ADVANCED ENERGY INDUSTRIES INC, 424A, 1999-10-14

ADVANCED ENERGY INDUSTRIES INC
424A, 1999-10-14
ELECTRONIC COMPONENTS, NEC

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<PAGE>
SUBJECT TO COMPLETION. DATED OCTOBER 11, 1999.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
Filed Pursuant to Rule 424(a)
Registration Statement No. 333-87455

$100,000,000

[LOGO]

% Convertible Subordinated Notes due 2006
-------------

Advanced Energy Industries, Inc. is offering $100,000,000 of %
convertible subordinated notes due 2006. You may convert your convertible notes
into shares of common stock of Advanced Energy at any time prior to maturity or
their redemption by Advanced Energy. The convertible notes will mature on
, 2006. The conversion rate is shares per each $1,000 principal
amount of convertible notes, subject to adjustment in certain circumstances.
This is equivalent to a conversion price of $ per share. The common stock is
quoted on the Nasdaq National Market under the symbol "AEIS". The last reported
bid price for the common stock on October 11, 1999, was $36.50 per share.

Advanced Energy will pay interest on the convertible notes on
and of each year. The first interest payment will be made on
, 2000. The convertible notes are subordinated in right of payment
to all senior debt of Advanced Energy and indebtedness of its subsidiaries. The
convertible notes will be issued only in denominations of $1,000 and integral
multiples of $1,000.

On or after , 2002, Advanced Energy has the option to redeem all
or a portion of the convertible notes which have not previously been converted
at the redemption prices set forth in this prospectus. You have the option,
subject to certain conditions, to require Advanced Energy to repurchase any
convertible notes held by you in the event of a "change in control", as
described in this prospectus, at a price equal to 100% of the principal amount
of the convertible notes plus accrued interest to the date of repurchase.

Concurrently with this convertible notes offering and by a separate
prospectus, Advanced Energy is offering 1,000,000 shares of common stock, and
six of its stockholders are offering an additional 2,000,000 shares of their
common stock. The selling stockholders also may sell up to an additional 450,000
shares of their common stock to the underwriters for that offering to cover
over-allotments. The completion of this convertible notes offering and the
common stock offering are not dependent on one another.

SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS TO READ ABOUT
IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE PURCHASING THE CONVERTIBLE NOTES.
------------------

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------

<TABLE>
<CAPTION>
Per
Convertible Note Total
----------------- -------------
<S> <C> <C>
Initial public offering price....................................... % $
Underwriting discount............................................... % $
Proceeds, before expenses, to Advanced Energy....................... % $
</TABLE>

The initial public offering price set forth above does not include accrued
interest, if any. Interest on the convertible notes will accrue from
, 1999 and must be paid by the purchaser if the convertible notes
are delivered after , 1999.

To the extent that the underwriters sell more than $100,000,000 principal
amount of convertible notes, the underwriters have the option to purchase up to
an additional $15,000,000 principal amount of convertible notes from Advanced
Energy at the initial public offering price less the underwriting discount.
--------------------

The underwriters expect to deliver the convertible notes in book-entry form
only through the facilities of The Depository Trust Company against payment in
New York, New York, on , 1999.

GOLDMAN, SACHS & CO.

MERRILL LYNCH & CO.

BANC OF AMERICA SECURITIES LLC
--------------------

Prospectus dated , 1999.
<PAGE>

ARTWORK

[Artwork depicting equipment and building with the following text: Power
conversion and control system solutions, ion-based sources and plasma
abatement systems]

2
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS AS WELL AS THE INFORMATION
INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. REFERENCES IN THE PROSPECTUS TO "WE", "US", "OUR" OR "ADVANCED ENERGY"
ARE TO ADVANCED ENERGY INDUSTRIES, INC. AND ITS SUBSIDIARIES, UNLESS THE CONTEXT
REQUIRES OTHERWISE. ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE UNDERWRITERS'
OVER-ALLOTMENT OPTIONS WITH RESPECT TO THE CONVERTIBLE NOTES OFFERING AND THE
COMMON STOCK OFFERING ARE NOT EXERCISED, UNLESS OTHERWISE STATED.

ABOUT ADVANCED ENERGY

OVERVIEW

We design, manufacture and support power conversion and control systems.
These systems are important components of industrial manufacturing equipment
that modifies surfaces or deposits or etches thin film layers on computer chips,
CDs, flat panel displays such as computer screens, DVDs, windows, eyeglasses,
solar panels and other products. Our systems refine, modify and control the raw
electrical power from a utility and convert it into power that is uniform and
predictable. This allows manufacturing equipment to produce and deposit very
thin films at an even thickness on a mass scale.

The ongoing demand for improvements in the performance, capacity and speed
of computer chips, flat panel displays and other products drives manufacturers
to develop more advanced technology to produce thinner, more consistent and more
precise layers of film. Thin film production processes enable manufacturers to
control and alter the electrical, magnetic, optical and mechanical
characteristics of materials. Our systems are used primarily in plasma-based
thin film production processes. Plasma is commonly created by applying enough
electrical force to a gas at reduced pressure to separate electrons from their
parent atoms. Plasma-based process technology was developed to address the
limitations of wet chemistry and thermal process technologies and to enable new
applications. Plasma-based processes are inherently more controllable and more
accurate for many applications than other thin film production processes because
of the electrical characteristics of plasma.

We market and sell our systems primarily to large, global original equipment
manufacturers of semiconductor, flat panel display, data storage and other
industrial thin film manufacturing equipment. We have sold our systems worldwide
to more than 100 OEMs and directly to more than 500 end-users. Our principal
customers include Applied Materials, Balzers, Eaton, Lam Research, Novellus,
Singulus and ULVAC. The semiconductor capital equipment industry accounted for
approximately 59% of our total sales in 1997, 49% in 1998 and 59% in the first
six months of 1999.

STRATEGY

We have achieved a market leadership position by applying our large base of
expertise in the interaction between plasma-based processes and power conversion
and control systems to design highly precise, customized power conversion and
control systems that provide a wide range of power frequencies for plasma-based
thin film processes. Our strategy is to continue to build upon our leadership
positions in the semiconductor capital equipment, flat panel display and data
storage industries while exploring other emerging markets. We believe our five
key growth opportunities are:

3
<PAGE>
continue to be on the semiconductor capital equipment market. For example, in
the semiconductor capital equipment market we believe that significant
opportunities exist for us to introduce new products for processes or
applications such as:

- etch applications using radio frequency power;

- gas abatement;

- on-line measurement of power characteristics; and

- copper electroplating.

PROVIDING INTEGRATED SOLUTIONS FOR CUSTOMERS. We believe that customers
want solutions that improve process control and yield, and decrease their total
cost and time to market. We are developing integrated systems to provide more
complete solutions that meet our customers' plasma-based process requirements.
We are identifying currently fragmented applications of technology involving
significant power, measurement and control content, and developing integrated,
high performance, robust and cost-effective solutions for these applications.

TARGETING EMERGING APPLICATIONS. We are targeting emerging applications
that have the potential to benefit from more efficient and reliable use of power
in manufacturing processes for telecommunications networking equipment,
automotive parts, tools, architectural glass and other industrial products.

PURSUING ACQUISITIONS TO FUEL GROWTH. We actively seek complementary
technologies and companies as a means to expand our presence in existing and
emerging markets and to provide integrated solutions for customers and potential
customers. We have acquired and integrated four companies in the last two years.
We continually evaluate companies whose products and technologies could enhance
our system level capabilities.

CAPITALIZING ON WORLDWIDE INFRASTRUCTURE. Our principal customers are
large, global OEMs that require that their suppliers have a well-developed
worldwide infrastructure. We plan to continue to take advantage of and expand
our established global infrastructure, operating skills and comprehensive
product portfolio to better serve these customers and to attract new customers
with international support needs.

SALES AND MARKETING

We sell our systems primarily through direct sales personnel to customers in
the United States, Europe and Asia, and through distributors in China, France,
Israel, Italy, Singapore, Sweden and Taiwan. Sales outside the United States
represented 23% of our total sales during 1997, 28% in 1998 and 28% in the first
six months of 1999. We maintain sales and service offices across the United
States in California, Colorado, Massachusetts, New Jersey and Texas. We maintain
sales and service offices outside the United States in Germany, Japan, South
Korea and the United Kingdom.

RF POWER PRODUCTS ACQUISITION

In October 1998, we acquired RF Power Products, which designs, manufactures
and supports radio frequency (RF) power conversion and control systems
consisting of generators and matching networks. Generators provide RF power and
matching networks provide control over power flow to the customers' equipment.
We believe our ability to offer an expanded line of RF systems to our existing
customer base has strengthened those relationships. We sell these products
principally to semiconductor capital equipment manufacturers. We also sell
similar systems to capital equipment manufacturers in the thin film data storage
and flat panel display industries and are exploring applications for these
systems in other industries.

4
<PAGE>
RECENT DEVELOPMENTS

On October 11, 1999, we reported financial results for the third quarter and
nine-month period ended September 30, 1999.

Our revenues for the third quarter of 1999 were $51.1 million, up 95%
compared to revenues of $26.3 million for the third quarter of 1998. Our third
quarter 1999 revenues were up 23% compared to revenues of $41.5 million for the
second quarter of 1999. Gross margin for the third quarter of 1999 was 44.1%,
compared to 30.3% for the third quarter of 1998 and 44.1% for the second quarter
of 1999.

Our net income for the third quarter of 1999 was $5.5 million, compared to a
net loss in the third quarter of 1998 of $3.5 million. Our third quarter 1999
net income was up 98% compared to net income of $2.8 million for the second
quarter of 1999. Earnings per diluted share were 20 cents for the third quarter
of 1999, compared to a loss of 13 cents per diluted share in the third quarter
of 1998 and earnings of 10 cents per diluted share in the second quarter of
1999.

For the first nine months of 1999, our revenues were $125.4 million, up 23%
compared to revenues of $102.1 million for the first nine months of 1998. Gross
margin for the nine-month period was 43.0%, compared to 29.5% for the same
period in 1998.

Net income for the 1999 nine-month period was $8.8 million, compared to a
net loss of $5.7 million for the same period in 1998. Earnings per diluted share
were 31 cents for the 1999 nine-month period, compared to a loss per diluted
share of 22 cents for the same period in 1998.

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

We incorporated in Colorado in 1981 and reincorporated in Delaware in 1995.
Our main offices are located at 1625 Sharp Point Drive, Fort Collins, Colorado
80525, and our telephone number is 970-221-4670.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Securities offered................ $100,000,000 principal amount of % convertible
subordinated notes due 2006. We also have granted the
underwriters an over-allotment option to purchase up to
an additional $15,000,000 principal amount of
convertible notes.

Offering price.................... % of the principal amount of the convertible notes plus
accrued interest, if any, from , 1999.

Interest.......................... Interest on the convertible notes is payable
semiannually on , and of each
year, starting , 2000.

Conversion........................ You may convert your convertible notes into shares of
common stock at the rate of shares of common stock
per $1,000 principal amount of convertible notes. This
is equivalent to a conversion price of $ per share.
The conversion rate may be adjusted in certain events.

You will be able to convert the convertible notes at any
time before the close of business on ,
2006, unless we have previously repurchased the
convertible notes from you. If we notify you that we
intend to repurchase your convertible notes, you will
still be able to convert your convertible notes up to
the close of business on the day immediately preceding
the date fixed for repurchase. See "Description of
Convertible Notes-- Conversion Rights".

Subordination..................... The convertible notes are subordinated to any present
and future senior debt that we may incur. The
convertible notes are also effectively subordinated to
all indebtedness and other liabilities of our
subsidiaries. As of September 30, 1999, our senior debt
and indebtedness of our subsidiaries totalled
approximately $816,000. The indenture under which the
convertible notes will be issued will not prevent us
from incurring senior debt nor will it prevent our
subsidiaries from incurring any indebtedness or
liabilities. See "Description of Convertible
Notes--Subordination".

Global note; Book-entry system.... We will issue the convertible notes only in fully
registered form without coupons and in minimum
denominations of $1,000. Purchasers will not receive
individually certificated notes. Instead, the
convertible notes will be evidenced only by a global
note, in fully registered form and without coupons,
deposited with the trustee for the convertible notes, as
custodian for DTC. Your interest in the global note will
be shown on, and transfers of your interest will be
effected only through, records maintained by DTC and its
participants and indirect participants. See "Description
of Convertible Notes--Form, Denomination, Transfer,
Exchange and Book-Entry Procedures".

Optional repurchase by us......... Starting , 2002, we have the right at any
time to repurchase some or all of your convertible notes
at the prices listed on page 62 plus accrued and unpaid
interest, unless you have previously converted your
convertible notes.
</TABLE>

6
<PAGE>

<TABLE>
<S> <C>
Repurchase at your option if we
have a change in control........ If we experience a change in control, you will have the
right, subject to certain conditions and restrictions,
to require us to repurchase some or all of your
convertible notes at a price equal to 100% of the
principal amount, plus accrued and unpaid interest to
the repurchase date. The repurchase price is payable in
cash or, at our choice but subject to certain
conditions, in shares of common stock, valued at 95% of
the average closing sales prices of the common stock for
the five trading days preceding and including the third
trading day prior to the repurchase date. See
"Description of Convertible Notes--Repurchase at Option
of Holders Upon a Change in Control".

Use of proceeds................... For general corporate purposes, including acquisitions,
and working capital requirements. See "Use of Proceeds".

Events of default................. Events of default include:

(1) we fail for any reason to pay principal or any
premium on any convertible note when due, even if we are
prohibited from making the payment by the subordination
provisions of the convertible notes and the indenture;

(2) we fail for any reason to pay any interest on any
convertible note within 30 days after the interest
payment becomes due, even if we are prohibited from
making the payment by the subordination provisions of
the convertible notes and the indenture;

(3) we fail to act in accordance with any other covenant
in the indenture and we do not cure the failure within
60 days after we are provided notice of such failure;

(4) we or one of our subsidiaries fail to pay when due,
or the acceleration of the due date of, more than $10
million of indebtedness under any bonds, debentures,
notes or other borrowings, and the failure continues for
30 days after we receive notice as provided in the
indenture;

(5) we or one of our subsidiaries are party to certain
bankruptcy, insolvency or reorganization proceedings;
and

(6) we fail to provide the required notice of any change
in control, whether or not prohibited by the
subordination provisions of the convertible notes and
the indenture.

See "Description of Convertible Notes--Events of
Default".

Listing of convertible notes...... The convertible notes will not be listed on any
securities exchange or quoted on the Nasdaq National
Market. The underwriters have advised us that they
currently intend to make a market in the convertible
notes. However, the underwriters are not obligated to do
so, and any such market making may be discontinued at
any time at the sole discretion of the underwriters
without notice. See "Underwriting".

Governing law..................... The indenture and the convertible notes are governed by
the laws of the State of New York.
</TABLE>

7
<PAGE>

<TABLE>
<S> <C>
Risk factors...................... You should read the "Risk Factors" section, beginning on
page 11, as well as the other cautionary statements,
risks and uncertainties described in this prospectus and
in the documents incorporated by reference, so that you
understand the risks associated with an investment in
the convertible notes.

Concurrent common stock
offering........................ Concurrently with this convertible notes offering and by
means of a separate prospectus, we are offering to sell
1,000,000 shares of common stock and six of our officers
and directors are offering to sell 2,000,000 shares of
common stock. The selling stockholders also have granted
the underwriters of the common stock offering an over-
allotment option to purchase up to an additional 450,000
shares of common stock. The proceeds we receive from our
sale of shares will be used for general corporate
purposes, including acquisitions, and working capital
requirements. The proceeds from the sale of shares by
the selling stockholders will go only to the selling
stockholders. The completion of this convertible notes
offering and the common stock offering are not dependent
on one another.

DESCRIPTION OF COMMON STOCK

Shares outstanding (1)............ As of October 11, 1999, there were 27,091,223 shares of
common stock outstanding.

Shares outstanding if all
convertible notes are converted
(1)............................. If all of the convertible notes were converted into
common stock as of October 11, 1999, there would be
shares of common stock outstanding ( shares,
assuming that the concurrent common stock offering is
completed).

Listing of common stock........... The common stock is traded on the Nasdaq National Market
under the symbol "AEIS".
</TABLE>

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

(1) Excludes 1,978,752 shares of common stock issuable upon exercise of options
outstanding as of October 11, 1999, at a weighted average exercise price of
$13.42, 3,112,615 shares reserved for issuance under our 1995 Stock Option
Plan, 102,395 shares reserved for issuance under the RF Power stock option
plans we assumed in connection with our acquisition of RF Power in October
1998, 94,500 shares reserved for issuance under our 1995 Non-Employee
Director Stock Option Plan and 132,725 shares reserved for issuance under
our Employee Stock Purchase Plan.

8
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The summary consolidated financial data in this chart for the years ended
December 31, 1994 to 1998 and as of December 31 of those years are derived from
our audited financial statements.

The summary consolidated statement of operations data for the year ended
December 31, 1998 and the related consolidated balance sheet and other data as
of and for the year ended December 31, 1998 were derived from consolidated
financial statements audited by Arthur Andersen LLP, independent accountants,
whose related audit report is included in our annual report on Form 10-K.

The summary consolidated statement of operations data for the years ended
December 31, 1996 and 1997 and the related consolidated balance sheet and other
data as of and for the year ended December 31, 1997 were derived from
consolidated financial statements audited in part by Arthur Andersen LLP and in
part by KPMG LLP, whose audit reports are included in our annual report on Form
10-K. KPMG LLP's audit report pertains to Advanced Energy Voorhees, Inc.,
formerly named RF Power Products, Inc., whose fiscal year end was November 30.
As such, the balance sheet and other data and the statement of operations data
of the Company for fiscal 1996 and 1997 includes the balance sheet of Advanced
Energy Voorhees, Inc. as of November 30, 1996 and 1997, and the statement of
operations for each of the two years in the period ended November 30, 1997,
respectively.

The summary consolidated statements of operations data for the years ended
December 31, 1994 and 1995, and the related consolidated balance sheet and other
data as of December 31, 1996 were restated from our audited consolidated
financial statements and from audited consolidated financial statements of
Advanced Energy Voorhees. Stand-alone financial statements for Advanced Energy
Voorhees are not included in our annual reports on Form 10-K.

The summary consolidated financial data in this chart for the six months
ended June 30, 1998 and 1999 and as of June 30, 1999 are derived from our
unaudited financial statements, which are included in our quarterly report on
Form 10-Q for the quarter ended June 30, 1999. The unaudited financial data has
been prepared on the same basis as the audited financial data and, in our
opinion, includes all normal recurring adjustments necessary for a fair
statement of the results for the periods covered.

The following data should be read in conjunction with the financial
statements and related notes incorporated by reference in this prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation".

