCHASER: THERMA-WAVE, INC.

______________________________ _________________________________
Signature By

______________________________ _________________________________
Print Name Its

Address: Address:

______________________________ 1250 Reliance Way
______________________________ Fremont, California 94539

______________________________
Date Received

<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
August 3, 1998, between Therma-Wave, Inc., a Delaware corporation (the
"Company"), and Martin M. Schwartz ("Executive").
------- ---------

In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

1. Employment. The Company shall employ Executive, and Executive hereby
----------
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the date hereof and ending on the
earlier of (a) the fifth anniversary of the date hereof and (b) the date of
termination as provided in Section 4 hereof (the "Employment Period").
-----------------
2. Position and Duties.
-------------------

(a) During the Employment Period, Executive shall serve as the
President and Chief Operating Officer of the Company and shall have the normal
duties, responsibilities and authority of the President and Chief Operating
Officer, subject to the overall direction and authority of the Company's board
of directors (the "Board") and the Company's Chief Executive Officer.
-----
(b) Executive shall report to the Company's Chief Executive Officer
and Board, and Executive shall devote his best efforts and his full business
time and attention to the business and affairs of the Company and its
Subsidiaries.

(c) For purposes of this Agreement, "Subsidiaries" shall mean any
------------
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.

(d) Upon commencement of his employment with the Company, Allan
Rosencwaig will designate Executive to be elected to the Company's Board in
accordance with the Voting Agreement dated as of May 16, 1997 by and between the
Company and the other parties thereto, to serve until his successor is duly
elected and qualified.

3. Base Salary and Benefits.
------------------------

(a) During the Employment Period, Executive's base salary shall be at
least $265,000 per annum, subject to review by the Board and the Chief Executive
Officer (who shall consider the Radford Survey in such review) on an annual
basis (the

1
<PAGE>

"Base Salary"), which salary shall be payable in regular installments in
-----------
accordance with the Company's general payroll practices and shall be subject to
customary withholding. In addition, during the Employment Period, Executive
shall be entitled to the fringe benefits listed on Exhibit A attached hereto and
---------
(to the extent not listed on Exhibit A) shall be entitled to participate in all
---------
of the Company's employee benefit programs for which senior executive employees
of the Company and its Subsidiaries are generally eligible (collectively, the
"Benefits").
--------

(b) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.

(c) In addition to the Base Salary, for each of the Company's fiscal
years beginning with the 1999 fiscal year, Executive will be eligible to earn a
bonus of up to 37.5% of his Base Salary (the "Bonus") based on the Company
-----
achieving certain corporate performance goals and Executive achieving certain
individual goals. The target amount of the Bonus, the corporate performance
goals and the individual goals each shall be set annually by the Board and the
Company's Chief Executive Officer. The amount of the Bonus shall be determined
in accordance with the procedures set forth on Exhibit B attached hereto.
---------

4. Termination.
-----------

(a) The Employment Period (i) shall terminate upon Executive's
resignation (other than for Good Reason) or death, (ii) shall terminate upon
Executive's Disability, (iii) may be terminated by the Company at any time for
Cause (as defined below) or without Cause and (iv) may be terminated by
Executive for Good Reason.

(b) If the Employment Period is terminated by the Company without
Cause, by Executive for Good Reason or as a result of Executive's Disability,
Executive shall be entitled to receive the Base Salary, the Bonus (which during
the Severance Period will be equal to 37.5% of the Base Salary in effect
immediately prior to the termination) and the Benefits (the "Severance
---------
Payment"), in each case until (i) if the date of termination is prior to the
- -------
second anniversary of the date of this Agreement, the date which is twelve
months after the date of such termination and (ii) if the date of termination is
on or after the second anniversary of the date of this Agreement, until the date
which is fifteen months after the date of such termination (the "Severance
---------
Period"); provided that the portion of the Bonus that Executive would have been
- ------
entitled to receive for the fiscal year in which the Severance Period terminates
shall be reduced proportionately by the ratio of the number of days of such
fiscal year not included in the Severance Period to the total number of days in
such fiscal year. The Severance Payment will be payable at such times as such
payments would have been payable had Executive not been terminated.
Notwithstanding anything in this Agreement to the

2
<PAGE>

contrary, the Company shall have no obligation to pay any part or all of the
Severance Payment if at any time during the Severance Period Executive is in
breach of Section 6 hereof. If the Employment Period is terminated for any of
the foregoing reasons after the second anniversary of the date of this
Agreement, the Severance Payment shall be reduced by fifty percent (50%) of the
amount of any compensation Executive receives in respect of any other employment
during the Severance Period. Upon request from time to time, Executive shall
furnish the Company with a true and complete certificate specifying any such
compensation due to or received by him. As a condition to the Company's
obligations (if any) to make the Severance Payment pursuant to this Section
4(b), Executive will execute and deliver a general release in form and substance
satisfactory to the Company.

(c) If the Employment Period is terminated by the Company for Cause
or is terminated pursuant to subsection 4(a)(i) above, Executive shall be
entitled to receive the Base Salary through the date of termination.

(d) Except as specifically provided herein, all of Executive's rights
to Benefits and bonuses which accrue or become payable after the termination of
the Employment Period shall cease upon such termination.

(e) For purposes of this Agreement, "Disability" shall mean any
----------
physical or mental illness or incapacity of Executive if, as determined by the
Board, such illness or incapacity results in Executive's inability to perform
his full-time duties and responsibility for the Company (i) for a period of
three consecutive months, (ii) for a period of 6 months in any twelve month
period, or (iii) at such time when satisfactory medical evidence exists that
Executive has a physical or mental illness or incapacity that will likely
prevent him from returning to the performance of his work duties for 6 months or
longer.

(f) For purposes of this Agreement, "Cause" shall mean (i) the
-----
commission of a felony or any other act or omission involving dishonesty,
disloyalty or fraud with respect to the Company or any of its Subsidiaries or
any of their customers or suppliers, (ii) conduct tending to bring the Company
or any of its Subsidiaries into substantial public disgrace or disrepute, (iii)
substantial and repeated failure to perform duties as reasonably directed by the
Board, (iv) gross negligence or willful misconduct with respect to the Company
or any of its Subsidiaries, or (v) any other material breach of this Agreement
or the Option Agreement (as hereinafter defined).

