UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---

FORM 10-K

---

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ___________ TO _____________

Commission file number 000-26911

THERMA-WAVE, INC.

|Delaware                                                       | 94-3000561                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or Other Jurisdiction of
Incorporation or Organization) | (I.R.S. Employer Identification
Number)
|1250 Reliance WayFremont, California                           | 94539                                  
|(Address of Principal
Executive Offices)                       | (Zip Code)                             

(510) 668-2200 (Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the
Act: None

Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.01 per share(Title of Class)

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K, or any amendment to this Form 10-K.

The aggregate market value of the common
equity held by non-affiliates of the registrant as of May 31, 2002 was
$301,202,980. As of May 31, 2002, the registrant had 29,129,882 shares of common
stock outstanding.

Portions of the Proxy Statement for the 2002
annual stockholders meeting are incorporated by reference into Part III.











|Part I.   |                                                                                       | Page
|--------- | ------------------------------------------------------------------------------------- | ----
|Item 1.   | Business                                                                              | 1   
|Item 2.   | Properties                                                                            | 14  
|Item 3.   | Legal Proceedings                                                                     | 14  
|Item 4.   | Submission of Matters to a Vote of Security Holders                                   | 14  
|Part II.  |                                                                                       |     
|Item 5.   | Market for the Registrant's Common Equity and Related Stockholder Matters             | 15  
|Item 6.   | Selected Financial Data                                                               | 16  
|Item 7.   | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18  
|Item 7a.  | Quantitative and Qualitative Disclosures About Market Risks                           | 27  
|Item 8.   | Financial Statements and Supplementary Data                                           | 28  
|Item 9.   | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  | 49  
|Part III. |                                                                                       |     
|Item 10.  | Directors and Executive Officers of the Registrant                                    | 50  
|Item 11.  | Executive Compensation                                                                | 50  
|Item 12.  | Security Ownership of Certain Beneficial Owners and Management                        | 50  
|Item 13.  | Certain Relationships and Related Transactions                                        | 50  
|Part IV.  |                                                                                       |     
|Item 14.  | Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K          | 51  






PART I

ITEM 1.  BUSINESS

This annual report on Form 10-K
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 Exhibit
99.1, "Risk Factors," and elsewhere in this annual report 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,
inability to develop or introduce new products as planned, or the acceptance of
those products by our customers 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 annual report
will in fact occur.

Overview

Therma-Wave is 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 enable semiconductor manufacturers to maintain
high overall manufacturing yield, reduce the size of the circuit features
imprinted on the semiconductor to improve the performance of the semiconductor
device and increase their equipment productivity. Our current product families,
Therma-Probe®, Opti-Probe®, Opti-Probe CDTM and RT/CDTM,
Meta-Probe X®, IntegraTM and Sensys integrated metrology products, use
proprietary and patented technology to provide precise, non-contact, non-
destructive measurement for each and every basic building block ("process
module") in the manufacture of integrated circuits, or ICs:

- Ion Implantation - implanting ions, usually boron,
phosphorus or arsenic, into selected areas of the silicon wafer to alter its
electrical properties.  Ion implantation may be performed typically 6 to 12
times in the manufacture of IC's. For example, ion implantation creates the
positively- and negatively-doped regions used to create each of the millions of
transistors on each integrated circuit.  It also is used to adjust the voltage
at which the transistors will "turn on". Our Therma-Probe is
typically used as a standard metrology tool for these ion implantation
processes.

- Dielectric Film Deposition and Etching - depositing
and selectively removing layers of dielectric films on the silicon wafer in
order to provide electrical insulation for each layer of the semiconductor IC.
Film deposition is typically done by Chemical Vapor Deposition, or CVD, and film
removal is typically done by plasma etching. Our Opti-Probe is typically used
as a standard, in-line metrology tool for film thickness in these processes.
Our Opti-Probe CD and RT/CD, or Real-Time Critical Dimensions, and Integra and
Sensys integrated metrology products, are newly introduced products which
provide rapid, non-destructive wafer-state information for control of the
Critical Dimensions, or CDs, of the etch processes.
- Conductor Film Deposition and Etching - depositing
and selectively removing layers of metal, polysilicon, and metal barrier films
used to interconnect the transistors within a semiconductor device. Film
deposition is typically done by Physical Vapor Deposition, or PVD, or by CVD,
and film removal is typically done by plasma etching or chemical mechanical
planarization. Our Opti-Probe is typically used as a standard metrology
tool for the non-opaque conductor films, and our Meta-Probe X is a newly introduced
system for metrology of the metal (opaque) films.  Our Opti-Probe CD and RT/CD,
and Integra and Sensys integrated metrology products, are newly introduced
products which provide rapid, non-destructive wafer-state information for
control of the CDs of the etch processes.
- Chemical Mechanical Planarization, or CMP -
"leveling" the top surface of the wafer after each layer of device
features is added. The leveling is done by mechanical polishing in a chemical
solution, and is required to maintain flatness of the wafer throughout the
sequence of hundreds of process steps.Our Opti-Probe is typically used as a
standard, in-line metrology tool for film thickness in these processes.
- Wafer Patterning - using photolithographic techniques
to create the fine (sub-micron) structures that define the integrated circuit.
The wafer patterning is typically done by "stepper" exposure systems
and the photoresist developing and removal is done by "track" systems
and "asher/strip" systems. Our Opti-Probe is typically used as a
standard, in-line metrology tool for film thickness and reflectivity in these
processes. Our Opti-Probe CD and RT/CD, and Integra and Sensys integrated
metrology products are newly introduced products that provide rapid, non-
destructive wafer-state information for control of the CDs of the wafer
patterning process.

1




Industry Background

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 telecommunication
and data communication 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 more complex, requiring:

- successive decreases in feature line width, for example, from 180
nanometers, or nm, to 150 nm, and from 130 nm to 100 nm;

- as many as 500 process steps; and

- an increase in the number of metal or "interconnect" layers.

Additionally, the life cycle for these devices has been
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 competitions in the industry. These factors have led semiconductor
manufacturers to intensify efforts to improve fab productivity, including the
increased use of process control metrology.

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 improvements including reduced feature size, increased
wafer size and increased equipment productivity. Although increasing wafer size
and yield (percentage of "good" ICs per wafer) will continue to be
sources of productivity gains by semiconductor manufacturers, increasingly, we
believe, gains will come from reduced feature size and non-yield-derived
manufacturing productivity enhancements. This important last category includes
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:

2




Key Drivers of Fab Productivity*

|Factor                                                      |  | 1980 | Present | Future 
|----------------------------------------------------------- |  | ---- | ------- | -------
|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%

*

Therma-Wave Metrology Solutions

Therma-Wave's  Fab Productivity Enhancement®
solutions currently consist of:

- Two well-established, major product families of in-line
process control metrology systems - the Therma-Probe and Opti-Probe systems. The
Therma-Probe product family was introduced in 1985 as the company's initial
product line, and the 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 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.
- Three recently-introduced product families  -
- Opti-Probe CD and RT/CD: The Opti-Probe CD is a
spectroscopic ellipsometer-based system that provides revolutionary,
nondestructive Critical Dimension metrology for the smallest features of the
next generations of IC's, in ways superior to the traditional CD-SEM tools. This
product employs analysis software of two types: Therma-Wave's new RT/CD analysis
software (introduced in this fiscal year), which provides Real-Time CD and
profile results, and software from Timbre Technologies (a subsidiary of Tokyo
Electron Ltd.), which provides solutions based on a previously generated and
stored library.  During this fiscal year, Therma-Wave expanded from being a
hardware system supplier to being a more complete CD system supplier (Opti-Probe
CD plus RT/CD analysis software).
- Integra and Sensys integrated metrology products:
Integrated Metrology, or IM, is based on compact metrology "modules"
which will be installed and function inside an IC process system such as an
etcher or CVD deposition system, to provide metrology on each wafer before it
exits the process tool.  Originating as a means to further boost IC fab
productivity, we believe IM is a growing trend in the semiconductor industry.
In this fiscal year, Therma-Wave significantly enlarged its position in
integrated metrology by acquiring Sensys Instruments Corporation, or Sensys, of
Santa Clara, California.  We believe that together with Therma-Wave's Integra
line IM products, the combined IM offering from Therma-Wave and Sensys is one of
the most diverse in the semiconductor metrology industry.
- Meta-Probe X: The Meta-Probe X is an X-ray reflectometry,
or XRR, system that provides film thickness and density metrology for copper
barrier and seed layers and other metal films that are key for the next
generations of IC technology.

3




THERMA-PROBE ION IMPLANT MONITORING PRODUCTS

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
(typically 6 to 12) 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
wafer production is permitted to continue in error. To test on a more timely
basis whether the ion implantation was properly executed, semiconductor
manufacturers historically used a four-point probe which measured electrical
resistance but required physical contact between the probe and the silicon wafer
surface. Because the physical contact with the wafer surface produces silicon
particles (defects), which can kill IC yield, the four-point probe method can
only be used on "test wafers"  (non-production blank wafers that have
no IC devices on them). In contrast to that method, our Therma-Probe's
capability to measure nondestructively on the actual production IC wafers
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 Therma-Probe systems detect implant processing problems that only
affect the product wafers and which are not revealed by utilizing test wafer
monitoring alone.

Therma-Probe Product Family

Therma-Probe systems are the predominant non-destructive
process control metrology system used world-wide for the ion implantation
process in the fabrication of semiconductors. The Therma-Probe systems employ
proprietary thermal wave technology that uses highly focused but low power laser
beams to generate and detect thermal and plasma 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.

Therma-Probe Benefits

We believe that our Therma-Probe systems offer the
following technological advantages and benefits 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 owned by Therma-Wave. 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. Our engineers have extensive experience in addressing many different
types of ion implant applications and providing 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.

4




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.

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

|System | Year Introduced | Description of Innovation/Advancement                                                                                                                                                      
|------ | --------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TP-200 | 1985            | Introduced first non-destructive process control metrology system to
measure ion implantation.  Solved wide-spread IC industry need for rapid ion
implant metrology on product wafers.     
|TP-300 | 1987            | Added cassette-to-cassette wafer handling and automation
software to the capability of the TP-200 to satisfy industry need to proliferate
product wafer measurements.                      
|TP-400 | 1992            | Significantly improved repeatability of the basic ion
implantation dose measurement and added second wafer cassette station for
improved tool calibration.                                 
|TP-500 | 1996            | Provided improved product reliability by employing themodernized
and field-proven platform of the Therma-Wave Opti-Probe 2600, and added pattern
recognition and improved wafer throughput.
|TP-630 | 1998            | Expanded wafer measurement capability to handle the new 300
millimeter silicon wafers, in addition to traditional 200 millimeter
wafers.                                                   
|TP-500 | 2000            | Initiated application research for ultra-shallow junction depth
metrology.                                                                                                                 
|TP-630 | 2001            | Integrated new 300mm Automation SEMI Standard (E87, E90, E40,
E94) by having an NT front end computer and a DOS back-end measurement
computer.                                             

OPTI-PROBE THIN FILM METROLOGY SYSTEMS

Thin Film Metrology

The majority of the 100 to 500 process steps required to
fabricate semiconductors on a silicon wafer involve the deposition and selective
removal of a variety of insulating and conducting thin films. Thin film
metrology systems measure the thickness and material properties of these thin
films and, because they are used to measure a large number of process steps,
they are one of the most important and pervasive metrology systems utilized at
semiconductor fabrication facilities. The most widely used technologies to
measure the thickness and properties of thin films have 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 physics-
based 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, traditional, single-technology film metrology
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.
Further, the industry is now using film stacks composed of several layers of
different films and the optical properties of many films are functions of the
actual deposition conditions. Generally, spectrometers or 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.

5




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.

Opti-Probe Benefits

We believe our Opti-Probe systems offer several technological advantages
and benefits that distinguish them from thin film metrology systems offered by
our competitors including the following:

Proprietary Technology.   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
competitors. 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 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
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 in the Opti-Probe 5000 is advanced
to a new level of capability by being integrated with any of the other four
technologies in the Opti-Probe 5000.  This design accelerates the Opti-Probe
5000's ability to determine the correct film solution even for difficult, multi-
parameter applications, and maximizes its robustness against errors due to
fluctuations in the semiconductor process.

6




The addition of absolute laser ellipsometry, or AE®, to
Opti-Probe 5000 systems has enabled the Opti-Probe to set new records for the
most repeatable ultra-thin measurement of gate oxide thickness.  These
measurements are critical for process control of the transistor gate on all IC
devices. Combined with the Desorber® option of the Opti-Probe, we believe
the Opti-Probe offers the semiconductor industry's best solution for process
control and multi-fab matching of thin gate processes.  .

Therma-Wave sold its first Opti-Probe 5000 system in 1998.
Since that introduction, we believe the Opti-Probe 5000 system has successfully
established itself as the semiconductor industry's highest-performance thin film
metrology system. Moreover, the majority of the most successful IC
manufacturers, who are now constructing new multi-billion-dollar 300-millimeter
fabs, have selected Opti-Probe for thin film metrology in these state-of-the-art
fabs.

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

|System                     | Year Introduced | Description of
Innovation/Advancement                                                                                                                                                                                            
|-------------------------- | --------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|OP-1000                    | 1992            | Introduced a new, patented optical technology, BPR®, to
measure thin film deposition and removal.                                                                                                                                
|OP-2000                    | 1993            | Integrated BPR with a newly patented optical technology,
BPE®, to enhance measurement capabilities for very thin films                                                                                                           
|OP-2600                    | 1994            | Integrated BPR, BPE and Spectrometry to further expand the
measurement capabilities.                                                                                                                                             
|OP-2600 DUV                | 1996            | Integrated deep ultra-violet reflectance, or DUV, with the
existing system to expand measurement range.                                                                                                                          
|OP-3260                    | 1996            | Significantly increased throughput of Opti-Probe.                                                                                                                                                                                
|OP-3260 DUV                | 1996            | Integrated OP-3260 system with DUV reflectance.                                                                                                                                                                                  
|OP-5200 Series             | 1998            | Integrated up to five measurement technologies (BPR, BPE, DUV
reflectance, Spectroscopic Ellipsometry and AE).                                                                                                                   
|OP-5300 Series             | 1998            | Expanded OP-5200 series wafer measurement capability to 300
millimeters.                                                                                                                                                         
|OP-5200 and
OP-5300 series | 2000-2001       | Released new applications for advanced semiconductor
manufacturing processes, including ultra-thin gate stacks, advanced 193
nanometer organic and inorganic antireflective layers, silicon on insulator, and
silicon-germanium. 
|OP-5300 series             | 2001            | NT became the standard operating system for 300 millimeter Opti-
Probes, replacing DOS.                                                                                                                                          
|OP-5200 series             | 2000-2001       | Desorber product option was introduced, enabling Opti-Probe to
meet stringent industry requirements for thin gate dielectric metrology.                                                                                          
|OP-5300 series             | 2000-2001       | Wafer Bow/Warp/Stress, or WBWSTM, product option was
introduced, enabling measurement of additional wafer properties at overall
reduced cost for the customer. Integrated new 300mm Automation SEMI Standard
(E87, E90, E40, E94).

7






OPTI-PROBE CD AND RT/CD PRODUCTS

New Market Requirements

In January 2002, Therma-Wave introduced Opti-Probe RT/CD,
a new product designed to measure the lateral Critical Dimensions and cross-
sectional shape, or profile, of fine IC features.  As semiconductor device
manufacturers continue to shrink feature sizes to the 100 nm technology node and
smaller, traditional CD metrology techniques such as critical-dimension scanning
electron microscopy, or CD-SEM, lack the resolution and stability required to
provide accurate data about feature critical dimensions and profile.  A
significant limitation is that these methods provide only a top-down view of
features and provide little or no data about characteristics of the sides or
bottom of a structure.

Microelectronics engineers and managers are often confronted
with problems involving variations in profile and sidewall angle.  Detailed
knowledge of profile shape is of high importance.  In shallow trench isolation,
or STI, or damascene integration schemes, etched trenches to be filled by
downstream process steps may have problematic re-entrant angles, notching, t-
topping or other artifacts.  These feature artifacts can lead to yield-killing
conditions such as voiding and cracking of deposited films in later deposition
fill process steps.

For the critical gate patterning process, tight control of
the gate CD correlates to improved device performance and better bin sort yields
(and revenue/chip).  Furthermore, shape anomalies such as undercut,
microtrenching or notching, can have a detrimental effect on device speed and
reliability.  In these and other applications, precise shape profiling is
crucial.

Opti-Probe CD and RT/CD Products

Therma-Wave's Opti-Probe RT/CD is the first optical CD
scatterometry system that combines high-information content spectroscopic
ellipsometry, or SE, optical measurement with ultra-fast calculation
("real-time regression") to analyze and display results without the
use of off-line modeling and solution libraries.   Full-featured, complex CD
profiles can be calculated in seconds with precision and repeatability, and, we
believe, with more structural information than our competitors on sidewall
profile and shape.

The Opti-Probe RT/CD system leverages Therma-Wave's
established Opti-Probe thin-film metrology platform for optical data
acquisition.  The Opti-Probe's patented rotating compensator spectroscopic
ellipsometer, or RCSE, provides data richness in the measured spectra, thereby
ensuring detail and accuracy in the results.  This non-destructive CD
measurement technology is beneficial for the current prevalent microelectronics
technology node (0.13-micron), and is extendible to the 0.1 micron technology node and
beyond for a wide range of process applications throughout this decade.

During fiscal year 2002, Opti-Probe CD and RT/CD systems have
been placed at leading device manufacturers for monitoring of gate, shallow
trench isolation, metal and damascene processes.