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................... $68,159 $121,075 $129,931 $175,758 $124,698 $75,850 $ 74,243
Cost of sales........................... 36,183 65,003 82,685 108,802 87,985 53,729 42,852
------- -------- -------- -------- -------- ------- --------
Gross profit............................ 31,976 56,072 47,246 66,956 36,713 22,121 31,391
------- -------- -------- -------- -------- ------- --------
Operating expenses
Research and development.............. 7,190 12,865 17,288 19,336 23,849 12,229 12,610
Sales and marketing................... 5,982 8,256 10,723 11,646 13,531 7,076 7,284
General and administrative............ 6,989 10,612 8,865 10,480 9,483 5,627 5,958
Other expenses (1).................... -- -- -- 5,780 2,625 -- --
------- -------- -------- -------- -------- ------- --------
Total operating expenses................ 20,161 31,733 36,876 47,242 49,488 24,932 25,852
------- -------- -------- -------- -------- ------- --------
Income (loss) from operations........... 11,815 24,339 10,370 19,714 (12,775) (2,811) 5,539
Other (expense) income.................. (96) (452) (39) (191) 358 227 17
------- -------- -------- -------- -------- ------- --------
Net income (loss) before income taxes... 11,719 23,887 10,331 19,523 (12,417) (2,584) 5,556
Provision (benefit) for income taxes.... 4,386 9,089 3,960 7,467 (2,900) (333) 2,252
------- -------- -------- -------- -------- ------- --------
Net income (loss)....................... $ 7,333 $ 14,798 $ 6,371 $ 12,056 $ (9,517) $(2,251) $ 3,304
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Basic earnings (loss) per share......... $ 0.36 $ 0.67 $ 0.25 $ 0.47 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Diluted earnings (loss) per share....... $ 0.32 $ 0.63 $ 0.25 $ 0.46 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
OTHER DATA:
Ratio of earnings to fixed charges
(2)................................... 17.4x 36.5x 37.4x 41.6x --(3) --(3) 155.3x
</TABLE>

9
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<TABLE>
<CAPTION>
JUNE 30, 1999
DECEMBER 31, ------------------------------------------
------------------------------- AS FURTHER
1996 1997 1998 ACTUAL AS ADJUSTED(4) ADJUSTED(4)(5)
--------- --------- --------- --------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents/marketable
securities.............................. $ 11,778 $ 32,215 $ 28,134 $ 25,498 $ 122,088 $ 156,353
Working capital........................... 41,638 74,342 62,059 66,964 163,554 197,819
Total assets.............................. 68,078 130,064 101,035 113,383 213,383 247,648
Total debt................................ 3,741 6,518 537 1,766 101,766 101,766
Stockholders' equity...................... 54,927 97,527 89,133 93,389 93,389 127,654
</TABLE>

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

(1) Other operating expenses represent a restructuring charge, merger costs,
storm damages and recoveries and a write-off of purchased in-process
research and development expenses.

(2) The ratio of earnings to fixed charges represents, on a pre-tax basis, the
number of times earnings cover fixed charges. Earnings consist of net income
to which has been added interest expense on capital leases and long-term
debt. Fixed charges consist of interest expense on capital leases and
long-term debt.

(3) The losses for 1998 and the six months ended June 30, 1998 are not
sufficient to cover fixed charges by a total of approximately $12.2 million
for 1998 and $2.5 million for the six months ended June 30, 1998. As a
result, the ratio of earnings to fixed charges has not been computed for
either 1998 or the six months ended June 30, 1998.

(4) Reflects net proceeds of approximately $96,590,000 from the sale of the
convertible notes (assuming an offering price of 100% of the principal
amount), after deducting underwriters' discounts and commissions and
estimated offering expenses relating to the convertible notes offering.

(5) Reflects net proceeds of approximately $34,265,000 from our sale of
1,000,000 shares of common stock in the concurrent common stock offering
(assuming an offering price of $36.50 per share), after deducting
underwriters' discounts and commissions and estimated offering expenses
relating to the common stock offering.

10
<PAGE>
RISK FACTORS

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS AND IN THE DOCUMENTS INCORPORATED BY REFERENCE
BEFORE DECIDING WHETHER TO PURCHASE OUR SECURITIES.

RISKS RELATED TO OUR BUSINESS

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH
COULD NEGATIVELY IMPACT OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND STOCK
PRICE.

Our quarterly operating results have fluctuated significantly and we expect
them to continue to experience significant fluctuations. Downward fluctuations
in our quarterly results have historically resulted in decreases in the price of
our common stock. Quarterly operating results are affected by a variety of
factors, many of which are beyond our control. These factors include:

- changes or slowdowns in economic conditions in the semiconductor and
semiconductor capital equipment industries and other industries in which
our customers operate;

- the timing and nature of orders placed by major customers;

- customer cancellations of previously placed orders and shipment delays;

- pricing competition from our competitors;

- component shortages resulting in manufacturing delays;

- changes in customers' inventory management practices;

- the introduction of new products by us or our competitors; and

- costs incurred by responding to specific feature requests by customers.

In addition, companies in the semiconductor capital equipment industry and
other electronics companies experience pressure to reduce costs. Our customers
exert pressure on us to reduce our prices, shorten delivery times and extend
payment terms. These pressures could lead to significant changes in our
operating results from quarter to quarter.

In the past, we have incurred charges and costs related to events such as
acquisitions, restructuring and storm damages. The occurrence of similar events
in the future could adversely affect our operating results in the applicable
quarter.

Our operating results in one or more future quarters may fall below the
expectations of analysts and investors. In those circumstances, the trading
price of our common stock would likely decrease and, as a result, any trading
price of the convertible notes may decrease.

THE SEMICONDUCTOR AND SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRIES ARE HIGHLY
VOLATILE AND OUR OPERATING RESULTS ARE AFFECTED TO A LARGE EXTENT BY EVENTS IN
THOSE INDUSTRIES.

The semiconductor industry historically has been highly volatile and has
experienced periods of oversupply resulting in significantly reduced demand for
semiconductor fabrication equipment, which includes our systems. During
downturns, some of our customers have drastically reduced their orders to us and
have implemented substantial cost reduction programs. Sales to customers in the
semiconductor capital equipment industry accounted for 59% of our total sales in
1997, 49% in 1998 and 59% in the first six months of 1999. We expect that we
will continue to depend significantly on the semiconductor and semiconductor
capital equipment industries for the foreseeable future.

A rapid decrease in demand for our products can occur with limited advance
notice because we supply subsystems to equipment manufacturers and make a
substantial and increasing

11
<PAGE>
proportion of our shipments on a just-in-time basis. This decrease in demand can
adversely impact our business and financial results disproportionately because
of its unanticipated nature.

A SIGNIFICANT PORTION OF OUR SALES ARE CONCENTRATED AMONG A FEW CUSTOMERS.

Our four largest customers accounted for 51% of our total sales in 1997, 47%
in 1998 and 52% in the first six months of 1999. Our largest customer accounted
for 31% of our total sales in 1997, 23% in 1998 and 31% in the first six months
of 1999. The loss of any of these customers or a material reduction in any of
their purchase orders would have a material adverse effect on our business,
financial condition and results of operations.

THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE.

We face substantial competition, primarily from established companies, some
of which have greater financial, marketing and technical resources than we do.
Our primary competitors are ENI, a subsidiary of Astec (BSR) plc, Applied
Science and Technology (ASTeX), Huettinger, Shindingen, Kyosan, Comdel and
Daihen. We expect that our competitors will continue to develop new products in
direct competition with ours, improve the design and performance of their
systems and introduce new systems with enhanced performance characteristics.

To remain competitive, we need to continue to improve and expand our systems
and system offerings. In addition, we need to maintain a high level of
investment in research and development and expand our sales and marketing
efforts, particularly outside of the United States. We may not be able to make
the technological advances and investments necessary to remain competitive.

New products developed by competitors or more efficient production of their
products could increase pressure on the pricing of our systems. In addition,
electronics companies, including companies in the semiconductor capital
equipment industry, have been facing pressure to reduce costs. Either of these
factors may require us to make significant price reductions to avoid losing
orders. Further, our current and prospective customers consistently exert
pressure on us to lower prices, shorten delivery times and improve the
capability of our systems. Failure to respond adequately to such pressures could
result in a loss of customers or orders.

WE MAY NOT BE ABLE TO INTEGRATE OUR ACQUISITIONS.

We have experienced significant growth through acquisitions and continue to
actively pursue acquisition opportunities. Our acquisitions to date generally
have been in markets in which we have limited experience. We may not be able to
compete successfully in these markets or might not be able to operate the
acquired businesses efficiently. Our business and results of operations could be
adversely affected if integrating these acquisitions results in substantial
costs, delays or other operational or financial problems.

Future acquisitions could place additional strain on our operations and
management. Our ability to manage future acquisitions will depend on our success
in:

- evaluating new markets and investments;

- monitoring operations;

- controlling costs;

- integrating acquired operations and personnel;

- maintaining effective quality controls; and

- expanding our internal management, technical and accounting systems.

Also, in connection with future acquisitions we may issue equity securities
which could be dilutive, incur debt, recognize substantial one-time expenses or
create goodwill or other intangible assets that could result in significant
amortization expense.

12
<PAGE>
WE ARE GROWING AND MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.

We have been experiencing a period of growth and expansion. This growth and
expansion is placing significant demands on our management and our operating
systems. We need to continue to improve and expand our management, operational
and financial systems, procedures and controls, including accounting and other
internal management systems, quality control, delivery and service capabilities.

In order to manage our growth, we may also need to spend significant amounts
of cash to:

- fund increases in expenses;

- take advantage of unanticipated opportunities, such as major strategic
alliances or other special marketing opportunities, acquisitions of
complementary businesses or assets, or the development of new products; or

- otherwise respond to unanticipated developments or competitive pressures.

If we do not have enough cash on hand, cash generated from our operations or
cash available under our credit facility to meet these cash requirements, we
will need to seek alternative sources of financing to carry out our growth and
operating strategies. We may not be able to raise needed cash on terms
acceptable to us, or at all. Financings may be on terms that are dilutive or
potentially dilutive. If alternative sources of financing are required but are
insufficient or unavailable, we will be required to modify our growth and
operating plans to the extent of available funding.

SHORTAGES OF COMPONENTS NECESSARY FOR OUR PRODUCT ASSEMBLY CAN DELAY OUR
SHIPMENTS.

Manufacturing our power conversion and control systems requires numerous
electronic components. Dramatic growth in the electronics industry has
significantly increased demand for these components. This demand has resulted in
periodic shortages and allocations of needed components, and we expect to
experience additional shortages and allocations from time to time. Shortages and
allocations could cause shipping delays for our systems, adversely affecting our
results of operations. Shipping delays also could damage our relationships with
current and prospective customers.

We consider the inability to obtain electronic components from our suppliers
to be our most reasonably likely worst case year 2000 scenario. See "--The year
2000 issue could have an adverse impact on our business".

OUR DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD AFFECT OUR ABILITY TO
MANUFACTURE PRODUCTS AND SYSTEMS.

We rely on sole and limited source suppliers for some of our components and
subassemblies that are critical to the manufacturing of our systems. This
reliance involves several risks, including the following:

- the potential inability to obtain an adequate supply of required
components;

- reduced control over pricing and timing of delivery of components; and

- the potential inability of our suppliers to develop technologically
advanced products to support our growth and development of new systems.

We believe that in time we could obtain and qualify alternative sources for
most sole and limited source parts or could manufacture the parts ourselves.
Seeking alternative sources or commencing internal manufacture of the parts
could require us to redesign our systems, resulting in increased costs and
likely shipping delays. We may be unable to manufacture the parts internally or
redesign our systems, which could result in further costs and shipping delays.
These increased costs would decrease our profit margins if we could not pass the
costs to our customers. Further,

13
<PAGE>
shipping delays could damage our relationships with current and potential
customers and have a material adverse effect on our business and results of
operations.

WE ARE HIGHLY DEPENDENT ON OUR INTELLECTUAL PROPERTY BUT MAY NOT BE ABLE TO
PROTECT IT ADEQUATELY.

Our success depends in part on our proprietary technology. We attempt to
protect our intellectual property rights through patents and non-disclosure
agreements. However, we might not be able to protect our technology, and
competitors might be able to develop similar technology independently. In
addition, the laws of certain foreign countries might not afford our
intellectual property the same protection as do the laws of the United States.
For example, our intellectual property is not protected by patents in several
countries in which we do business, and we have limited patent protection in
certain other countries. The costs of applying for patents in foreign countries
and translating the applications into foreign languages require us to select
carefully the inventions for which we apply for patent protection and the
countries in which we seek such protection. Generally, we have concentrated our
efforts to obtain international patents in the United Kingdom, Germany, France,
Italy and Japan because there are other manufacturers and developers of power
conversion and control systems in those countries, as well as customers for
those systems. Our inability or failure to obtain adequate patent protection in
a particular country could have a material adverse effect on our ability to
compete effectively in that country.

Our patents also might not be sufficiently broad to protect our technology,
and any existing or future patents might be challenged, invalidated or
circumvented. Additionally, our rights under our patents may not provide
meaningful competitive advantages.

We do not believe that any of our products are infringing any patents or
proprietary rights of others, although infringements may exist or might occur in
the future. Litigation may be necessary to enforce patents issued to us, to
protect our trade secrets or know-how, to defend ourselves against claimed
infringement of the rights of others or to determine the scope and validity of
the proprietary rights of others. Litigation could result in substantial cost
and diversion of our efforts. Moreover, an adverse determination in any
litigation could cause us to lose proprietary rights, subject us to significant
liabilities to third parties, require us to seek licenses or alternative
technologies from third parties or prevent us from manufacturing or selling our
products. Any of these events could have a material adverse effect on our
business, financial condition and results of operations.

WE MUST CONSTANTLY DEVELOP AND SELL NEW SYSTEMS IN ORDER TO KEEP UP WITH RAPID
TECHNOLOGICAL CHANGES.

The markets for our systems and the markets in which our customers compete
are characterized by ongoing technological developments and changing customer
requirements. We must continue to improve existing systems and to develop new
systems that keep pace with technological advances and meet the needs of our
customers in order to succeed. We might not be able to continue to improve our
systems or develop new systems. The systems we do develop might not be
cost-effective or introduced in a timely manner. Developing and introducing new
systems may involve significant and uncertain costs. Our business, financial
condition and results of operations, as well as our customer relationships,
could be adversely affected if we fail to develop or introduce improved systems
and new systems in a timely manner.

WE MUST ACHIEVE DESIGN WINS TO RETAIN OUR EXISTING CUSTOMERS AND TO OBTAIN NEW
CUSTOMERS.

The constantly changing nature of semiconductor fabrication technology
causes equipment manufacturers to continually design new systems. We often must
work with these manufacturers early in their design cycles to modify our
equipment to meet the requirements of the new systems. Manufacturers typically
choose one or two vendors to provide the power conversion equipment for

14
<PAGE>
use with the early system shipments. Selection as one of these vendors is called
a design win. It is critical that we achieve these design wins in order to
retain existing customers and to obtain new customers.

We typically must customize our systems for particular customers to use in
their equipment to achieve design wins. This customization increases our
research and development expenses and can strain our engineering and management
resources. These investments do not always result in design wins.

Once a manufacturer chooses a power conversion and control system for use in
a particular product, it is likely to retain that system for the life of that
product. Our sales and growth could experience material and prolonged adverse
effects if we fail to achieve design wins. In addition, design wins do not
always result in substantial sales or profits.

We believe that equipment manufacturers often select their suppliers based
on factors such as long-term relationships. Accordingly, we may have difficulty
achieving design wins from equipment manufacturers who are not currently
customers. In addition, we must compete for design wins for new systems and
products of our existing customers, including those with whom we have had
long-term relationships.

OUR EFFORTS TO BE RESPONSIVE TO CUSTOMERS MAY LEAD TO THE INCURRENCE OF COSTS
THAT ARE NOT READILY RECOVERABLE.

We may incur manufacturing overhead and other costs, many of which are
fixed, to meet anticipated customer demand. Accordingly, operating results could
be adversely affected if orders or revenues in a particular period or for a
particular system do not meet expectations.

We often require long lead times for development of our systems during which
times we must expend substantial funds and management effort. We may incur
significant development and other expenses as we develop our systems without
realizing corresponding revenue in the same period, or at all.

OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.

Our success depends upon the continued efforts of our senior management team
and our technical, marketing and sales personnel. These employees may
voluntarily terminate their employment with us at any time. Our success also
depends on our ability to attract and retain additional highly qualified
management, technical, marketing and sales personnel. The process of hiring
employees with the combination of skills and attributes required to carry out
our strategy can be extremely competitive and time-consuming. We may not be able
to successfully retain existing personnel or identify, hire and integrate new
personnel. If we lose the services of key personnel for any reason, including
retirement, or are unable to attract additional qualified personnel, our
business, financial condition and results of operations could be materially and
adversely affected.

WE CONDUCT MANUFACTURING AT ONLY A FEW SITES.

We conduct the majority of our manufacturing at our facilities in Fort
Collins, Colorado and in Voorhees, New Jersey. We also conduct manufacturing for
one customer in Austin, Texas. Tower Electronics, a subsidiary, conducts
manufacturing only at its facility in Fridley, Minnesota. Each facility
generally manufactures different systems. In July 1997, a severe rainstorm in
Fort Collins caused substantial damage to our Fort Collins facilities and to
some equipment and inventory. The damage caused us to stop manufacturing at that
facility temporarily and prevented us from resuming full production there until
mid-September 1997. Our insurance policies did not cover all of the costs that
we incurred in connection with the rainstorm. Future natural or other
uncontrollable occurrences at any of our primary manufacturing facilities that
negatively impact our manufacturing

15
<PAGE>
processes may not be fully covered by insurance and could have a material
adverse effect on our operations and results of operations.

WE HAVE LIMITED EXPERIENCE IN MAINTAINING MULTIPLE MANUFACTURING FACILITIES.

The acquisitions of Tower Electronics in 1997 and RF Power Products in 1998
provided us with manufacturing facilities located outside of our facilities in
Fort Collins, Colorado. Accordingly, we have limited experience in maintaining
multiple manufacturing locations. Substantial costs and delays could result if
we fail to effectively manage and integrate our geographically separate
facilities.

WE MIGHT NOT BE ABLE TO COMPETE SUCCESSFULLY IN INTERNATIONAL MARKETS OR TO MEET
THE SERVICE AND SUPPORT NEEDS OF OUR INTERNATIONAL CUSTOMERS.

Our customers increasingly require service and support on a worldwide basis
as the markets in which we compete become increasingly globalized. We maintain
sales and service offices in Germany, Japan, South Korea and the United Kingdom.

Sales to customers outside the United States accounted for 23% of our total
sales in 1997, 28% in 1998 and 28% in the first six months of 1999, and we
expect international sales to continue to represent a significant portion of our
future sales. International sales are subject to various risks, including:

- currency fluctuations;

- governmental controls;

- political and economic instability;

- barriers to entry;

- trade restrictions;

- changes in tariffs and taxes; and

- longer payment cycles.

In particular, the Japanese market has historically been difficult for
non-Japanese companies, including us, to penetrate.

Providing support services for our systems on a worldwide basis also is
subject to various risks, including:

- our ability to hire qualified support personnel;

- maintenance of our standard level of support; and

- differences in local customers and practices.

Our international activities are also subject to the difficulties of
managing overseas distributors and representatives and managing foreign
subsidiary operations.

We cannot assure you that we will be successful in addressing any of these
risks.

FLUCTUATIONS IN THE CURRENCY EXCHANGE RATE BETWEEN THE U.S. DOLLAR AND FOREIGN
CURRENCIES COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

A portion of our sales is subject to currency exchange risks as a result of
our international operations. We have experienced fluctuations in foreign
currency exchange rates, particularly against the Japanese yen. Beginning in
1997, we entered into various forward foreign exchange contracts as a hedge
against currency fluctuations in the yen. We have not employed hedging
techniques with respect to any other currencies. Our current or any future
hedging techniques might not protect us adequately against substantial currency
fluctuations.

16
<PAGE>
WE MUST MAINTAIN MINIMUM LEVELS OF CUSTOMIZED INVENTORY TO SUPPORT CERTAIN
CUSTOMER DELIVERY REQUIREMENTS.