(g) For purposes of this Agreement, "Good Reason" shall mean the
-----------
occurrence (without Executive's consent) of any one of the following acts by the
Company, or failure by the Company to act: (i) the assignment to Executive of
duties that represent a substantial adverse alteration in the nature or status
of his responsibilities as a senior executive officer of the Company, except in
the event Executive is unable to or fails to perform his normal full-time duties
and responsibility with the Company as a result of incapacity due to physical or
mental illness or

3
<PAGE>

incapacity; (ii) a reduction in the Base Salary as in effect on the date hereof;
(iii) the relocation of the Company's principal executive offices to a location
outside the San Bay Franciso Area (which includes the counties of San Francisco,
Alameda, Santa Clara, Contra Costa, San Mateo and Marin) or the Company's
requiring Executive to be based anywhere other than the Company's principal
executive offices (but not including required travel on the Company's business);
or (iv) the wrongful failure by the Company to pay to Executive any portion of
the Base Salary, Bonus or Benefits, or to pay to Executive any portion of an
installment of deferred compensation or Benefits under any deferred compensation
or benefits program of the Company, within 45 days of the date such Base Salary,
Bonus, compensation or Benefit is due.

5. Stock Option.
------------

(a) Executive shall be granted nonstatutory options to purchase
200,000 shares of the Company's Common Stock on the effective date of this
Agreement (the "Grant Date"). The options shall vest annually in equal
----------
installments over a vesting term of 5 years from the Grant Date and shall have
an exercise price of $4.00 per share. The vesting of the options shall be
accelerated and the options shall become immediately exercisable upon a Sale of
-------
the Company (as defined below). The grant of the options shall be set forth in
- -----------
the Company's standard form of option agreement (the "Option Agreement").
----------------

(b) For purposes of this Agreement, a "Sale of the Company" means any
-------------------
transaction involving the Company and an Independent Third Party or affiliated
group of Independent Third Parties pursuant to which such party or parties
acquire (i) a majority of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of the Board (whether by merger,
consolidation or sale or transfer of the Company's capital stock) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis.

(c) For purposes of this Agreement, an "Independent Third Party"
-----------------------
means any Person who, immediately prior to the contemplated transaction, does
not own in excess of 5% of the capital stock on a fully diluted basis, who is
not controlling, controlled by or under common control with any such 5% owner of
the capital stock and who is not the spouse or descendant (by birth or adoption)
of any such 5% owner of the capital stock; provided that in no event will Bain
Capital, Inc. or any of its affiliates be an Independent Third Party.

6. Noncompetition; Confidentiality; Nonsolicitation.
-----------------------------------------------

4
<PAGE>

partner, firm, corporation or other entity that (i) is in competition with the
Company or any Subsidiary or Related Entity (as defined in Section 6(d) below)
to the extent its products are similar or materially related to those of the
Company or any Subsidiary or Related Entity (including products under
development by the Company, or to Executive's knowledge, by any Subsidiary or
Related Entity) or (ii) otherwise engages in any business in which the Company
or any Subsidiary or Related Entity is engaged or proposes to engage, in either
case as of the date of the termination of Executive's employment; provided that
"Compete" and "Competing" shall not mean being a passive owner of not more than
------- ---------
2% of the outstanding stock of any class of a corporation which is publicly
traded, so long as Executive has no active participation in the business of such
corporation.

(b) Confidential Information. Executive agrees that he will not at
------------------------
any time, during and/or after the term of this Agreement, directly or
indirectly, divulge, furnish or make accessible to any party or otherwise use or
exploit any of the proprietary or confidential information or knowledge,
including without limitation, any financial information, marketing plans,
strategies, trade secrets (as defined by California Civil Code Section 3426),
data, know-how, processes, techniques, patents, patent applications,
improvements, inventions, formulas and other Proprietary Information, as such
term is used in the Proprietary Information and Employee Inventions Agreement
between the Company and Executive, of the Company or its Subsidiaries,
affiliates, vendors, suppliers or customers, other than in the course of
performing his duties hereunder and with the consent of the Company in
accordance with the Company's policies and regulations, as established from time
to time, for the protection of the Company's Proprietary Information. The
provisions of this Section 6(b) shall not apply to any information, documents or
materials which are, as shown by appropriate written evidence, in the public
domain, other than by reason of a default by Executive of his obligations
hereunder.

(c) Right to Company Materials. Executive agrees that all styles,
--------------------------
designs, lists, materials, books, files, reports, correspondence, data, records,
and other documents pertaining to his employment or to any confidential
information referred to above ("Company Material") used or prepared by, or made
----------------
available to, Executive, shall be and shall remain the property of the Company
or its designees. Upon the termination of Executive's employment or the
expiration of this Agreement, all Company Materials shall be returned
immediately to the Company, and Executive shall not make or retained any copiers
or excerpts thereof

(d) Antisolicitation. Executive promises and agrees that while he is
----------------
employed by the Company, during the Severance Period, and for a period of two
(2) years thereafter (the "Antisolicitation Periods"), he will not induce
------------------------
or attempt to induce any customer, supplier, licensee, licensor, franchisee or
other business relation of the Company or any of its present or future
Subsidiaries or any affiliate of the Company to which the technology of the
Company is hereafter transferred and which at such time engages in activities
similar or materially related to those of the Company (a "Related
-------
5
<PAGE>

Entity"), either directly or indirectly, to cease doing business with the
- ------
Company or any Subsidiary or Related Entity or in any way materially interfere
with the relationship between any such customer, supplier, licensee or business
relation and the Company or any Subsidiary or Related Entity.

(e) Soliciting Employees. Executive promises and agrees that for a
--------------------
period of five years following the date of termination of employment hereunder,
he will not directly or indirectly (i) solicit any employee of the Company to
work for any business, individual, partnership, firm, corporation, or other
entity in competition with the business of the Company or any subsidiary of the
Company or Related Entity at any time during such period or (ii) hire any person
who was an employee of the Company or any Subsidiary or Related Entity at any
time during the last year of the Employment Period.