INTEGRATED  METROLOGY  PRODUCTS

New Market Requirements

In 2000, Therma-Wave committed to a program of developing
a broad family of Integrated Metrology, or IM, modules under the product family
name Integra.  Therma-Wave at this time has both spectrometer and a
spectroscopic ellipsometer based IM units available in the marketplace.  These
are compact metrology units that contain a single measurement technology that is
matched to the specific metrology need of a particular semiconductor process
tool (etch, coater/developer, CVD, CMP, stepper, etc.)  Each IM unit is
installed directly into a semiconductor process tool, and can measure each wafer
immediately after processing.  In this manner, processing mistakes can be
detected at the earliest possible moment, as opposed to the conventional
procedure in which a 25-wafer lot is typically completed before metrology is
first done, thereby leaving the entire lot at risk of becoming scrap.  With
300mm wafers, this economic loss becomes increasingly unacceptable due to the
additional product value of each processed wafer.

8




Benefits of Integrated Metrology & Advanced Process Control

IM is becoming increasingly accepted as a means to reach
greater productivity.  Advanced semiconductor manufacturing today is under great
pressure to deliver greater levels of process performance, production
availability, and process repeatability in order to minimize risk of product
loss, improve manufacturing efficiencies, and improve device yields.  The
transition towards 300mm wafers, continuing device shrinks, and the mixed
foundry manufacturing models are key contributors to these trends.  To
successfully meet these challenges, device manufacturers and process tool
equipment manufacturers are actively engaged in developing technologies for
Advanced Process Control, or APC.  We believe that APC implementation requires
the integration of metrology capabilities directly onboard the process tool.

Device manufacturers can derive a wide range of benefits by
implementing integrated metrology and APC strategies in their fabs.  By
integrating the measurement directly on to the process tool, they can greatly
increase the rate of sampling and decrease the delay between the process step
and measurement.  Increasing the measurement frequency to every single wafer,
allows for rapid fault detection and correction. This reduces potential for
scrap due to excursions in the process tool.  In addition, the data collected
can be input into real-time process control models to correct minor drifts in
the processing conditions.

Sensys and INTEGRA Product Family

During fiscal 2002, Therma-Wave made a number of key
moves to strengthen its position in the integrated metrology market segment.  We
successfully completed development of our first integrated product, the iX-SE, a
spectroscopic ellipsometer-based system for optical CD applications and
installed an evaluation unit at a major Etch equipment supplier to the
semiconductor industry.

To further strengthen our position as a leader in integrated
metrology, we acquired Sensys Instruments Corporation, or Sensys, in January
2002, whereby Sensys became a wholly-owned subsidiary of Therma-Wave, focusing
on integrated metrology applications and developing business with process tool
equipment suppliers.  The Sensys product lines include: CMS, a compact metrology
system for CMP applications and CD-i, a high throughput, small foot-print system
for optical CD applications. The Therma-Wave Integra products including the iX-
SE will be integrated into Sensys business operations.  Sensys has developed
integration relationships with at least three additional leading major equipment
suppliers to the semiconductor industry involving lithography track, CMP, Etch
and CD-SEM equipment.

In fiscal 2003, we expect that process tool suppliers will complete their
evaluations of both the Therma-Wave and Sensys integrated products and will
place multiple units at end-user customer sites for multiple applications.

META-PROBE X METAL FILM METROLOGY PRODUCTS



New Market Requirements

We believe the semiconductor industry is rapidly moving
towards the use of copper as an alternative to aluminum for conductor layers in
semiconductors for improved device performance and enhanced fab productivity.
In addition, more process steps in semiconductor manufacturing involve thin
stacks of metal or metal alloys, which require frequent thickness and density
measurements. Furthermore, new device technologies, such as magnetic random
access memory, or MRAM, and ferroelectric random access memory, or FRAM, involve
4 or more ultra-thin layers of metal alloys and oxides, which must be controlled
for thickness and density.  Existing metrology cannot measure films as thin or
film stacks as complicated as used in these new devices, and no existing
metrology technique can measure absolute density and roughness.

The Meta-Probe Product Family

Our Meta-Probe X metrology system addresses these new
requirements.The Meta-Probe X thin film metrology system utilizes a
patented technique based on x-ray reflectometry, or XRR, to rapidly (in less
than 10 seconds) and independently measure thickness, density, and roughness of
each film in multi-layer stacks.  Unlike other metal measurement technologies,
such as 4-point probe and photo-acoustic systems, XRR provides an absolute
measurement of film thickness, density, and roughness, independent of changing
material properties.  Applications of the Meta-Probe X include monitoring the
thickness of Cu seed and Ta barrier films in production stacks prior to ECD fill
for Cu metalization, as well as monitoring thickness, density, and roughness of
silicide, Ti/TiN liner/barrier stacks for advanced Aluminum metalization and W
deposition, and many of the new structures currently under development, such as
MRAM and FRAM stacks. A proprietary technique allows measurement on either
patterned product or blanket test wafers.  We believe that existing metal film
metrology systems are unable to perform the thickness and density measurements
with the required precision and repeatability and that a more advanced
measurement system is required. We successfully completed the beta testing of
the Meta-Probe X at customer locations during fiscal 2002.  In addition, the
first 300mm version of the Meta-Probe X was built and installed in the demo
laboratory for customer demonstrations and advanced applications
development.

9






Employees

As of March 31, 2002, we employed 529 persons, including
154 in engineering, research and development, 116 in manufacturing, 179 in
customer support, 38 in sales and marketing and 42 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
is 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 that we have been able to attract and
retain a highly talented group of managers, designers and engineers that enables
us to continually improve our products and customer support.

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 and Singapore offices work with
manufacturers' sales representatives to sell our products to customers in Japan,
Singapore, Malaysia, Thailand and China, while the Taiwan and Korean offices
sell to customers directly. 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, Idaho, Massachusetts, New Mexico, Oregon,
Pennsylvania, Texas and Vermont. Customers 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 products. Prior to shipment, our support
personnel typically assist the customer in site preparation and inspection, and
provide customers with training at our facilities and 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 equipment and demonstrate equipment 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.

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 expiration of 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 tools. We also provide a 24-hour telephone help-
line.

10




See Note 12 of Notes to Consolidated Financial Statements for
a summary of our operations in the United States, Japan, United Kingdom 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, 2002, our
research, development and engineering staff was comprised of 154 persons. We
seek to maintain our close relationships with customers to make improvements in
our products that respond to 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 their needs 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. NT is now the standard operating system used by our
Opti-Probe customers for 300 millimeter wafer production.

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 working both on developing new
products and features and on responding to the particular needs of customers. As
a result of these efforts, we will introduce a new Opti-Probe thin film
measurement family and a new Critical Dimension measurement product in fiscal
year 2003.

Engineering and research and development expenses were $29.1
million, $33.9 million, and $21.7 million in fiscal 2002, 2001, and 2000
respectively, or 35%, 17%, and 19% 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 in-house 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 testing.
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.

11




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 vary significantly. 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.

During fiscal year 2001, we initiated an internal quality
auditing program to improve quality and our Global Optimized Logistical
Development, or G.O.L.D., project to increase manufacturing efficiency.

Internal Quality Auditing Program.   The objective of
this program is to instill awareness of the benefits of ISO compliance at all
department levels through prevention of defects at all stages of our business
model, from design through servicing, and therefore to raise our customer base
satisfaction level. This supports of our corporate quality policy, which states
that "Therma-Wave, Inc., will ensure Total Customer Satisfaction by its
commitment to provide products and services that satisfy all of our customers'
expectations for performance, quality and delivery."

The ongoing internal quality audit plan includes auditing
individual departments against all pertinent ISO elements on a yearly schedule
along with associated re-audits and audits mandated by status and importance of
any issues identified within a particular department. This plan will assure
continuing departmental ISO compliance as well as drive continuous process
improvements throughout the company.

G.O.L.D. Program.   In January 2001, Therma-Wave
assembled several teams from across the company, and designated it the G.O.L.D.
program. Our goal is to create a sustainable and scalable manufacturing system,
increase order fulfillment capability and continue our technological
leadership.

The flagship of G.O.L.D. is Advanced Manufacturing, a
methodology designed to address Therma-Wave's unique manufacturing needs.  It is
a flexible approach with the vision of building more tools, faster, at lower
cost, with high quality and on time delivery.

Competition

The market for semiconductor capital equipment is highly
competitive. We face substantial competition 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 we
have. 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 companies in the markets we serve.

Our Therma-Probe systems compete primarily with other
metrology systems designed to measure ion implant dose in some alternative
fashion, such as contact and destructive four-point probe measurement systems,
including those manufactured by KLA-Tencor Corporation and Kokusai Electric Ltd.
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, a jury
found that Jenoptik's product infringed on a number of our United States
patents. As a result of the settlement of this litigation, Jenoptik has agreed
not to sell any of its metrology products in the United States until the patents
expire and to pay us a royalty fee for systems sold in Japan. To date, the sale
of these products by Jenoptik (or TePla AG, who have recently purchased these
rights from Jenoptik) has not had a material impact on our market position.

On April 22, 2002, we filed a patent infringement suit
against Boxer-Cross Inc. We believe the Boxer-Cross' BX-10 product infringes
certain patents held by us related to ion implant monitoring. We have asked the
court to issue an injunction barring Boxer-Cross from making, using or selling
its BX-10 product.

12




Our Opti-Probe film thickness metrology systems primarily
compete with systems manufactured by KLA-Tencor Corporation, Rudolph
Technologies, Inc., Nanometrics, Inc. and Dai Nippon Screen, Mfg. Co., Ltd.

Our Opti-Probe CD and RT/CD systems participate in a newly
developing market of optical CD metrology.  We expect competition primarily from
several of the same companies that compete with the Opti-Probe for film
thickness metrology business.  In addition, Accent Optical Technologies is an
early participant in this market.

Suppliers of integrated metrology with whom we compete
include most of the companies listed above regarding the Opti-Probe, in addition
to Nova Instruments.

Our X-ray reflectometry, or XRR, metrology system, the Meta-
Probe X, experiences competition from other X-ray methods such as X-ray
fluorescence, and from other technologies such as acousto-optical techniques, as
well as from other XRR suppliers.  Companies who compete with us in this market
include Rudolph Technologies, Jordan Valley Semiconductors, and Veeco
Instruments.

In recent years, there has been significant merger and
acquisition activity among our competitors and potential competitors, as well as
by us. 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
potentially 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 Therma-Probe and the
Opti-Probe systems. As of March 31, 2002, we owned 46 U.S. patents with
expiration dates ranging from 2004 to 2020 and had filed applications for 50
additional U.S. patents.  In addition, we owned 47 foreign patents with
expiration dates ranging from 2004 to 2019 and had filed applications for 20
additional foreign patents in 84 different countries.

On December 28, 2001, our subsidiary, Sensys Instruments
Corporation, or Sensys, was named in a patent infringement suit filed by KLA-
Tencor Corporation, alleging that KLA-Tencor had patented an aspect of the
integrated metrology technology that Sensys uses in its integrated product
family. See Item 3 (Legal Proceedings) for a further description of the
suit.

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.

As of March 31, 2002, we owned 11 registered trademarks in
the U.S. and 2 in Japan and had filed 9 trademark registration applications in
the U.S.

13




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.

ITEM 2.  PROPERTIES

Our executive and manufacturing, engineering, marketing,
research and development operations are located in a 102,000 square foot
building in Fremont, California. The facility has approximately 800 square feet
of Class 10 clean rooms for customer demonstrations and approximately 20,000
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 $1.2 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. On May 31, 2000, we leased another building of approximately
28,000 square feet in Fremont, California for sales and customer support
operations. Our Sensys subsidiary leases two buildings of approximately 24,574
square feet in Santa Clara, California. We believe that our existing facilities,
capital equipment and anticipated capital expenditures will be adequate to meet
our requirements for at least the next two years and that suitable additional or
substitute space will be readily available if needed.

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



ITEM 3. LEGAL PROCEEDINGS

On April 22, 2002, we filed a patent infringement suit
against Boxer-Cross Inc. in the United States District Court, Northern District
of California. The suit alleges that Boxer-Cross' BX-10 product infringes
certain patents held by Therma-Wave related to ion implant monitoring. Two of
the asserted patents were previously found to be valid and infringed in a suit
filed against Jenoptik, AG, in 1997. The earlier court rulings led to Jenoptik's
withdrawal from the U.S. market. We have asked the court to issue an injunction
barring Boxer-Cross from making, using or selling its BX-10 product.

On December 28, 2001, Sensys Instruments
Corporation, or Sensys, a wholly-owned subsidiary of the company, was named in a
patent infringement suit filed by KLA-Tencor. KLA-Tencor alleged that it
patented an aspect of the integrated metrology technology that Sensys uses in
its integrated product family.  KLA-Tencor is seeking damages and an injunction
to stop the sale of the equipment it alleges uses this aspect.  We believe none
of the current Sensys products infringes any of the claims of KLA-Tencor's
patent. We believe that the outcome from this matter, even if adverse to us,
would not have a material adverse effect on our company.

There are currently no other material legal proceedings
pending against us. We may be required to initiate additional 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 additional 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, results of
operations or cash flows.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the
quarter ended March 31, 2002.

14




PART II



ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Therma-Wave's common stock is traded on the NASDAQ
National Market. As of April 30, 2002, there were 238 holders of record of
common stock. The following table sets forth, for the periods indicated, the
high and low closing prices per share of our common stock as reported on the
NASDAQ National Market.



|Quarter                                                                               | High                            | Low                             
|------------------------------------------------------------------------------------- | ------------------------------- | --------------------------------
|Fiscal Year 2001:                                                                     |                                 |                                 
|First Fiscal Quarter
Second Fiscal Quarter
Third Fiscal Quarter
Fourth Fiscal Quarter | $ 37.13
$ 30.75
$ 26.56
$ 20.13 | $ 15.63
$ 19.13
$ 10.44
$   8.88
|Fiscal Year 2002:                                                                     |                                 |                                 
|First Fiscal Quarter
Second Fiscal Quarter
Third Fiscal Quarter
Fourth Fiscal Quarter | $ 19.07
$ 18.99
$ 16.01
$ 16.65 | $ 10.06
$   9.30
$ 10.25
$ 10.30

To date, we have not declared or paid cash
dividends to our stockholders. We have no plans to declare or pay cash dividends
in the near future. Any future determination to pay dividends will be at the
discretion of the board of directors and will depend upon, among other factors,
our results of operations, financial conditions, capital requirements and
contractual restrictions.

15




ITEM 6. SELECTED FINANCIAL DATA

The selected 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 annual report on Form 10-
K.

`Fiscal Year
                                    ------------------------------------------------------
                                    2002 (1)    2001(1)     2000       1999        1998
                                    ---------  ---------  ---------  ---------  ----------
                                    (SAB 101)  (SAB 101)
Statement of Operations Data(2):
Net revenues...................... $  83,697  $ 198,199  $ 115,679  $  66,207  $  115,459
Cost of revenues..................    66,266    101,421     60,320     36,827      55,683
                                    ---------  ---------  ---------  ---------  ----------
Gross profit......................    17,431     96,778     55,359     29,380      59,776
                                    ---------  ---------  ---------  ---------  ----------
Operating expenses:
  Research and development........    29,122     33,881     21,748     15,130      19,057
  Selling, general and
   administrative.................    21,713     28,239     20,829     17,870      24,589
  Recapitalization and other
   non-recurring expenses.........        --         --         --         --       4,188
  In-process research and
   development....................    16,340         --         --         --          --
  Expenses relating to
   operating cost improvements....        --         --         --      1,057          --
  Severance charge................     1,470      1,700         --         --          --
  Stock-based compensation........       536         --         --         --          --
                                    ---------  ---------  ---------  ---------  ----------
    Total operating expenses......    69,181     63,820     42,577     34,057      47,834
                                    ---------  ---------  ---------  ---------  ----------
Operating income (loss)...........   (51,750)    32,958     12,782     (4,677)     11,942
Other (income) expense, net.......    (2,342)    (1,196)    14,933     13,403      12,371
                                    ---------  ---------  ---------  ---------  ----------
Income (loss) before provision
 (benefit) for income taxes.......   (49,408)    34,154     (2,151)   (18,080)       (429)
Provision (benefit) for
 income taxes.....................    (1,120)     2,025         --     (2,350)        604
                                    ---------  ---------  ---------  ---------  ----------
Income (loss) before
 cumulative effect of change
 in accounting principle and
 extraordinary charge.............   (48,288)    32,129     (2,151)   (15,730)     (1,033)
Cumulative effect of change
 in accounting principle, net
 of income taxes(1)...............        --     (6,287)        --         --          --
Extraordinary charge..............        --         --    (18,404)        --          --
                                    ---------  ---------  ---------  ---------  ----------
Net income (loss)................. $ (48,288) $  25,842  $ (20,555) $ (15,730) $   (1,033)
                                    =========  =========  =========  =========  ==========
Net income (loss) available
 to common stockholders(3)........ $ (48,288) $  25,842  $ (21,497) $ (16,562) $   (1,771)
                                    =========  =========  =========  =========  ==========
Basic net income (loss) per
 share(4):
  Income (loss) before
   cumulative effect of change
   in accounting principle and
   extraordinary charge........... $   (1.94) $    1.37  $   (0.25) $   (1.86) $    (0.27)
  Cumulative effect of change
   in accounting principle........        --      (0.27)        --         --          --
  Extraordinary charge............        --         --      (1.47)        --          --
                                    ---------  ---------  ---------  ---------  ----------
Net income (loss)................. $   (1.94) $    1.10  $   (1.72) $   (1.86) $    (0.27)
                                    =========  =========  =========  =========  ==========
Diluted net income (loss) per
 share(4):
  Income (loss) before
   cumulative effect of change
   in accounting principle and
   extraordinary charge........... $   (1.94) $    1.27  $   (0.25) $   (1.86) $    (0.27)
  Cumulative effect of change
   in accounting principle........        --      (0.25)        --         --          --
  Extraordinary charge............        --         --      (1.47)        --          --
                                    ---------  ---------  ---------  ---------  ----------
  Net income (loss)............... $   (1.94) $    1.02  $   (1.72) $   (1.86) $    (0.27)
                                    =========  =========  =========  =========  ==========
Weighted average common
 shares outstanding:
  Basic...........................    24,894     23,444     12,511      9,397      13,540
  Diluted.........................    24,894     25,277     12,511      9,397      13,540

16



                                                        Fiscal Year
                                    ------------------------------------------------------
                                      2002       2001       2000       1999        1998
                                    ---------  ---------  ---------  ---------  ----------
Other Financial Data:
EBITDA (excluding non-
 recurring charges)(5)............ $ (15,236) $  39,151  $  17,272  $     974  $   19,725
Cash provided by (used in)
 operating activities.............   (17,289)     9,600     (6,258)       745       8,113
Cash provided by (used in)
 investing activities.............     4,039    (32,316)    (3,627)    (1,389)     (2,900)
Cash provided by (used in)
 financing activities.............     4,336      3,241     64,840        467      (1,532)
Capital expenditures..............     4,364     11,988      3,261        862       2,900


                                                          March 31,
                                    ------------------------------------------------------
                                      2002       2001       2000       1999        1998
                                    ---------  ---------  ---------  ---------  ----------
Balance Sheet Data:
Cash and short-term investments... $  59,059  $  75,575  $  75,200  $  20,245  $   20,422
Working capital...................    81,921    109,849     94,109     29,140      43,348
Total assets......................   201,769    191,191    133,694     72,352      89,762
Long-term debt....................        16         16         16    115,000     115,000
Mandatorily redeemable
 convertible\ preferred stock(3)..        --         --         --     15,347      14,515
Stockholders' equity (net
 capital deficiency)..............   168,407    129,082     99,485    (86,971)    (70,990)`

__________

(1) Effective April 1, 2000, we changed our method of
accounting for revenue recognition in accordance with Securities and Exchange
Staff Accounting Bulletin Number 101 (SAB 101).