We must keep a relatively large number and variety of customized systems in
our inventory to meet client delivery requirements because a substantial
proportion of our business involves the just-in-time shipment of systems. Our
inventory may become obsolete as we develop new systems and as our customers
develop new systems. Inventory obsolescence could have a material adverse effect
on our financial condition and results of operations.

WE ARE SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS.

We are subject to federal, state, local and foreign regulations, including
environmental regulations and regulations relating to the design and operation
of our power conversion and control systems. We must ensure that our systems
meet certain safety and emissions standards, many of which vary across the
states and countries in which our systems are used. For example, the European
Union has published directives specifically relating to power supplies. We must
comply with these directives in order to ship our systems into countries that
are members of the European Union. In the past, we have invested significant
resources to redesign our systems to comply with these directives. We believe we
are in compliance with current applicable regulations, directives and standards
and have obtained all necessary permits, approvals and authorizations to conduct
our business. However, compliance with future regulations, directives and
standards could require us to modify or redesign certain systems, make capital
expenditures or incur substantial costs. If we do not comply with current or
future regulations, directives and standards:

- we could be subject to fines;

- our production could be suspended; or

- we could be prohibited from offering particular systems in specified
markets.

WE MAY INVEST IN START-UP COMPANIES AND COULD LOSE OUR ENTIRE INVESTMENT.

We have a majority interest in a start-up company and may invest in other
start-up companies that develop products and technologies which we believe may
provide us with future benefits. These investments may not provide us with any
benefit, and we may not achieve any economic return on any of these investments.
Our investments in these start-up companies are subject to all of the risks
inherent in investing in companies that are not established. We could lose all
or any part of our investments in these companies.

WE LEASE OUR FORT COLLINS, COLORADO FACILITIES AND A CONDOMINIUM FROM ENTITIES
IN WHICH TWO INDIVIDUALS WHO ARE INSIDERS AND MAJOR STOCKHOLDERS HAVE FINANCIAL
INTERESTS.

We lease our executive offices and manufacturing facilities in Fort Collins,
Colorado from Prospect Park East Partnership and from Sharp Point Properties,
LLC. Douglas S. Schatz, our Chairman and Chief Executive Officer, holds a 26.7%
interest in each of the leasing entities. G. Brent Backman, a member of our
board of directors, holds a 6.6% interest in each of the leasing entities.
Aggregate rental payments under such leases for 1998 totaled approximately $1.4
million. We also lease a condominium in Breckenridge, Colorado to provide
rewards and incentives to our customers, suppliers and employees. We lease the
condominium from AEI Properties, a partnership in which Mr. Schatz holds a 60%
interest and Mr. Backman holds a 40% interest. Aggregate rental payments under
the condominium lease for 1998 totaled approximately $36,000. Mr. Schatz owns
approximately 44.07% of our common stock, and Mr. Backman owns approximately
7.81% of our common stock. Each of Messrs. Schatz and Backman is offering to
sell 875,000 shares in the concurrent common stock offering and has granted the
underwriters of that offering an over-allotment option to purchase an additional
131,250 shares.

17
<PAGE>
THE YEAR 2000 ISSUE COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS.

The year 2000 issue is the result of computer programs that rely on
two-digit date codes, instead of four-digit date codes, to indicate the year.
Computer programs which are unable to interpret the date code "00" as the year
2000 may not be able to perform computations and decision-making functions after
December 31, 1999 and could cause computer systems to malfunction. We have
developed a multi-phase program for year 2000 information systems compliance. In
what we believe to be the most reasonably likely worst case year 2000 scenario,
we would be unable to obtain electronic components from one or more of our
suppliers because of the suppliers' failure to timely become year 2000
compliant, and we would be unable to obtain the necessary components from
another source, manufacture the necessary components internally or to redesign
our systems to accommodate different components without substantial costs or
delays, or at all. We may not be able to respond fully and efficiently to those
concerns.

We estimate that the costs to remedy and test the year 2000 matters will be
immaterial. Our cost estimates do not include costs and time that may be
incurred as a result of any vendor's or customer's failures to become year 2000
compliant on a timely basis. In addition, we cannot predict whether any
litigation will be brought against us as a result of any supplier's or
customer's failure to become year 2000 compliant on a timely basis or claiming
that our products are not year 2000 compliant or otherwise.

RISKS RELATED TO THE CONVERTIBLE NOTES

THE MARKET PRICE OF OUR STOCK HAS BEEN AND WILL LIKELY CONTINUE TO BE HIGHLY
VOLATILE.

The stock market generally and the market for technology stocks in
particular have experienced significant price and volume fluctuations, which
often have been unrelated or disproportionate to the operating performance of
such companies. From our IPO in November 1995 through October 11, 1999, the
closing prices of our common stock on the Nasdaq National Market have ranged
from $3.50 to $44.97. The market for our common stock likely will continue to be
subject to similar fluctuations. Many factors could cause the trading price of
our common stock to fluctuate substantially, including the following:

- future announcements concerning our business, our customers or our
competitors;

- variations in our operating results;

- announcements of technological innovations;

- the introduction of new products or changes in product pricing policies by
us, our competitors or our customers;

- changes in earnings estimates by securities analysts or announcements of
operating results that are not aligned with the expectations of analysts
and investors;

- the economic and competitive conditions in the industries in which our
customers operate; and

- general stock market trends.

THERE MAY BE NO PUBLIC MARKET FOR THE CONVERTIBLE NOTES.

The convertible notes will be a new issue of securities with no established
trading market. Although the underwriters for this convertible notes offering
have advised us that they currently intend to make a market in the convertible
notes, they have no obligation to do so and may discontinue any market making at
any time and without notice. In addition, any market making activity will be
subject to the limits imposed by the Securities Act of 1933 and the Securities
Exchange Act of 1934. Accordingly, we cannot assure you that any market for the
convertible notes will develop or, if it does develop, that it will be
maintained. Various factors could have a material

18
<PAGE>
adverse effect on the trading price of the convertible notes, if any, including
the failure of an active market to develop, fluctuations in the prevailing
interest rates, changes in the market for convertible securities and changes in
the market price of our common stock.

WE MAY BE UNABLE TO REPAY OR REPURCHASE THE CONVERTIBLE NOTES.

There is no sinking fund with respect to the convertible notes, and at
maturity the entire outstanding principal amount of the convertible notes will
become due and payable. If we experience a change in control you may require us
to repurchase all or a portion of your convertible notes prior to maturity. See
"Description of Convertible Notes". We cannot assure you that we will have
sufficient funds or will be able to arrange for additional financing to repay
the
convertible notes at maturity or to repurchase convertible notes tendered to us
following a change in control. Under the terms of the convertible notes
indenture, we may elect, subject to certain conditions, to pay the repurchase
price with shares of common stock.

Borrowing arrangements or agreements relating to senior debt to which we
become a party, including any refinancings of our existing credit facility, may
contain restrictions on or prohibitions against our repurchase of the
convertible notes. If we are prohibited from repurchasing the convertible notes
and cannot obtain the necessary waivers or refinance the applicable borrowings,
we will be unable to repurchase the convertible notes. Our failure to repurchase
any tendered convertible notes or convertible notes due upon maturity would
constitute an event of default of the convertible notes and, upon acceleration
of the convertible notes in accordance with the indenture, would cause a default
under the terms of our credit facility. In this type of situation, the
subordination provisions of the convertible notes indenture would prohibit any
repurchase of the convertible notes until we pay in full the senior debt.

THE CONVERTIBLE NOTES WILL BE SUBORDINATED TO OTHER DEBT.

We may be required to repay our present and any future senior debt and
indebtedness of our subsidiaries before we can repay the convertible notes. As
of September 30, 1999, our senior debt and indebtedness of our subsidiaries
totalled approximately $816,000. The indenture under which the convertible notes
will be issued will not prevent us or our subsidiaries from incurring additional
debt. If we are party to a bankruptcy, liquidation or reorganization, or if we
default on any senior debt, our assets will be used to satisfy the holders of
our senior debt before we will be able to make additional payments on the
convertible notes. Further, the assets of each of our subsidiaries must be used
to satisfy the holders of the subsidiary's indebtedness before we can use the
subsidiary's assets to make payments on the convertible notes.

OUR MANAGEMENT HAS BROAD DISCRETION TO DETERMINE HOW TO USE THE FUNDS RAISED
FROM THE SALE OF THE CONVERTIBLE NOTES AND THE COMMON STOCK, AND MAY USE THOSE
FUNDS IN WAYS THAT MAY NOT INCREASE OUR OPERATING RESULTS OR MARKET VALUE.

The net proceeds from the sale of the convertible notes and our net proceeds
from the sale of shares in the concurrent common stock offering have not been
allocated for a particular purpose. We intend to use the net proceeds for
general corporate purposes, including acquisitions, and working capital
requirements. We may use some or all of the net proceeds for acquisitions,
although no agreement or understanding with respect to any future acquisition
has been reached. Our management will have significant discretion as to the use
of the net proceeds of the offerings and you will not have the opportunity, as
part of your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds from this offering and our net proceeds from the
concurrent common stock offering may be applied to uses that ultimately may not
increase our operating results or our market value.

19
<PAGE>
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A MAJORITY OF OUR OUTSTANDING COMMON
STOCK, WHICH COULD ENABLE THEM TO CONTROL OUR BUSINESS AND AFFAIRS.

Our executive officers and directors own approximately 55.81% of our common
stock outstanding as of October 11, 1999. Assuming the sale of common stock in
the concurrent common stock offering, and without giving effect to conversion of
any convertible notes, our executive officers and directors will own
approximately 46.85% of our outstanding common stock. Douglas S. Schatz, our
Chairman and Chief Executive Officer, owns approximately 44.07% of our common
stock outstanding as of October 11, 1999 and, assuming the sale of common stock
in the common stock offering, will own 39.39% of our outstanding common stock.
These stockholdings give our executive officers and directors collectively, and
Mr. Schatz individually significant voting power. Depending on the number of
shares that abstain or otherwise are not voted, our executive officers
collectively, and Mr. Schatz individually, may be able to elect all of the
members of our
board of directors and to control our business and affairs for the foreseeable
future.

ANTITAKEOVER PROVISIONS LIMIT THE ABILITY OF A PERSON OR ENTITY TO ACQUIRE
CONTROL OF US.

Our certificate of incorporation and bylaws include provisions which:

- allow the board of directors to issue preferred stock with rights senior
to those of the common stock without any vote or other action by the
holders of the common stock;

- limit the right of our stockholders to call a special meeting of
stockholders; and

- impose procedural and other requirements that could make it difficult for
stockholders to effect certain corporate actions.

In addition, we are subject to the anti-takeover provisions of the Delaware
General Corporation Law. Any of these provisions could delay or prevent a person
or entity from acquiring control of us. The effect of these provisions may be to
limit the price that investors are willing to pay in the future for our
securities. These provisions might also discourage potential acquisition
proposals or could diminish the opportunities for our stockholders to
participate in a tender offer, even if the acquisition proposal or tender offer
is at a price above the then current market price for our common stock.

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

Some of the statements contained in or incorporated by reference in this
prospectus discuss our plans and strategies for our business or make other
forward-looking statements, as this term is defined in the Private Securities
Litigation Reform Act. The words "anticipates", "believes", "estimates",
"expects", "plans", "intends" and similar expressions are intended to identify
these forward-looking statements, but are not the exclusive means of identifying
them. These forward-looking statements reflect the current views of our
management. However, various risks, uncertainties and contingencies could cause
our actual results, performance or achievements to differ materially from those
expressed in, or implied by, these statements, including the following:

- the success or failure of our efforts to implement our business strategy;
and

- the other risks and uncertainties discussed under the heading "Risk
Factors" and elsewhere in this prospectus and in the documents
incorporated by reference.

We do not have any obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
You should carefully consider the information set forth under the caption "Risk
Factors" and elsewhere in this prospectus and in the documents incorporated by
reference. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in, implied by or incorporated by reference in
this prospectus might not occur.

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<PAGE>
USE OF PROCEEDS

We are offering $100,000,000 of convertible notes. After deducting the
underwriters' discounts and commissions and estimated offering expenses, we
anticipate retaining approximately $96,590,000 of the proceeds from the sale of
the convertible notes (assuming a sale of the convertible notes at 100% of the
principal amount). We anticipate retaining approximately $111,140,000 if the
underwriters exercise their over-allotment option in full.

Concurrently with our convertible notes offering, we are offering to sell
1,000,000 shares of common stock and six of our stockholders are offering to
sell 2,000,000 shares of common stock. After deducting the underwriters'
discounts and commissions and estimated offering expenses, we anticipate
retaining proceeds from that offering of approximately $34,265,000 (based upon
an assumed offering price of $36.50 per share). We will not receive any of the
proceeds from the sale of common stock by the selling stockholders.

We intend to use our net proceeds from these offerings of approximately
$130,855,000 for general corporate purposes, including possible acquisitions,
and working capital requirements. Although we actively seek acquisition
opportunities, no agreement or understanding with respect to any future
acquisition has been reached. Pending their ultimate use, we intend to invest
the net proceeds from these offerings in short-term, investment grade, interest
bearing securities, certificates of deposit or direct or guaranteed obligations
of the United States.

PRICE RANGE OF COMMON STOCK

Our common stock is quoted on the Nasdaq National Market under the symbol
"AEIS". The following table sets forth the range of high and low bid prices for
the common stock on the Nasdaq National Market for the periods indicated.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
First quarter............................................................. 7 7/8 5 1/4
Second quarter............................................................ 14 3/8 7 1/8
Third quarter............................................................. 31 1/8 14 1/2
Fourth quarter............................................................ 34 1/8 12 1/4

1998
First quarter............................................................. 17 5/8 10
Second quarter............................................................ 15 1/16 11
Third quarter............................................................. 12 3/8 6
Fourth quarter............................................................ 22 7/8 5 5/8

1999
First quarter............................................................. 29 1/2 19 1/4
Second quarter............................................................ 36 5/8 23 1/2
Third quarter............................................................. 43 3/8 30 1/4
Fourth quarter (through October 11, 1999)................................. 37 1/2 30 3/8
</TABLE>

DIVIDEND POLICY

We have not declared or paid any cash dividends on the common stock since
prior to 1994 when we were an S corporation for tax purposes. We currently
intend to retain all of our future earnings to finance our business. In
addition, our revolving credit facility prohibits us from declaring or paying
cash dividends on the common stock. As a result, we do not anticipate paying any
cash or other dividends on the common stock in the foreseeable future.

21
<PAGE>
CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999, (1)
on a historical basis, (2) as adjusted to reflect the sale of $100,000,000 of
convertible notes at an assumed offering price of 100% of principal amount, and
(3) as further adjusted to reflect the sale of 1,000,000 shares of our common
stock at an assumed offering price of $36.50 per share and the application of
the estimated proceeds, in each case net of our estimated offering expenses and
the underwriters' discounts and commissions. You should read this table together
with our financial statements and notes thereto and other financial and
operating data included elsewhere in this prospectus or incorporated by
reference into this prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------------
AS
FURTHER
ACTUAL AS ADJUSTED ADJUSTED
--------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt and capital lease obligations................ $ 1,766 $ 1,766 $ 1,766
Convertible notes........................................... -- 100,000 100,000
Stockholders' equity
Preferred stock, 1,000 shares authorized; none issued and
outstanding............................................. -- -- --
Common stock, 40,000 shares authorized; 26,969 issued and
outstanding (actual and as adjusted); 27,969 issued and
outstanding (as further adjusted)....................... 27 27 28
Additional paid-in capital.................................. 62,193 62,193 96,457
Retained earnings........................................... 32,443 32,443 32,443
Cumulative translation adjustment........................... (1,274) (1,274) (1,274)
--------- ----------- ---------
Total stockholders' equity................................ 93,389 93,389 127,654
--------- ----------- ---------
Total capitalization.................................... $ 95,155 $ 195,155 $ 229,420
--------- ----------- ---------
--------- ----------- ---------
</TABLE>

22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected consolidated financial data in this chart for the years ended
December 31, 1994 to 1998 and as of December 31 of those years are derived from
our audited financial statements.

The selected consolidated statement of operations data for the year ended
December 31, 1998 and the related consolidated balance sheet and other data as
of and for the year ended December 31, 1998 were derived from consolidated
financial statements audited by Arthur Andersen LLP, independent accountants,
whose related audit report is included in our annual report on Form 10-K.

The selected consolidated statement of operations data for the years ended
December 31, 1996 and 1997 and the related consolidated balance sheet and other
data as of and for the year ended December 31, 1997 were derived from
consolidated financial statements audited in part by Arthur Andersen LLP and in
part by KPMG LLP, whose audit reports are included in our annual report on Form
10-K. KPMG LLP's audit report pertains to Advanced Energy Voorhees, Inc.,
formerly named RF Power Products, Inc., whose fiscal year end was November 30.
As such, the balance sheet and other data and the statement of operations data
of the Company for fiscal 1996 and 1997 includes the balance sheet of Advanced
Energy Voorhees, Inc. as of November 30, 1996 and 1997, and the statement of
operations for each of the two years in the period ended November 30, 1997,
respectively.

The selected consolidated statements of operations data for the years ended
December 31, 1994 and 1995, and the related consolidated balance sheet and other
data as of December 31, 1996 were restated from our audited consolidated
financial statements and from audited consolidated financial statements of
Advanced Energy Voorhees. Stand-alone financial statements for Advanced Energy
Voorhees are not included in our annual reports on Form 10-K.

The selected consolidated financial data in this chart for the six months
ended June 30, 1998 and 1999 and as of June 30, 1999 are derived from our
unaudited financial statements, which are included in our quarterly report on
Form 10-Q for the quarter ended June 30, 1999. The unaudited financial data has
been prepared on the same basis as the audited financial data and, in our
opinion, includes all normal recurring adjustments necessary for a fair
statement of the results for the periods covered.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- -------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................... $68,159 $121,075 $129,931 $175,758 $124,698 $75,850 $ 74,243
Cost of sales........................... 36,183 65,003 82,685 108,802 87,985 53,729 42,852
------- -------- -------- -------- -------- ------- --------
Gross profit............................ 31,976 56,072 47,246 66,956 36,713 22,121 31,391
------- -------- -------- -------- -------- ------- --------
Operating expenses
Research and development.............. 7,190 12,865 17,288 19,336 23,849 12,229 12,610
Sales and marketing................... 5,982 8,256 10,723 11,646 13,531 7,076 7,284
General and administrative............ 6,989 10,612 8,865 10,480 9,483 5,627 5,958
Other expenses(1)..................... -- -- -- 5,780 2,625 -- --
------- -------- -------- -------- -------- ------- --------
Total operating expenses................ 20,161 31,733 36,876 47,242 49,488 24,932 25,852
------- -------- -------- -------- -------- ------- --------
Income (loss) from operations........... 11,815 24,339 10,370 19,714 (12,775) (2,811) 5,539
Other (expense) income.................. (96) (452) (39) (191) 358 227 17
------- -------- -------- -------- -------- ------- --------
Net income (loss) before income taxes... 11,719 23,887 10,331 19,523 (12,417) (2,584) 5,556
Provision (benefit) for income taxes.... 4,386 9,089 3,960 7,467 (2,900) (333) 2,252
------- -------- -------- -------- -------- ------- --------
Net income (loss)....................... $ 7,333 $ 14,798 $ 6,371 $ 12,056 $ (9,517) $(2,251) $ 3,304
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Basic earnings (loss) per share......... $ 0.36 $ 0.67 $ 0.25 $ 0.47 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Diluted earnings (loss) per share....... $ 0.32 $ 0.63 $ 0.25 $ 0.46 $ (0.36) $ (0.08) $ 0.12
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
OTHER DATA:
Ratio of earnings to fixed charges
(2)................................... 17.4x 36.5x 37.4x 41.6x --(3) --(3) 155.3x
</TABLE>

23
<PAGE>

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

(1) Other operating expenses represent a restructuring charge, merger costs,
storm damages and recoveries and a write-off of purchased in-process
research and development expenses.