(f) Disclosure to Company: Inventions as Sole Property of the
---------------------------------------------------------
Company.
-------

(i) Executive agrees promptly to disclose to the Company any and
all inventions, discoveries, improvements, trade secrets, formulas, techniques,
processes, and know-how, whether or not subject to patent, trademark, copyright,
trade secret or mask work protection and whether or not reduced to practice,
conceived or learned by Executive during his employment with the Company or any
Subsidiary or affiliate of the Company, either alone or jointly with others,
which relate to or result from the actual or anticipated business, work,
research or investigations of the Company or any Subsidiary or affiliate of the
Company, or which result, to any extent, from its use of the Company's premises
or property (the work being hereinafter collectively referred to as the
"Inventions").
----------

(ii) Executive acknowledges and agrees that all the inventions
shall be the sole property of the Company or any other entity designated by it
and Executive hereby assigns to the Company his entire right and interest in
and to all the Inventions; provided, however, that such assignment does not
apply to any Invention which qualifies under the provisions of Section 2870 of
the California Labor Code. The Company or any other entity designated by it
shall be the sole owner of all domestic and foreign rights pertaining to the
Inventions. Executive further agrees as to all the Inventions to assist the
Company or entity designated by it in every way (at the Company's expense) to
obtain and from time to time enforce patents on the Inventions in any and all
countries. To that end, by way of illustration but not limitation, Executive
will testify in any suit or other proceeding involving any of the Inventions,
execute all documents which the Company reasonably determines to be necessary or
convenient for use in applying for and obtaining patents thereon and enforcing
same, and execute all necessary assignments thereof to the Company or entity
designated by it. Executive's obligation to assist the Company or entity
designated by it in obtaining and enforcing patents for the Inventions shall
continue beyond the termination of his employment with the Company, but the
Company shall compensate Executive at a

6
<PAGE>

reasonable rate after such termination for the time actually spent by Executive
at the Company's request on such assistance.

(g) List of Prior Inventions. Attached hereto as Exhibit C is a
------------------------ ---------
complete list of all inventions, discoveries or improvements relating to the
Company's business (or the business of any Subsidiary or affiliate of the
Company) which have been made by Executive prior to the date of this Agreement
and which are not owned by the Company (or any Subsidiary or affiliate thereof).
Executive represents and warrants that such list is complete and accurate in all
respects and acknowledges and agrees that the Company owns the entire right and
interest to each of the inventions, discoveries or improvements relating to the
Company's or any Subsidiary's or affiliate's business that may be made by
Executive during the Employment Period and that are not listed in Exhibit C.
---------

(h) Injunction. Executive agrees that it would be difficult to measure
----------
damages to the Company from any breach by Executive of the promises set forth in
subsections (a) through (g) of this Section 6, that injury to the Company from
any such breach would be impossible to calculate, and that money damages would
therefore be an inadequate remedy for any such breach. Accordingly, Executive
agrees that if Executive shall breach any provision of subsections (a) through
(g) of this Section 6 or any of them, the Company shall be entitled, in addition
to all other remedies it may have, to injunctions or other appropriate orders to
restrain any such breach by Executive without showing or proving any actual
damage sustained by the Company.

7. Other Businesses. As long as Executive is employed by the Company or
----------------
any of its Subsidiaries, Executive agrees that he will not, except with the
express written consent of the Board, become engaged in, or render services for,
any business other than the business of the Company, any of its Subsidiaries or
any corporation or partnership in which the Company or any of its Subsidiaries
have an equity interest.

8. Executive's Representations. Executive hereby represents and warrants
---------------------------
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgement or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity that would be violated
or breached by the execution, delivery and performance of this Agreement by
Executive, and (iii) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of Executive,
enforceable in accordance with its terms. Executive hereby acknowledges and
represents that he has consulted with independent legal counsel regarding his
rights and obligations under this Agreement and that he fully understands the
terms and conditions herein.

<PAGE>

9. Survival. The Company's obligation to make Severance Payments under
--------
Section 4(b), if any, and the provisions of Sections 6, 9, 10, 11, 12, 13, 15,
16 and 17 shall survive and continue in full force in accordance with their
respective terms notwithstanding any termination of the Employment Period.

10. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, mailed by first class mail,
return receipt requested, or delivered by express courier service, to the
recipient at the address below indicated:

Notices to Executive:
--------------------

Martin M. Schwartz
22204 Via Camino Court
Cupertino, California 05914

Notices to the Company:
----------------------

Therma-Wave, Inc.
1250 Reliance Way
Fremont, California 94539
Attention: Chief Executive Officer

With a copy to:
--------------

Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Adam W. Kirsh
David Dominik

and

Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jeffrey C. Hammes
Stephen L. Ritchie

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.

11. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or

<PAGE>

unenforceability shall not affect any other provision or any other jurisdiction,
but this Agreement shall be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision has never
been contained herein.

12. Complete Agreement. This Agreement and those documents expressly
------------------
referred to herein embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.

13. No Strict Construction. The language used in this Agreement shall be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.

14. Counterparts. This Agreement may be executed in separate counterparts,
------------
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.

15. Successors and Assigns. This Agreement is intended to bind and inure
----------------------
to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.

16. Choice of Law. All issues and questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of California, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.

17. Amendment and Waiver. The provisions of this Agreement may be amended
--------------------
or waived only with the prior written consent of the Company and Executive, and
no course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.

9
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.

THERMA-WAVE, INC.

By: /s/ Allan Rosencwaig
-----------------------------
Allan Rosencwaig
Chairman and CEO

Martin M. Schwartz
--------------------------------
Martin M. Schwartz

10
<PAGE>

EXHIBIT "A"

1. Full medical, dental and vision coverage.

2. Personal time off (PTO) of twenty (20) days per year.

3. Car allowance of $1,000 per month.

4. Life insurance of 2X Base Salary.

11
<PAGE>

EXHIBIT "B"

BONUS CALCULATION

PRESIDENT and COO: base salary x 37.5% x CPR x IPR

_______________________________
Note

CPR- Corporate Performance Rating:
Ranges from .33 to 3.0 based on financial results

IPR- Individual Performance Rating:
see attached.

12
<PAGE>

INDIVIDUAL PERFORMANCE RATING (IPR)
-----------------------------------

The Individual Performance Rating, IPR, is based on the accumulated weight of
the Individual Goals that have been successfully met and the IPR is calculated
in accordance with the following table:

Acumulated Weight
From Individual Goals IPR
- --------------------- ---

Below 50 0.00
50 0.25
60 0.50
70 0.70
80 0.90
90 1.00
100 1.00
110* 1.10
120 1.20
130 1.30
etc. etc.

If the accumulated weight falls in between two of the numbers listed above, then
the IPR is calculated in a pro rata fashion from the two closest IPR's in the
table.

* If accumulated weight exceed 100.

13
<PAGE>

EXHIBIT "C"

[List of Prior Inventions]

<PAGE>

EMPLOYMENT AGREEMENT
--------------------

THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
August 10, 1998, between Therma-Wave, Inc., a Delaware corporation (the
"Company"), and L Ray Christie ("Executive").
------- ---------

In consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

Position and Duties.
-------------------

(a) During the Employment Period, Executive shall serve as the Vice
President of Finance and Chief Financial Officer of the Company and shall have
the normal duties, responsibilities and authority of the Vice President of
Finance and Chief Financial Officer, subject to the overall direction and
authority of the Company's board of directors (the "Board") and the Company's
-----
President and/or Chief Executive Officer.