(2) 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. In March 2000, we used approximately
$130.5 million of net proceeds from our initial public offering of common stock
to redeem or repurchase substantially all of the outstanding senior notes issued
with our recapitalization in 1997. $18.4 million costs were associated with this
early extinguishment of debt and were categorized as extraordinary charges.

(3) 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 accrued at a rate of 6.0% per annum. In March 2000, all
outstanding shares of preferred stock were converted into an equivalent number
of common shares.

(4) For the calculation of net loss per share for the years
ended March 31, 1999 and 1998: (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.

(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 years ended March 31, 2002, 2001, 1999
and 1998 excludes $30,027, $4,700, $1,057, and $4,188 in non-recurring expenses
and recapitalization, respectively. Non-recurring charges represent in-process
research and development, severance costs and a one-time inventory reserve
charge of $12.2 million. Including such non-recurring and recapitalization
charges, EBITDA would have been reduced to $(45,263), $34,451, $(83) and $15,537
for fiscal 2002, 2001, 1999, and 1998 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.

17




ITEM 7. 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
maintain high yields on the production lines, reduce feature size, increase
wafer size, increase equipment productivity and improve device performance. Our
metrology systems are used in all sections of the semiconductor fabrication
plant, or "fab", to control the wafer fabrication processes.  Examples
of wafer fab processes, in which our metrology systems supply key information,
are photoresist processing to support lithography, deposition of insulator and
conductor films, patterned removal, or "etching", of insulator and
conductor films, ion implantation and chemical mechanical planarization.  We
currently sell five product families of process control metrology systems:
Therma-Probe systems, Opti-Probe systems, Opti-Probe CD systems, Meta-Probe
systems, and Sensys and Integra integrated metrology 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 Film Metrology
systems provide the industry's most powerful capability to control and diagnose
non-opaque films for semiconductor production.  This unsurpassed metrology power
is achieved by successfully integrating different measurement technologies,
including optical technologies that are proprietary to Therma-Wave, into each
Opti-Probe system.

Opti-Probe CD Product Family.  Opti-Probe CD systems
measure the lateral dimensions, or "critical dimensions" or
"CD", using a revolutionary, nondestructive technique based on
spectroscopic ellipsometry.  These systems are capable of providing CD metrology
for the smallest features of the next several generations of IC's.

Sensys and Integra Product Family.  The Sensys and
Integra line of integrated metrology products is a broad-based family of compact
metrology "modules" which are installed and function inside an IC
process system, such as an etching system or CVD deposition system, to provide
metrology on each wafer before it exits the process tool.  In January 2002, we
acquired Sensys Instruments Corporation, or Sensys, a developer of integrated
metrology systems.  We are now merging our Integra product line with the Sensys
product family.

Meta-Probe Product Family. Meta-Probe thin film
measurement systems employ a patented x-ray reflectometry technique to rapidly
measure thickness, density, and roughness of each film in multi-layer stacks.
This system provides metrology for opaque films (e.g., metal films) which cannot
be measured with Opti-Probe systems, and which are key for IC interconnect
processing.

During fiscal year 2002, the demand for our products
decreased significantly as semiconductor manufacturers sharply reduced capital
expenditures. The decrease in capital expenditures resulted in slower bookings
and significant order push outs and cancellations of our products in fiscal year
2002. In addition to the changes in the business cycle impacting demand for our
products, we have seen a shift of net sales from 200mm to 300mm products. In
fiscal year 2001, 200mm products comprised virtually all of our net sales.
During fiscal years 2000 and 2001, our customers added significant capacity in
200mm and in response we increased production of our related products.
Meanwhile, we continued to develop updated versions of these products. As a
result, the severity and quickness of the recent downturn in the semiconductor
business cycle left us with substantial inventory for our older 200mm products.
We do not believe that our customers will continue to purchase older versions of
our 200mm products at the previous high rate but expect that sales of 300mm
products will dominate our revenue when capital spending increases during the
next industry upturn. During the fourth quarter of fiscal year 2002, we recorded
charges for obsolete and excess inventories of $12.2 million. The charges were
significantly higher than the normal level and were primarily caused by a
significant reduction in demand, including reduced demand for our older
technology 200mm products.

18




In January 2002, we completed the acquisition of Sensys,
whereby Sensys became a wholly-owned subsidiary of Therma-Wave, focusing on
integrated metrology applications and developing business with process tool
equipment suppliers. The Sensys product lines include: CMS, a compact metrology
system for CMP applications and CD-i, a high throughput, small foot-print system
for optical CD applications. The Therma-Wave Integra products, including the iX-
SE, will be integrated into Sensys business operations. Sensys has developed
integration relationships with at least three leading major equipment suppliers
to the semiconductor industry involving lithography track, CMP, Etch and CD-SEM
equipment. The acquisition was accounted for using the purchase method of
accounting.

We derive our revenues from system sales, which have
historically consisted primarily of our Therma-Probe and Opti-Probe systems,
sales of replacement and spare parts, and service contracts. During the year
ended March 31, 2002, we derived approximately 78% of our revenues from system
sales, 11% from sales of replacement and spare parts, including associated
labor, and 11% from service contracts. During the year ended March 31, 2001, we
derived approximately 90% of our revenues from system sales, 6% from sales of
replacement and spare parts, including associated labor, and 4% from service
contracts. During the year ended March 31, 2000, we derived approximately 85% of
our revenues from system sales, 9% from sales of replacement and spare parts,
including associated labor, and 6% from service contracts. The fluctuations in
these percentages are related primarily to the upturns and downturns of the
semiconductor industry.  Sales of replacement and spare parts, and service
contracts tend to reflect more on the installed base of systems previously sold
than on current system sales, and therefore, the dollars of such sales do not
fluctuate as widely as systems sales. That causes the percentage of replacement
and spare parts, and service contracts sales to be higher in downturns and lower
in upturns.

International sales accounted for approximately 62%, 59% and
63% of our total revenues for fiscal 2002, 2001 and 2000, 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.

##### Critical Accounting Policies and Estimates

Management's Discussion and Analysis of
Financial Condition and Results of Operations discusses our consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, in-process research and development, or IPR&D,
intangible assets and goodwill, inventories, income taxes and installation and
warranty. Management bases its estimates and judgments on historical experience
and on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

Management believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements:

Revenue Recognition.Effective April 1, 2000,
we changed our method of accounting for revenue recognition in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 101, or SAB
101, Revenue Recognition in Financial Statements. Historically, revenue from
systems and spare parts was 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. Under SAB 101, equipment sales are
accounted for as multiple-element arrangement sales that require the deferral of
a significant portion of revenue in the amount of the greater of fair market
value of installation and a percentage of payment subject to final acceptance.
The total revenue is allocated to each component of the multi-element
arrangement. Revenue on each element is recognized when the contractual
obligations have been performed, title and risk of loss have passed to the
customer, collectibility of the sales price has been reasonably assured and
customer final acceptance has been obtained if applicable.

19




Freight terms of all standard product sales are FOB shipping
point unless otherwise negotiated and agreed in written form between our
customers and us. Shipments typically are made in compliance with shipment
requirements specified in our customer's purchase order.

Revenue on new products is recognized upon customer final
acceptance. Where the customer has the right to return the product, the revenue
is not recognized until all of the following conditions have been evidenced
after the customer's purchase order has been fulfilled: the right of return has
expired and any potential returns would require authorization by Therma-Wave
under warranty provisions; the price of the sales is fixed and determinable; the
payment terms are fixed and enforceable.

We monitor and track the amount of product returns and reduce
revenue at the time of shipment for the estimated amount of such future returns,
based on historical experience. While product returns have historically been
within our expectations and the provisions established, there is no assurance
that we will continue to experience the same return rates that we have in the
past. Any significant increase in product return rates could have a material
adverse impact on our operating results for the period or periods in which such
returns or increased costs materialize.

We make estimates evaluating an allowance for doubtful
accounts. We continuously monitor collections and payments from our customers
and maintain a provision for estimated credit losses based upon our historical
experience and any specific customer collection issues that we have identified.
While such credit losses have historically been within our expectations and the
provisions established, there is no assurance that we will continue to
experience the same credit loss rates that we have in the past. A significant
change in the liquidity or financial position of our customers could have a
material adverse impact on the collectability of our accounts receivable and our
future operating results.

In-process research and development. We value tangible
and intangible assets acquired through our business acquisitions at fair value
including IPR&D. We determine IPR&D through established valuation
techniques for various projects for the development of new products and
technologies and expense IPR&D when technical feasibility is not reached.
During fiscal 2002, we expensed approximately $16.3 million in IPR&D charges
in connection with the Sensys acquisition because the technological feasibility
of certain products under development had not been established and no future
alternative uses existed. If we acquire other companies with IPR&D in the
future, we will value the IPR&D through established valuation techniques and
incur future IPR&D charges if those products under development have not
reached technical feasibility.

Valuation of long-lived and intangible assets and
goodwill. We assess the impairment of identifiable intangibles, long-lived
assets and goodwill whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors we consider important which
could trigger an impairment review of such assets include the following:

- significant under-performance relative to expected historical or projected
future operating results;

- significant changes in the manner of our use of the acquired assets or the
strategy for our overall business; and

- significant negative industry or economic trends.

When we determine that the carrying value of intangibles,
long-lived assets and related goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment, we measure any
impairment based on a projected discounted cash flow method using a discount
rate determined by our management to be commensurate with the risk inherent in
our business model. While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect our evaluations.

We have adopted the non-amortization provisions of Statement
of Financial Accounting Standards No. 142, or SFAS No. 142, "Goodwill and
Other Intangible Assets" and we will not amortize approximately $65.9
million of goodwill arising from the Sensys acquisition. We will apply SFAS No.
142 in its entirety beginning April 1, 2002. We are currently assessing the
impact of SFAS No. 142 on our financial position, cash flows and results of
operations and expect to perform an initial impairment review of our goodwill in
fiscal 2003.

20




Inventory.We value our inventory at the lower
of cost (first-in, first-out method) or market. We regularly review inventory
quantities on hand and record a provision to write down excess and obsolete
inventories to its estimated net realizable value, if less than cost, based
primarily on its product demand forecast. As demonstrated during fiscal 2002,
demand for our products can fluctuate significantly. We recorded special charges
for excess and obsolete inventories of $12.2 million in the fourth fiscal
quarter of 2002. The charges were significantly higher than the normal level and
were primarily caused by a significant reduction in demand including reduced
demand for our older technology products. A significant increase in the demand
for our product could result in a short-term increase or decrease in the cost of
inventory purchases while a significant decrease in demand could result in an
increase in the charges for excess inventory quantities on hand. In addition,
our industry is subject to technological change, new product development, and
product technological obsolescence that could result in an increase in the
amount of obsolete inventory quantities on hand. Therefore, any significant
unanticipated changes in demand or technological developments could have a
significant impact on the value of our inventory and reported operating results.

Deferred Tax Assets.We account for income
taxes using the asset and liability approach, which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in our financial statements, but have not been
reflected in our taxable income. A valuation allowance is established to reduce
deferred tax assets to their estimated realizable value. Therefore, we provide a
valuation allowance to the extent we cannot conclude, based on available
objective evidence, that it is more likely than not we will generate sufficient
taxable income in future periods to realize the benefit of our deferred tax
assets. Predicting future taxable income is difficult, and requires the use of
significant judgment. At March 31, 2002, we had net operating loss carry-
forwards for federal and state income tax purposes of approximately $28.0
million and $8.0 million, respectively that were fully reserved and therefore
are not recorded on our balance sheet as an asset.

Warranty. We provide warranty coverage for a
predetermined amount of time, on systems and parts for material and labor to
repair and maintain the equipment. We record the estimated cost of systems and
parts warranty upon recognition of revenue, based on the average historical
warranty expense for a specific tool. Should actual costs or material usage
differ from our estimates, revisions to the estimated warranty liability may be
required.

Recently Issued Accounting Pronouncements

In October 2001, the Financial Accounting Standards
Board, or FASB, issued Statement No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of
Accounting Principles Board, or APB, No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal Of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
SFAS No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets, including intangible assets, and is effective for
our fiscal year beginning April 1, 2002. We do not expect the adoption of SFAS
No. 144 to have a material effect on our results of operations, financial
position, or cash flow.

21




Results of Operations

The following table summarizes our historical results of
operations as a percentage of net revenues for the periods indicated.

`Fiscal Years Ended March 31,
                                                  ----------------------------------
                                                     2002        2001        2000
                                                  ----------  ----------  ----------
                                                  (SAB 101)   (SAB 101)
Net revenues....................................      100.0 %     100.0 %     100.0 %
Cost of revenues................................       79.2        51.2        52.1
                                                  ----------  ----------  ----------
Gross profit....................................       20.8        48.8        47.9
                                                  ----------  ----------  ----------
Operating expenses:
  Research and development......................       34.8        17.1        18.8
  Selling, general and administrative...........       25.9        14.2        18.1
  In-process research and development...........       19.5          --          --
  Severance charge..............................        1.8         0.9          --
  Stock-based compensation......................        0.6          --          --
                                                  ----------  ----------  ----------
    Total operating expenses....................       82.6        32.2        36.9
                                                  ----------  ----------  ----------
Operating income (loss).........................      (61.8)       16.6        11.0
                                                  ----------  ----------  ----------
Other (income) expense:
  Interest expense..............................        0.2         0.1        11.4
  Interest income...............................       (2.9)       (2.1)       (1.4)
  Other (income) expense........................       (0.1)        1.4         2.9
                                                  ----------  ----------  ----------
Income (loss) before provision for income taxes.      (59.0)       17.2        (1.9)
Provision (benefit) for income taxes............       (1.3)        1.0          --
                                                  ----------  ----------  ----------
Income (loss) before cumulative effect of
 change in accounting principle and
 extraordinary charge...........................      (57.7)       16.2        (1.9)
Cumulative effect of change in accounting
 principle, net of income taxes.................         --        (3.2)         --
Extraordinary charge............................         --          --       (15.9)
                                                  ----------  ----------  ----------
Net income (loss)...............................      (57.7)%      13.0 %     (17.8)%
                                                  ==========  ==========  ==========`

Fiscal Year Ended March 31, 2002 Compared to Fiscal
Year Ended March 31, 2001

Net Revenues. Net revenues for the fiscal year
ended March 31, 2002 and 2001 were $83.7 million and $198.2 million,
respectively.  Both fiscal 2002 and fiscal 2001 results reflect our adoption of
SAB 101. Under SAB 101, a portion of revenues are deferred until installation is
complete and the customer accepts the system. Deferred revenue relative to
service contracts is recognized over of the life of the related service
contract.

Compared to fiscal 2001, net revenues decreased $114.5
million or 57.8%. The decrease in fiscal 2002 revenues was primarily
attributable to the capital spending reductions in the semiconductor industry
during fiscal 2002, which were primarily related to the cyclical downturn of
semiconductor manufacturers and the weakness of the global economy. Revenues
decreased primarily due to decreased units sold of both our Therma-Probe and
Opti-Probe products.