(5) Reflects net proceeds of approximately $34,265,000 from our sale of
1,000,000 shares of common stock in the concurrent common stock offering,
(assuming an offering price of $36.50 per share), after deducting
underwriters' discounts and commissions and estimated offering expenses
relating to the common stock offering.

24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

OVERVIEW

We design, manufacture and support power conversion and control systems.
These systems are important components of industrial manufacturing equipment
that modifies surfaces or deposits or etches thin film layers on computer chips,
CDs, flat panel displays such as computer screens, DVDs, windows, eyeglasses,
solar panels and other products. We market and sell our systems primarily to
large, global OEMs of semiconductor, data storage, flat panel display and other
industrial thin film manufacturing equipment. A substantial and increasing
proportion of our sales are made on a just-in-time basis in which the shipment
of systems occurs within a few days or hours after an order is received. Our
revenues are recognized upon shipment of our systems. Since inception, we have
sold over 150,000 power conversion and control systems.

The semiconductor capital equipment industry accounted for approximately 59%
of our total sales in 1997, 49% in 1998 and 59% in the first six months of 1999.
We have been successful in achieving a number of design wins which have resulted
in our obtaining new customers and solidifying relationships with our existing
customers. We believe our ability to continue to achieve design wins with
existing and potential customers will be critical to our future success.

We continuously seek to expand our product offerings and customer base
through internal development and acquisitions.

In May 1997, we acquired the assets of MIK Physics, Inc. This acquisition
provided the base technology for our Astral products, which are high power
direct current (DC) systems used in PVD equipment.

In August 1997, we acquired Tower Electronics. This acquisition expanded our
technology and customer base, and provided us with the capability to design and
manufacture power conversion systems for use in modems, non-impact printers,
night vision goggles and laser devices.

We took another step towards achieving further market diversification in
September 1998 when we acquired the assets of Fourth State Technology. This
acquisition enhanced our capability to design and manufacture RF power-related
process control systems used to monitor and analyze data in thin film processes.

In October 1998, we acquired RF Power Products, which designs, manufactures
and supports RF power conversion and control systems consisting of generators
and matching networks. Generators provide radio frequency power and matching
networks provide control over power flow to the customers' equipment. We believe
our ability to offer an expanded line of RF systems to our existing customer
base has strengthened those relationships. We sell these products principally to
semiconductor capital equipment manufacturers. We also sell similar systems to
capital equipment manufacturers in the flat panel display and thin film data
storage industries, and are exploring applications for these products in other
industries.

In August 1999, we acquired a majority interest in LITMAS, a start-up
company that designs and manufactures plasma abatement systems and high-density
plasma sources. LITMAS' first product, "Litmas Blue", reduces "greenhouse gas"
(PFC and HFC) emissions from tools used in the etch process in the fabrication
of semiconductors. We believe that Litmas Blue and LITMAS' future products will
expand our product offerings to our existing and potential customers in the
semiconductor capital equipment industry.

25
<PAGE>
RESULTS OF OPERATIONS

The following table summarizes certain data as a percentage of sales
extracted from our statements of operations for the periods presented:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
JUNE 30,
---------------------------- ----------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 61.9 70.6 70.8 57.7
----------- ----- ----- -----------
Gross margin...................................... 38.1 29.4 29.2 42.3
----------- ----- ----- -----------
Operating expenses:
Research and development........................ 11.0 19.1 16.1 17.0
Sales and marketing............................. 6.6 10.9 9.3 9.8
General and administrative...................... 6.0 7.5 7.4 8.0
Other expenses.................................. 3.3 2.1 -- --
----------- ----- ----- -----------
Total operating expenses.......................... 26.9 39.6 32.9 34.8
----------- ----- ----- -----------
Income (loss) from operations..................... 11.2 (10.2) (3.7) 7.5
Other (expense) income............................ (0.1) 0.2 0.3 0.0
----------- ----- ----- -----------
Net income (loss) before income taxes............. 11.1 (10.0) (3.4) 7.5
Provision (benefit) for income taxes.............. 4.2 (2.4) (0.4) 3.0
----------- ----- ----- -----------
Net income (loss)................................. 6.9% (7.6)% (3.0)% 4.5%
----------- ----- ----- -----------
----------- ----- ----- -----------
</TABLE>

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999

SALES. We sell power conversion and control systems primarily to the
semiconductor capital equipment, data storage and industrial markets in the
United States, to the flat panel display and data storage markets in Japan, and
to the data storage and industrial markets in Europe. We also sell spare parts
and repair services worldwide through our global support organization.

Sales for the first six months of 1999 were $74.2 million, a decrease of 2%
from sales of $75.8 million in the first six months of 1998. The decrease was
attributable mostly to decreases in sales to industrial markets, which were
partially offset by increases in sales to customers in the semiconductor capital
equipment industry.

26
<PAGE>
The following tables summarize net sales and percentages of net sales by
customer type for the six-month periods ended June 30, 1998 and 1999:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Semiconductor capital equipment........................................ $ 40,820 $ 43,854
Data storage........................................................... 9,160 9,040
Flat panel display..................................................... 3,769 3,559
Industrial............................................................. 18,881 13,745
Customer service technical support..................................... 3,220 4,045
--------- ---------
$ 75,850 $ 74,243
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Semiconductor capital equipment.......................................... 53.8% 59.1%
Data storage............................................................. 12.1 12.2
Flat panel display....................................................... 5.0 4.8
Industrial............................................................... 24.9 18.5
Customer service technical support....................................... 4.2 5.4
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>

The following tables summarize net sales and percentages of net sales by
geographic region for the six-month periods ended June 30, 1998 and 1999:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
United States and Canada............................................... $ 57,081 $ 53,453
Europe................................................................. 12,835 11,971
Asia Pacific........................................................... 5,714 8,457
Rest of world.......................................................... 220 362
--------- ---------
$ 75,850 $ 74,243
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
United States and Canada................................................. 75.3% 72.0%
Europe................................................................... 16.9 16.1
Asia Pacific............................................................. 7.5 11.4
Rest of world............................................................ 0.3 0.5
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>

GROSS MARGIN. Our gross margin for the first six months of 1999 was 42.3%,
up from 29.2% in the first six months of 1998. The improvement in gross margin
was primarily a result of our efforts to reduce material and manufacturing
overhead costs, including implementation of our restructuring plan in the third
quarter of 1998.

We provide warranty coverage for our systems ranging from 12 to 24 months.
We estimate the anticipated costs of repairing systems under such warranties
based on the historical average costs of repairs. To date, we have not
experienced significant warranty costs in excess of our recorded reserves.

27
<PAGE>
RESEARCH AND DEVELOPMENT. Our research and development expenses are
incurred researching new technologies, developing new systems and improving
existing system designs. Research and development expenses for the first six
months of 1999 were $12.6 million, up from $12.2 million in the first six months
of 1998, representing an increase of 3%. The increase was attributable to higher
spending for materials and supplies. As a percentage of sales, research and
development expenses increased to 17.0% in the first six months of 1999 from
16.1% in the first six months of 1998.

We believe continued research and development investment for development of
new systems is critical to our ability to serve new and existing markets. Since
our inception, research and development costs generally have been internally
funded and all have been expensed as incurred.

SALES AND MARKETING. Sales and marketing expenses support domestic and
international sales and marketing activities which include personnel, trade
shows, advertising and other marketing activities. Sales and marketing expenses
for the first six months of 1999 were $7.3 million, up slightly from $7.1
million in the first six months of 1998, representing an increase of 3%. As a
percentage of sales, sales and marketing expenses increased to 9.8% in the first
six months of 1999 from 9.3% in the first six months of 1998.

GENERAL AND ADMINISTRATIVE. General and administrative expenses support our
worldwide financial, administrative, information systems and human resources
functions. General and administrative expenses for the first six months of 1999
were $6.0 million, up from $5.6 million in the first six months of 1998,
representing an increase of 7%. As a percentage of sales, general and
administrative expenses increased to 8.0% in the first six months of 1999 from
7.4% in the first six months of 1998.

OTHER INCOME. Other income consists primarily of interest income and
expense, foreign exchange gains and losses, and other non-operating expenses.
Other income for the first six months of 1999 was $17,000, compared to $227,000
in the first six months of 1998, representing a decrease of 93%.

Interest expense consists principally of borrowings under our bank credit
and capital lease facilities and a state government loan.

We have experienced fluctuations in foreign currency exchange rates,
particularly against the Japanese yen. Beginning in 1997, we entered into
various forward foreign exchange contracts as a hedge against currency
fluctuations in the yen. We continue to evaluate various methods to minimize the
effects of currency fluctuations.

PROVISION FOR INCOME TAXES. The income tax provision was $2.3 million for
the first six months of 1999, compared to an income tax benefit of $333,000 for
the first six months of 1998. The estimated effective rate was 40.5% for the
first six months of 1999, compared to an effective income tax benefit rate of
12.9% for the first six months of 1998. The higher effective consolidated tax
rate for the first six months of 1999 is attributable to losses recorded at our
Advanced Energy Voorhees subsidiary in the second quarter of 1998 for which no
tax benefit had been recorded and a shift in the mix of our taxable income
toward a greater share from countries with higher effective tax rates. Changes
in the relative earnings of our U.S. and foreign operations affect our
consolidated effective tax rate. To the extent that a larger percentage of
taxable earnings are derived from our foreign subsidiaries whose tax rates are
higher than domestic tax rates, we could experience a higher consolidated
effective tax rate than the historical rates we have experienced. We adjust our
provision for income taxes periodically based upon the anticipated tax status of
all of our foreign and domestic entities.

28
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998

SALES. Sales for 1998 were $124.7 million, a decrease of 29% from sales of
$175.8 million for 1997. The decrease was due to decreased unit sales. The
semiconductor capital equipment industry, affected primarily by the Asian
financial crisis, experienced a severe downturn from the end of 1997 through
1998. This caused a 41% decrease in our sales to this industry in 1998 compared
to 1997, primarily in the United States and the Asia Pacific region. Sales to
the data storage industry decreased 27%, although sales to our largest customer
in that industry grew significantly from 1997 to 1998, resulting in higher sales
in Europe. Sales to industrial markets were slightly higher, but would have been
lower if not for the full-year effect of sales by Tower Electronics in 1998.

GROSS MARGIN. Our gross margin for 1998 was 29.4%, down from 38.1% in 1997.
The decrease in gross margin was primarily due to unfavorable absorption of
manufacturing overhead as a result of significant capacity expansion in 1997 and
the reduced level of sales in 1998.

RESEARCH AND DEVELOPMENT. Research and development expenses for 1998 were
$23.8 million, up from $19.3 million in 1997, representing an increase of 23%.
As a percentage of sales, research and development expenses increased to 19.1%
in 1998 from 11.0% in 1997 as a result of the lower sales base. The increase in
expenses from 1997 to 1998 is primarily due to increases in payroll, materials
and supplies, purchased services, and higher infrastructure costs for new
product development.

We recorded a one-time charge of $3.1 million in 1997 for the portion of the
Tower Electronics purchase price attributable to in-process research and
development. This one-time charge is not included in the $19.3 million reported
for research and development expense in 1997.

SALES AND MARKETING. Sales and marketing expenses for 1998 were $13.5
million, up from $11.6 million in 1997, representing an increase of 16%. The
increase is attributable to higher payroll costs incurred as we continue to
increase our sales management and product management capabilities. Additionally,
we increased spending in 1998 to develop worldwide applications engineering
capabilities. As a percentage of sales, sales and marketing expenses increased
to 10.9% in 1998 from 6.6% in 1997 as a result of the lower sales base.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for 1998
were $9.5 million, down from $10.5 million in 1997, representing a decrease of
10%. This decrease is primarily attributable to implementation of our 1998
restructuring plan. As a percentage of sales, general and administrative
expenses increased to 7.5% in 1998 from 6.0% in 1997. This increase was due to
the lower sales base.

OTHER EXPENSES. We took one-time charges totaling $5.8 million in 1997. We
took a net charge of $2.7 million for storm damage to our headquarters and main
manufacturing facilities that resulted from heavy rains in the Fort Collins area
in July 1997. We settled with our insurance carrier in 1998, and recorded a $1.1
million recovery in the fourth quarter of 1998.

As discussed above in "--Research and Development", our acquisition of Tower
Electronics resulted in a write-off of $3.1 million in 1997 for purchased
in-process research and development, which is nondeductible for income tax
purposes.

We took one-time charges totaling $3.7 million in 1998. In August 1998, we
announced a restructuring plan to respond to the downturn in the semiconductor
capital equipment market. The plan included a reduction of workforce of 128
people, the closure of one facility in our Fort Collins, Colorado campus, and
the abandonment of plans to construct a new manufacturing facility in Fort
Collins. Other reductions in workforce at the Voorhees facility were effected
during 1998. We took a one-time charge of $1.0 million for the restructuring in
the third quarter of 1998.

29
<PAGE>
On October 8, 1998, we acquired RF Power Products in a pooling of interests
that involved the exchange of four million shares of our common stock for the
publicly held common stock of RF Power Products. We incurred as part of the
business combination $2.7 million of acquisition expenses recorded in the fourth
quarter of 1998, which is non-capitalizable and generally nondeductible for
income tax purposes.

OTHER (EXPENSE) INCOME. Other (expense) income consists primarily of
interest income and expense, foreign exchange gains and losses and other
non-operating expenses. Interest income for 1998 was $1.1 million, up from $0.6
million in 1997, representing an increase of 83%. Interest income was due
primarily to earnings on investments made from the proceeds of our IPO in
November 1995 and our underwritten public offering in October 1997.

Interest expense decreased to approximately $0.2 million for 1998 from $0.5
million for 1997.

PROVISION (BENEFIT) FOR INCOME TAXES. The income tax benefit was $2.9
million for 1998 compared to an income tax provision of $7.5 million in 1997.
The estimated effective rate was 23.4% for 1998, compared to an effective rate
of 38.2% for 1997. The lower rate of the tax benefit in 1998 was due to
nondeductible costs associated with our acquisition of RF Power Products, and
foreign operating losses for which no benefit was recorded.

30
<PAGE>
QUARTERLY RESULTS OF OPERATIONS

The following tables present quarterly results in dollars and as a
percentage of sales for each of the eight quarters in the period ended June 30,
1999. We believe that all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly such quarterly information. The operating results for any quarter are not
necessarily indicative of results for any subsequent period.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.......................... $ 52,688 $ 56,059 $ 43,869 $ 31,981 $ 26,292 $ 22,556 $ 32,728 $ 41,515
Cost of sales.................. 31,658 34,878 30,263 23,466 18,317 15,939 19,630 23,222
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit................... 21,030 21,181 13,606 8,515 7,975 6,617 13,098 18,293
--------- --------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development..... 5,484 5,656 5,835 6,394 5,722 5,898 5,852 6,758
Sales and marketing.......... 2,829 3,684 3,564 3,512 3,255 3,200 3,305 3,979
General and administrative... 2,780 3,371 2,859 2,768 2,353 1,503 2,870 3,088
Restructuring charge......... -- -- -- -- 1,000 -- -- --
Merger costs................. -- -- -- -- -- 2,742 -- --
Storm damages (recoveries)... 3,000 (300) -- -- -- (1,117) -- --
Purchased in-process research
and development............ 3,080 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses....... 17,173 12,411 12,258 12,674 12,330 12,226 12,027 13,825
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) from
operations................... 3,857 8,770 1,348 (4,159) (4,355) (5,609) 1,071 4,468
Other (expense) income......... (22) 37 98 129 (214) 345 (39) 56
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) before income
taxes........................ 3,835 8,807 1,446 (4,030) (4,569) (5,264) 1,032 4,524
Provision (benefit) for income
taxes........................ 2,544 2,305 552 (885) (1,089) (1,478) 498 1,754
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss).............. $ 1,291 $ 6,502 $ 894 $ (3,145) $ (3,480) $ (3,786) $ 534 $ 2,770
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Diluted earnings (loss) per
share........................ $ 0.05 $ 0.24 $ 0.03 $ (0.12) $ (0.13) $ (0.14) $ 0.02 $ 0.10
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Diluted weighted-average number
of shares and share
equivalents.................. 26,401 27,143 27,170 26,531 26,585 26,681 28,027 28,169
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>

31
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Percentage of Sales:
Sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 60.1 62.2 69.0 73.4
--------- -------- -------- --------
Gross margin.............................. 39.9 37.8 31.0 26.6
--------- -------- -------- --------
Operating expenses:
Research and development................ 10.4 10.1 13.3 19.9
Sales and marketing..................... 5.4 6.6 8.1 11.0
General and administrative.............. 5.3 6.0 6.5 8.7
Restructuring charge.................... -- -- -- --
Merger costs............................ -- -- -- --
Storm damages (recoveries).............. 5.7 (0.5) -- --
Purchased in-process research and
development........................... 5.8 -- -- --
--------- -------- -------- --------
Total operating expenses.................. 32.6 22.2 27.9 39.6
--------- -------- -------- --------
Income (loss) from operations............. 7.3 15.6 3.1 (13.0)
Other income (expense).................... 0.0 0.1 0.2 0.4
--------- -------- -------- --------
Net income (loss) before income taxes..... 7.3 15.7 3.3 (12.6)
Provision (benefit) for income taxes...... 4.8 4.1 1.3 (2.8)
--------- -------- -------- --------
Net income (loss)......................... 2.5% 11.6% 2.0% (9.8)%
--------- -------- -------- --------
--------- -------- -------- --------

SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1999 1999
--------- -------- -------- --------

<S> <C> <C> <C> <C>
Percentage of Sales:
Sales..................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 69.7 70.7 60.0 55.9
--------- -------- -------- --------
Gross margin.............................. 30.3 29.3 40.0 44.1
--------- -------- -------- --------
Operating expenses:
Research and development................ 21.8 26.1 17.9 16.3
Sales and marketing..................... 12.4 14.2 10.1 9.6
General and administrative.............. 8.9 6.7 8.8 7.4
Restructuring charge.................... 3.8 -- -- --
Merger costs............................ -- 12.2 -- --
Storm damages (recoveries).............. -- (5.0) -- --
Purchased in-process research and
development........................... -- -- -- --
--------- -------- -------- --------
Total operating expenses.................. 46.9 54.2 36.7 33.3
--------- -------- -------- --------
Income (loss) from operations............. (16.6) (24.9) 3.3 10.8
Other income (expense).................... (0.8) 1.6 (0.1) 0.1
--------- -------- -------- --------
Net income (loss) before income taxes..... (17.4) (23.3) 3.2 10.9
Provision (benefit) for income taxes...... (4.2) (6.5) 1.5 4.2
--------- -------- -------- --------
Net income (loss)......................... (13.2)% (16.8)% 1.6% 6.7%
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>

Our quarterly operating results have fluctuated significantly and we expect
them to continue to experience significant fluctuations. Quarterly results are
affected by a variety of factors, many of which are beyond our control,
including:

- changes or slowdowns in economic conditions in the semiconductor and
semiconductor capital equipment industries and other industries in which
our customers operate;

- the timing and nature of orders placed by major customers;

- customer cancellations of previously placed orders and shipment delays;

- pricing competition from our competitors;

- component shortages resulting in manufacturing delays;

- changes in customers' inventory management practices;

- the introduction of new products by us or our competitors; and

- costs incurred by responding to specific feature requests by customers.