Executive shall report to the Company's President and Chief Operating
Officer, and Executive shall devote his best efforts and his full business time
and attention to the business and affairs of the Company and its Subsidiaries.

For purposes of this Agreement, "Subsidiaries" shall mean any
------------
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.

2. Base Salary and Benefits.
------------------------

(a) During the Employment Period, Executive's base salary shall be at
least $155,000 per annum, subject to review by the Board and the President
and/or Chief Executive Officer on an annual basis (the "Base Salary"), which
-----------
salary shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding. In
addition, during the Employment Period, Executive shall be entitled to the
fringe benefits listed on Exhibit A attached hereto and (to the extent not
---------
listed on Exhibit A) shall be entitled to participate in all of the Company's
---------
employee benefit programs for which senior executive employees of the Company
and its Subsidiaries are generally eligible (collectively, the

<PAGE>

("Benefits").
--------

The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.

In addition to the Base Salary, for each of the Company's fiscal years
beginning with the 1999 fiscal year, Executive will be eligible to earn a bonus
of up to 30% of his Base Salary (the "Bonus") based on the Company achieving
-----
certain corporate performance goals and Executive achieving certain individual
goals. The target amount of the Bonus, the corporate performance goals and the
individual goals each shall be set annually by the Board and the Company's Chief
Executive Officer. The amount of the Bonus shall be determined in accordance
with the procedures set forth on Exhibit B attached hereto.
---------

2. Termination.
--------------

If the Employment Period is terminated by the Company without Cause,
by Executive for Good Reason or as a result of Executive's Disability, Executive
shall be entitled to receive the Base Salary, the Bonus (which during the
Severance Period will be equal to 30% of the Base Salary in effect immediately
prior to the termination) and the Benefits (the "Severance Payment"), in each
-----------------
case until the date which is six (6) months after the date of such termination
(the "Severance Period"); provided that the portion of the Bonus that Executive
----------------
would have been entitled to receive for the fiscal year in which the Severance
Period terminates shall be reduced proportionately by the ratio of the number of
days of such fiscal year not included in the Severance Period to the total
number of days in such fiscal year. The Severance Payment will be payable at
such times as such payments would have been payable had Executive not been
terminated. Notwithstanding anything in this Agreement to the contrary, the
Company shall have no obligation to pay any part or all of the Severance Payment
if at any time during the Severance Period Executive is in breach of Section 6
hereof. If the Employment Period is terminated for any of the foregoing reasons,
the Severance Payment shall be reduced by fifty percent (50%) of the amount of
any compensation Executive receives in respect of any other employment during
the Severance Period. Upon request from time to time, Executive shall furnish
the Company with a true and complete certificate specifying any such
compensation due to or received by him. As a condition to the Company's
obligations (if any) to make the Severance Payment pursuant to this Section
4(b), Executive will execute and deliver a general release in

<PAGE>

form and substance satisfactory to the Company.

(b) If the Employment Period is terminated by the Company for Cause or
is terminated pursuant to subsection 4(a)(i) above, Executive shall be entitled
to receive the Base Salary through the date of termination.

Except as specifically provided herein, all of Executive's rights to
Benefits and bonuses which accrue or become payable after the termination of the
Employment Period shall cease upon such termination.

For purposes of this Agreement, "Disability" shall mean any physical
----------
or mental illness or incapacity of Executive if, as determined by the Board,
such illness or incapacity results in Executive's inability to perform his
full-time duties and responsibility for the Company (i) for a period of three
consecutive months, (ii) for a period of 6 months in any twelve month period, or
(iii) at such time when satisfactory medical evidence exists that Executive has
a physical or mental illness or incapacity that will likely prevent him from
returning to the performance of his work duties for 6 months or longer.

For purposes of this Agreement, "Cause" shall mean (i) the commission
-----
of a felony or any other act or omission involving dishonesty, disloyalty or
fraud with respect to the Company or any of its Subsidiaries or any of their
customers or suppliers, (ii) conduct tending to bring the Company or any of its
Subsidiaries into substantial public disgrace or disrepute, (iii) substantial
and repeated failure to perform duties as reasonably directed by the Board, (iv)
gross negligence or willful misconduct with respect to the Company or any of its
Subsidiaries, or (v) any other material breach of this Agreement or the Option
Agreement (as hereinafter defined).

For purposes of this Agreement, "Good Reason" shall mean the
-----------
occurrence (without Executive's consent) of any one of the following acts by the
Company, or failure by the Company to act: (i) the assignment to Executive of
duties that represent a substantial adverse alteration in the nature or status
of his responsibilities as a senior executive officer of the Company, except in
the event Executive is unable to or fails to perform his normal full-time duties
and responsibility with the Company as a result of incapacity due to physical or
mental illness or incapacity; (ii) a reduction in the Base Salary as in effect
on the date hereof; (iii) the relocation of the Company's principal executive
offices to a location outside the San Francisco Bay Area (which includes the
counties of San Francisco, Alameda, Santa Clara, Contra Costa, San Mateo and
Marin) or the Company's requiring Executive to be based anywhere other than the
Company's principal executive offices (but not including required travel on the
Company's business); or (iv) the wrongful failure by the Company to pay to
Executive any portion of the Base Salary, Bonus or Benefits, or to pay to
Executive any portion of an installment of deferred compensation or Benefits
under any deferred compensation or benefits program of the Company, within 45
days of the date such Base Salary, Bonus, compensation or Benefit is due.

<PAGE>

2.Stock Option.
--------------

(a) Executive shall be granted nonstatutory options to purchase 70,000
shares of the Company's Common Stock on the effective date of this Agreement
(the "Grant Date"). The options shall vest annually in equal installments over a
----------
vesting term of 5 years from the Grant Date and shall have an exercise price of
$4.00 per share. The vesting of the options shall be accelerated and the options
shall become immediately exercisable upon a Sale of the Company (as defined
-------------------
below). The grant of options shall be set forth in the Company's standard form
of option agreement (the "Option Agreement").
----------------

For purposes of this Agreement, a "Sale of the Company" means any
-------------------
transaction involving the Company and an Independent Third Party or affiliated
group of Independent Third Parities pursuant to which such party or parties
acquire (i) a majority of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of the Board (whether by merger,
consolidation or sale or transfer of the Company's capital stock) or (ii) all or
substantially all of the Company's assets determined on a consolidated basis.