Net revenues attributable to international sales for the
fiscal years ended March 31, 2002 and 2001 accounted for 62% and 59% of our
total revenues for such periods, respectively.

22




Demand for semiconductors and semiconductor equipment
experienced a steep cyclical downturn during our fiscal year 2002 just ended. As
a result, we experienced low order booking rates, which is expected to continue
into the near future. Fewer orders, combined with rescheduling of delivery and
order cancellations, resulted in lower revenues and gross profits that
materially adversely impacted our financial positions and results of operations.

Our fiscal fourth quarter orders and revenues were improved
over our fiscal third quarter, indicating that we may have reached the bottom of
the cyclical downturn. We presently expect that revenues will improve gradually
over the quarters in fiscal year 2003. However, due to uncertainty as to
customer acceptance, market response to our newly introduced product and revenue
recognition of our new products, we can give no assurance that we will be able
to meet our revenue expectations.

Gross profit. Gross profit decreased 82% from $96.8
million in fiscal 2001 to $17.4 million in fiscal 2002. As a percentage of net
revenues, gross profit decreased from 49% in fiscal 2001 to 21% in fiscal 2002.
The substantial decrease in gross profit infiscal 2002 was primarily because of lower
revenue, a substantial increase of inventory reserves, and lower production
volume, which was inadequate to absorb manufacturing overhead. We  increased
inventory reserves for obsolete and excess inventories by $12.2 million in the
fourth quarter of fiscal 2002. The charges were significantly higher than the
normal level and were primarily caused by a significant reduction in demand
including reduced demand for our older technology products.  During fiscal 2002,
we did not reduce our manufacturing overhead enough to compensate for the 57.8%
decrease in revenues compared to fiscal 2001. We believe that reducing overhead
drastically would prevent us from being ready to benefit from the next upturn in
the semiconductor industry.

Research and Development, or R&D, Expenses.
R&D expenses were $29.1 million and $33.9 million for fiscal years 2002 and
2001, respectively, representing an decrease in fiscal 2002 of $4.8 million, or
14% from fiscal 2001. R&D expenses as a percentage of net revenues for
fiscal 2002 increased to 35% from 17% for fiscal 2001. The decrease of absolute
dollars from the prior year is primarily the result of reductions in patent
defense expense, contract labor and discretionary expenses. We believe that
technological leadership is essential to strengthen our market position in the
next economic upturn and expect to continue to commit significant resources to
the development of new products and the continuous improvement of existing
products.

Selling, General and Administrative, or SG&A,
Expenses. SG&A expenses were $21.7 million and $28.2 million for fiscal
years 2002 and 2001, respectively. The decrease in fiscal 2002 SG&A expenses
was due primarily to decreased headcount as well as decreased sales expenses,
such as sales commissions, related to decreased revenues. Compared to fiscal
2001, SG&A expenses in fiscal 2002 decreased $6.5 million, or 23%. SG&A
expenses as a percentage of net revenues increased to 26% in fiscal 2002 from
14% in fiscal 2001 primarily due to significantly lower revenue levels in fiscal
2002.

In-Process Research and Development. In January 2002,
we acquired Sensys in a transaction accounted for as a purchase. The purchase
price was allocated to the assets acquired, including intangible assets, based
on their estimated fair values. The intangible assets include approximately
$16.3 million for acquired in-process technology for various projects that did
not have future alternative uses. The value of the purchased in-process
technology was determined using the income approach, which discounts expected
future cash flows from projects under development to their net present value.
Each project was analyzed to determine the technological innovations included;
the utilization of core technology; the complexity, cost and time to complete
development; any alternative future use or current technological feasibility;
and the stage of completion. The cash flows derived from the in-process
technology projects were discounted at a rate of 40%. We believe this rate was
appropriate given the risks associated with the technologies for which
commercial feasibility had not been established. The percentage of completion
for each in-process project was determined by identifying the elapsed time
invested in the project as a ratio of the total time required to bring the
project to technical and commercial feasibility. At the date of the acquisition,
the development of these projects had not yet reached technological feasibility,
and the technology in process had no alternative future uses. Accordingly, these
costs were expensed in the fourth quarter of fiscal 2002.

Severance Charge. During fiscal 2002, we recorded $1.5
million in severance charges as we reduced our workforce by approximately 130
people to reduce operating costs. In fiscal 2001, we accrued a $1.7 million
severance charge due to the retirement of our former chairman and Chief
Technical Officer, Dr. Allan Rosencwaig.

Stock-based compensation. As part of the acquisition
of Sensys, we assumed $3.5 million of stock-based compensation to be amortized
over the vesting period of the options. The amortization expense was $0.6
million in our fiscal fourth quarter, or 4% of revenue for the quarter.

23




Other (Income) Expense. Other (income) expense
includes interest expense, interest income, and other non-operating (income)
expense, net. Total other income for fiscal 2002 was $2.3 million, compared to
$1.2 million of total other income in fiscal 2001. A $3.0 million charge was
recorded as other expense in fiscal 2001 in connection with the settlement of
patent lawsuits with KLA-Tencor. Interest income included in the total other
income of fiscal 2002 and 2001 was $2.4 million and $4.3 million, respectively.
The decrease in interest income from fiscal 2001 to fiscal 2002 was primarily
due to the decrease in interest rate.

Provision (Benefit) for Income Taxes. For fiscal 2002,
we recorded a $1.1 million benefit for income taxes due to a change in the tax
law that allowed us to carry back net operating losses for five years instead of
two years under the previous law. For fiscal 2001, we recorded a $2.0 million
provision for income taxes.

Net Income (Loss). Net loss for fiscal 2002 was $48.3
million, as compared to net income of $25.8 million for the prior fiscal year.
The loss in fiscal 2002 was primarily a result of decreased revenue, lower gross
profit margin and charges recorded in the fiscal fourth quarter of 2002 of $16.3
million for the write-off of acquired IPR&D and $12.2 million additional
reserves for obsolete and excess inventories.

Fiscal Year Ended March 31, 2001 Compared to Fiscal Year Ended March 31,
2000

Net Revenues. Net revenues for the fiscal year ended
March 31, 2001 and 2000 were $198.2 million and $115.7 million, respectively.
Fiscal 2001 results reflected our adoption of SAB 101. Prior periods have not
been restated for SAB 101. Under SAB 101, a portion of revenues are deferred
until installation is complete and the customer accepts the system. Deferred
revenue relative to service contracts is recognized over of the life of the
related service contract.

Compared to fiscal 2000, net revenues increased $82.5 million
or 71.3%. The increase in fiscal 2001 revenues was primarily attributable to the
improved conditions experienced in the semiconductor capital equipment industry
during fiscal 2001, which were primarily related to the growth of semiconductor
manufacturers and the recovery of economic conditions in the Asia Pacific
region. Revenues increased primarily due to increased units sold of both our
Therma-Probe and Opti-Probe products. Revenue from spare parts and service
contracts has also increased as our customer base continues to expand. During
fiscal year 2001, we received record orders for both our 200mm and 300mm product
lines which resulted in the increased revenue and backlog. The 300mm product
lines continued to grow as a percentage of our product mix.

Net revenues attributable to international sales for the
fiscal years ended March 31, 2001 and 2000 accounted for 59% and 63% of our
total revenues for such periods, respectively. Due to significant demand from
customers in Taiwan and stronger economic conditions in the Asia Pacific region,
sales to customers in Asia represented approximately 47% and 50% of total net
revenues for the years ended March 31, 2001 and 2000, respectively.

We believe that demand for semiconductors and semiconductor
equipment may currently be experiencing a cyclical downturn. As a result, we may
expect lower order booking rates in the near future, relative to those achieved
in fiscal 2001. Fewer orders, combined with rescheduling of delivery, would
result in lower net revenue and gross profit that would materially adversely
impact our financial positions and results of operations.

The anticipated timing of shipments and customer acceptances
of those orders will require us to fill a number of production slots in order to
meet our near-term sales targets. Additionally, we are currently experiencing an
increased level of customer cancellation and rescheduling of deliveries. If we
are unsuccessful in our efforts to secure existing production orders, our
results of operations will be materially adversely impacted in the near-term.
However, due to changes in customer delivery dates and uncertainty as to
customer acceptance, we can give no assurance that we will be able to maintain
our current or prior sales level.

Gross profit. Gross profit increased 75% from $55.4
million in fiscal 2000 to $96.8 million in fiscal 2001. As a percentage of net
revenues, gross margin increased from 48% in fiscal 2000 to 49% in fiscal 2001.
The increase in gross profit was primarily due to higher revenue levels. Under
SAB 101, we were required to defer a significant portion of our system revenues
upon installation and customer acceptance of the systems, but we are not allowed
to defer any of the manufacturing cost of those tools. If revenues and costs had
been recorded under our previous methods of accounting for revenue recognition,
fiscal 2001 gross margin would have been approximately 50%.

24




Research and Development, or R&D, Expenses.
R&D expenses were $33.9 million and $21.7 million for fiscal 2001 and 2000,
respectively, representing an increase in fiscal 2001 of $12.2 million, or 56%
from fiscal 2000. R&D expenses as a percentage of net revenues for fiscal
2001 decreased to 17% from 19% for fiscal 2000. The increase of absolute dollars
from the prior year is primarily the result of additional resources dedicated to
the development of new products. We believe that technical leadership is
essential to our success and expect to continue to commit significant resources
to R&D projects.

Selling, General and Administrative, or SG&A,
Expenses. SG&A expenses were $28.2 million and $20.8 million for fiscal
2001 and 2000, respectively. Compared to the corresponding period of fiscal
2000, SG&A expenses in fiscal 2001 increased $7.4 million, or 35.6%.
SG&A expenses as a percentage of net revenues decreased to 14% in fiscal
2001 from 18% in fiscal 2000 primarily due to higher revenue levels. The
increase in fiscal 2001 SG&A expenses was due primarily to increased
headcount as well as increase in sales expenses related to increased revenues.

Severance Charge. A $1.7 million one-time severance
charge was accrued in fiscal 2001 due to the retirement of our former chairman
and CTO, Allan Rosencwaig.

Interest Expense. Interest expense for fiscal 2001 and
2000 was $0.2 million and $13.2 million, respectively. The decrease in interest
expense from the prior fiscal year is attributable to the redemption or
repurchase of substantially all of our outstanding senior notes in March 2000.

Other (Income) Expense. Other income, net for fiscal
2001 was $1.2 million, compared to $14.9 million net other expense in fiscal
2000. Interest income generated from our cash balance and short-term investment
was offset by the $3.0 million one-time charge in the fourth fiscal quarter
related to the settlement of patent lawsuits between Therma-Wave, Inc. and KLA-
Tencor.

Provision for Income Taxes. For fiscal 2001, we
recorded a $2.0 million provision for income taxes. We did not record any tax
provision or benefit in fiscal 2000 because we could not conclude that it was
more likely than not that the net deferred tax assets would be fully realizable
and had provided a full valuation allowance against net deferred tax assets.
Based upon our current evaluation of our loss carry-forward potential and
research and development tax credit carry-forward benefits, we believe our
effective tax rate for the fiscal 2001 should be approximately 6%.

Net Income (Loss). Net income for fiscal 2001 was
$25.8 million, as compared to a $20.6 million loss for the prior fiscal year.
This improvement in fiscal 2001 was primarily a result of improved revenue,
margin and decreased interest expense. Excluding extraordinary and one-time
charges, net income for fiscal 2001 and 2000 would have been $30.2 million and
$407,000, respectively.

Backlog

At March 31, 2002, 2001, and 2000, our backlog was $16.5
million, $57.3 million, and $41.9 million, respectively. Our backlog consists of
product orders for which a customer purchase order has been received and
accepted and which are scheduled for shipment within twelve months. Orders that
are scheduled for shipment beyond the twelve-month window are not included in
backlog until they fall within the twelve-month window. Orders are subject to
rescheduling or cancellation by the customer, usually without penalty. Backlog
also includes 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.

25




Liquidity and Capital Resources

Our principal liquidity requirements are for working
capital, consisting primarily of accounts receivable and inventories. We believe
that because of the relatively long manufacturing cycle of certain of our
systems, our inventories will continue to represent a significant portion of
working capital. Over the last three fiscal years, we have funded our operating
activities principally from net proceeds from our initial public offering.

Cash flow provided by (used in) operating activities was
$(17.3) million, $9.6 million and $(6.3) million for the years ended March 31,
2002, 2001 and 2000, respectively. The decrease in cash flow from operating
activities from fiscal 2001 to 2002 is mainly due to the decrease in revenue and
gross profit during fiscal 2002. The increase in cash flow from operating
activities from fiscal 2000 to 2001 is primarily due to the increase in revenues
and gross profit versus the prior period.

During the year ended March 31, 2002, net cash provided by
investing activities was $4.0 million, a result of a net decrease in short-term
investments of $7.3 million, capital expenditures and other investment of $5.3
million and cash received from Sensys acquisition of $2.1 million. Purchases of
property and equipment were $4.4 million, $12.0 million and $3.3 million for the
years ended March 31, 2002, 2001 and 2000, respectively. Capital expenditures
for fiscal 2001 included approximately $4.6 million for expansion of our clean
room at our Fremont, California manufacturing facility and $2.3 million for
leasehold improvements to our new sales, marketing and customer support facility
in Fremont.

Cash provided by financing activities was $4.3 million during
the year ended March 31, 2002, most of which represented proceeds received
during the year from issuance of common stock under our Employee Stock Purchase
Plan, Equity Incentive Plan and for the exercise of warrants in connection with
Sensys Acquisition.

Our off-balance sheet commitments are limited to equipment operating leases,
leases on office and manufac-turing space.  Future payments due under debt and
lease obligations as of March 31, 2002 (in thousands) are as follows:

`Payment Due by Fiscal Year
                                ------------------------------------------------------
                                    Total      2003   2004-2005  2006-2007  After 2007
                                ---------  ---------  ---------  ---------  ----------
Debt, including interest...... $      22  $       2  $       2  $      18  $       --
Operating Leases..............    12,668      2,734      5,150      4,229         555
                                ---------  ---------  ---------  ---------  ----------
                               $  12,690  $   2,736  $   5,152  $   4,247  $      555
                                =========  =========  =========  =========  ==========`

In June 2001, we entered into a $10.0 million loan and
security agreement with Comerica Bank. In December 2001, we amended this bank
credit facility. As a result of the amendment, the credit extension limit was
increased to $13.5 million from $ 10.0 million. The amended bank credit facility
allows us to borrow money bearing interest either at a floating rate per annum
equal to the prime rate or at a rate per annum equal to LIBOR plus 2.0%. We may
request advances in an aggregate outstanding amount not to exceed the lesser of
$13.5 million or the Borrowing Base, in each case minus the aggregate face
amount of outstanding letters of credit, including any drawn but unreimbursed
letters of credit. Our borrowings under the Comerica bank credit facility are
secured by substantially all of our assets. The amended Comerica bank credit
facility matures on June 30, 2004.  As of March 31, 2002, we maintained a $3.5
million standby letter of credit as required by the lessor of our building and
had $10.0 million of unused borrowing capacity under the amended bank credit
facility. We are in compliance with all financial covenants related to the bank
credit facility.

Our principal sources of funds have been and are anticipated
to be cash and short-term investments on hand ($59.1 million as of March 31,
2002), cash flows from operating activities and, if necessary, borrowings under
our 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 for at least the next twelve 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.

26




##### Inflation

The impact of inflation on our business has not
been material for the fiscal years ended March 31, 2002, 2001 and 2000.

Related Party Transactions

Ms. Talat Hasan, Senior Vice President of Therma-Wave and
President and Chief Executive Officer of Sensys, is a general partner of Hitek
Venture Partners Limited Partnership, or Hitek.  Sensys, a wholly-owned
subsidiary of Therma-Wave, leases from Hitek certain facilities occupied by
Sensys in Santa Clara, California. During the period between January 16, 2002,
the day we completed Sensys acquisition, and March 31, 2002, Hitek received
$45,000 from the lease of such facilities.

As of March 31, 2002, we had, in the aggregate, outstanding
loans to management of approximately $200,000, the proceeds of which were used
to acquire our capital stock and $1.0 million, the proceeds of which were used
to pay certain tax liabilities incurred by certain executives. The loans used to
acquire our capital stock bear interest at the applicable federal rate in effect
at the time. The loans used to pay certain tax liabilities do not bear interest.
The executives have pledged their stock as security for the loans.

In 1997, we entered into an advisory agreement with Bain
Capital Inc., a then 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, 2002, 2001 and 2000
were $0, $0 and $750,000, respectively. We bought out the seven and one half
years remaining in the term of the agreement with $3.5 million in March 2000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosures

We are exposed to market risks related to changes in
interest rates and foreign currency exchange rates, however, we believe those
risks to be not material in relations to our operations. We do not have any
derivative financial instruments.

Interest Rate Risk

As of March 31, 2002, our cash included money market
securities and commercial paper. Due to the short term 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 our
securities portfolio.

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.

27




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA



|                                                                                                                                                                                  | Page
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Report of Independent Accountants                                                                                                                                                 | 29  
|Consolidated Balance Sheets as of March 31, 2002 and
2001                                                                                                                         | 30  
|Consolidated Statements of Operations for the years ended March
31, 2002, 2001 and 2000                                                                                           | 31  
|Consolidated Statements of Mandatorily Redeemable Convertible
Preferred Stock and Stockholders' Equity (Net Capital Deficiency) for the years
ended March 31, 2002, 2001 and 2000 | 32  
|Consolidated Statements of Cash Flows for the years ended March
31, 2002, 2001 and 2000                                                                                           | 33  
|Notes to Consolidated Financial Statements                                                                                                                                        | 34  

28




REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the consolidated financial statements listed
in the accompanying index present fairly, in all material respects, the
financial position of Therma-Wave, Inc. and its subsidiaries at March 31, 2002
and April 1, 2001, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(ii) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, 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
audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial
statements, during the year ended April 1, 2001 the Company changed its method
of recognizing revenue.