A substantial portion of our shipments are made on a "just-in-time" basis in
which shipment of systems occurs within a few days or hours after an order is
received. Our backlog is not meaningful because of the importance of
"just-in-time" shipments. We are dependent on obtaining orders for shipment in a
particular quarter to achieve our revenue objectives for that quarter.
Accordingly, it is difficult for us to predict accurately the timing and level
of sales in a particular quarter. Due to our "just-in-time" program, we
anticipate quarterly fluctuations in sales to continue to occur.

32
<PAGE>
Sales fluctuated significantly during the periods presented, reflecting
changing demand. Demand for our systems is affected primarily by changes in the
semiconductor capital equipment market. The semiconductor capital equipment
market experienced a major but short-lived recovery in the second half of 1997,
but then a severe downturn began at the end of 1997 and continued through 1998
until the market began to recover in early 1999. Our quarterly sales generally
mirrored the market. To a lesser extent, sales are affected by events in the
data storage, flat panel display and other industrial markets.

Our gross margin fluctuated significantly, primarily reflecting the level at
which we utilized our manufacturing capacity. Successive decreases in gross
margin to 31.0% in the first quarter of 1998 and 26.6% in the second quarter of
1998 were due to decreased utilization of capacity resulting from two successive
quarterly decreases in sales to the semiconductor capital equipment industry.
Gross margin improved to 30.3% in the third quarter of 1998, despite continued
decreased utilization of capacity, due to lower material costs obtained through
supplier contract negotiations and cost improvements realized from our
restructuring. Gross margin declined to 29.3% in the fourth quarter of 1998, due
primarily to further decreased utilization of capacity resulting from another
decrease in sales to the semiconductor capital equipment industry. Gross margin
increased significantly to 40.0% in the first quarter of 1999, primarily as
result of our efforts to reduce material costs and, to a lesser extent, the
higher sales base. Gross margin increased again in the second quarter of 1999 to
44.1% due to the higher sales base.

Operating expenses have been affected by non-recurring charges and credits
and our responses to changes in demand for our product, particularly from the
semiconductor capital equipment industry. For example, in the third quarter of
1997, we recorded a $3.0 million charge in connection with storm damage we
experienced and wrote off $3.1 million of purchased in-process research and
development associated with the Tower Electronics acquisition. Due to the
downturn in the semiconductor capital equipment industry in 1998, our operating
expenses were held relatively flat during the first half of 1998 in anticipation
of an early recovery. With the extent and duration of the downturn still
uncertain, in the second half of 1998 we reduced operating expenses while
maintaining a minimum level of resources necessary to address an upturn in the
semiconductor capital equipment industry that began to occur in the first half
of 1999. Operating expenses in the third and fourth quarters of 1998 were also
affected by non-recurring charges and credits. Operating expenses increased in
the first two quarters of 1999, reflecting expenditures to support the
significant growth in sales during those periods. As a percentage of sales,
operating expenses have declined during periods of rapid sales growth, when
sales increased at a rate faster than our ability to add personnel and
facilities to support the growth, and increased during periods of flat or
decreased sales, when our infrastructure is retained to support anticipated
future growth.

Our provision (benefit) for income taxes fluctuated significantly from the
third quarter of 1997 through the second quarter of 1999, primarily due to the
effect of non-recurring charges and credits. For example, an effective income
tax rate of 66.3% in the third quarter of 1997 was due primarily to the $3.1
million write-off associated with the acquisition of Tower Electronics. An
effective income tax benefit rate of 28.1% for the fourth quarter of 1998 was
due primarily to nondeductible merger costs offset by tax benefits recorded for
operating losses incurred during the quarter.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations, acquired equipment and
met our working capital requirements through borrowings under our revolving line
of credit, long-term loans secured by property and equipment, cash flow from
operations and proceeds from equity offerings.

Operating activities used cash of $2.1 million in the first six months of
1999, primarily a result of increases in accounts receivable and inventories,
partially offset by net income, increases in accounts payable and increased
accruals for payroll, employee benefits and income taxes.

33
<PAGE>
Operating activities provided cash of $4.7 million in the first six months of
1998, primarily as a result of decreases in accounts receivable and inventories,
offset by the net loss, decreases in accounts payable and decreased accruals for
income taxes. We expect future receivable and inventory balances to fluctuate
with net sales. We provide just-in-time deliveries to certain of our customers
and may be required, under certain contracts or agreements, to maintain minimum
levels of inventory to satisfy our customers' delivery requirements. Any
increase of our inventory levels will require the use of cash to finance the
inventory.

Investing activities used cash of $1.1 million in the first six months of
1999 and included the purchase of property and equipment for $3.0 million,
offset by sales of $1.9 million of marketable securities. Investing activities
used cash of $3.2 million in the first six months of 1998 and included the
purchase of property and equipment for $4.0 million and the purchase of a stock
investment in a start-up company for $0.75 million, offset by sales of $1.5
million of marketable securities.

Financing activities in the first six months of 1999 provided cash of $3.0
million and consisted primarily of proceeds of $1.8 million from the exercise of
employee stock options and net increases in notes payable and capital lease
obligations of $1.2 million. Financing activities in the first six months of
1998 used cash of $1.6 million and consisted primarily of payment of notes
payable and capital lease obligations of $1.9 million, partially offset by
proceeds of $0.3 million from the exercise of employee stock options.

We plan to spend approximately $4.0 million through the remainder of 1999
and the first six months of 2000 for the acquisition of manufacturing and test
equipment and furnishings. Further, we continue to implement our management
system software, including the replacement of existing systems in our domestic
and foreign locations. We expect to incur aggregate costs of approximately $0.3
million related to training and implementation of the software through the year
2000.

As of June 30, 1999, we had working capital of $67.0 million. Our sources of
available funds as of June 30, 1999 consisted of $11.3 million of cash and cash
equivalents, $14.2 million of marketable securities, and a credit facility
consisting of a $30.0 million revolving line of credit, of which none was
outstanding as of June 30, 1999. Advances under the revolving line of credit
bear interest at either the prime rate (8.25% at September 30, 1999) minus 1.25%
or the LIBOR 360-day rate (6.035% at September 30, 1999) plus 150 basis points,
at our option. All advances under the revolving line of credit will be due and
payable on December 7, 2000, unless up to $10 million of indebtedness is
converted into a 3-year term loan prior to that date.

We believe that our cash and cash equivalents, marketable securities, cash
flow from operations and available borrowings will be sufficient to meet our
working capital needs for the next twelve months. From time to time, we may
raise capital through additional equity or debt financing in order to take
advantage of favorable market conditions or to fund material capital equipment
purchases or desired expansion. We have considered, and will continue to
consider, possible acquisitions of businesses or entities, which we believe
could create synergies or opportunities for us. If we were to undertake one or
more acquisitions, we may require additional funds which may be provided by the
sale of equity or debt securities. The requisite funding might not be available
when required or it might not be available on terms acceptable to us.

34
<PAGE>
BUSINESS

OVERVIEW

We have sold our systems worldwide to more than 100 OEMs and directly to
more than 500 end-users. Since inception, we have sold more than 150,000 power
conversion and control systems. Our principal customers include Applied
Materials, Balzers, Eaton, Lam Research, Novellus, Singulus and ULVAC.

BACKGROUND

THE MARKET FOR PLASMA-BASED THIN FILM PRODUCTION PROCESSES

Manufacturing processes in use today employ thin film technology to modify
surfaces or to deposit or etch thin layers of materials on substrates such as
silicon, glass and metals. In recent years, significant technological advances
in thin film processes have permitted materials to be manipulated on an atomic
and molecular level. Manufacturers can now both deposit and etch layers of
materials that are less than one hundredth of a micron in thickness. Thin film
production processes enable manufacturers to control and alter the electrical,
magnetic, optical and mechanical characteristics of materials. Products produced
by thin film processing include integrated circuits, flat panel displays and
magnetic media. The ongoing demand for improvements in the performance, capacity
and speed of these products drives manufacturers to develop more advanced
technology to produce increasingly thinner, more consistent and more precise
layers of film.

Thin film production processes are now used in a broad and rapidly growing
range of industrial manufacturing processes. Thin film processes have been
employed most extensively in the semiconductor industry. In the fabrication of
integrated circuits, multiple thin film layers of insulating or conductive
materials are deposited on a wafer or substrate. Each thin film layer becomes an
integral part of microscopic device and circuitry features. For example, the
current generation dynamic random access memory chips (DRAMs) are manufactured
with ten to thirty layers of film and an overall thickness of no more than 0.5
microns. Thin film manufacturing processes similar to those employed in the
semiconductor industry are increasingly being used in the production of flat
panel displays such as the monitors in portable computers. These processes are
also used extensively in the data storage industry in the production of CDs,
DVDs and computer hard disks. Thin film processes for data storage products are
used to create the optical and magnetic storage mediums and to deposit
protective wear surfaces on the finished products. In addition, industrial
manufacturers have begun to use thin film processes to apply coatings or films
to a wide range of products, including solar panels, architectural glass,
eyeglasses, tools, bar-code readers, lenses, automotive parts, front surface
mirrors, razor blades, decorative wrappings and food product packaging.

The primary applications for thin film manufacturing include deposition, in
which a layer of material is deposited on a surface, and etch, in which unneeded
portions of a layer are removed. Thin film production was initially accomplished
with liquid chemicals, known as wet chemistry processing, or thermal processes.
Over time, those processes became inadequate for many

35
<PAGE>
applications as the demand for products requiring thinner, more precise films
increased. Plasma-based process technology was developed to address the
limitations of wet chemistry and thermal technologies and to enable new
applications.

Today plasma-based processing is broadly used by thin film manufacturers.
Plasma is commonly created by applying enough electrical force to a gas at
reduced pressure to separate electrons from their parent atoms. The atom is
transformed to a highly energetic state. In plasma-based thin film processing,
the material to be altered, known as the substrate, and one or more specific
gases are inserted into a vacuum chamber. The plasma created from the gases is
then manipulated by electrical forces to alter the molecular characteristics of
the substrate surface. Plasma-based processes are inherently more controllable
and more accurate for many applications than other thin film production
processes because of the electrical characteristics of plasma. It is possible to
more precisely control the arrival rate, angle and energy of molecules at the
surface being modified using electrical forces. Plasma-based process technology
is expected to continue evolving to meet the worldwide growth in demand for
smaller, more versatile electronics, finer visual resolution products and denser
data storage mediums because of the precision provided by plasma's electrical
characteristics.

Below is an illustration of a plasma-based production process:

[Illustration titled "Plasma Process Illustration" depicting in diagram form the
flow of utility power to a power conversion and control system, with arrows
identifying the plasma, ions, electric field and substrate in the vacuum process
system.]

POWER CONVERSION AND CONTROL SYSTEM REQUIREMENTS

The effectiveness of plasma-based production processes depends in large part
on the quality of the electrical power used to ignite and manipulate the plasma.
A power conversion and control system used in a plasma-based process must
refine, modify and control the raw electrical power from a utility and convert
it into power that is uniform, predictable and precisely repeatable, which
permits the production of identical thin films of unvarying thickness on a mass
scale. Instability of electrical forces in the plasma may damage or destroy the
substrate under production, as well as the power conversion and control system.
A power conversion and control system must react within microseconds, or
millionths of a second, to changes in the level of the utility supplied power,
the electrical characteristics of the plasma and the process control settings in
order to avoid instabilities. The key requirements for plasma processing power
conversion and control systems are:

CONVERSION AND CONTROL OF HIGH POWER. Plasma-based production requires the
generation of extremely high levels of electrical power, usually in the range of
500 to 25,000 watts. In contrast, the power level required to operate most home
and office electrical equipment is generally far below 500 watts. A power
conversion and control system must include the ability to properly convert the
externally supplied power, and must also make accurate and fast measurements so
the system can be dynamically controlled. These measurements are difficult
because of the strong electrical fields

36
<PAGE>
and electrical noise that result from the high power concentration and the
nature of the plasma itself. Additionally, a power conversion and control system
must meet the small footprint requirements of a clean room environment while
minimizing the impact of the concentration of electrical radiation and heat
caused by tightly packed high power circuitry.

CONTROL OVER A WIDE RANGE OF POWER LEVELS. Power conversion and control
systems for plasma-based processes must operate over a wide range of power
levels in order to support a variety of plasma-based processes and applications.
For example, a power conversion and control system may need to operate at power
levels that vary by a factor of one thousand. In contrast, the power supplies
used in most home and office electrical equipment generally only need to operate
at power levels that vary by no more than a factor of two. One of the most
challenging requirements for plasma-based process power conversion and control
systems is the need for system instrumentation to make rapid measurements of
many electrical characteristics, including current, voltage, power and impedance
levels. The measurements must be made with precision, speed and accuracy at both
low and high levels of power.

CONTROL OF UTILITY INSTABILITIES. Incoming power from a utility supplier is
subject to brownouts, surges, voltage transients and general voltage variations.
A power conversion and control system must serve as a buffer from the
variability of raw utility power sources. Under normal operating conditions,
excluding brownouts, voltage from the utility source may vary by as much as 10%.
In comparison, even a 1% variance in the power supply to a plasma chamber may
cause significant defects in the film under production.

CONTROL OF ARCS. One of the most critical problems that arises from a
failure to control power in a plasma-based process is arcing, which is
characterized by intense localized electrical discharges which act like
lightning. Arcs often cause serious damage to both the substrate and the power
conversion and control equipment. A power conversion and control system must not
only be rugged enough to withstand the impact of abrupt electrical changes in
the plasma, but must also contain circuitry to extinguish arcs as they occur.
The power system must act to control the power levels within less than a
microsecond in order to effectively control arcs.

CONTROL OF SYSTEM INSTABILITIES. The current and voltage in the plasma may
fluctuate in some advanced plasma-based processes using exotic gases and
electrode arrangements, causing system instabilities. The power conversion and
control system must promptly detect the changing electrical characteristics of
the plasma and adjust the power supply to prevent instabilities. If these system
instabilities are not properly controlled, the thin films will lack uniformity,
which may seriously impair the yield and performance of the products being
manufactured.

CHARACTERISTICS OF THE POWER CONVERSION AND CONTROL SYSTEM MARKET

The plasma-based processing industry requires a wide range of power
frequencies for plasma-based thin film processes, from zero frequency direct
current (DC) to alternating current (AC) at frequencies of several gigahertz.
Frequency influences the type of physical and chemical activity that will occur
in the plasma. Power conversion and control systems change the frequency of raw
utility power as required for particular applications. For example, DC is
typically used in PVD processes, while high frequency AC such as RF are
typically used in etch and chemical vapor deposition (CVD) processes.

Power conversion and control systems for plasma-based processes often need
to be highly customized to meet application and customer requirements. This
customization involves developing unique design and component configurations to
permit specific variations in power, voltage, current and frequency levels,
modifications for interfacing with customer equipment, and adjustments to
controls and external packaging requirements. The long-term challenge facing
manufacturers of power conversion and control systems is to efficiently produce
these complex, highly customized

37
<PAGE>
systems in a cost effective manner. Moreover, power conversion and control
systems must be continuously adapted to address the requirements of the growing
number of applications using thin film production processes. The customers for
these types of systems are generally large, global OEMs in the semiconductor
capital equipment, flat panel display and data storage markets. They require a
global infrastructure from the manufacturers of power control and conversion
systems.

THE ADVANCED ENERGY SOLUTION

We have been and continue to be a pioneer in the development of power
conversion and control systems for advanced plasma-based production processes.

Key elements of the Advanced Energy solution include:

KNOWLEDGE OF PLASMA-BASED PROCESSES. Since our inception, we have built a
large base of expertise in the interaction between plasma-based processes and
power conversion and control systems. This knowledge allows us to develop
systems that optimize our customers' plasma-based processes and applications,
and to assist customers and potential customers in developing new process
applications. One of our core competencies is our ability to advise customers of
design advantages that may be achieved in plasma-based production processes for
specific applications and in the related power conversion and control systems.
We regularly place our scientists and engineers at customer sites to support
customers in their process development. We believe this application of knowledge
and resources is unique in the industry and represents a key competitive
strength.

UTILIZATION OF SWITCHMODE TECHNOLOGY. We believe that we developed the
first switchmode power conversion and control systems for plasma-based
processing. Switchmode power conversion is a digitally based solution to power
conversion that represents an improvement over previously employed alternatives.
Switchmode based systems are smaller, lighter and faster due to their use of
high speed switching. Switchmode technology also enables rapid control of the
high power required in plasma-based production processes and improves the
response time to random variables in the system. In addition, switchmode has the
benefit of significantly reducing the stored energy in a system, a major cause
of arcing. The MDX system, which we introduced in 1983, was the first switchmode
power supply available for PVD applications. It reduced the amount of stored
energy by a factor of 100 to 1,000 times compared to the technology then in use
and fostered the development and widespread use of PVD processes. We utilize
switchmode technology in the majority of our systems. We believe our expertise
with switchmode-based systems provides us with a competitive advantage.

MEASUREMENT AND CONTROL SOLUTIONS. We have designed our systems to
incorporate high speed, highly precise electronic measurement and system
controls. Multiple sensors continually measure current, voltage and other
electrical properties of the plasma. These measurements are converted into
signals, processed with digital signal processors, and the results then
converted to input signals for the power conversion and control systems. Our
power conversion and control systems thus dynamically control the flow of power
delivered, minimize stored energy, make precise system adjustments, compensate
for random variabilities and notify the user of out-of-range conditions. These
dynamic in-system controls enable our systems to prevent or eliminate arcs and
other system or utility related instabilities.

REUSABLE ENGINEERING AND MODULAR DESIGN. We provide customers with fast
time-to-market solutions by designing our components using:

- reusable engineering, in which the core technology of a component can be
incorporated in a similar component of a new system or a new product
platform; and

- modular design, in which the same component used in systems of one product
platform can be used in systems of another product platform.

38
<PAGE>
Reusable engineering and programmable software-based architectures enable us
to modify our basic platforms to create solutions that are tailored for specific
applications and customer requirements. We achieve efficiencies by designing our
products to have an open architecture, common features and standard components
and interfaces across a variety of processes. As a result, we believe we have
the capability to deliver a broad range of customized products with short lead
times and on a competitively priced basis.

STRATEGY

EXPANDING LEADERSHIP IN OUR CORE MARKETS. We believe we are the market
share leader in the semiconductor capital equipment, data storage and flat panel
display markets. We plan to continue to increase our penetration in these three
markets by introducing new products and solutions for our existing customers and
targeting new customers, but our primary focus will continue to be on the
semiconductor capital equipment market. For example, in the semiconductor
capital equipment market, we believe that significant opportunities exist for us
to introduce new products for processes or applications such as:

- etch applications using RF power;

- gas abatement;

- on-line measurement of power characteristics; and

- copper electroplating.