(b) For purposes of this Agreement, an "Independent Third Party")
-----------------------
means any Person who, immediately prior to the contemplated transaction, does
not own in excess of 5% of the capital stock on a fully diluted basis, who is
not controlling, controlled by or under common control with any such 5% owner of
the capital stock and who is not the spouse or descendant (by birth or adoption)
of any such 5% owner of the capital stock; provided that in no event will Bain
Capital, Inc. or any of its affiliates be an Independent Third Party.

3.Noncompetition; Confidentiality; Nonsolicitation.
--------------------------------------------------

(a) Noncompetition. Executive agrees that while he is employed by the
--------------
Company he will not Compete with the Company or any of its Subsidiaries. For
purposes of this Agreement, "Compete" or "Competing" shall mean, directly or
------- ---------
indirectly, without the prior written consent of the Company, providing
consultive service with or without pay, owning, managing, operating, joining,
controlling, participating in, or being connected as a stockholder, partner or
otherwise with any business, individual, partner, firm, corporation or other
entity that (i) is in competition with the Company or any Subsidiary or Related
Entity (as defined in Section 6(d) below) to the extent its products are similar
or materially related to those of the Company or any Subsidiary or Related
Entity (including products under development by the Company, or to Executive's
knowledge, by any Subsidiary or Related Entity) or (ii) otherwise engages in any
business in which the Company or any Subsidiary or Related Entity is engaged or
proposes to engage, in either case as of the date of the termination of
Executive's employment; provided that "Compete" and "Competing" shall not mean
------- ---------
being a passive owner of not more than 2% of the outstanding stock of any class
of a corporation which is publicly traded, so long as Executive has no active
participation in the business of

<PAGE>

such corporation.

Confidential Information. Executive agrees that he will not at any
------------------------
time, during and/or after the term of this Agreement, directly or indirectly,
divulge, furnish or make accessible to any party or otherwise use or exploit any
of the proprietary or confidential information or knowledge, including without
limitation, any financial information, marketing plans, strategies, trade
secrets (as defined by California Civil Code Section 3426), data, know-how,
processes, techniques, patents, patent applications, improvements, inventions,
formulas and other Proprietary Information, as such term is used in the
Proprietary Information and Employee Inventions Agreement between the Company
and Executive, of the Company or its Subsidiaries, affiliates, vendors,
suppliers or customers, other than in the course of performing his duties
hereunder and with the consent of the Company in accordance with the Company's
policies and regulations, as established from time to time, for the protection
of the Company's Proprietary Information. The provisions of this Section 6(b)
shall not apply to any information, documents or materials which are, as shown
by appropriate written evidence, in the public domain, other than by reason of a
default by Executive of his obligations hereunder.

Right to Company Materials. Executive agrees that all styles, designs,
--------------------------
lists, materials, books, files, reports, correspondence, data, records, and
other documents pertaining to his employment or to any confidential information
referred to above ("Company Material") used or prepared by, or made available
----------------
to, Executive, shall be and shall remain the property of the Company or its
designees. Upon the termination of Executive's employment or the expiration of
this Agreement, all Company Materials shall be returned immediately to the
Company, and Executive shall not make or retain any copies or excerpts thereof.

Antisolicitation. Executive promises and agrees that while he is
----------------
employed by the Company, during the Severance Period, and for a period of two
(2) years thereafter (the "Antisolicitation Periods"), he will not induce or
------------------------
attempt to induce any customer, supplier, licensee, licensor, franchisee or
other business relation of the Company or any of its present or future
Subsidiaries or any affiliate of the Company to which the technology of the
Company is hereafter transferred and which at such time engages in activities
similar or materially related to those of the Company (a "Related Entity"),
--------------
either directly or indirectly, to cease doing business with the Company or any
Subsidiary or Related Entity or in any way materially interfere with the
relationship between any such customer, supplier, licensee or business relation
and the Company or any Subsidiary or Related Entity.

(a)Soliciting Employees. Executive promises and agrees that for a
------------------------
period of five years following the date of termination of employment hereunder,
he will not directly or indirectly (i) solicit any employee of the Company to
work for any business, individual, partnership, firm, corporation, or other
entity in competition with the business of the Company or any subsidiary of the
Company or Related Entity at any time during

5
<PAGE>

such period or (ii) hire any person who was an employee of the Company or any
Subsidiary or Related Entity at any time during the last year of the Employment
Period.

(a) Disclosure to Company; Inventions as Sole Property of the Company.
-----------------------------------------------------------------

(ii) Executive acknowledges and agrees that all the Inventions
shall be the sole property of the Company or any other entity designated by it
and Executive hereby assigns to the Company his entire right and Interest in and
to all the Inventions; provided, however, that such assignment does not apply to
any Invention which qualifies under the provisions of Section 2870 of the
California Labor Code. The Company or any other entity designated by it shall be
the sole owner of all domestic and foreign rights pertaining to the Inventions.
Executive further agrees as to all the Inventions to assist the Company or
entity designated by it in every way (at the Company's expense) to obtain and
from time to time enforce patents on the Inventions in any and all countries. To
that end, by way of illustration but not limitation, Executive will testify in
any suit or other proceeding involving any of the Inventions, execute all
documents which the Company reasonably determines to be necessary or convenient
for use in applying for and obtaining patents thereon and enforcing same, and
execute all necessary assignments thereof to the Company or entity designated by
it. Executive's obligation to assist the Company or entity designated by it in
obtaining and enforcing patents for the Inventions shall continue beyond the
termination of his employment with the Company, but the Company shall compensate
Executive at a reasonable rate after such termination for the time actually
spent by Executive at the Company's request on such assistance.

(b) List of Prior Inventions. Attached hereto as Exhibit C is a
------------------------ ---------
complete list of all inventions, discoveries or improvements relating to the
Company's business (or the business of any Subsidiary or affiliate of the
Company) which have been made by Executive prior to the date of this Agreement
and which are not owned by the Company (or any Subsidiary or affiliate thereof).
Executive represents and warrants that such list is complete and accurate in all
respects and acknowledges and agrees that the Company owns the entire right and
interest to each of the Inventions, discoveries or improvements relating to the
Company's or any Subsidiary's or affiliate's business that may be made by
Executive during the Employment Period and that are not listed in

<PAGE>

Exhibit C.
- ---------

(b) Injunction. Executive agrees that it would be difficult to
----------
measure damages to the Company from any breach by Executive of the promises set
forth in subsections (a) through (g) of this Section 6, that injury to the
Company from any such breach would be impossible to calculate, and that money
damages would therefore be an inadequate remedy for any such breach.
Accordingly, Executive agrees that if Executive shall breach any provision of
subsections (a) through (g) of this Section 6 or any of them, the Company shall
be entitled, in addition to all other remedies it may have, to injunctions or
other appropriate orders to restrain any such breach by Executive without
showing or proving any actual damage sustained by the Company.