PricewaterhouseCoopers LLP
San Jose, California
April 26, 2002

29




THERMA-WAVE, INC.

                          CONSOLIDATED BALANCE SHEETS
               (in thousands, except share and per share amounts)

`March 31,
                                                           --------------------
                                                             2002       2001
                                                           ---------  ---------
                         ASSETS
Current assets:
  Cash................................................... $  46,484  $  55,725
  Short-term investments.................................    12,575     19,850
  Accounts receivable, net of allowance for doubtful
   accounts of $1,074 and $1,096 at March 31, 2002 and
   2001, respectively....................................    16,585     43,348
  Inventory..............................................    33,838     47,181
  Deferred income tax assets, current....................        --      2,054
  Other current assets...................................     3,427      1,871
                                                           ---------  ---------
    Total current assets.................................   112,909    170,029
Property and equipment, net..............................    14,041     14,478
Deferred income tax assets, non-current..................        --      3,405
Goodwill and intangible assets, net......................    70,096         --
Other assets.............................................     4,723      3,279
                                                           ---------  ---------
    Total assets......................................... $ 201,769  $ 191,191
                                                           =========  =========
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable....................................... $   6,297  $  12,547
  Accrued liabilities....................................    16,008     30,471
  Deferred revenue.......................................     8,683     17,096
  Capital lease obligations, current portion.............        --         66
                                                           ---------  ---------
    Total current liabilities............................    30,988     60,180
Long-term debt...........................................        16         16
Deferred rent and other..................................     2,358      1,913
Commitments and contingencies (Note 7)
Stockholders' equity
  Common stock, $0.01 par value; 35,000,000 shares
   authorized, 29,090,118 and 23,994,699 shares issued
   and outstanding at March 31, 2002 and 2001............       291        240
  Additional paid-in capital.............................   321,466    230,646
  Accumulated deficit....................................  (148,417)  (100,129)
  Notes receivable from stockholders.....................      (200)      (212)
  Accumulated other comprehensive loss...................    (1,790)    (1,463)
  Deferred stock-based compensation......................    (2,943)        --
                                                           ---------  ---------
    Total stockholders' equity...........................   168,407    129,082
                                                           ---------  ---------
    Total liabilities and stockholders' equity........... $ 201,769  $ 191,191
                                                           =========  =========`

See accompanying notes to consolidated financial statements.

30




THERMA-WAVE, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (in thousands, except per share data)

`Fiscal Years Ended March 31,
                                                  ----------------------------------
                                                     2002        2001        2000
                                                  ----------  ----------  ----------
                                                  (SAB 101)   (SAB 101)
Net revenues.................................... $   83,697  $  198,199  $  115,679
Cost of revenues................................     66,266     101,421      60,320
                                                  ----------  ----------  ----------
Gross profit....................................     17,431      96,778      55,359
                                                  ----------  ----------  ----------
Operating expenses:
  Research and development......................     29,122      33,881      21,748
  Selling, general and administrative...........     21,713      28,239      20,829
  In-process research and development...........     16,340          --          --
  Severance charge..............................      1,470       1,700          --
  Stock-based compensation......................        536          --          --
                                                  ----------  ----------  ----------
    Total operating expenses....................     69,181      63,820      42,577
                                                  ----------  ----------  ----------
Operating income (loss).........................    (51,750)     32,958      12,782
                                                  ----------  ----------  ----------
Other (income) expense:
  Interest expense..............................        204         249      13,178
  Interest income...............................     (2,436)     (4,275)     (1,637)
  Other (income) expense........................       (110)      2,830       3,392
                                                  ----------  ----------  ----------
    Total other (income) expense................     (2,342)     (1,196)     14,933
                                                  ----------  ----------  ----------
Income (loss) before provision for income taxes.    (49,408)     34,154      (2,151)
Provision (benefit) for income taxes............     (1,120)      2,025          --
                                                  ----------  ----------  ----------
Income (loss) before cumulative effect of
 change in accounting principle and
 extraordinary charge...........................    (48,288)     32,129      (2,151)
Cumulative effect of change in accounting
 principle, net of income taxes.................         --      (6,287)         --
Extraordinary charge............................         --          --     (18,404)
                                                  ----------  ----------  ----------
Net income (loss)...............................    (48,288)     25,842     (20,555)
Preferred stock dividends.......................         --          --         942
                                                  ----------  ----------  ----------
Net income (loss) available to common
 stockholders................................... $  (48,288) $   25,842  $  (21,497)
                                                  ==========  ==========  ==========
Basic net income (loss) per share:
  Income (loss) before cumulative effect of
   change in accounting principle and
   extraordinary charge......................... $    (1.94) $     1.37  $    (0.25)
  Cumulative effect of change in accounting
   principle....................................         --       (0.27)         --
  Extraordinary charge..........................         --          --       (1.47)
                                                  ----------  ----------  ----------
Basic net income (loss) per share............... $    (1.94) $     1.10  $    (1.72)
                                                  ==========  ==========  ==========
Diluted net income (loss) per share:
  Income (loss) before cumulative effect of
   change in accounting principle and
   extraordinary charge......................... $    (1.94) $     1.27  $    (0.25)
  Cumulative effect of change in accounting
   principle....................................         --       (0.25)         --
  Extraordinary charge..........................         --          --       (1.47)
                                                  ----------  ----------  ----------
Diluted net income (loss) per share............. $    (1.94) $     1.02  $    (1.72)
                                                  ==========  ==========  ==========
Weighted average number of shares outstanding:
  Basic.........................................     24,894      23,444      12,511
  Diluted.......................................     24,894      25,277      12,511`

See accompanying notes to consolidated financial statements.

31




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

`Accum-
                                                                                                                                               Note    ulated
                                                                Class A             Class B             Class L                              Receivable Other   Deferred            Compre-
                    Preferred Stock      Common Stock        Common Stock        Common Stock        Common Stock      Additional  Accum-      from    Compre-   Stock              hensive
                  ------------------- ------------------- ------------------- ------------------- -------------------   Paid-In    ulated     Stock-   hensive  Compen-              Income
                   Shares     Amount    Shares     Amount   Shares     Amount   Shares     Amount   Shares     Amount   Capital    Deficit   holders    Loss    sation     Total     (Loss)
                  ---------  -------- -----------  ------ -----------  ------ -----------  ------ -----------  ------  ---------  ---------  --------  -------  -------  ---------  --------
Balance at March
31, 1999.........  748,739  $ 15,347          --  $   --   9,073,532  $   91   1,118,092  $   11   1,008,170  $   10  $  19,754  $(105,416) $   (241) $(1,180) $    --  $ (86,971)
Net loss.........       --        --          --      --          --      --          --      --          --      --         --    (20,555)       --       --       --    (20,555) $(20,555)
Currency
translation
adjustments......       --        --          --      --          --      --          --      --          --      --         --         --        --      442       --        442       442
                                                                                                                                                                                    --------
Comprehensive
loss.............                                                                                                                                                                  $(20,113)
                                                                                                                                                                                    ========
Issuance of
common stock.....       --        --          --      --          --      --      12,810      --          --      --         75         --        --       --       --         75
Preferred stock
dividends........       --       942          --      --          --      --          --      --          --      --       (942)        --        --       --       --       (942)
Conversion of
Class A, B and L
into common
stock............       --        --  12,524,132     125  (9,073,532)    (91) (1,130,902)    (11) (1,008,170)    (10)       (13)        --        --       --       --         --
Issuance of
common stock in
connection with
IPO..............       --        --  10,350,000     104          --      --          --      --          --      --    190,635         --        --       --       --    190,739
Conversion of
preferred
stock............ (748,739)  (16,289)    748,739       7          --      --          --      --          --      --     16,282         --        --       --       --     16,289
Issuance of
common stock.....       --        --      24,007      --          --      --          --      --          --      --        408         --        --       --       --        408
                  ---------  -------- -----------  ------ -----------  ------ -----------  ------ -----------  ------  ---------  ---------  --------  -------  -------  ---------
Balance at March
31, 2000.........       --        --  23,646,878     236          --      --          --      --          --      --    226,199   (125,971)     (241)    (738)      --     99,485
Net income.......       --        --          --      --          --      --          --      --          --      --         --     25,842        --       --       --     25,842  $ 25,842
Currency
translation
adjustments......       --        --          --      --          --      --          --      --          --      --         --         --        --     (725)      --       (725)     (725)
                                                                                                                                                                                    --------
Comprehensive
income...........                                                                                                                                                                  $ 25,117
                                                                                                                                                                                    ========
Receipts from
stockholders.....       --        --          --      --          --      --          --      --          --      --         --         --        29       --       --         29
Tax benefits
from employee
stock option
plans............       --        --          --      --          --      --          --      --          --      --        478         --        --       --       --        478
Issuance of
common stock.....       --        --     347,821       4          --      --          --      --          --      --      3,969         --        --       --       --      3,973
                  ---------  -------- -----------  ------ -----------  ------ -----------  ------ -----------  ------  ---------  ---------  --------  -------  -------  ---------
Balance at March
31, 2001.........       --        --  23,994,699     240          --      --          --      --          --      --    230,646   (100,129)     (212)  (1,463)      --    129,082
Net loss.........       --        --          --      --          --      --          --      --          --      --         --    (48,288)       --       --       --    (48,288) $(48,288)
Currency
translation
adjustments......       --        --          --      --          --      --          --      --          --      --         --         --        --     (327)      --       (327)     (327)
                                                                                                                                                                                    --------
Comprehensive
loss.............                                                                                                                                                                  $(48,615)
                                                                                                                                                                                    ========
Receipts from
stockholders.....       --        --          --      --          --      --          --      --          --      --         --         --        12       --       --         12
Issuance of
common stock under
ESPP.............       --        --     295,199       3          --      --          --      --          --      --      2,740         --        --       --       --      2,743
Issuance of
common stock under
stock option
plans............       --        --     132,434       1          --      --          --      --          --      --        875         --        --       --       --        876
Cancellation of
time-vesting
shares...........       --        --     (13,742)     --          --      --          --      --          --      --         (6)        --        --       --       --         (6)
Issuance of
common stock for
acquisition of
sensys...........       --        --   4,470,510      45          --      --          --      --          --      --     82,941         --        --       --       --     82,986
Issuance of
common stock for
the exercise of
warrants.........       --        --     211,018       2          --      --          --      --          --      --        775         --        --       --       --        777
Deferred
stock-based
compensation.....       --        --          --      --          --      --          --      --          --      --      3,495         --        --       --   (3,495)        --
Amortization of
deferred
stock-based
compensation.....       --        --          --      --          --      --          --      --          --      --         --         --        --       --      552        552
                  ---------  -------- -----------  ------ -----------  ------ -----------  ------ -----------  ------  ---------  ---------  --------  -------  -------  ---------
Balance at March
31, 2002.........       --  $     --  29,090,118  $  291          --  $   --          --  $   --          --  $   --  $ 321,466  $(148,417) $   (200) $(1,790) $(2,943) $ 168,407
                  =========  ======== ===========  ====== ===========  ====== ===========  ====== ===========  ======  =========  =========  ========  =======  =======  =========`

See accompanying notes to consolidated financial statements.

32




THERMA-WAVE, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

`Fiscal Years Ended March 31,
                                                       -------------------------------
                                                         2002       2001       2000
                                                       ---------  ---------  ---------
Operating activities:
Net income (loss).................................... $ (48,288) $  25,842  $ (20,555)
Adjustments to reconcile net income (loss) to net
 cash provided by (used in) operating activities:
  Depreciation and amortization......................     5,251      1,042      2,775
  Amortization of intangible assets..................       682        451      1,715
  Amortization of deferred stock-based compensation..       552         --         --
  Amortization of deferred financing costs...........        --         --      1,481
  In-process research and development................    16,340         --         --
  Deferred income taxes..............................     5,459     (5,459)        --
  Loss on disposal of property, plant and equipment..        --      1,467         --
  Inventory charge...................................    12,217         --         --
  Extraordinary charge...............................        --         --     18,404
  Changes in assets and liabilities:
    Accounts receivable..............................    26,766    (18,948)   (12,220)
    Inventories......................................     2,005    (23,492)    (9,577)
    Other assets.....................................    (2,122)    (1,402)     6,198
    Accounts payable.................................    (6,983)     2,436      6,077
    Accrued and other liabilities....................   (29,168)    27,663       (556)
                                                       ---------  ---------  ---------
      Net cash provided by (used in) operating
       activities....................................   (17,289)     9,600     (6,258)
                                                       ---------  ---------  ---------
Investing activities:
Purchases of property and equipment..................    (4,364)   (11,988)    (3,261)
Short-term investments...............................     7,275    (19,850)        --
Cash acquired upon Sensys acquisition................     2,055         --         --
Other................................................      (927)      (478)      (366)
                                                       ---------  ---------  ---------
      Net cash provided by (used in) investing
       activities....................................     4,039    (32,316)    (3,627)
                                                       ---------  ---------  ---------
Financing activities:
Redemption of Senior Notes...........................        --         --   (126,520)
Proceeds from initial public offering................        --         --    190,739
Principal payments under capital lease
 obligations.........................................       (66)      (514)      (304)
Proceeds from issuance of common stock...............     4,390      3,973        483
Proceeds from note receivable from stockholder.......        12         --         --
Tax benefits from employee stock option plans........        --        478         --
                                                       ---------  ---------  ---------
      Net cash provided by financing
       activities....................................     4,336      3,937     64,398
                                                       ---------  ---------  ---------

Effect of exchange rates on cash.....................      (327)      (696)       442

Net (decrease) increase in cash and cash
 equivalents.........................................    (9,241)   (19,475)    54,955
Cash and cash equivalents at beginning of period.....    55,725     75,200     20,245
                                                       ---------  ---------  ---------
Cash and cash equivalents at end of period........... $  46,484  $  55,725  $  75,200
                                                       =========  =========  =========
Supplementary disclosures:
  Cash paid for interest............................. $     134  $     226  $  16,422
                                                       =========  =========  =========
  Cash paid for income taxes......................... $     577  $   1,403  $      10
                                                       =========  =========  =========`

See accompanying notes to consolidated financial statements.

33






THERMA-WAVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Therma-Wave, Inc. (the "Company"), a
Delaware corporation, develops, manufactures, and markets process control
metrology systems for use in the manufacture of semiconductors. These systems
are based on our proprietary thermal wave, optical and X-ray technologies. We
market and sell our products worldwide to major semiconductor manufacturers.

Basis of Presentation

The consolidated financial statements include the
accounts of Therma-Wave, Inc. and its wholly-owned subsidiaries. All significant
inter-company transactions and balances have been eliminated. Our fiscal year is
a 52 to 53-week year ending on the Sunday on or following March 31 of each year.
Fiscal years 2002, 2001 and 2000 ended on March 31, 2002, April 1, 2001 and
April 2, 2000 respectively. For convenience, the accompanying financial
statements have been presented as March 31 of each fiscal year.

Revenue Recognition

Effective April 1, 2000, we changed our method of
accounting for revenue recognition in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue
Recognition in Financial Statements. Historically, revenue from systems and
spare parts was 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. Under SAB 101, equipment sales are accounted for
as multiple-element arrangement sales as described in SAB 101. The total revenue
is allocated to each component of the multi-element arrangement. Revenue on each
element is recognized when the contractual obligations have been performed, risk
of loss has passed to the customer, collection is probable and customer
acceptance has been obtained if applicable.

Change in Accounting Principle

In accordance with guidance provided in SAB 101, we
recorded $6.3 million (net of income tax benefit of $401,000), or $0.25 per
diluted share, as the cumulative effect of the change in accounting principle as
of the beginning of the 2001 fiscal year. For periods prior to fiscal 2001, data
was not available to provide pro-forma information as if the accounting change
was retroactive to prior periods.

Deferred revenue as of April 1, 2000 was $10.9 million. This
amount consisted of deferred service revenue as well as $9.4 million of
equipment revenue that was deferred from previous years under SAB 101. During
the year ended March 31, 2002 and 2001, we recognized $1.6 million and $6.9
million, respectively, out of the $9.4 million revenue that was included in the
cumulative effect adjustment as of April 1, 2000.

Concentration of Credit Risk/Major Customers

We sell our products to major semiconductor
manufacturing companies throughout the world. We perform continuing credit
evaluations of our customers and, generally, do not require collateral. Letters
of credit may be required from our customers in certain circumstances. Sales to
customers representing 10% or more of net revenues were as follows:

`Fiscal Years Ended March 31,
                                              -------------------------------
Customer                                        2002       2001       2000
--------------------------------------------  ---------  ---------  ---------
   A........................................        24 %       22 %       14 %
   B........................................        13 %       --         --
   C........................................        12 %       13 %       10 %`

34




Accounts receivable from two customers accounted for
approximately 18% and 17% of total accounts receivable at March 31, 2002.
Accounts receivable from two customers accounted for approximately 25% and 17%
of total accounts receivable at March 31, 2001.

Certain of the components and subassemblies included in our
systems are obtained from a single source or a limited group of suppliers.
Although we seek 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 our results of operations and damage
customer relationships. Further, a significant increase in the price of one or
more of these components could adversely affect our results of operations.