39
<PAGE>
PRODUCTS

Our switchmode power conversion and control systems have enabled our
customers to develop new plasma-based processing applications. In 1982, we
introduced our first low-frequency switchmode power conversion and control
system specifically designed for use in plasma processes. In 1983, we introduced
our first DC system designed for use in PVD applications. This DC system is a
compact, cost-effective power solution which greatly reduces stored energy, a
major limitation in PVD systems. In 1989, we introduced tuners used to match the
characteristics of the plasma with the RF generators. This theme was carried
further with the introduction of the Pinnacle series of DC systems in 1995. In
1990, we introduced the first switchmode RF power conversion and control systems
for use in semiconductor etch applications. This product line achieved
significant design wins because of its smaller size and its ability to provide
more precise control. In 1998, we developed the APEX series of RF systems which
use new technology to further reduce size and extend the frequency and power
range of our RF product line. We introduced a family of accessories for the DC
product line in 1993. These pulsed DC products provided major improvements in
arc prevention and suppression. We are currently extending the power range of
our systems to much higher power levels to enable us to supply products for
emerging industrial applications. The products in these product families range
in price from $1,500 to $150,000, with an average selling price of approximately
$9,200.

The acquisition of the assets of MIK Physics, Inc. provided the base
technology for our recently introduced Astral products, which are high-power DC
systems used in PVD equipment.

The acquisition of Tower Electronics in August 1997 expanded our product
line to include low-power DC power conversion systems for use in
telecommunications and other industrial applications. These power conversion
systems range in power from 50 watts to 600 watts and have an average selling
price of approximately $500.

The acquisition of RF Power Products in October 1998 expanded our product
line of RF generators and matching networks. Solid-state generators are
presently available for power requirements of up to 5,000 watts and are sold
primarily to capital equipment manufacturers in the semiconductor, flat panel
display, thin film, and analytical equipment markets. Tube-type generators are
available at power levels from 10,000 to 30,000 watts and are primarily sold to
capital equipment manufacturers in the thin film head manufacturing market. RF
matching networks are systems composed primarily of variable inductors and
capacitors with application-specific circuits that can be designed to a
customer's specific power requirements. Our RF generators and matching networks
have average selling prices similar to our DC products.

The acquisition of Fourth State Technology in September 1998 enhanced our
capability to design and manufacture RF power-related process control systems
used to monitor and analyze data in thin film processes. Fourth State's
technology also is enabling us to develop power conversion and control systems
that incorporate advanced measurement and control systems.

The acquisition of a majority interest in LITMAS in August 1999 is expected
to expand our product line to include plasma abatement systems and high-density
plasma sources. These products will be marketed to semiconductor capital
equipment manufacturers.

40
<PAGE>
The following chart sets forth our principal product lines and related basic
information:

<TABLE>
<S> <C> <C> <C> <C>
PRODUCT DESCRIPTION POWER/CURRENT MAJOR PROCESS
PLATFORM LEVEL APPLICATIONS
Direct MDX Power control and 500W-80kW PVD
Current conversion system - Metal sputtering
Products - Reactive sputtering
MDX-II Power control and 15kW-120kW PVD
conversion system - Metal sputtering
- Reactive sputtering
Pinnacle Power control and 6kW-120kW PVD
conversion system - Metal sputtering
- Reactive sputtering
Sparc-LE Arc management 1kW-60kW For use with MDX systems--permits
accessory precise control of reactive
sputtering of insulating films
E-Chuck Electrostatic less than 100W General wafer handling in
chuck power semiconductor PVD, CVD and etch
system applications
Radio HFV Power control and 3kW-8kW PVD
Frequency conversion system Etch
Products
RFX Power control and 600W General R&D
conversion system
RFG Power control and 600W-5.5kW Etch
conversion system CVD
RFXII Power control and 600W-5.5kW Etch
conversion system CVD
APEX Power control and 1000W-10kW Etch
conversion system CVD
AZX, VZX, Tuner 100W-5kW Impedance matching network
SwitchMatch
RF Power control and 500W-3kW Etch
conversion system CVD
Hercules Power control and 10kW-30kW PVD
conversion system
Atlas Power control and 1.5kW-5kW Etch
conversion system
Mercury Tuner 500W-10kW Impedance matching network
FTMS Tuner 2kW-5kW Impedance matching network
Low and Mid- PE and PE-II Low-frequency 1.25kW-30kW CVD
Frequency power control and PVD
Products conversion system - Reactive sputtering
Surface modification
PD Mid-frequency 1.25kW-8kW CVD
power control and PVD
conversion system - Reactive sputtering
Surface modification
LF Low-frequency 500W-1kW Etch
power control and PVD
conversion system
</TABLE>

41
<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
PRODUCT DESCRIPTION POWER/CURRENT MAJOR PROCESS
PLATFORM LEVEL APPLICATIONS
High-Power Astral-20 Pulsed DC power 20kW PVD
Products system - Metal sputtering
- Reactive sputtering
Astral-120 Pulsed DC power 120kW PVD
system - Reactive sputtering
Crystal Multizone 180kW Semiconductor epitaxy
induction heating
power system
Other Gen-Cal RF power 50W-3kW Generator diagnostic tool
Products measurement
RF-EP RF probe 50W-5kW End-point detection system
Z-Scan RP probe 50W-5kW Impedance measurement tool
RF-MS RF metrology 5W-5kW Plasma diagnostic tool
system
ID Ion-beam 500W-5kW Ion-beam deposition
conversion and Ion implantation
control system Ion-beam etching/milling
E'Wave Bi-polar 400W-8kW Electroplating copper onto a wafer
electroplating
</TABLE>

MARKETS, APPLICATIONS AND CUSTOMERS

MARKETS

Most of our sales historically have been made to customers in the
semiconductor capital equipment industry. Sales to customers in this industry
represented 59% of our sales in 1997, 49% in 1998 and 59% in the first six
months of 1999. Our power conversion and control systems are also used in the
flat panel display, data storage and other industrial markets. Following is a
discussion of the major markets for our systems:

SEMICONDUCTOR CAPITAL EQUIPMENT MANUFACTURING MARKET. We sell our products
primarily to semiconductor capital equipment manufacturers for incorporation
into equipment used to make integrated circuits. Our products are currently used
in a variety of applications including deposition, etch, ion implantation and
megasonic cleaning. The precise control over plasma-based processes that use our
power conversion and control systems enables the production of integrated
circuits with reduced feature sizes and increased speed and performance. We
anticipate that the semiconductor capital equipment industry will continue to be
a significant part of our business for the foreseeable future.

FLAT PANEL DISPLAY MANUFACTURING EQUIPMENT MARKET. We also sell our systems
to manufacturers of flat panel displays and flat panel projection devices, which
have fabrication processes similar to those employed in manufacturing integrated
circuits. Flat panel technology produces bright, sharp, large, color-rich images
on flat screens for products ranging from hand-held computer games to laptop
computer monitors to large-screen televisions. There are three major types of
flat panel displays, liquid crystal displays, field emitter displays and gas
plasma displays. There are two types of flat panel projection devices, liquid
crystal projection and digital micro-mirror displays. We sell our products to
all five of these markets.

DATA STORAGE MANUFACTURING EQUIPMENT MARKETS. Our products are sold to data
storage equipment manufacturers and to data storage device manufacturers for use
in producing a variety

42
<PAGE>
of products, including CDs, computer hard disks, both media and thin film heads,
CD-ROMs and DVDs. These products use a PVD process to produce optical and
magnetic thin film layers, as well as a protective wear layer. In this market
the trend towards higher recording densities is driving the demand for
increasingly dense, thinner and more precise films. The use of equipment
incorporating magnetic media to store analog and digital data continues to
expand with the growth of the laptop, desktop, and workstation computer markets.

OTHER INDUSTRIAL MARKETS. We sell our products to OEMs and producers of end
products in a variety of industrial markets. Thin film optical coatings are used
in the manufacture of many industrial products including solar panels,
architectural glass, eyeglasses, lenses, bar-code readers and front surface
mirrors. Thin films of diamond-like coatings and other materials are currently
applied to products in plasma-based processes to strengthen and harden surfaces
on such diverse products as tools, razor blades, automotive parts and hip joint
replacements. Other thin film processes that use our products also enable a
variety of industrial packaging applications, such as decorative wrapping and
food packaging. The advanced thin film production processes allow precise
control of various optical and physical properties, including color,
transparency and electrical and thermal conductivity. The improved adhesion and
high film quality resulting from plasma-based processing make it the preferred
method of applying the thin films. Many of these thin film industrial
applications require power levels substantially greater than those used in our
other markets.

We sell low-wattage power supplies to OEMs in the telecommunications,
non-impact printing and laser markets through Tower Electronics. For example,
Tower Electronics provides products to the largest manufacturer of non-impact
printers used for printing date codes and lot information on beverage cans.

APPLICATIONS

Our products have been sold for use in connection with the following
processes and applications:

<TABLE>
<CAPTION>
SEMICONDUCTOR DATA STORAGE FLAT PANEL DISPLAY INDUSTRIAL/RESEARCH
- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Chemical vapor CD-ROMs Active matrix LCDs Automobile coatings
deposition CDs Digital micro-mirror Chemical, physical
(CVD)(metal and DVDs Field emission and materials
dielectric) Hard disk carbon wear displays research
Etch coatings Large flat panel Circuit board etch-
High density plasma Hard disk magnetic displays back and de-smear
CVD media LCD projection Consumer product
Ion implantation Magneto-optic CDs Liquid crystal coatings
Magnet field controls Recordable CDs displays Diamond-like coatings
Megasonic cleaning Thin film heads Medical applications Food package
Photo-resist Plasma displays Glass coatings
stripping Non-impact printing
Physical vapor Optical coatings
deposition Photovoltaics
Plasma-enhanced CVD Superconductors
Telecommunications
</TABLE>

43
<PAGE>
CUSTOMERS

Sales to our top ten customers accounted in the aggregate for 67% of our
total sales in 1997, 62% in 1998 and 67% in the first six months of 1999. We
expect that sales of our products to these customers will continue to account
for a high percentage of our sales in the foreseeable future. Our customers
include:

<TABLE>
<S> <C>
Alcatel Comptech Mattson Technologies
Applied Materials Motorola
Balzers Novellus
CVC Products Optical Coatings Laboratory
Eaton PlasmaTherm
First Light Technology Singulus
Fujitsu Sony
Hewlett-Packard Sputtered Films
IBM Texas Instruments
Intevac 3Com
Komag ULVAC
Lam Research Verteq
Materials Research Division of Tokyo Videojet International
Electron, Ltd.
</TABLE>

MARKETING, SALES AND SERVICE

We sell our systems primarily through direct sales personnel to customers in
the United States, Europe and Asia, and through distributors and sales
representatives in China, France, Israel, Italy, Singapore, Sweden and Taiwan.
Our domestic sales personnel are located in our headquarters in Fort Collins,
Colorado, and in regional sales offices in:

- Voorhees, New Jersey;

- Austin, Texas

- Milpitas, California; and

- Concord, Massachusetts.

We also have international offices in:

- Tokyo, Japan;

- Filderstadt, Germany;

- Bicester, United Kingdom; and

- Seoul, South Korea.

Each of the international offices has primary responsibility for sales in its
respective market.

We sell our Tower Electronics products through manufacturers'
representatives.

We believe that customer service and technical support are important
competitive factors and are essential to building and maintaining close,
long-term relationships with our customers.

44
<PAGE>
Sales outside the United States represented approximately 23% of our total
sales during 1997, 28% in 1998 and 28% in the first six months of 1999. We
expect sales outside the United States to continue to represent a significant
portion of future sales. For a discussion of risks involved in international
sales, see "Risk Factors--We might not be able to compete successfully in
international markets or to meet the service and support needs of our
international customers".

We offer warranty coverage for our systems for periods ranging from 12 to 24
months after shipment against defects in design, materials and workmanship.

MANUFACTURING

We conduct the majority of our manufacturing at our facilities in Fort
Collins, Colorado and Voorhees, New Jersey. We also conduct manufacturing for
one customer in Austin, Texas. Tower Electronics conducts manufacturing at its
facility in Fridley, Minnesota. We generally manufacture different systems at
each facility. Our manufacturing activities consist of the assembly and testing
of components and subassemblies which our customers then integrate into their
equipment. Once final testing of all electrical and electro-mechanical
subassemblies is completed, the final system is subjected to a series of
reliability enhancing operations prior to shipment to customers. We purchase a
wide range of electronic, mechanical and electrical components, some of which
are custom products designed to our specifications. We also outsource some of
our subassembly work.

INTELLECTUAL PROPERTY

We have a policy of seeking patents on inventions governing new products or
technologies as part of our ongoing research, development and manufacturing
activities. We currently hold eighteen United States patents and four foreign
patents covering various aspects of our systems. We also have 47 patent
applications pending in the United States, Europe and Japan. We believe the
duration of our patents generally exceeds the life cycles of the technologies
disclosed and claimed in the patents.

For a discussion of risks involved in our intellectual property, see "Risk
Factors--We are highly dependent on our intellectual property but may not be
able to protect it adequately".

COMPETITION

The markets we serve are highly competitive and characterized by ongoing
technological developments and changing customer requirements. Significant
competitive factors in our markets include product performance, price, quality
and reliability and level of customer service and support. We believe that we
currently compete effectively with respect to these factors, although we might
not be able to compete effectively in the future.

The markets in which we compete have seen an increase in global competition,
especially from Japanese- and European-based equipment vendors. We have several
foreign and domestic competitors for each of our lines of products. Some of our
competitors are larger and have greater resources than we do. Our ability to
continue to compete successfully in these markets depends on our ability to
introduce system enhancements and new systems on a timely basis. Our primary
competitors are ENI, a subsidiary of Astec (BSR) plc, Applied Science and
Technology (ASTeX), Huettinger, Shindingen, Kyosan, Comdel and Daihen. Our
competitors are expected to continue to improve the design and performance of
their systems and to introduce new systems with competitive performance
characteristics. We believe we will be required to maintain a high level of
investment in research and development and sales and marketing in order to
remain competitive.

45
<PAGE>
RESEARCH AND DEVELOPMENT

The market for power conversion and control systems and related accessories
is characterized by ongoing technological changes. We believe that continued and
timely development of new systems and enhancements to existing systems to
support OEM requirements is necessary for us to maintain a competitive position
in the markets we serve. Accordingly, we devote a significant portion of our
personnel and financial resources to research and development projects and seek
to maintain close relationships with our customers and other industry leaders to
remain responsive to their product requirements.

Research and development expenses were $19.3 million in 1997, $23.8 million
in 1998 and $12.6 million in the first six months of 1999. These expenses
represented 11% of our total sales in 1997, 19% in 1998 and 17% in the first six
months of 1999. We believe that continued research and development investment
and ongoing development of new products are essential to the expansion of our
markets. We expect to continue to make significant investments in our research
and development activities.

EMPLOYEES

At September 30, 1999, we had a total of 1,066 employees, of whom 920 were
full-time employees. There is no union representation of our employees, and we
have never experienced an employee work stoppage. We utilize temporary employees
as a means to provide additional staff while reviewing the performance of the
temporary employee. We consider our employee relations to be good.

46
<PAGE>
MANAGEMENT

The following table sets forth certain information with respect to our
directors and execuitve officers.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------ --- -------------------------------------------------
<S> <C> <C>
Douglas S. Schatz............. 53 Chief Executive Officer and Chairman of the Board
Hollis L. Caswell............. 68 President, Chief Operating Officer and Director
Richard P. Beck............... 66 Senior Vice President, Chief Financial Officer
and Director
Richard Scholl................ 60 Senior Vice President and Chief Technology
Officer
Joseph Stach.................. 61 Senior Vice President
G. Brent Backman.............. 59 Director
Arthur A. Noeth............... 63 Director
Elwood Spedden................ 62 Director
Gerald M. Starek.............. 58 Director
Arthur W. Zafiropoulo......... 60 Director
</TABLE>

DOUGLAS S. SCHATZ is a co-founder and has been our Chief Executive Officer
and Chairman of the Board since our incorporation in 1981. From our
incorporation to July 1997, Mr. Schatz also served as our President. Mr. Schatz
co-founded Energy Research Associates, Inc., a designer of custom power
supplies, and served as its Vice President of Engineering from 1977 through
1980.

HOLLIS L. CASWELL joined our board of directors in February 1997 and served
on the Audit and Compensation Committees from that time until June 1997. Dr.
Caswell became our Chief Operating Officer in June 1997. He also became our
President in July 1999. From 1990 to 1994, Dr. Caswell was Chairman of the Board
and Chief Executive Officer of HYPRES, Inc., a manufacturer of superconducting
electronics. Prior to that time, Dr. Caswell served as Senior Vice President of
Unisys Corporation, an information technology company, and President of its
Computer Systems Group.

RICHARD P. BECK joined us in March 1992 as Vice President and Chief
Financial Officer and became a Senior Vice President in April 1998. He joined
our board of directors in September 1995. From 1987 to 1992, Mr. Beck served as
Executive Vice President and Chief Financial Officer of Cimage Corporation, a
computer software company. Mr. Beck is a director, and serves on the Audit and
Compensation Committees, of Applied Films Corporation, a publicly held
manufacturer of flat panel display equipment.

RICHARD A. SCHOLL joined us in 1988 as Vice President, Engineering. Mr.
Scholl became our Chief Technology Officer in September 1995. Prior to joining
us, Mr. Scholl was General Manager, Vacuum Products Division at Varian
Associates, Inc., a publicly held manufacturer of high-technology systems and
components.

JOSEPH STACH joined us in October 1998 as a Senior Vice President. Dr. Stach
had been the Chairman, President and Chief Executive Officer of RF Power
Products from 1992 until October 1998 when we acquired RF Power Products, which
we re-named Advanced Energy Voorhees, Inc. Dr. Stach continues to serve as
President of Advanced Energy Voorhees.

G. BRENT BACKMAN is a co-founder and has been on our board of directors
since our incorporation in 1981. Mr. Backman had been one of our Vice Presidents
from our incorporation until April 1998, when he became our Senior Vice
President, Special Projects. Mr. Backman served in this position until he
retired in January 1999. Prior to co-founding Advanced Energy,

47
<PAGE>
Mr. Backman was a Business Manager at Ion Tech, Inc., a manufacturer of ion beam
systems, sources, electronics and components.

ARTHUR A. NOETH joined our board of directors in July 1997 and has served on
the Audit and Compensation Committees since that time. From 1993 to 1998, Mr.
Noeth was President of the Implant Center, a provider of ion implant services to
the electronics industry. From April 1987 to September 1993, he was President of
A.N. Services, a business consulting service.

ELWOOD SPEDDEN joined our board of directors in August 1995 and has served
on the Audit and Compensation Committees since that time. Mr. Spedden was a
Senior Vice President of KLA Tencor, a manufacturer of automatic test equipment
used in the fabrication of semiconductors, from July 1996 to June 1997. From
1990 through March 1996, Mr. Spedden was with Credence Systems Corporation, a
manufacturer of automatic test equipment used in the fabrication of
semiconductors, in various senior management positions including President,
Chief Executive Officer and Vice-Chairman of the Board. Mr. Spedden is also a
director of Insight Objects, a privately held software company.

GERALD M. STAREK joined our board of directors in October 1998, following
our acquisition of RF Power Products and has served on the Audit Committee since
that time. Mr. Starek had been a non-employee director of RF Power Products
since February 1994. Mr. Starek was the founder of Silicon Valley Group, Inc., a
supplier of automated wafer processing equipment for the semiconductor industry.
He served as Silicon Valley Group's Chairman from September 1984 to September
1991 and as Vice Chairman from September 1991 to April 1993. Mr. Starek also is
a director of AML Communications Inc., a manufacturer of amplifiers for
telecommunications equipment.