4. Other Businesses. As long as Executive is employed by the Company or
----------------
any of its Subsidiaries, Executive agrees that he will not, except with the
express written consent of the Board, become engaged in, or render services for,
any business other than the business of the Company, any of its Subsidiaries or
any corporation or partnership in which the Company or any of its Subsidiaries
have an equity interest.

Executive's Representations. Executive hereby represents and warrants to
---------------------------
the Company that (i) the execution, delivery and performance of this Agreement
by Executive do not and will not conflict with, breach, violate or cause a
default under any contract, agreement, instrument, order, judgment or decree to
which Executive is a party or by which he is bound, (ii) Executive is not a
party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity that would be violated
or breached by the execution, delivery and performance of this Agreement by
Executive, and (iii) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of Executive,
enforceable in accordance with its terms. Executive hereby acknowledges and
represents that he has consulted with independent legal counsel regarding his
rights and obligations under this Agreement and that he fully understands the
terms and conditions contained herein.

Survival. The Company's obligation to make Severance Payments under Section
--------
4(b), if any, and the provisions of Sections 6, 9, 10, 11, 12, 13, 15, 16 and 17
shall survive and continue in full force in accordance with their respective
terms notwithstanding any termination of the Employment Period.

5. Notices. Any notice provided for in this Agreement shall be in writing
-------
and shall be either personally delivered, mailed by first class mail, return
receipt requested, or delivered by express courier service, to the recipient at
the address below indicated:

Notices to Executive:
--------------------
L. Ray Christie
425 Dunblane Drive
Walnut Creek, CA 94598

<PAGE>

Notices to the Company:
----------------------

Therma-Wave, Inc.
1250 Reliance Way
Fremont, California 94539
Attention: President

With a copy to:
--------------

Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Adam W. Kirsch
David Dominik

and

Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jeffrey C. Hammes
Stephen L. Ritchie

6. Severability. Whenever possible, each provision of this Agreement shall
----------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.

Complete Agreement. This Agreement and those documents expressly referred
------------------
to herein embody the complete agreement and understanding among the parties and
supersede and preempt any prior understandings, agreements or representations by
or among the parties, written or oral, which may have related to the subject
matter hereof in any way.

No Strict Construction. The language used in this Agreement shall be deemed
----------------------
to be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any party.

Counterparts. This Agreement may be executed in separate counterparts,
------------
each

8
<PAGE>

of which is deemed to be an original and all of which taken together constitute
one and the same agreement.

Successors and Assigns. This Agreement is intended to bind and inure to the
----------------------
benefit of and be enforceable by Executive, the Company and their respective
heirs, successors and assigns, except that Executive may not assign his rights
or delegate his obligations hereunder without the prior written consent of the
Company.

7. Choice of Law. All issues and questions concerning the construction,
-------------
validity, enforcement and interpretation of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of California, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.

Amendment and Waiver. The provisions of this Agreement may be amended or
--------------------
waived only with the prior written consent of the Company and Executive, and no
course of conduct or failure or delay in enforcing the provisions of this
Agreement shall affect the validity, binding effect or enforceability of this
Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

THERMA-WAVE, INC.

By: /s/ Martin M. Schwartz
Martin M. Schwartz
Its: President and COO

/s/ L. Ray Christie

L. Ray Christie

9
<PAGE>

EXHIBIT "A"

1. Personal time off (PTO) of fifteen (15) days per year and ten (10) paid
holidays per year.

2. Car allowance of $900 per month.

10
<PAGE>

EXHIBIT "B"

BONUS CALCULATION

Vice President: base salary x 30% x CPR x IPR

Note:

CPR - Corporate Performance Rating:
Ranges from .33 to 3.0 based on financial results.

IPR - Individual Performance Rating:
See attached.

11
<PAGE>

INDIVIDUAL PERFORMANCE RATING (IPR)
-----------------------------------

The Individual Performance Rating, IPR, is based on the accumulated weight of
the Individual Goals that have been successfully met and the IPR is calculated
in accordance with the following table:

Accumulated Weight
From Individual Goals IPR
- --------------------- ---

Below 50 0.00
50 0.25
60 0.50
70 0.70
80 0.90
90 1.00
100 1.00
110* 1.10
120 1.20
130 1.30
etc. etc.

If the accumulated weight falls in between two of the numbers listed above, then
the IPR is calculated in a pro rata fashion from the two closest IPR's in the
table.

* If accumulated weight exceeds 100.

12
<PAGE>

EXHIBIT "C"

None

<PAGE>

EXHIBIT 10.28

THERMA-WAVE, INC.

1999 EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the 1999 Employee Stock Purchase
Plan (the "Plan") of Therma-Wave, Inc. (the "Company"). Certain definitions of
terms used in the Plan are provided at Section 2.

1. Purpose

The purpose of the Plan is to provide employees of the Company and its
Designated Subsidiaries with an opportunity to purchase Common Stock of the
Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Code. The provisions of the Plan shall, accordingly, be
construed so as to extend and limit participation in a manner consistent with
the requirements of that section of the Code. The Plan will also be extended to
employees of foreign subsidiaries subject to adjustments, in the sole discretion
of the Board of Directors, to take into account the requirements of the local
laws associated with the particular subsidiary. These local requirements may
not provide the same favorable tax consequences as are available to participants
in the United States.

2. Definitions

(a) "Board" shall mean the Board of Directors of the Company.

(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.

(d) "Company" shall mean Therma-Wave, Inc., a Delaware corporation.

(e) "Compensation" shall mean all amounts includable as "wages" subject to
tax under section 3101(a) of the Code without applying the dollar limitation of
section 3121(a) of the Code. Accordingly, Compensation shall include, without
limitation, salaries, commissions, bonuses and overtime. Compensation shall not
include reimbursements of expenses, allowances, or any amount deemed received
without the actual transfer of cash or any Company contributions or payments to
any trust, fund, or plan to provide retirement, pension, profit sharing, health,
welfare, death, insurance or similar benefits to or on behalf of such
Participant or any other payments not specifically referenced above, except to
the extent that the inclusion of any such item with respect to all Participants
on a nondiscriminatory basis is specifically approved by the Board.
<PAGE>

(f) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or re-employment upon the expiration of such leave is
guaranteed by contract or statute.