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

We have determined that the functional currency of
our foreign operations is the local 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 $(31,000), $3,000 and $48,000 for the years ended March 31, 2002, 2001 and
2000, respectively.

Cash

We maintain our cash in depository accounts, money
market accounts and commercial paper with several financial institutions. We
consider all highly liquid investments purchased with original maturities of
three months or less to be cash equivalents.

Short-Term Investments

Currently, all investments included as short-term are
classified as available-for-sale securities. In fiscal year 2002, all
investments were made in commercial paper or municipal bonds and were held to
maturity. Therefore there were no unrealized gains or losses. All realized gains
and losses, interest and dividends on available-for-sale securities were
included in interest income (expense).  We also have certain money market and
mutual fund investments classified as trading securities included in Other
Assets that are part of a deferred compensation plan.  Trading securities are
reported at fair value with unrealized gains and losses, interest and dividends
included in interest income (expense).

Inventories

Inventories are stated at the lower of cost or
market. Cost is determined by the first-in, first-out method.  During the year
ended March 31, 2002, we recorded a one-time charge of $12.2 million associated
with additional inventory reserves for obsolete and excess inventories. The
charge was included in cost of revenues.

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 on property and equipment for fiscal years 2002, 2001 and
2000 was $5.3 million, $1.0 million and $2.8 million, respectively.

35




Goodwill and other intangible assets

We obtained certain intangible assets in the
acquisition of Sensys Instruments Corporation, or Sensys. These intangible
assets include developed technology, development contract and trade name and are
being amortized on a straight-line basis over the estimated useful lives of two
to five years. Effective January 16, 2002, we adopted the non-amortization
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" and
we will not amortize goodwill associated with the Sensys acquisition, but will
review goodwill periodically for impairment.  As of March 31, 2002, we had
approximately $65.9 million of goodwill that will not be amortized, but will be
tested annually for impairment.  We will apply SFAS No. 142 in its entirety
beginning April 1, 2002. For fiscal 2002 we recorded intangible asset
amortization expense of $0.2 million.

Long-lived Assets

We review 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 us.

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").
We account for employee stock options in accordance with Accounting Principles
Board Opinion No. 25 and have adopted the "disclosure only"
alternative described in SFAS No. 123. Expense associated with stock-based
compensation is amortized over the vesting period of the individual award using
an accelerated method, as described in Financial Accounting Standards Board
Interpretation No. 28.

Income Taxes

We account 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.

Net Income (Loss) Per Share

We have adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"). SFAS No. 128 requires us 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 common 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.

Advertising Costs

We expense advertising and promotional costs, which
are not material, as they are incurred.

Recently Issued Accounting Standards

In October 2001, the FASB issued Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets",
which supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," and the accounting and
reporting provisions of Accounting Principles Board ("APB") No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets, including
amortizable and non-amortizable intangible assets, and is effective for our
fiscal year beginning on April 1, 2002. We do not expect the adoption of SFAS
No. 144 to have a material effect on our results of operations or financial
position.

36




2. BALANCE SHEET COMPONENTS

`March 31,
                                                         --------------------
                                                           2002       2001
                                                         ---------  ---------
                                                            (in thousands)
   Inventory:
     Purchased materials............................... $  11,172  $  22,197
     Systems in process................................    12,657     19,571
     Finished systems..................................    10,009      5,413
                                                         ---------  ---------
       Total inventory................................. $  33,838  $  47,181
                                                         =========  =========
   Property and equipment:
     Laboratory and test equipment..................... $   9,037  $   5,244
     Office furniture and equipment....................    11,015     10,212
     Machinery and equipment...........................     1,830      2,546
     Leasehold improvements............................    10,571     10,324
                                                         ---------  ---------
       Total property and equipment, gross.............    32,453     28,326
     Accumulated depreciation and amortization.........   (18,412)   (13,848)
                                                         ---------  ---------
       Total property and equipment, net............... $  14,041  $  14,478
                                                         =========  =========
   Goodwill and intangible assets:
     Acquired intangible assets........................ $   4,470  $      --
     Accumulated amortization of intangible assets.....      (239)        --
                                                         ---------  ---------
       Total intangible assets, net....................     4,231         --
     Goodwill..........................................    65,865         --
                                                         ---------  ---------
       Total goodwill and intangible assets, net....... $  70,096  $      --
                                                         =========  =========
   Accrued liabilities:
     Interest payable.................................. $      48  $      20
     Accrued compensation and related expenses.........     3,527     11,304
     Accrued warranty costs............................     1,802      3,742
     Commissions payable...............................       803      1,825
     Other accrued liabilities.........................     9,828     13,580
                                                         ---------  ---------
       Total accrued liabilities....................... $  16,008  $  30,471
                                                         =========  =========`

3. NET INCOME (LOSS) PER SHARE

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

`Fiscal Years Ended March 31,
                                                  ----------------------------------
                                                     2002        2001        2000
                                                  ----------  ----------  ----------
Numerator (in thousands):
  Net income (loss)............................. $  (48,288) $   25,842  $   (2,151)
  Less: preferred stock dividend................         --          --        (942)
                                                  ----------  ----------  ----------
                                                 $  (48,288) $   25,842  $   (3,093)
                                                  ==========  ==========  ==========
Denominator (in thousands):
Weighted average shares outstanding used for
 basic income (loss) per share..................     24,894      23,444      12,511
Unvested shares.................................         --         333          --
Dilutive stock options..........................         --       1,500          --
                                                  ----------  ----------  ----------
Weighted average shares outstanding used for
 diluted income (loss) per share................     24,894      25,277      12,511
                                                  ==========  ==========  ==========`

37




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

`Fiscal Years Ended March 31,
                                                  ----------------------------------
                                                     2002        2001        2000
                                                  ----------  ----------  ----------
Common Stock Subject to Repurchase (unvested)...        105          --         550
Common Stock Held in Escrow.....................        541          --          --
Stock Options...................................      5,016         948       2,892
Warrants........................................        118          --          --`

The stock options outstanding at March
31, 2002, 2001 and 2000 that we excluded from the above calculation, had a
weighted average exercise price of $11.46, $15.89 and $8.84, respectively.  The
warrants outstanding at March 31, 2002 that we excluded from the above
calculation, had a weighted average exercise price of $3.71.

4. FINANCING ARRANGEMENTS

Senior Notes

Immediately after the closing of our initial public
offering in February 2000, we began to redeem the $115.0 million of senior notes
("Senior Notes") outstanding which accrue interest at 10 5/8% per
annum and which would have matured on May 15, 2004.  In accordance with the
Senior Notes indenture, we were required to redeem prior to maturity,
$40,250,000, or 35% of the aggregate principal amount of our outstanding Senior
Notes at a price of 110.625% of the principal amount, plus accrued and unpaid
interest thereon.

In addition, we commenced a tender offer and consent
solicitation for the remaining $74,750,000, or 65% of the aggregate principal
amount of its Senior Notes (representing all remaining Senior Notes outstanding
after giving effect to the mandatory redemption).  In accordance with our Offer
to Purchase and Consent Solicitation Statement dated February 9, 2000, we
redeemed $74,734,000 aggregate principal amount of its outstanding Senior Notes
at a price per note of $1,089.86, plus accrued and unpaid interest and a consent
payment of $30.00.   The tender offer was completed on March 10, 2000.

The redemption of $114,984,000 aggregate principal amount of
Senior Notes resulted in a one-time extraordinary charge relating to the early
extinguishment of debt of $18,404,000 consisting of the following 
(in thousands):

`Premium on Senior Notes.................... $  10,992
Write-off of unamortized financing costs...     6,868
Expenses...................................       544
                                             ---------
Total extraordinary charges................ $  18,404
                                             =========`

As of March 31, 2002, our Senior Note
balance was $16,000.

38




Bank Credit Facility

In June 2001, we entered into a $10.0 million loan
and security agreement with Comerica Bank. In December 2001, we amended this
bank credit facility. As a result of the amendment, the credit extension limit
was increased to $13.5 million from $ 10.0 million. The amended bank credit
facility allows us to borrow money bearing interest either at a floating rate
per annum equal to the prime rate or at a rate per annum equal to LIBOR plus
2.0%. We may request advances in an aggregate outstanding amount not to exceed
the lesser of $13.5 million or the Borrowing Base, in each case minus the
aggregate face amount of outstanding letters of credit, including any drawn but
unreimbursed letters of credit. Our borrowings under the Comerica bank credit
facility are secured by substantially all of our assets. The amended Comerica
bank credit facility matures on June 30, 2004.  As of March 31, 2002, we
maintained a $3.5 million standby letter of credit as required by the lessor of
our building and had $10.0 million of unused borrowing capacity under the
amended bank credit facility. We are in compliance with all financial covenants
related to the bank credit facility.

5. INCOME TAXES

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

`Fiscal Years Ended March 31,
                                              -------------------------------
                                                2002       2001       2000
                                              ---------  ---------  ---------
   Domestic................................. $ (48,041) $  32,994  $  (2,657)
   Foreign..................................    (1,367)     1,160        506
                                              ---------  ---------  ---------
     Total.................................. $ (49,408) $  34,154  $  (2,151)
                                              =========  =========  =========`

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

`Fiscal Years Ended March 31,
                                              -------------------------------
                                                2002       2001       2000
                                              ---------  ---------  ---------
   Current:
     Federal................................ $  (6,579) $   7,118  $      --
     State..................................        --       (129)        --
     Foreign................................        --        495         --
                                              ---------  ---------  ---------
                                                (6,579)     7,484         --
                                              ---------  ---------  ---------
   Deferred:
     Federal................................     5,459     (5,459)        --
     State..................................        --         --         --
     Foreign................................        --         --         --
                                              ---------  ---------  ---------
                                                 5,459     (5,459)        --
                                              ---------  ---------  ---------
                                             $  (1,120) $   2,025  $      --
                                              =========  =========  =========`

39




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

`Fiscal Years Ended March 31,
                                              -------------------------------
                                                2002       2001       2000
                                              ---------  ---------  ---------

Provision at federal statutory rate.........      35.0 %     35.0 %     35.0 %
State taxes.................................       0.4        1.0        2.9
Foreign sales corporation...................        --       (3.3)        --
Tax credits.................................        --      (11.1)       2.3
Change in valuation allowance...............     (23.2)     (16.3)     (27.4)
Non-deductible expenses.....................     (12.1)       0.4      (13.3)
Other.......................................       2.2        0.3        0.5
                                              ---------  ---------  ---------
  Total.....................................       2.3 %      6.0 %       -- %
                                              =========  =========  =========`

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):

`March 31,
                                                         --------------------
                                                           2002       2001
                                                         ---------  ---------
   Deferred tax assets:
     Accrued costs and expenses........................ $  12,775  $   8,702
     Depreciation and amortization.....................     1,427      1,309
     Other.............................................        --      3,452
     Net operating loss and tax credits carryforwards..    11,936      1,431
                                                         ---------  ---------
       Total gross deferred tax assets.................    26,138     14,894
   Less: valuation allowance...........................   (23,666)    (9,435)
                                                         ---------  ---------
       Total deferred tax assets.......................     2,472      5,459
                                                         ---------  ---------
   Deferred tax liabilities:
     Non-goodwill intangibles..........................    (1,826)        --
     Depreciation and amortization.....................        --         --
     Other.............................................      (646)        --
                                                         ---------  ---------
     Net deferred tax liabilities......................    (2,472)        --
                                                         ---------  ---------
       Total net deferred tax assets................... $      --  $   5,459
                                                         =========  =========`

The net changes in the total valuation
allowance for the years ended March 31, 2002 and 2001 were $14.2 million and
$(3.4) million, respectively. At March 31, 2002, management has recognized
deferred tax assets equal to the deferred tax liability related to acquired
non-goodwill intangibles.

At March 31, 2002, we have federal and state net operating
losses of $28.0 million and $8.0 million respectively. The federal net operating
losses will begin to expire in 2023, while the state net operating losses will
begin to expire in 2008.

At March 31, 2002, we have federal and state research and
development tax credits of $500,000 and $800,000, respectively. The federal
research and development tax credits will begin to expire in 2012, while the
state research tax credits may be carried forward indefinitely.

40




6. BUSINESS COMBINATIONS

On January 16, 2002, we issued approximately
4.47 million shares of our common stock in exchange for all outstanding common
and preferred shares of Sensys. The results of Sensys' operations have been
included in the consolidated financial statements since that date. Sensys was
founded in 1996 to develop and market advanced process control metrology
products that can be integrated into semiconductor processing equipment.  These
products are aimed at improving the productivity of this equipment in
semiconductor fabs. Sensys has established positions at several leading process
equipment suppliers for Lithography, CMP, Etch and CD-SEM equipment. The Sensys
acquisition is to further strengthen our position in this important emerging
market segment.  As a company, Sensys will continue to operate as a wholly-owned
subsidiary of Therma-Wave, focusing on integrated metrology applications and
developing business with process equipment manufacturers.  Therma-Wave's Integra
products, including the iX-SE, will be integrated with Sensys business
operations.

The total purchase price for this acquisition was $88.3
million, consisting of approximately 4.47 million shares of common stock with a
fair value of $72.8 million, assumed stock options to purchase 608,151 shares of
common stock with a fair value of $9.1 million, assumed warrants to acquire
329,490 shares of common stock with a fair value of $4.6 million, and
transaction costs, consisting of investment advisory, legal and other
professional service fees, of $1.85 million. Common stock was valued at $16.28
per share using the Company's average stock price for the five day period around
January 15, 2002. Stock options were valued using the Black-Scholes option
pricing model, applying a weighted average expected life of 5 years, a weighted
average risk-free rate of 4.5%, an expected dividend yield of zero percent, a
volatility of 90% and a deemed fair value of $16.28 per share. The intrinsic
value of these options, totaling approximately $3.5 million, has been recorded
as deferred stock-based compensation. Warrants were valued using the Black-
Scholes option pricing model, applying the remaining contractual life of 3.6
years, a weighted average risk-free rate of 4.5%, an expected dividend yield of
zero percent, a volatility of 90% and a deemed fair value of $16.28 per share.

The purchase price allocation is as follows (in thousands):

`Amount     Useful Life
                                             ---------  -----------
Fair value of net liabilities assumed...... $  (1,840)          --
In-process research and development........    16,340           --
Developed technology.......................       890       2 years
Development contract.......................     2,590       5 years
Trade name.................................       990       5 years
Unearned stock compensation................     3,495       4 years
Goodwill...................................    65,865           --
                                             ---------
 Total purchase price...................... $  88,330
                                             =========`

The fair values of Sensys' net assets as of the
acquisition date were (in thousands):

`Amount
                                             ---------
Cash....................................... $   2,055
Accounts receivable, net...................         2
Inventory..................................       879
Other current assets.......................       394
Fixed assets...............................       450
Accounts payable...........................      (733)
Other current liabilities..................    (4,879)
Long-term liabilities......................        (8)
                                             ---------
                                            $  (1,840)
                                             =========`

The allocation of the consideration for the
acquisition of Sensys to its individual assets and liabilities is based on
management's analysis and estimates of the fair values of the acquired assets
and liabilities. In addition to the value assigned to IPR&D projects, and
Sensys' tangible assets, specific intangible assets were identified and valued.
The identifiable assets include a development contract, trade name, and existing
developed technology.

IPR&D consists of those products were not yet proven to
be technologically feasible but have been developed to a point where there is
value associated with them in relation to potential future revenue. Because
technological feasibility was not yet proven and no alternative future uses are
believed to exist for the in-process technologies, the assigned value was
expensed immediately upon the closing date of the acquisition.

41




The value of IPR&D was determined by estimating the
expected cash flows from the projects once commercially viable, discounting the
net cash flows back to their present value and then applying a percentage of
completion to the calculated value as defined below. A discount rate of 40% was
used which is higher than the industry average due to inherent uncertainties
surrounding the successful development of the IPR&D, market acceptance of
the technology, the useful life of such technology and the uncertainty of
technological advances which could potentially impact the estimates described
above. The percentage of completion for each project was determined using costs
incurred to date on each project as compared to the remaining research and
development to be completed to bring each project to technological feasibility.
Revenue resulting from IPR&D projects is expected to commence in the fourth
quarter of calendar 2002.

The projects included in purchased IPR&D, the percent
completed and the value assigned to each project are as follows (in
thousands):

`Estimate of       Value
                             Percent Completed   Assigned
                            ------------------  ---------
IPR&D:
  Compact CD-i.............                22% $  14,180
  Standalone Capabilities..                30%     2,160
                            ------------------  ---------
Total IPR&D                                    $  16,340
                                                =========`

The following unaudited pro forma information is presented to
illustrate the effects of the acquisition on the historical financial position
and operating results of Therma-Wave and Sensys using the purchase method of
accounting in accordance with accounting principles generally accepted in the
United States of America. The unaudited pro forma information is based upon the
historical financial statements of the respective companies.  The unaudited pro
forma information for the twelve months ended March 31, 2001 assumes the
acquisition took place as of April 1, 2000 and combines results from Therma-
Wave's consolidated statement of operations for the twelve months ended March
31, 2001 and Sensys' statement of operations for the twelve months ended March
31, 2001. The unaudited pro forma information for the twelve months ended March
31, 2002 assumes the acquisition took place as of April 1, 2001 and combines
results from Therma-Wave's consolidated statement of operations for the twelve
months ended March 31, 2002 and Sensys' unaudited statement of operations for
the period from April 1, 2001 through January 16, 2002, the date of completion
of the acquisition.