ARTHUR W. ZAFIROPOULO joined our board of directors in October 1998,
following our acquisition of RF Power Products and has served on the
Compensation Committee since that time. Mr. Zafiropoulo had been a non-employee
director of RF Power Products since July 1992. Mr. Zafiropoulo is the founder of
Ultratech Stepper, Inc., a company that develops and manufactures
photolithography equipment for the semiconductor industry. Mr. Zafiropoulo has
been Chief Executive Officer and Chairman of the Board of Ultratech Stepper
since March 1993. Mr. Zafiropoulo also served as President of Ultratech Stepper
from May 1997 to April 1999 and from March 1993 to March 1996. Mr. Zafiropoulo
is a director of Semi/Sematech, an association of U.S.-owned suppliers of
equipment, materials and services to the semiconductor industry and
Semiconductor and Equipment Materials International (SEMI), an international
trade association.

48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table provides information as to the common stock beneficially
owned and to be offered in the concurrent common stock offering by the following
persons:

- each person known to us to own more than 5% of the common stock
outstanding;

- each selling stockholder; and

- all of the current executive officers and directors as a group.

The table assumes that the underwriters' over-allotment option is not
exercised. If the underwriters' over-allotment option is exercised, each selling
stockholder will sell an additional 15% of the "Shares to be Sold" listed
opposite his name.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED PRIOR TO THE
OFFERING (1) AFTER THE OFFERING (1)
------------------------ SHARES TO --------------------------
NAME NUMBER PERCENT BE SOLD NUMBER PERCENT(2)
- --------------------------------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Douglas S. Schatz (3).................. 11,939,500 44.07 875,000 11,064,500 39.39

G. Brent Backman (4)................... 2,116,500 7.81 875,000 1,241,500 4.42

Franklin Resources, Inc. (5)........... 1,756,100 6.48 -- 1,756,100 6.25

Richard P. Beck (6).................... 171,864 * 50,000 121,864 *

Hollis Caswell (7)..................... 274,201 1.00 50,000 224,201 *

Richard Scholl (8)..................... 398,940 1.47 100,000 298,940 1.06

Joseph Stach (9)....................... 352,258 1.29 50,000 302,258 1.07

All executive officers and directors as
a group (10 persons) (10)............ 15,374,272 55.81 2,000,000 13,374,272 46.85
</TABLE>

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

* Less than one percent (1.0%)

(1) The numbers in the table reflect the stockholders' beneficial ownership of
common stock as of October 11, 1999. A stockholder is considered to
beneficially own shares that:

- the stockholder actually holds;

- are held by persons related to the stockholder;

- are held by companies or trusts in which the stockholder has a significant
interest; and

- the stockholder has the right to acquire within 60 days, such as by
exercising a stock option.

(2) The percentage is based on 27,091,223 shares outstanding as of October 11,
1999 plus the 1,000,000 shares we are offering to sell in the concurrent
common stock offering.

(3) Mr. Schatz' business address is 1625 Sharp Point Drive, Fort Collins,
Colorado 80525.

(4) Mr. Backman has an option to purchase 7,500 shares. By December 10, 1999,
60 days following October 11, 1999, his option will be exercisable as to
2,500 of those shares. Consistent with footnote (1), the numbers in the
table include:

- 2,500 shares issuable upon the exercise of his option on or before
December 10, 1999; and

- 546,000 shares owned by Mr. Backman's wife, even though Mr. Backman
disclaims beneficial ownership of these shares.

Mr. Backman's address is 946 Lochland Court, Fort Collins, Colorado 80524.

49
<PAGE>
(5) This information is based on the Schedule 13G that Franklin Resources,
Inc., Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin Advisers, Inc.
filed with the Securities and Exchange Commission on January 26, 1999. The
Schedule 13G indicates that these shares are held by one or more open- or
closed-end investment companies or other managed accounts that are advised
by investment advisory subsidiaries of Franklin Resources. Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Franklin Resources, and Franklin Advisers is a subsidiary of Franklin
Resources. The address for each of these persons is reported as 777 Mariners
Island Boulevard, San Mateo, California 94404.

(6) Mr. Beck has options to purchase 40,000 shares. By December 10, 1999, his
options will be exercisable as to 16,563 shares. The numbers in the table
include:

- the 16,563 shares issuable upon the exercise of options on or before
December 10, 1999; and

- 200 shares owned by Mr. Beck's wife and a person unrelated to Mr. Beck,
even though Mr. Beck disclaims beneficial ownership of these shares.

(7) Dr. Caswell has options to purchase 318,438 shares. By December 10, 1999,
his options will be exercisable as to 259,844 shares, which shares are
included in the numbers in the table.

(8) Mr. Scholl has options to purchase 10,000 shares. None of these options
will be exercisable by December 10, 1999. Mr. Scholl's wife, who is one of
our business unit managers, has options to purchase 23,874, shares. By
December 10, 1999, her options will be exercisable as to 18,468 of those
shares. The numbers in the table include:

- the 18,468 shares issuable upon the exercise of Mrs. Scholl's options on
or before December 10, 1999; and

- 300 shares owned by Mrs. Scholl.

(9) Dr. Stach has options to purchase 241,430 shares of our common stock. RF
Power Products had granted options to Dr. Stach prior to the time that we
acquired RF Power Products. We assumed those options and also granted new
options to Dr. Stach. By December 10, 1999, his options will be exercisable
as to 113,930 shares, which shares are included in the numbers in the table.

(10) The numbers in the table include:

- an aggregate of 438,554 shares that the executive officers and directors
can purchase under their stock options on or before December 10, 1999;

- 546,000 shares owned by Mrs. Backman;

- 200 shares owned by Mrs. Beck and a person unrelated to Mr. Beck.

- 300 shares owned by Mrs. Scholl and 18,468 shares issuable upon the
exercise of options owned by Mrs. Scholl on or before December 10, 1999;
and

- 6,292 shares owned by the wife of one of our other directors.

50
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 40,000,000 shares of common stock,
$0.001 par value, and 1,000,000 shares of preferred stock, $0.001 par value. As
of October 11, 1999, 27,091,223 shares of common stock were outstanding, held by
883 holders of record, and no shares of preferred stock were outstanding. In
addition, 3,112,615 shares were reserved for issuance under our 1995 Stock
Option Plan, 102,395 shares were reserved for issuance under the RF Power stock
option plans we assumed in connection with our acquisition of RF Power in
October 1998, 94,500 shares were reserved for issuance under our 1995
Non-Employee Director Stock Option Plan and 132,725 shares were reserved for
issuance under our Employee Stock Purchase Plan. As of October 11, 1999, options
to purchase an aggregate of 1,978,752 shares of common stock were outstanding
under these plans.

COMMON STOCK

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock
that may be issued, the holders of common stock are entitled to receive ratably
any dividends that may be declared from time to time by the board of directors
out of funds legally available for the payment of dividends. See "Dividend
Policy". The holders of our common stock are entitled to share ratably in all
assets remaining after payment of liabilities and liquidation preferences of any
outstanding shares of preferred stock in the event of our liquidation,
dissolution or winding up. Holders of common stock have no preemptive rights or
rights to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.

PREFERRED STOCK

Our board of directors has the authority, without action by the
stockholders, to designate and issue up to 1,000,000 shares of preferred stock
in one or more series and to designate the dividend rate, voting rights and
other rights, preferences and restrictions of each series any or all of which
may be greater than the rights of the common stock. The actual effects of the
issuance of any shares of preferred stock upon the rights of holders of the
common stock might include:

- restricting dividends on the common stock;

- diluting the voting power of the common stock;

- impairing the liquidation rights of the common stock; and

- delaying or preventing a change in control.

We have no present plans to issue any shares of preferred stock.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

Our certificate of incorporation and bylaws include provisions which:

- allow the board of directors to issue preferred stock with rights senior
to those of the common stock without any further vote or action by the
stockholders;

- limit the right of the stockholders to call a special meeting of
stockholders; and

- allow us to impose various procedural and other requirements that could
make it more difficult for stockholders to effect certain corporate
actions. Such provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of Advanced Energy. Such provisions could
limit the price that certain investors might be willing to pay in the
future for shares of our common stock.

51
<PAGE>
We also are subject to provisions of the Delaware General Corporation Law,
including Section 203 which prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless upon consummation of such transaction
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced or unless the
business combination is, or the transaction in which such person became an
interested stockholder was, approved in a prescribed manner. A "business
combination" includes a merger, an asset sale and any other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns 15%
or more of the corporation's voting stock.

TRANSFER AGENT

The transfer agent and registrar for our common stock is Boston Equiserve.

DESCRIPTION OF CONVERTIBLE NOTES

The convertible notes will be issued under an indenture between Advanced
Energy and State Street Bank and Trust Company of California, N.A., as trustee,
a copy of which is filed as an exhibit to the registration statement of which
this prospectus forms a part. The following summaries of certain provisions of
the indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the detailed provisions of the
convertible notes and the indenture, including the definitions therein of
certain terms.

OVERVIEW

The convertible notes will be unsecured, direct, general, subordinated
obligations of Advanced Energy and will mature on , 2006. Payment in
full of the principal amount of the convertible notes will be due on
, 2006 at a price of 100% of the principal amount.

The convertible notes will bear interest at the annual rate shown on the
front cover of this prospectus from , 1999 or from the most recent
date to which interest has been paid or provided for, payable on and
of each year, commencing , 2000 until the principal is
paid or made available for payment, to the person in whose name the convertible
note is registered at the close of business on the preceding or
, as the case may be.

The convertible notes will be convertible into shares of our common stock
initially at the conversion rate stated on the front cover of this prospectus at
any time following the initial issue date of the convertible notes and before
the close of business on the business day immediately preceding ,
2006, unless previously redeemed or repurchased. The conversion rate will be
subject to adjustment upon the occurrence of certain events described under
"--Conversion Rights".

The convertible notes are redeemable at our option at any time on or after
, 2002, in whole or in part, at the redemption prices set forth
below under "--Optional Redemption by Advanced Energy", plus accrued and unpaid
interest to the date of redemption. The convertible notes also are subject to
repurchase by us at the option of the holders upon a change of control as
described below under "--Repurchase at Option of Holders Upon a Change in
Control".

The principal of, premium, if any, and interest on the convertible notes
will be payable, and the convertible notes may be surrendered for registration
of transfer, exchange and conversion, at the office or agency of the trustee in
Manhattan, New York. See "--Payment and Conversion". Payments, transfers,
exchanges and conversions relating to beneficial interests in convertible notes

52
<PAGE>
issued in book-entry form will be subject to the procedures applicable to global
notes described below.

We will initially appoint the trustee as paying agent, transfer agent,
registrar and conversion agent for the convertible notes. In these capacities,
the trustee will be responsible for:

- maintaining a record of the aggregate holdings of convertible notes
represented by the global note described below, and accepting convertible
notes for exchange and registration of transfer,

- ensuring that payments of principal, premium, if any, and interest
received by the trustee from us in respect of the convertible notes are
duly paid to The Depository Trust Company (DTC) or its nominees,

- transmitting to us any notices from holders of the convertible notes,

- accepting conversion notices and related documents and transmitting the
relevant items to us, and

- delivering certificates for common stock issued upon conversion of the
convertible notes.

We will cause each transfer agent to act as a registrar and will cause each
transfer agent to keep a register at their office in which, subject to any
reasonable regulations we may prescribe, we will provide for registration of
transfers of the convertible notes. We may vary or terminate the appointment of
any paying agent, transfer agent or conversion agent, or appoint additional or
other agents or approve any change in the office through which any agent acts.
However, we will at all times maintain a paying agent, a transfer agent and a
conversion agent in Manhattan, New York. We will cause notice of any
resignation, termination or appointment of the trustee or any paying agent,
transfer agent or conversion agent, and of any change in the office through
which any agent will act, to be provided to holders of the convertible notes.

No service charge will be made for any registration of transfer or exchange
of convertible notes, but we may require payment of a sum sufficient to cover
any applicable tax or other governmental charges.

FORM, DENOMINATION, TRANSFER, EXCHANGE AND BOOK-ENTRY PROCEDURES

The convertible notes will be issued only in fully registered form, without
interest coupons, in minimum denominations of $1,000 and integral multiples in
excess of $1,000. The convertible notes sold in this offering will be issued
only against payment in immediately available funds.

The convertible notes initially will be represented by one or more notes in
registered, global form, referred to as global notes. The global notes will be
deposited upon issuance with the trustee as custodian for DTC, in New York, New
York, and registered in the name of DTC or its nominee, for credit to an account
of a direct or indirect participant in DTC as described below.

Transfers of beneficial interests in the global notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants,
which may change from time to time.

Except as set forth below, the global notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in the limited circumstances described below under
"--Exchanges of Book-Entry Notes for Certificated Notes".

53
<PAGE>
EXCHANGES OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES

A beneficial interest in a global note may not be exchanged for a note in
certificated form unless:

- DTC

-- notifies us that it is unwilling or unable to continue as depositary for
the global note, or

-- has ceased to be a clearing agency registered under the Securities
Exchange Act,

-- and in either case we fail to appoint a successor depositary within 90
days after we are notified or become aware of either of the events
described above,

- at our option, we notify the trustee in writing that we elect to cause the
issuance of all of the convertible notes in certificated form, or

- there shall have occurred and be continuing an event of default or any
event which after notice or lapse of time or both would be an event of
default with respect to the convertible notes.

In all cases, certificated notes delivered in exchange for any global note
or beneficial interests in any global note will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary, in accordance with its customary procedures.

CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL NOTES

The descriptions of the operations and procedures of DTC that follow are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to changes by DTC from time to
time. We take no responsibility for these operations and procedures and urge
investors to contact DTC or its participants directly to discuss these matters.

DTC has advised us as follows:

- DTC is a:

-- limited purpose trust company organized under the laws of the State of
New York,

-- member of the Federal Reserve System,

-- "clearing corporation" within the meaning of the Uniform Commercial
Code, and

-- "clearing agency" registered under the provisions of Section 17A of the
Securities Exchange Act.

- DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between
participants using electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical transfer and
delivery of certificates.

- Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations.

- Certain participants, or their representatives, together with other
entities, own DTC.

- Indirect access to the DTC system is available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or
indirectly.

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DTC has advised us that its current practice, upon the issuance of a global
note, is to credit the respective principal amount of the individual beneficial
interests represented by a global note to the accounts with DTC of the
participants through which interests are to be held. Ownership of beneficial
interests in the global note will be shown on, and the transfer of that
ownership will be effected only through records maintained by DTC or its
nominees, with respect to interests of participants. With respect to the
interests of persons other than participants, ownership and transfers of
ownership interests will be shown on and effected through the records of
participants and indirect participants.

As long as DTC, or its nominee, is the registered holder of a global note,
DTC or such nominee, will be considered the sole owner and holder of the
convertible notes represented by such global note for all purposes under the
indenture and the convertible notes. Except in the limited circumstances
described above under "--Exchanges of Book-Entry Notes for Certificated Notes",
owners of beneficial interests in a global note:

- will not be entitled to have any portion of that global note registered in
their names,

- will not receive or be entitled to receive physical delivery of notes in
definitive form, and

- will not be considered the owners or holders of the global note, or any
convertible notes represented by the global note, under the indenture or
the convertible notes.

Accordingly, each person owning a beneficial interest in the global note must
rely on the procedures of DTC and, if such person is not a participant, those of
the participant through which that person owns its interest, in order to
exercise any rights of a holder under the indenture or the convertible note.

Investors may hold their interests in the global note directly through DTC
if they are participants in such system, or indirectly through organizations
that are participants in such system. All interests in a global note will be
subject to the procedures and requirements of DTC.

The laws of some states require that certain persons take physical delivery
of securities that they own in definitive form. The ability to transfer
beneficial interests in a global note to those persons may be limited because
global notes are not represented by physical certificates. Since DTC can act
only on behalf of its participants, which in turn act on behalf of indirect
participants and certain banks, the lack of a physical certificate may also
adversely affect the ability of a person owning a beneficial interest in a
global note to pledge their interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of those
interests.

Cash payment of the principal of, premium on, interest on, or the redemption
or repurchase of the global note will be made to DTC or its nominee, as the case
may be, as the registered owner of the global note by wire transfer of
immediately available funds on each relevant payment date. Neither we, the
trustee nor any of our or their respective agents will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a global note including any delay
by DTC or any participant or indirect participant in identifying the beneficial
ownership interests. We and the trustee may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes.

We expect that DTC or its nominee will immediately credit participants'
accounts upon receipt of any cash payment of principal, premium, interest or the
redemption or repurchase price in respect of a global note representing any
convertible notes, in amounts proportionate to their respective beneficial
interests in the principal amount of the global note as shown on the records of
DTC or its nominee. We expect that adjustments will be made as necessary so that
such payments are made with respect of whole notes only, unless DTC has reason
to believe that it will not receive payment on the payment date. We also expect
that payments by participants to the owners of

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<PAGE>
beneficial interests in the global note held through the participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in "street name".
These payments will be the responsibility of those participants.

Redemption notices will be sent to DTC or its nominee. If less than all the
convertible notes are being redeemed, DTC's practice is to determine by lot the
amount of the holdings of each participant in the issue to be redeemed.

Neither DTC nor its nominee will consent or vote with respect to the
convertible notes. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date. The omnibus proxy assigns
DTC's, or its nominee's, consenting or voting rights to those participants to
whose accounts the convertible notes are credited on the record date. Those
participants are identified in a listing attached to the omnibus proxy.

Interests in the global notes will trade in DTC's Same-Day Funds Settlement
System, and secondary market trading activity in those interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its participants. Transfers between participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.

DTC has advised us that it will take any action permitted to be taken by a
holder of convertible notes, including the presentation of convertible notes for
exchange as described below and the conversion of convertible notes:

- only at the direction of one or more participants to whose account with
DTC interests in the global notes are credited, and

- only in respect of the portion of the aggregate principal amount of the
convertible notes as to which the participant or participants has or have
given that direction.

However, if there is an event of default under the convertible notes, DTC
reserves the right to exchange the global notes for convertible notes in
certificated form, and to distribute the convertible notes to its participants.

Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the global note among
participants, it is under no obligation to perform or continue to perform those
procedures, and those procedures may be discontinued at any time.

None of us, the trustee nor any of our or their respective agents will have
any responsibility for the performance by DTC, its participants or indirect
participants of their respective obligations under the rules and procedures
governing its operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in global notes.

PAYMENT AND CONVERSION

The principal of the convertible notes will be payable in U.S. dollars,
against surrender of the convertible notes at the office or agency of the
trustee in Manhattan, New York, by dollar check or by transfer to a dollar
account maintained by the holder with a bank in New York City. Payment of
interest on a convertible note may be made by dollar check mailed to the person
entitled to the interest at their address as it appears in our security
register, or, upon written application by the holder to the security registrar
not later than the relevant record date, by transfer to a dollar account
maintained by the holder with a bank in the United States. Transfers to dollar
accounts will be

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made only to holders of an aggregate principal amount of convertible notes in
excess of $2,000,000.

Payments in respect of the principal of, and premium, if any, and interest
on any global note registered in the name of DTC or its nominee will be payable
by the trustee to DTC or its nominee in its capacity as the registered holder
under the indenture. Under the terms of the indenture, we and the trustee will
treat the persons in whose names the convertible notes, including the global
notes, are registered as the owners of those notes for the purpose of receiving
payments and for any and all other purposes. Consequently, neither we, the
trustee nor any agent of ours or the trustee's has or will have any
responsibility or liability for:

- any aspect of DTC's records or any participant's or indirect participant's
records relating to, or payments made on account of, beneficial ownership
interests in the global notes,

- maintaining, supervising or reviewing any of DTC's records or any
participant's or indirect participant's records relating to the beneficial
ownership interests in the global notes, or

- any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.