(g) "Designated Subsidiaries" shall mean the Subsidiaries which have been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.

(h) "Employee" shall mean any person, including an officer, who is
customarily employed for at least 20 hours per week and more than five months in
a calendar year by the Company or one of its Designated Subsidiaries.

(i) "Enrollment Date" shall mean the first day of each Offering Period.

(j) "Exercise Date" shall mean each December 31 and June 30 of each
Offering Period of the Plan.

(k) "Exercise Period" shall mean a period commencing on January 1 and
terminating on the following June 30 or commencing on July 1 and terminating on
the following December 31.

(l) "Offering Period" shall mean a period of six months commencing on
January 1 and July 1 of each year during which an option granted pursuant to the
Plan may be exercised.

(m) "Plan" shall mean this 1999 Employee Stock Purchase Plan.

(n) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.

3. Eligibility

(a) Any Employee who shall be employed by the Company on a given Enrollment
Date shall be eligible to participate in the Plan, subject to limitations
imposed by Section 423(b) of the Code or other applicable local law.

(b) Any provisions of the Plan to the contrary notwithstanding, no Employee
shall be granted an option under the Plan (i) if, immediately after the grant,
such Employee (or any other person whose stock would be attributed to such
Employee pursuant to Section 425(d) of the Code) would own stock and/or hold
outstanding options to purchase stock possessing five percent or more of the
total combined voting power or value of all classes of stock of the Company or
of any Subsidiary, or (ii) which permits such Employee's rights to purchase
stock under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate which exceeds $25,000 of fair

2
<PAGE>

market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.

4. Offering Periods

The Plan shall be implemented by consecutive Offering Periods with a new
Offering Period commencing on January 1 and July 1 of each year, commencing July
1, 1999, or as otherwise determined by the Board, and continuing thereafter
until terminated in accordance with Section 19 hereof. The Board shall have the
power to change the duration of Offering Periods with respect to future
offerings without stockholder approval if such change is announced at least 15
days prior to the scheduled beginning of the first Offering Period to be
affected.

5. Participation

(a) An eligible Employee may become a participant in the Plan by completing
a subscription agreement authorizing payroll deductions on the form provided by
the Company and filing it with the Company's payroll office prior to the
applicable Enrollment Date, unless a later time for filing the subscription
agreement is set by the Board for all eligible Employees with respect to a given
Offering Period.

(b) Payroll deductions for a participant shall commence on the first
payroll date following the Enrollment Date and shall end on the last payroll
date in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10.

6. Payroll Deductions

(a) At the time a participant files his subscription agreement, he shall
elect to have payroll deductions made on each paydate during the Offering Period
in an amount not exceeding 15% of the Compensation which he receives on each
paydate during the Offering Period, and the aggregate of such payroll deductions
during the Offering Period shall not exceed 15% of his aggregate Compensation
during said Offering Period.

(b) All payroll deductions made by a participant shall be credited to his
account under the Plan. A participant may not make any additional payments into
such account.

(c) A participant may discontinue his participation in the Plan as provided
in Section 10, may lower the rate of his payroll deductions effective
immediately or may increase (but not above 15%) the rate of his payroll
deductions effective as of the first date of the next Exercise Period within
such Offering Period by completing or filing with the Company a new
authorization for payroll deductions.

(d) Notwithstanding the foregoing, to the extent necessary to comply with
section 423(b)(8) of the Code and Section 3(b) herein, a participant's payroll
deductions may be

3
<PAGE>

decreased to zero percent at such time during any Exercise Period which is
scheduled to end during the current calendar year. Payroll deductions shall
recommence at the rate provided in such participant's subscription agreement at
the beginning of the first Exercise Period which is scheduled to end in the
following calendar year, unless terminated by the participant as provided in
Section 10.

7. Grant of Option

(a) On the Enrollment Date of each Offering Period, each eligible Employee
participating in such Offering Period shall be granted an option to purchase on
each Exercise Date during such Offering Period (at the per share option price)
up to a number of shares of the Company's Common Stock determined by dividing
such Employee's payroll deductions accumulated during such Exercise Period by
85% of the fair market value of a share of the Company's Common Stock on the
Enrollment Date or on the Exercise Date, whichever is lower, provided that the
number of shares subject to the option shall not exceed the lesser of (i)
1,200 shares per year, or (ii) 200% of the number of shares determined by
dividing 15% of the Employee's Compensation over the Offering Period (determined
as of the Enrollment Date) by 85% of the fair market value of a share of the
Company's Common Stock on the Enrollment Date, subject to the limitations set
forth in Sections 3(b) and 12 hereof. Fair market value of a share of the
Company's Common Stock shall be determined as provided in Section 7(b) herein.

(b) The option price per share of the shares offered in a given Offering
Period shall be the lower of: (i) 85% of the fair market value of a share of
the Common Stock of the Company on the Enrollment Date; or (ii) 85% of the fair
market value of a share of the Common Stock of the Company on the applicable
Exercise Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion; provided, however, that
where there is a public market for the Common Stock, the fair market value per
share shall be the closing price of the Common Stock for such date, as reported
by the Nasdaq National Market. If a closing price is not available for an
Enrollment Date or an Exercise Date, the fair market value of a share of the
Common Stock of the Company on such date shall be the fair market value of a
share of the Common Stock of the Company on the last business day prior to such
date.

8. Exercise of Option

Unless a participant withdraws from the Plan as provided in Section 10, his
option for the purchase of shares will be exercised automatically on each
Exercise Date, and the maximum number of full shares subject to his option will
be purchased for him at the applicable option price with the accumulated payroll
deductions in his account. During his lifetime, a participant's option to
purchase shares hereunder is exercisable only by him. Any amount remaining in
the participant's account after an Exercise Date shall be held in the account
until the next Exercise Date, unless the Offering Period has been over-
subscribed or has terminated with such Exercise Date, in which event such amount
shall be refunded to the participant.

4
<PAGE>

9. Delivery

As promptly as practicable after each Exercise Date, the Company shall
arrange the delivery to each participant, as appropriate, of a certificate
representing the shares purchased upon exercise of his option.

10. Withdrawal; Termination of Employment

(a) A participant may withdraw all but not less than all of the payroll
deductions credited to his account under the Plan at any time by giving written
notice to the Company. All of the participant's payroll deductions credited to
his account will be paid to him promptly after receipt of his notice of
withdrawal and his participation in the Plan will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made.
Payroll deductions will not resume on behalf of a participant who has withdrawn
from the Plan unless written notice is delivered to the Company within the open
enrollment period preceding the commencement of an Exercise Period directing the
Company to resume payroll deductions.