`Twelve Months Ended March 31,
                                    ------------------------------------------------
                                               2002             2001
                                    ------------------------  ----------------------
                                    Pro Forma    As Reported  Pro Forma  As Reported
                                    -----------  -----------  ---------  -----------
Net revenues...................... $    85,994  $    83,697  $ 198,688  $   198,199
Gross profit......................      17,637       17,431     95,718       96,778
Operating income (loss)...........     (61,457)     (51,750)    26,145       32,958
Net income (loss) before
cumulative effect of change
in accounting principle...........     (58,491)     (48,288)    25,161       32,129
Net income (loss)................. $   (58,491) $   (48,288) $  18,874  $    25,842
                                    ===========  ===========  =========  ===========
Net income (loss) per share.......
  Basic...........................       (2.09)       (1.94)      0.69         1.10
  Diluted.........................       (2.09)       (1.94)      0.62         1.02

Weighted average common
 shares outstanding:
  Basic...........................      28,024       24,894     27,374       23,444
  Diluted.........................      28,024       24,894     30,522       25,277`

42




The unaudited pro forma information is provided
for illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of
Therma-Wave would have been had the acquisition occurred on the dates assumed,
nor is it necessarily indicative of future consolidated results of operations or
financial position.

7. COMMITMENTS AND CONTINGENCIES

We lease our facilities under non-cancellable operating
leases that require us to pay maintenance and operating expenses, such as taxes,
insurance and utilities. We are required pursuant to the terms of a facility
lease to maintain a $3.5 million standby letter of credit.

Property and equipment includes equipment recorded under
capital leases of approximately $16,000, $895,000 and $1.3 million, and related
accumulated amortization of $4,000, $830,000 and $761,000 at March 31, 2002,
2001 and 2000, respectively.

Rent expense was approximately $2.3 million, $2.2 million and
$1.5 million for the fiscal years ended March 31, 2002, 2001 and 2000,
respectively.  At March 31, 2002, future minimum lease payments under non-
cancellable operating leases are as follows (in thousands):

`Operating
                                                 Leases
                                               -----------
   Fiscal Year
   2003...................................... $     2,734
   2004......................................       2,734
   2005......................................       2,416
   2006......................................       2,249
   2007......................................       1,980
   Thereafter................................         555
                                               -----------
   Future Minimum Lease Payments.............      12,668
                                               ===========`

Legal Proceedings

On April 22, 2002, we filed a patent infringement
suit against Boxer-Cross Inc. in the United States District Court, Northern
District of California. The suit alleges that Boxer-Cross' BX-10 product
infringes certain patents held by Therma-Wave related to ion implant monitoring.
Two of the asserted patents were previously found to be valid and infringed in a
suit filed against Jenoptik, AG, in 1994. The earlier court rulings led to
Jenoptik's withdrawal from the U.S. market. We have asked the court to issue an
injunction barring Boxer-Cross from making, using or selling its BX-10
product.

43




On December 28, 2001, Sensys Instruments
Corporation, or Sensys, who became a wholly-owned subsidiary of the Company in
January 2002, was named in a patent infringement suit filed by KLA-Tencor. KLA-
Tencor alleged that it patented an aspect of the integrated metrology technology
that Sensys uses in its integrated product family.  KLA-Tencor is seeking
damages and an injunction to stop the sale of the equipment it alleges uses this
aspect.  We believe none of the current Sensys products infringes any of the
claims of KLA-Tencor's patent. We believe that the outcome from this matter,
even if adverse to us, would not have a material adverse effect on our
company.

There are currently no other material legal proceedings
pending against us. We may be required to initiate additional 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 additional 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, results of
operations or cash flows.

8. SEVERANCE CHARGE

During fiscal year 2002, we announced and implemented
reduction in force programs aimed at bringing operating expenses in line with
our operating environment during the period. All terminated employees were
notified of their severance and related benefits at the time the programs were
announced. The programs resulted in a reduction of approximately 130 employees
primarily involved in customer service and manufacturing positions. All expenses
were paid out in cash with the remaining balance at March 31, 2002 expected to
be paid out within a year. Expenses relating to reductions in force are
summarized as follows:

`Provision
                       Year Ended                  Balance
                      March 31, 2002 Utilized   March 31, 2002
                      -------------  ---------  -------------
   Severance........ $       1,291  $   1,107  $         184
   Other............           179         62            117
                      -------------  ---------  -------------
                     $       1,470  $   1,169  $         301
                      =============  =========  =============`

In the last quarter of fiscal year 2001, we recorded $1.7
million severance charge in connection with the retirement of our former
chairman and Chief Executive Officer, Allan Rosencwaig.

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

Common Stock

In connection with our recapitalization, which closed
on May 16, 1997, our outstanding equity securities consisted of 9,073,532 shares
of Class A common stock; 1,334,875 shares of Class B common stock; 1,008,170
shares of Class L common stock; and 748,739 shares of preferred stock. The
shares of Class A common stock and Class L common stock each entitled the holder
to one vote per share on all matters to be voted upon by our stockholders and
are otherwise identical, except that the shares of Class L common stock were
entitled to a preference over Class A common stock with respect to any
distribution by the company to holders of its capital stock equal to the
original cost of such share ($19.085) plus an amount which accrued on a daily
basis at a rate of 12% per annum, compounded annually. The Class B common stock
was identical to the Class A common stock except that the Class B common stock
was non-voting and was convertible into Class A common stock at any time
following our initial public offering at the option of the holder.

On February 9, 2000, we completed our initial public offering
of common stock. We issued 10,350,000 shares of common stock, including the
exercise of the underwriters' over-allotment option, at a price of $20.00 per
share. Net proceeds, net of underwriting discounts and offering costs, were
$190,739,000.

In conjunction with our initial public offering and an
amendment to our articles of incorporation, 9,073,532, 1,130,902 and 1,008,170
shares of our outstanding Class A common stock, Class B common stock and Class L
common stock were converted into 9,073,532, 1,130,902 and 2,319,698 shares of
common stock, respectively.

44




We have outstanding unvested shares of common stock that are
subject to repurchase by us if the holder is no longer employed by us. Such
shares vest over five years from the date of issuance. As of March 31, 2002,
2001 and 2000, respectively, 105,020, 333,151 and 550,117 shares of common stock
were subject to repurchase.

On January 16, 2002, we issued approximately 4.47 million
shares of common stock to the former shareholders of Sensys in connection with
the Sensys acquisition, of which 540,724 shares are being held in escrow for a
period of 18 months and during that time are used to satisfy certain working
capital adjustments and indemnification claims.

Mandatorily Redeemable Convertible Preferred Stock

The Series A Mandatorily Redeemable Convertible
Voting Preferred Stock ("Preferred Stock") had a liquidation
preference of $18.40 and was convertible at any time into one share of Common
Stock at the option of the holder. Dividends on each share of the Preferred
Stock were cumulative and accrued at the rate of 6% per annum. The Preferred
Stock had a scheduled redemption on May 17, 2004, and was 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 was convertible
into one share of Common Stock (as adjusted for stock splits, stock dividends,
recapitalizations and similar transactions). The Preferred Stock entitled the
holder to one vote for each share of common stock issuable upon conversion of
the Preferred Stock.

On March 3, 2000, we called for redemption of all outstanding
shares of Preferred Stock. On March 24, 2000 and March 29, 2000, respectively,
169,589 and 579,150 shares of Preferred Stock were converted into an aggregate
of 748,739 shares of common stock.

Stock-Based Compensation

We have elected to follow Accounting Principles Board
Opinion No. 25, or APB No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for our 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 our employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

Stock Options. During fiscal year 1998, we adopted
several stock option plans (the "1997 Plans") whereby the Board of
Directors may have granted incentive stock options and non-statutory stock
options to employees, directors or consultants.

In connection with the initial public offering, we adopted
the 2000 Equity Incentive Plan, whereby the Board of Directors may grant
incentive stock options and non-statutory stock options to employees, directors
or consultants. No future grants are available under the 1997 Plans upon the
effectiveness of the 2000 Equity Incentive Plan. We have reserved (1) 3,300,000
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 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, for issuance under the 2000 Equity Incentive Plan.

Vesting provisions for stock options granted under our stock
option 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 twenty-five percent (25%) on first anniversary of the grant and then
prorated portion to vest monthly thereafter for the remaining thirty-six months,
i.e., one forty-eighth (2.083%) per month from the date of grant, beginning with
stock options granted on April 30, 2002. Prior to April 30, 2002, options vested
25% on each of the first four anniversaries from the date of grant. Stock
options expire ten years from the date of grant. Common shares issued on
exercise of options prior to vesting are subject to repurchase if the holder is
no longer employed by us.

45




A summary of our stock option activity, and related
information for the years ended March 31, 2002, 2001 and 2000 are as follows:

`Options Outstanding
                                                            ---------------------
                                                                        Weighted
                                                                         Average
                                                                        Exercise
                                                 Shares       Number    Price per
                                                Available   of shares     Share
                                               -----------  ----------  ---------
Balance at 3/31/99...........................   5,706,028   1,778,972  $    9.64
  Termination of Plans.......................  (4,416,453)         --         --
  Authorization..............................     300,000          --         --
  Granted....................................  (1,216,297)  1,216,297       7.49
  Exercised..................................          --     (13,451)      6.00
  Cancelled..................................      89,337     (89,337)      6.64
                                               -----------  ----------
Balance at 3/31/00...........................     462,615   2,892,481       8.84
  Authorization..............................   3,236,728          --         --
  Granted....................................  (1,348,425)  1,348,425      20.45
  Exercised..................................          --     (92,316)      6.38
  Cancelled..................................     228,817    (464,623)     14.19
                                               -----------  ----------
Balance at 3/31/01...........................   2,579,735   3,683,967      12.48
  Authorization..............................     241,241          --         --
  Granted....................................  (2,036,810)  2,036,810      10.00
  Exercised..................................          --    (132,434)      6.62
  Cancelled..................................     572,250    (572,250)     13.95
                                               -----------  ----------
Balance at 3/31/02...........................   1,356,416   5,016,093      11.46
                                               ===========  ==========`

The following table summarizes information about stock
options outstanding as of March 31, 2002:

`Options Outstanding        Options Exercisable
                            ---------------------------------- ---------------------
                                                                           Weighted
                             Weighted                                       Average
                              Average                Weighted              Exercise
                             Remaining                Average                Price
                            Contractual   Number     Exercise    Number       per
                               Life     Outstanding    Price   of shares     Share
                            ----------- -----------  --------- ----------  ---------
Range of Exercise prices:
  $ 0.82-$4.00.............       7.50     790,688  $    2.32    476,904  $    2.84
  $ 6.00-$7.00.............       6.94     995,757       6.65    503,124       6.45
  $ 7.78-$15.89............       8.09   2,278,660      12.45    735,998      11.55
  $ 18.25-$35.50...........       8.31     950,988      21.73    248,623      21.80
                                        -----------            ----------
                                  7.81   5,016,093      11.46  1,964,649       9.43
                                        ===========            ==========`

Pro forma information regarding net income (loss) and net
income (loss) per share is required by SFAS 
No. 123, which also requires that the information be determined as if we have
accounted for our 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 our 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 our options.

46




For the years ended March 31, 2002, 2001 and 2000, the fair
value of each option grant was estimated on the date of the grant using the
Black-Scholes option-pricing model with the following assumptions:

`Fiscal Years Ended March 31,
                                            -------------------------------
                                              2002       2001       2000
                                            ---------  ---------  ---------
Risk-free interest rate...................       4.5 %      5.7 %      6.8 %
Dividend yield............................        -- %       -- %       -- %
Expected volatility.......................        90 %       90 %       65 %
Expected life in years....................         5          5          5
Per option fair value..................... $   11.61  $   12.64  $    3.94`

Employee Stock Purchase Plan.

For the years ended March 31, 2002 and 2001 and 2000, the
following weighted-average assumptions were used to determine the fair value of
purchase rights under the 2000 Employee Stock Purchase Plan:

`Fiscal Years Ended March 31,
                                            -------------------------------
                                              2002       2001       2000
                                            ---------  ---------  ---------
Risk-free interest rate...................       4.5 %      5.7 %      6.8 %
Dividend yield............................        -- %       -- %       -- %
Expected volatility.......................        90 %       90 %       65 %
Expected life in years....................         1          1          1`

Had compensation costs been determined
based upon the fair value at the grant date for awards under the above stock
option plans and employee stock purchase plans, consistent with the methodology
prescribed under SFAS No. 123, our pro forma net income (loss) available to
common stockholders and pro forma diluted net income (loss) per share under SFAS
No. 123 would have been:

`Fiscal Years Ended March 31,
                                            -------------------------------
                                              2002       2001       2000
                                            ---------  ---------  ---------
   Net income (loss) (in thousands)
     As reported.......................... $ (48,288) $  25,842  $ (21,497)
     Pro forma............................ $ (55,244) $  20,890  $ (22,769)
   Diluted net income (loss) per share
     As reported.......................... $   (1.94) $    1.02  $   (1.72)
     Pro forma............................ $   (2.22) $    0.83  $   (1.82)`

In connection with the Sensys acquisition, we
recognized unearned compensation of $3.5 million for stock options granted.
Deferred stock-based compensation is amortized to expense over the vesting
period using an accelerated method, and may decrease if employees terminate
service prior to vesting. During the fourth quarter of fiscal 2002, we
recognized the stock-based compensation of $0.6 million.

47




10. RELATED PARTY TRANSACTIONS

Ms. Talat Hasan, Senior Vice President of Therma-Wave and
President and Chief Executive Officer of Sensys, is a general partner of Hitek
Venture Partners Limited Partnership, or Hitek.  Sensys, a wholly-owned
subsidiary of Therma-Wave, leases from Hitek certain facilities occupied by
Sensys in Santa Clara, California. During the period between January 16, 2002,
the day we completed Sensys acquisition, and March 31, 2002, Hitek received
$45,000 from the lease of such facilities.

As of March 31, 2002, we had, in the aggregate, outstanding
loans to management of approximately $200,000, the proceeds of which were used
to acquire our capital stock and $1.0 million, the proceeds of which were used
to pay certain tax liabilities incurred by certain executives. The loans used to
acquire our capital stock bear interest at the applicable federal rate in effect
at the time. The loans used to pay certain tax liabilities do not bear interest.
The executives have pledged their stock as security for the loans.

In 1997, we entered into an advisory agreement with Bain
Capital Inc., a then 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, 2002, 2001 and 2000
were $0, $0 and $750,000, respectively. We bought out the seven and one half
years remaining in the term of the agreement with $3.5 million in March 2000,
which amount was expensed in fiscal 2000.

11. RETIREMENT PLAN

We have a retirement plan under Section 401(k) of the
Internal Revenue Code covering substantially all employees. Discretionary
company contributions accrued, which are based on achieving certain operating
profit goals, were $0, $730,000 and $400,000 in fiscal 2002, 2001 and 2000,
respectively.

12. SEGMENT INFORMATION

We operate in one segment as we manufacture, market and
service process control metrology systems within the semiconductor equipment
market. All products and services are marketed in each geographic region in
which we operate. Our current product offerings qualify for aggregation under
SFAS No. 131 as our products are manufactured and distributed in the same
manner, have similar long-term gross margins and are sold to the same customer
base.

Revenue in each geographic area is recognized according to
our revenue recognition policy as described in Note 1 of Notes to Consolidated
Financial Statements. Transfers and commission arrangements between geographic
areas are at prices sufficient to recover a reasonable profit. Export sales were
$51.9 million, $117.3 million and $65.3 million of the net sales in fiscal 2002,
2001 and 2000, respectively.

The following is a summary of operations in geographic areas
(in thousands). Other foreign areas include Taiwan, Israel and Korea, each of
which is individually not material for separate disclosure.

48




`Other
                                     U.S.       Japan      U.K.      Foreign   Eliminations  Consolidation
                                   ---------  ---------  ---------  ---------  ------------  -------------
Fiscal year ended March 31, 2000
Sales to unaffiliated customers.. $ 108,781  $   2,650  $   1,788  $   2,460  $         --  $     115,679
Transfers between
 geographic locations............      (940)       953      1,270      1,993        (3,276)            --
                                   ---------  ---------  ---------  ---------  ------------  -------------
Total net sales.................. $ 107,841  $   3,603  $   3,058  $   4,453  $     (3,276) $     115,679
                                   =========  =========  =========  =========  ============  =============
Operating income (loss).......... $  12,729  $      87  $     409  $     513  $       (956) $      12,782

Long-lived assets................ $   7,759  $     433  $      49  $     444  $         --  $       8,685
All other identifiable assets....   121,240      4,100      2,822      2,108        (5,261)       125,009
                                   ---------  ---------  ---------  ---------  ------------  -------------
Total assets..................... $ 128,999  $   4,533  $   2,871  $   2,552  $     (5,261) $     133,694
                                   =========  =========  =========  =========  ============  =============

Fiscal year ended March 31, 2001
Sales to unaffiliated customers.. $ 190,288  $   3,102  $   1,871  $   2,938  $         --  $     198,199
Transfers between
 geographic locations............    (5,211)     2,023      1,107      2,787          (706)            --
                                   ---------  ---------  ---------  ---------  ------------  -------------
Total net sales.................. $ 185,077  $   5,125  $   2,978  $   5,725  $       (706) $     198,199
                                   =========  =========  =========  =========  ============  =============
Operating income................. $  31,896  $     246  $      54  $      --           762  $      32,958

Long-lived assets................ $  20,050  $     401  $      43  $     668  $         --  $      21,162
All other identifiable assets....   173,835      2,935      2,801      2,394       (11,936)       170,029
                                   ---------  ---------  ---------  ---------  ------------  -------------
Total assets..................... $ 193,885  $   3,336  $   2,844  $   3,062  $    (11,936) $     191,191
                                   =========  =========  =========  =========  ============  =============

Fiscal year ended March 31, 2002
Sales to unaffiliated customers.. $  77,137  $   2,192  $   1,534  $   2,834  $         --  $      83,697
Transfers between
 geographic locations............    (1,945)     1,981        940      2,159        (3,135)            --
                                   ---------  ---------  ---------  ---------  ------------  -------------
Total net sales.................. $  75,192  $   4,173  $   2,474  $   4,993  $     (3,135) $      83,697
                                   =========  =========  =========  =========  ============  =============
Operating income (loss).......... $ (49,557) $     (58) $     242  $     (95) $     (2,282) $     (51,750)

Long-lived assets................ $  94,535  $     330  $      64  $     647  $     (6,716) $      88,860
All other identifiable assets....   109,676      2,802      3,022      2,503        (5,094)       112,909
                                   ---------  ---------  ---------  ---------  ------------  -------------
Total assets..................... $ 204,211  $   3,132  $   3,086  $   3,150  $    (11,810) $     201,769
                                   =========  =========  =========  =========  ============  =============`

13. QUARTERLY FINANCIAL DATA (UNAUDITED)

`Fiscal Year 2002                                   Fiscal Year 2001
                         -------------------------------------------------  -------------------------------------------------
                            Q1        Q2        Q3        Q4       Year        Q1        Q2        Q3        Q4       Year
                         --------  --------  --------  --------  ---------  --------  --------  --------  --------  ---------
Net revenue............ $ 37,821  $ 21,660  $ 11,054  $ 13,162  $  83,697  $ 39,641  $ 47,770  $ 57,029  $ 53,759  $ 198,199
Gross profit...........   17,672     8,554     1,532   (10,327)    17,431    19,540    23,363    29,396    24,479     96,778
Operating income
 (loss)................    4,984    (3,277)  (11,354)  (42,103)   (51,750)    6,140     7,792    12,222     6,804     32,958
Income (loss) before
cumulative effect of
change in accounting
principle.............. $  5,425  $ (2,215) $(10,967) $(40,531) $ (48,288) $    416  $  8,380  $ 12,302  $ 11,031  $  32,129
                         ========  ========  ========  ========  =========  ========  ========  ========  ========  =========
Net income (loss)...... $  5,425  $ (2,215) $(10,967) $(40,531) $ (48,288) $    416  $  8,380  $ 12,302  $  4,744  $  25,842
                         ========  ========  ========  ========  =========  ========  ========  ========  ========  =========
Income (loss) before
cumulative effect of
change in accounting
principle:
 Basic................. $   0.23  $  (0.09) $  (0.45) $  (1.47) $   (1.94) $   0.29  $   0.36  $   0.52  $   0.20  $    1.37
 Diluted............... $   0.22  $  (0.09) $  (0.45) $  (1.47) $   (1.94) $   0.27  $   0.34  $   0.49  $   0.19  $    1.27

Net income (loss)
per share:
 Basic................. $   0.23  $  (0.09) $  (0.45) $  (1.47) $   (1.94) $   0.02  $   0.36  $   0.52  $   0.20  $    1.10
 Diluted............... $   0.22  $  (0.09) $  (0.45) $  (1.47) $   (1.94) $   0.02  $   0.34  $   0.49  $   0.19  $    1.02`

ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

None.

49




PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning directors and executive officers
of Therma-Wave, Inc. appears in the Proxy Statement for our 2002 annual
stockholders meeting, under the "Management" section. This portion of
the Proxy Statement in incorporated herein by reference.

ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS

Information concerning compensation of executive officers
of Therma-Wave, Inc. appears in the Proxy Statement, under the
"Management" section. This portion of the Proxy Statement in
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

Information concerning the security ownership of certain
beneficial owners and management appears in Therma-Wave's proxy statement, under
the "Principle Stockholders" section. This portion of the Proxy
Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Ms. Talat Hasan, Senior Vice President of Therma-Wave and
President and Chief Executive Officer of Sensys, is a general partner of Hitek
Venture Partners Limited Partnership, or Hitek.  Sensys, a wholly-owned
subsidiary of Therma-Wave, leases from Hitek certain facilities occupied by
Sensys in Santa Clara, California. During the period between January 16, 2002,
the day we completed Sensys acquisition, and March 31, 2002, Hitek received
$45,000 from the lease of such facilities.

As of March 31, 2002, we had, in the aggregate, outstanding
loans to management of approximately $200,000, the proceeds of which were used
to acquire our capital stock and $1.0 million, the proceeds of which were used
to pay certain tax liabilities incurred by certain executives. The loans used to
acquire our capital stock bear interest at the applicable federal rate in effect
at the time. The loans used to pay certain tax liabilities do not bear interest.
The executives have pledged their stock as security for the loans.

In 1997, we entered into an advisory agreement with Bain
Capital Inc., a then 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, 2002, 2001 and 2000
were $0, $0 and $750,000, respectively. We bought out the seven and one half
years remaining in the term of the agreement with $3.5 million in March 2000,
which amount was expensed in fiscal 2000.

50




PART IV



ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K

(a) The following documents are filed as part of this report:

(i) Consolidated Financial Statements--See "Item
8. Financial Statements and Supplementary Data"

(ii) Financial Statement Schedule:



|                                               | Form 10-K page number
|---------------------------------------------- | ---------------------
|Schedule II--Valuation and Qualifying Accounts | 57                   

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.

(b) Reports on Form 8-K

1. Current Report on Form 8-K filed on January 28,
2002 relating to the consummation of the acquisition of Sensys Instruments
Corporation.
2. Current Report on Form 8-K/A filed on March 28, 2002
providing financial statements and pro forma financial information relating to
the acquisition of Sensys Instruments Corporation.

51




(c) Exhibits



|Exhibit Number | Description                                                                                                                                                                                                                                                   
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) 2.1        | Agreement and Plan of Reorganization, dated as of December 17,
2001, among Therma-Wave, Inc., FND Corp., Sensys Instruments Corporation and a
certain representative of all of the shareholders of Sensys Instruments
Corporation.                            
|(3) 3.1        | Restated Certificate of Incorporation of Therma-Wave.                                                                                                                                                                                                         
|(5) 3.2        | Amended and Restated By-Laws of Therma-Wave.                                                                                                                                                                                                                  
|(9) 4.1        | Form of Registration Rights Agreement dated as of January 16,
2002, among Therma-Wave, Inc., Sensys Instruments Corporation and each holder of
Sensys Instruments Corporation capital stock.                                                                  
|(1) 4.2        | Indenture, dated as of May 15, 1997, by and among Therma-Wave
and IBJ Schroder Bank & Trust Company, as trustee.                                                                                                                                              
|(3) 4.3        | Supplemental Indenture, dated February 23, 2000, by and between
Therma-Wave and The Bank of New York as Trustee.                                                                                                                                              
|(1) 4.4        | Form of Series B 10 5/8% Senior Notes.                                                                                                                                                                                                                        
|(2) 4.5        | Form of certificate representing shares of Common Stock.                                                                                                                                                                                                      
|# (1) 10.1     | Employment Agreement, dated as of May 16, 1997, by and between
Therma-Wave and Dr. Allan Rosencwaig.                                                                                                                                                          
|# (5) 10.2     | Leave of Absence Agreement between Therma-Wave, Inc. and Allan
Rosencwaig.                                                                                                                                                                                    
|# (1) 10.3     | Employment Agreement, dated as of May 16, 1997, by and between
Therma-Wave and W. Lee Smith.                                                                                                                                                                  
|# (1) 10.4     | Employment Agreement, dated as of May 16, 1997, by and between
Therma-Wave and Jon L. Opsal.                                                                                                                                                                  
|(6) 10.5       | Employment Agreement, dated as of December 17, 2001, by and
between Therma-Wave and Talat Hasan.                                                                                                                                                              
|# (1) 10.6     | Executive Stock Agreement, dated as of May 16, 1997, by and
Therma-Wave and Dr. Allan Rosencwaig.                                                                                                                                                             
|# (1) 10.8     | Executive Stock Agreement, dated as of May 16, 1997, by and
between Therma-Wave and W. Lee Smith.                                                                                                                                                             
|# (1) 10.9     | Executive Stock Agreement, dated as of May 16, 1997, by and
between Therma-Wave and Jon L. Opsal.                                                                                                                                                             
|(1) 10.11      | Development License Agreement, dated June 12, 1992, by and among
Therma-Wave and Therma-Wave K.K., Toray Industries, Inc. and Shimadzu
Corporation.                                                                                                           
|(1) 10.12      | New Development Agreement, dated December 22, 1995, by and
between Therma-Wave and Toray Industries, Inc.                                                                                                                                                     
|(1) 10.13      | Lease Agreement, dated as of May 26, 1995, by and between
Therma-Wave and Sobrato Interests.                                                                                                                                                                  
|(1) 10.14      | Advisory Agreement, dated as of May 16, 1996, between Therma-
Wave and Bain Capital, Inc.                                                                                                                                                                     
|(1) 10.15      | Credit Agreement, dated as of May 16, 1997, between Therma-Wave
and Bankers Trust Company, as agent, and certain financial institutions named
therein.                                                                                                        
|(1) 10.16      | Pledge Agreement, dated as of May 16, 1997, between Therma-Wave
and Bankers Trust Company, as agent.                                                                                                                                                          
|(1) 10.17      | Security Agreement, dated as of May 16, 1997, between Therma-
Wave and Bankers Trust Company, as agent.                                                                                                                                                       
|# (1) 10.18    | Therma-Wave, Inc. 1997 Stock Purchase and Option Plan.                                                                                                                                                                                                        
|(1) 10.19      | Registration Agreement, dated as of May 16, 1997, between
Therma-Wave and the stockholders named therein.                                                                                                                                                     
|# (1) 10.20    | Stock Repurchase Agreement, dated as of January 26, 1996,
between Toray Industries, Inc. and the key employees of Therma-Wave named
therein.                                                                                                                  
|# (1) 10.21    | 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.                                              
|# (3) 10.22    | Therma-Wave, Inc. 2000 Equity Incentive Plan.                                                                                                                                                                                                                 
|# (10) 10.22.1 | Amendment No. 1 to Therma-Wave, Inc. 2000 Equity Incentive
Plan.                                                                                                                                                                                              
|(2) 10.23      | 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.)
|# (3) 10.24    | Employment Agreement, dated as of August 3, 1998, by and between
Therma-Wave and Martin M. Schwartz.                                                                                                                                                          
|# (2) 10.25    | Employment Agreement, dated as of August 10, 1998, by and
between Therma-Wave and L. Ray Christie.                                                                                                                                                            
|# (3) 10.26    | Amended and Restated Therma-Wave 2000 Employee Stock Purchase
Plan.                                                                                                                                                                                           
|# (11) 10.26.1 | Amendment No.1 to Therma-Wave, Inc. 2000 Employee Stock Purchase
Plan.                                                                                                                                                                                        
|(2) 10.27      | Second Amendment to Credit Agreement, dated as of August 3,
1999, between Therma-Wave and Bankers Trust Company, as agent.                                                                                                                                    
|# (2) 10.28    | Employee Stock Purchase and Option Plan.                                                                                                                                                                                                                      
|# (2) 10.29    | 1997 Special Employee Stock Purchase and Option Plan.                                                                                                                                                                                                         
|(3) 10.30      | Third Amendment to Credit Agreement, dated as of March 1, 2000,
between Therma-Wave and Bankers Trust Company, as agent.                                                                                                                                      
|# (3) 10.31    | Therma-Wave Executive Deferred Compensation Plan, effective
January 1, 2000.                                                                                                                                                                                  
|(3) 10.32      | Lease between Minos Management, Inc. as Landlord, and Therma-
Wave as Tenant, dated May 31, 2000.                                                                                                                                                             
|# (3) 10.33    | Form of Indemnification Agreement.                                                                                                                                                                                                                            
|* (4) 10.34    | Development and Cooperation Agreement entered into by and among
Applied Materials, Inc. and Therma-Wave, Inc., effective as of July 24, 2000.                                                                                                                 
|* (4) 10.35    | Technology Escrow Agreement entered into by and among Applied
Materials, Inc. and Therma-Wave, Inc., effective as of July 24, 2000.                                                                                                                           
|(5) 10.36      | Loan and Security Agreement, Dated March 28, 2001, by and
between Therma-Wave, Inc. and Comerica Bank-California.                                                                                                                                             
|(7) 10.37      | Amendment to Loan and Security Agreement, dated as of December
20, 2001, between Therma-Wave, Inc. and Comerica Bank-California                                                                                                                               
|(1) 21.1       | Subsidiaries of Therma-Wave.                                                                                                                                                                                                                                  
|23.1           | Consent of Independent Accountants.                                                                                                                                                                                                                           
|99.1           | Risk Factors.                                                                                                                                                                                                                                                 

52




* Confidential treatment has been granted for portions of
this agreement.

# Denotes management contract or compensatory plan.

(1) Incorporated herein by reference to the similarly
numbered exhibit to Therma-Wave's Registration Statement on Form S-4
(Registration No. 333-29871).

(2) Incorporated herein by reference to the similarly
numbered exhibit to Therma-Wave's Registration Statement on Form S-1
(Registration No. 333-76019).

(3) Incorporated herein by reference to the similarly
numbered exhibit to Therma-Wave's Annual Report on Form 10-K for the period
ended March 31, 2000 (File No. 000-26911).

53




(4) Incorporated herein by reference to the similarly numbered exhibit to
Therma-Wave's Quarterly Report on Form   10-Q for the period ended September 30,
2000 (File No. 000-26911).

(5) Incorporated herein by reference to the similarly numbered exhibit to
Therma-Wave's Annual Report on Form 10-K for the period ended April 1, 2001
(File No. 000-26911).

(6) Incorporated herein by reference to Exhibit 4.2 to Therma-Wave's Current
Report on Form 8-K, as filed on January 28, 2002.

(7) Incorporated herein by reference to Exhibit 10.38 to Therma-Wave's
Quarterly Report on Form 10-Q for the period ended December 30, 2001 (File No.
000-26911).

(8) Incorporated herein by reference to the similarly numbered exhibit in
Therma-Wave's Current Report on Form 8-K, as filed with the Commission on
December 19, 2001 (File No. 000-26911).

(9) Incorporated herein by reference to the similarly numbered exhibit in
Therma-Wave's Current Report on Form 8-K, as filed with the Commission on
January 16, 2002 (File No. 000-26911).

(10) Incorporated herein by reference to Exhibit 99.2 in Therma-Wave's
Registration Statement on Form S-8 (Registration No. 333-83282).

(11) Incorporated herein by reference to the similarly numbered exhibit in
Therma-Wave's Quarterly Report on Form 10-Q for the period ended July 1, 2001
(File No. 000-26911).

54




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.

| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Therma-Wave, Inc.                                                                                                   
| |                                                                                                                     
| | By: /s/ Martin M. Schwartz
Martin M. Schwartz
Chairman of the Board, President,
Chief Executive Officer and
Director

Dated: June 20, 2002

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Martin M. Schwartz and L. Ray
Christie, and each of them, his/her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him/her and in
her/her name, place and stead, in any and all capacities, to sign any or all
amendments to this annual report on Form 10-K under the Securities Exchange Act
of 1934, as amended, 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/she 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/her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.



|Signature                                 | Title                                                                                                        | Date         
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------ | -------------
|/s/ Martin M. Schwartz
Martin M. Schwartz | Chairman of Board, President, Chief Executive Officer and
Director (Principal Executive Officer)             | June 20, 2002
|/s/ L. Ray Christie
L. Ray Christie       | Vice President, Chief Financial Officer and Secretary (Principal
Financial and Accounting Officer)           | June 20, 2002
|/s/ Talat Hasan
Talat Hasan               | Senior Vice President of Therma-Wave, Chief Executive Officer of
Sensys Instruments Corporation and Director | June 20, 2002
|/s/ G. Leonard Baker
G. Leonard Baker     | Director                                                                                                     | June 20, 2002
|/s/ David Dominik
David Dominik           | Director                                                                                                     | June 20, 2002
|/s/ Ian K. Loring
Ian K. Loring           | Director                                                                                                     | June 20, 2002

55






|/s/ Frank Alvarez
Frank Alvarez | Director | June 20, 2002
|------------------------------- | -------- | -------------
|/s/ John D'Errico
John D'Errico | Director | June 20, 2002
|/s/ David Aspnes
David Aspnes   | Director | June 20, 2002

56






THERMA-WAVE, INC.
                 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

`Balance at                            Balance at
                          Beginning                               End of
      Description         of Period   Additions   Deductions(1)   Period
------------------------  ---------  -----------  ------------  -----------
Year ended March 31,
 2002:
  Reserves and
   allowances deducted
   from asset accounts;
   Allowance for
   Doubtful Accounts,
   Returns and
   Allowances..........  $   1,096  $       345  $        367  $     1,074
Year ended March 31,
 2001:
  Reserves and
   allowances deducted
   from asset accounts;
   Allowance for
   Doubtful Accounts,
   Returns and
   Allowances..........  $   1,472  $        --  $        376  $     1,096
Year ended March 31,
 2000:
  Reserves and
   allowances deducted
   from asset Accounts:
   Allowance for
   Doubtful Accounts,
   Returns and
   Allowances..........  $   1,911  $        --  $        439  $     1,472`

________

(1) Represents specific customer accounts written off.

57