(b) Upon termination of the participant's Continuous Status as an Employee
prior to the Exercise Date for any reason, including retirement or death, the
payroll deductions credited to the participant's account will be returned to the
participant or, in the case of death, to the person or persons entitled thereto
under Section 14, and such participant's option will be automatically
terminated.

(c) If an Employee fails to maintain Continuous Status as an Employee for
at least 20 hours per week during an Offering Period in which the Employee is a
participant, he will be deemed to have elected to withdraw from the Plan and the
payroll deductions credited to his account will be returned to him and his
option terminated.

(d) A participant's withdrawal from an Offering Period will not have any
effect upon his eligibility to participate in a succeeding Offering Period or in
any similar plan which may hereafter be adopted by the Company.

11. Interest

No interest shall accrue on the payroll deductions of a participant in the
Plan.

12. Stock

(a) The maximum number of shares of the Company's Common Stock which shall
be made available for sale under the Plan shall be 500,000. If on a given
Exercise Date the number of shares with respect to which options are to be
exercised exceeds the number of shares then available, the Company shall make a
pro rata allocation of the shares remaining available for option grant in as
uniform a manner as shall be practicable and as it shall determine to be
equitable. In such event, the

5
<PAGE>

Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of payroll deductions, if necessary.

(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.

(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.

13. Administration

The Plan shall be administered by the Board of Directors of the Company or
a committee appointed by the Board. The Board may delegate routine matters to
management. The administration, interpretation or application of the Plan by
the Board or its committee shall be final, conclusive and binding upon all
participants. Members of the Board who are eligible Employees are permitted to
participate in the Plan, provided that:

(a) Members of the Board who are eligible to participate in the Plan may
not vote on any matter affecting the administration of the Plan or the grant of
any option pursuant to the Plan.

(b) If a committee is established to administer the Plan, no member of the
Board who is eligible to participate in the Plan may be a member of the
committee.

14. Designation of Beneficiary

(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under the
Plan in the event of such participant's death subsequent to the end of the
Offering Period but prior to delivery to him of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the exercise of the option.

(b) Such designation of beneficiary may be changed by the participant at
any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

6
<PAGE>

15. Transferability

Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution or as provided in
Section 14 hereof) by the participant. Any such attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Section 10.

16. Use of Funds

All payroll deductions received or held by the Company under the Plan may
be used by the Company for any corporate purpose, and the Company shall not be
obligated to segregate such payroll deductions.

17. Reports

Individual accounts will be maintained for each participant in the Plan.
Statements of account will be given to participating Employees semiannually
promptly following each Exercise Date, which statements will set forth the
amounts of payroll deductions, the per share purchase price, the number of
shares purchased and the remaining cash balance, if any.

18. Adjustments upon Changes in Capitalization

Subject to any required action by the stockholders of the Company, the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration". Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.

In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. In the event of a
proposed sale of all or substantially all of the assets of the

7
<PAGE>

Company, or the merger of the Company with or into another entity, the Board, in
its sole discretion, may provide that (i) each option under the Plan shall be
assumed, (ii) an equivalent option shall be substituted by such successor entity
or a parent or subsidiary of such successor entity, or in lieu of such
assumption or substitution, that the participant shall have the right to
exercise the option, including shares as to which the option would not otherwise
be exercisable, or (iii) the Plan shall terminate and a shortened Exercise
Period may take place or a participant's contributions returned. If the Board
makes an option fully exercisable in lieu of assumption or substitution in the
event of a merger or sale of assets, the Board shall notify the participant that
the option shall be full, exercisable for a period of 30 days from the date of
such notice, and the option will terminate upon the expiration of such period.

The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, if the Company effects one
or more reorganizations, recapitalizations, rights offerings or other increases
or decreases of the shares of its outstanding Common Stock, and if the Company
is being consolidated with or merged into any other corporation.

19. Amendment or Termination

The Board of Directors of the Company may at any time terminate or amend
the Plan. No such termination can affect options previously granted, nor may an
amendment make any change in any option theretofore granted which adversely
affects the rights of any participant, nor may an amendment be made without
prior approval of the stockholders of the Company if such amendment is required
by law or otherwise to be approved by the stockholders.

Amendments to the Code which impact the Plan shall be automatically
implemented without further action by the Board unless such amendments require
independent action by either the Board or the stockholders.

20. Notices

All notices or other communications by a participant to the Company under
or in connection with the Plan shall be deemed to have been duly given when
received in the form specified by the Company at the location, or by the person,
designated by the Company for the receipt thereof.

21. Stockholder Approval

The Plan shall be subject to approval by the stockholders of the Company.

22. Conditions upon Issuance of Shares

Shares shall not be issued with respect to an option unless the exercise of
such option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of

8
<PAGE>

law, domestic or foreign, including, without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.

<PAGE>

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 1, 1998, in the Pre-Effective Amendment No. 3 to
the Registration Statement (Form S-1 No. 333-76019) and related Prospectus of
Therma-Wave, Inc. for the registration of common stock.

Our audits also included the financial statement schedule of Therma-Wave, Inc.
listed in Item 16(b). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

San Jose, California

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

The foregoing consent is in the form that will be signed upon the completion of
the reverse stock split described in Note 12 to the financial statements.

/s/ Ernst & Young LLP

San Jose, California

July 20, 1999

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 (No.
333-76019) of our reports dated April 27, 1999, relating to the financial
statements and financial statement schedules of Therma-Wave, Inc., which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Prospectus.

PricewaterhouseCoopers LLP

San Jose, California

July 20, 1999

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 20,245
<SECURITIES> 0
<RECEIVABLES> 14,091
<ALLOWANCES> 1,911
<INVENTORY> 15,369
<CURRENT-ASSETS> 57,553
<PP&E> 14,832
<DEPRECIATION> 10,319
<TOTAL-ASSETS> 72,352
<CURRENT-LIABILITIES> 26,159
<BONDS> 115,000
15,347
0
<COMMON> 19,866
<OTHER-SE> 1,421
<TOTAL-LIABILITY-AND-EQUITY> 72,352
<SALES> 66,207
<TOTAL-REVENUES> 66,207
<CGS> 36,827
<TOTAL-COSTS> 70,884
<OTHER-EXPENSES> (6)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,060
<INCOME-PRETAX> (18,080)
<INCOME-TAX> (2,350)
<INCOME-CONTINUING> (15,730)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,730)
<EPS-BASIC> (2.28)
<EPS-DILUTED> (2.28)

</TABLE>