Any payment on a convertible note due on any day that is not a business day
may be made on the next succeeding business day with the same force and effect
as if made on the due date, and no interest will accrue on the payment for the
period from and after that date.

Convertible notes may be surrendered for conversion at the office or agency
of the trustee in Manhattan, New York. In the case of global notes, conversion
will be effected by DTC upon notice from the holder of a beneficial interest in
a global note in accordance with its rules and procedures. Convertible notes
surrendered for conversion must be accompanied by a conversion notice and any
payments in respect of interest, as applicable, as described below under
"--Conversion Rights".

All money for the payment of principal of, and premium, if any, or interest
on any convertible note that is deposited with the trustee or any paying agent
or then held by us in trust which remains unclaimed at the end of two years
after the payment has become due and payable may be repaid to us. Thereafter,
the holder of such convertible note will look only to us for payment and no
interest will accrue on the amount that we hold.

CONVERSION RIGHTS

The holder of any outstanding convertible note will have the option to
convert all or any portion of the principal amount of a convertible note that is
an integral multiple of $1,000 into shares of our common stock at any time
following the original issue date of the convertible notes and prior to the
close of business on the business day immediately preceding the maturity date.
The conversion rate will be equal to the number of shares per $1,000 principal
amount of convertible notes shown on the front cover of this prospectus. The
conversion rate is subject to adjustment in certain events as described below.
The right to convert a convertible note called for redemption or delivered for
repurchase will terminate at the close of business on the business day
immediately preceding the redemption date or repurchase date for such note,
unless we default in making the payment due upon redemption or repurchase.

The right of conversion attaching to any convertible note may be exercised
by the holder by delivering the convertible note at the office or agency of the
trustee in Manhattan, New York, accompanied by a duly signed and completed
notice of conversion, a copy of which may be obtained from the trustee. A holder
of a convertible note will cease to have any further rights as a holder of a
convertible note at the time of conversion. The conversion date will be the date
on

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which the convertible note and the duly signed and completed notice of
conversion are so delivered. As promptly as practicable on or after the
conversion date, we will issue and deliver to the trustee a certificate or
certificates for the number of full shares of our common stock issuable upon
conversion, together with payment in lieu of any fraction of a share. This
certificate will be sent by the trustee to the conversion agent for delivery to
the holder. Shares of our common stock issuable upon conversion of the
convertible notes, in accordance with the provisions of the indenture, will be
fully paid and nonassessable and will also rank equally with the other shares of
our common stock outstanding from time to time.

Holders that surrender convertible notes for conversion on a date that is
not an interest payment date under the indenture are not entitled to receive any
interest for the period from the next preceding interest payment date to the
date of conversion, except as described below. However, holders of convertible
notes on a regular record date, including convertible notes surrendered for
conversion after the regular record date, will receive the interest payable on
the convertible notes on the next succeeding interest payment date. Accordingly,
any convertible note surrendered for conversion during the period from the close
of business on a regular record date to the opening of business on the next
succeeding interest payment date must be accompanied by payment of an amount
equal to the interest payable on that interest payment date on the principal
amount of convertible notes being surrendered for conversion. However, no
payment will be required upon the conversion of any convertible note, or portion
thereof, that has been called for redemption or that is eligible to be delivered
for repurchase if, as a result, the right to convert such convertible note would
terminate during the period between the regular record date and the close of
business on the next succeeding interest payment date.

No other payment or adjustment for interest will be made upon conversion.
Holders of our common stock issued upon conversion will not be entitled to
receive any dividends payable to holders of our common stock as of any record
date before the close of business on the conversion date. No fractional shares
will be issued upon conversion but, instead, we will pay an appropriate amount
in cash based on the market price of our common stock at the close of business
on the date of conversion.

A holder delivering a convertible note for conversion will not be required
to pay any taxes or duties in respect of the issue or delivery of our common
stock on conversion. However, we will not be required to pay any tax or duty
that may be payable in respect of any transfer involved in the issue or delivery
of our common stock in a name other than that of the holder of the convertible
note. Certificates representing shares of our common stock will not be issued or
delivered unless the person requesting such issue has paid to us the amount of
any tax or duty or has established to our satisfaction that any tax or duty has
been paid.

The conversion rate may be adjusted in certain events, including:

- dividends, and other distributions payable in common stock on shares of
our capital stock,

- the issuance of rights, options or warrants to all holders of our common
stock entitling them to subscribe for or purchase shares of our common
stock at less than the then current market price of our common stock.
However if those rights, options or warrants are only exercisable upon the
occurrence of certain triggering events, then the conversion rate will not
be adjusted until those triggering events occur,

- subdivisions, combinations and reclassifications of our common stock,

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- distributions to all holders of our common stock of evidences of our debt,
shares of our capital stock, cash or other assets, including securities,
but excluding:

-- those dividends, rights, options, warrants and distributions referred to
in the first two bullet points above,

-- dividends and distributions paid exclusively in cash, and

-- distributions upon mergers or consolidations to which the next bullet
point applies,

- distributions consisting exclusively of cash, excluding any cash portion
of distributions referred to in the bullet point immediately above or cash
distributed upon a merger or consolidation to which the next bullet point
applies, to all holders of our common stock in an aggregate amount that,
combined together with

-- other all-cash distributions made within the preceding 12 months from
the date of the payment in respect of which no adjustment has been made,
and

-- any cash and the fair market value of other consideration payable in
respect of any tender offer by us or any of our subsidiaries for common
stock concluded within the preceding 12 months in respect of which no
adjustment has been made,

exceeds 10% of our market capitalization, being the product of the current
market price per share of our common stock on the record date for that
distribution and the number of shares of our common stock then outstanding,

- the successful completion of a tender offer made by us or any of our
subsidiaries for our common stock which involves an aggregate
consideration that, together with

-- any cash and other consideration payable in a tender offer by us or any
of our subsidiaries for common stock expiring within the 12 months
preceding the expiration of that tender offer in respect of which no
adjustment has been made, and

-- the aggregate amount of any all-cash distributions referred to in the
immediately preceding bullet point to all holders of our common stock
within the 12 months preceding the expiration of that tender offer in
respect of which no adjustments have been made,

exceeds 10% of our market capitalization on the expiration of such tender
offer, and

- payment in respect of a tender offer or exchange offer by a person other
than us or any of our subsidiaries in which, as the closing of the offer,
our board of directors is not recommending rejection of the offer.

The adjustment referred to in the immediately preceding bullet point will
only be made if:

- the tender offer or exchange offer is for an amount which increases that
person's ownership of our common stock to more than 25% of the total
shares of our common stock outstanding, and

- the cash and value of any other consideration included in that payment per
share of our common stock exceeds the then current market price per share
of our common stock on the business day next succeeding the last date on
which tenders or exchanges may be made under such tender or exchange.

The adjustment referred to in the immediately preceding bullet point will
not be made, however, if, as of the closing of the offer, the related offering
documents disclose a plan or an intention to cause us to engage in any
transaction described below in "--Mergers and Sales of Assets by Advanced
Energy". We reserve the right to increase the conversion rate as we consider to
be advisable in order that any event treated for United States federal income
tax purposes as a

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dividend of stock or stock rights will not be taxable to the recipients. No
adjustment of the conversion rate will be required until the cumulative
adjustments amount to 1.0% or more of the conversion rate. We will compute any
adjustments to the conversion rate under the indenture and will give notice to
the holders of any adjustments.

In the case of any consolidation or merger of Advanced Energy with or into
another person or any merger of another person into Advanced Energy or upon the
sale or other transfer of all or substantially all of our assets, each
convertible note then outstanding will become convertible only into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
common stock into which the convertible note was convertible immediately prior
thereto, assuming such holder of common stock failed to exercise any rights of
election and that such convertible note was then convertible. The preceding
sentence will not apply to a merger which does not result in any
reclassification, conversion, exchange or cancellation of the common stock.

We may from time to time increase the conversion rate for any period of at
least 20 days if our board of directors determines that an increase would be in
our best interests, which determination will be conclusive. We will give at
least 15 days' prior notice of the increase to the holders of the convertible
notes. No increase shall be taken into account for purposes of determining
whether the closing price of the common stock exceeds the conversion price by
105% in connection with an event which otherwise would be a change in control.

If we make a distribution of property to our stockholders that would be
taxable to them as a dividend for United States federal income tax purposes,
and, under the anti-dilution provisions of the indenture, the number of shares
into which convertible notes are convertible is increased, that increase will be
deemed for United States federal income tax purposes to be the payment of a
taxable dividend to holders of convertible notes. This might occur with
distributions of our evidences of indebtedness or assets, but generally would
not occur with stock dividends on common stock or rights to subscribe for common
stock. See "Material United States Federal Income Tax Consequences--United
States Holders".

SUBORDINATION

The payment of the principal of, premium, if any, and interest on the
convertible notes, including amounts payable on any redemption or repurchase,
will be subordinated in right of payment to the extent set forth in the
indenture to the prior full and final cash payment of all of our "senior debt".
Our "senior debt" includes the principal of, and premium, if any, and interest,
including all interest accruing subsequent to the commencement of any bankruptcy
or similar proceeding, whether or not a claim for post-petition interest is
allowable in any such proceeding, on, and all fees and other amounts payable in
connection with, the following, whether absolute or contingent, secured or
unsecured, due or to become due, outstanding on the date of the indenture or
thereafter created, incurred or assumed:

- our indebtedness evidenced by a credit or loan agreement, note, bond,
debenture or other written obligation,

- all of our obligations for money borrowed,

- all of our obligations evidenced by a note or similar instrument given in
connection with the acquisition of any businesses, properties or assets of
any kind,

- our obligations

-- as lessee under leases required to be capitalized on our balance sheet
under generally accepted accounting principles, and

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-- as lessee under other leases for facilities, capital equipment or
related assets, whether or not capitalized, entered into or leased for
financing purposes,

- all of our obligations under interest rate and currency swaps, caps,
floors, collars, hedge agreements, forward contracts or similar agreements
or arrangements,

- all of our obligations with respect to letters of credit, bankers'
acceptances and similar facilities, including reimbursement obligations
with respect to the foregoing,

- all of our obligations issued or assumed as the deferred purchase price of
property or services, but excluding trade accounts payable and accrued
liabilities,

- all obligations referred to in the bullet points above of another person
or entity, the payment of which we have assumed or guaranteed, or for
which we are responsible or liable, directly or indirectly, jointly or
severally, as obligor, guarantor or otherwise, or which is secured by a
lien on our property, and

- renewals, extensions, modifications, replacements, restatements and
refundings of, or any indebtedness or obligation issued in exchange for,
any indebtedness or obligation described in the bullet points above.

However, "senior debt" does not include

- the convertible notes or any indebtedness or obligation if the terms of
that indebtedness or obligation, or the terms of the instrument under
which it is issued expressly provide that it is not superior in right of
payment to the convertible notes, or

- any particular indebtedness or obligation that we owe to any of our direct
or indirect subsidiaries.

We may not make any payment on account of principal of or premium, if any,
or interest on, or redemption or repurchase of, the convertible notes if:

- we default in the payment of principal, premium, if any, or interest,
including a default under any repurchase or redemption obligation, or
other amounts with respect to senior debt, and that default continues
beyond the applicable grace period, or

- we default and that default continues with respect to "designated senior
debt" that permits the holders of designated senior debt to accelerate its
maturity. Designated senior debt includes our obligations under

-- our credit facility, as it may be amended, modified or supplemented,
including all extensions, replacements, refinancings and substitutions,
and

-- any particular senior debt that is specifically designated as
"designated senior debt" under the indenture, although limitations and
conditions may be placed on that senior debt to exercise the rights of
"designated senior debt".

and, in either case, the trustee receives a notice of our default from a holder
of designated senior debt or other person entitled to give notice of our default
under the indenture.

We may resume payments on the convertible notes:

- in the case of a payment default, upon the date the default is cured,
waived or ceases to exist, and

- in the case of a nonpayment default, the earlier of the date the
nonpayment default is cured or waived or 179 days after the date on which
the trustee receives the notice of default, if the maturity of the
designated senior debt has not been accelerated.

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No new payment blockage period may be commenced unless and until:

- 365 days have elapsed since the effectiveness of the immediately prior
notice received by the trustee, and

- all scheduled payments of principal, premium, if any, and interest on the
convertible notes that have come due have been paid in full in cash.

No nonpayment default that existed or was continuing on the date of delivery
of any notice to the trustee may be the basis for any subsequent notice of
default to be delivered to the trustee.

In addition, all principal, premium, if any, interest and other amounts due
on all senior debt must be paid in full in cash before the holders of the
convertible notes are entitled to receive any payment otherwise due upon any
acceleration of the principal on the convertible notes as a result of:

- an event of default of the convertible notes, or

- payment or distribution of our assets to creditors upon any dissolution,
winding up, liquidation or reorganization, whether voluntary or
involuntary, marshaling of assets, assignment for the benefit of
creditors, or in bankruptcy, insolvency, receivership or other similar
proceedings.

In the event of insolvency, creditors who are holders of senior debt may
recover more, ratably, than the holders of the convertible notes because of this
subordination. The subordination may result in a reduction or elimination of
payments to the holders of the notes. In addition, the convertible notes will be
structurally subordinated to all of our subsidiaries' indebtedness and other
liabilities, including trade payables and lease obligations. Any of our rights
to receive any assets of our subsidiaries upon their liquidation or
reorganization, and the resulting right of the holders of the convertible notes
to participate in those assets, will be effectively subordinated to the claims
of that subsidiary's creditors, including trade creditors, except to the extent
that we are recognized as a creditor of that subsidiary. If we are recognized as
a creditor of that subsidiary, our claims would still be subordinate to any
security interest in the assets of that subsidiary and any senior debt of that
subsidiary. As of September 30, 1999, our senior debt and indebtedness of our
subsidiaries totalled approximately $816,000.

The indenture does not limit our ability or the ability of any of our
subsidiaries to incur indebtedness, including senior debt.

OPTIONAL REDEMPTION BY ADVANCED ENERGY

On and after , 2002, the convertible notes may be redeemed, in
whole or in part, at our option, at the redemption prices specified below, upon
not less than 30 nor more than 60 days' prior notice. The redemption price,
expressed as a percentage of principal amount, is as follows for the 12-month
periods beginning on of the following years:

<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2002............................................................................
2003............................................................................
2004............................................................................
2005............................................................................
</TABLE>

and 100% of the principal amount beginning on , 2006, in each case
together with accrued and unpaid interest to the redemption date.

No sinking fund is provided for the convertible notes.

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REPURCHASE AT OPTION OF HOLDERS UPON A CHANGE IN CONTROL

If a change in control occurs, each holder of convertible notes will have
the option to require us to repurchase all of its convertible notes not
previously called for redemption, or any portion of the principal amount of the
convertible notes that is equal to $1,000 or an integral multiple of $1,000.
This option may be exercised 45 days after the date on which we notify the
holders of any change in control. The repurchase price would be equal to 100% of
the principal amount of the notes to be repurchased, together with interest
accrued to that date.

A change in control will be deemed to have occurred if at any time after the
original issuance of the convertible notes any of the following occurs:

- the acquisition by any person of beneficial ownership of shares of our
capital stock entitling that person to exercise 50% or more of the total
voting power of all shares of our capital stock entitled to vote generally
in elections of directors. Beneficial ownership may be acquired directly
or indirectly, through a purchase, merger or other acquisition transaction
or series of transactions, other than any acquisition by us, any of our
subsidiaries or any or our employee benefit plans; or

- our consolidation or merger with or into any other entity, any merger of
another entity into us, or any conveyance, transfer, sale, lease or other
disposition of all or substantially all of our properties and assets to
another person or entity, other than:

-- any transaction (x) that does not result in any reclassification,
conversion, exchange or cancellation of our outstanding shares of
capital stock and (y) pursuant to which holders of our common stock
immediately prior to such transaction are entitled to exercise, directly
or indirectly, 50% or more of the total voting power of all shares of
our capital stock entitled to vote generally in the election of
directors of the continuing or surviving entity immediately after such
transaction, and

-- any merger which is effected solely to change our jurisdiction of
incorporation and results in a reclassification, conversion or exchange
of outstanding shares of common stock solely into shares of common stock
of the surviving entity.

"Beneficial owner" will be determined in accordance with Rule 13d-3 promulgated
by the SEC under the Securities Exchange Act. "Person" includes any syndicate or
group which would be deemed to be a "person" under Section 13(d)(3) of the
Securities Exchange Act.

However, a change in control will not be deemed to have occurred if the
closing sales price per share of our common stock for any five trading days
within the period of 10 consecutive trading days ending immediately after the
later of the change in control or the public announcement of the change in
control, in a change of control under the first bullet point above, or the
period of 10 consecutive trading days ending immediately before the change in
control, in a change in control under the second bullet point above, equals or
exceeds 105% of the conversion price in effect on each such trading day. The
conversion price is equal to $1,000 divided by the conversion rate.

We may, at our option, in lieu of paying that amount in cash, pay it in
common stock valued at 95% of the average of the closing sales prices of the
common stock for the five trading days immediately preceding and including the
third trading day prior to the date of repurchase. However, payment may not be
made in common stock unless we satisfy certain conditions prior to the
repurchase date as provided in the indenture.

Within 30 days after the occurrence of a change in control, we are obligated
to give to all holders of the convertible notes notice of the change in control
and of the resulting repurchase right. We must also deliver a copy of this
notice to the trustee. To exercise the repurchase right, a holder of convertible
notes must deliver irrevocable written notice to the trustee of the holder's

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exercise of this right, together with the respective convertible notes, on or
before the 30th day after the date of this notice.

Rule 13e-4 under the Securities Exchange Act requires that we disseminate
certain information to security holders in the event of an issuer tender offer
and this requirement may apply in the event that the repurchase option becomes
available to holders of the convertible notes. We will comply with this rule to
the extent applicable at that time.

We may purchase convertible notes at any time in the open market or by
tender at any price or by private agreement, to the extent permitted by
applicable law. Any note so purchased by us may, to the extent permitted by
applicable law, be reissued or resold or may, at our option, be surrendered to
the trustee for cancellation. Any convertible notes surrendered may not be
reissued or resold and will be canceled promptly.

The foregoing provisions would not necessarily protect holders of the
convertible notes in the event of highly leveraged or other transactions that
may adversely affect holders.

Our ability to repurchase convertible notes on a change in control is
limited. A change in control could cause an event of default under, or be
prohibited or limited by, senior debt that we acquire in the future. As a
result, any repurchase of the convertible notes would, absent a waiver, be
prohibited under the subordination provisions of the indenture until the senior
debt is paid in full. Further, we cannot guarantee that we would be able to pay
the repurchase price for all the convertible notes that might be delivered by
holders of convertible notes seeking to exercise the repurchase right. Our
ability to repurchase notes with cash may also be limited by our subsidiaries'
future borrowing arrangements due to dividend restrictions. Our failure to
repurchase the convertible notes when required following a change in control
would result in an event of default under the indenture whether or not such
repurchase is permitted by the subordination provisions of the indenture. Any
such default may, in turn, cause a default under our senior debt. See "--
Subordination".

MERGERS AND SALES OF ASSETS BY ADVANCED ENERGY

We may not consolidate with or merge into any other entity or transfer or
sell substantially all our properties and assets to any person or entity, and we
may not permit any entity to consolidate with or merge into us or transfer or
sell all or substantially all their properties and assets to us, unless:

- the entity formed by such consolidation or merger or the person or entity
to which our properties and assets are transferred or sold, is a
corporation, limited liability company, partnership or trust organized and
existing under the laws of the United States, any State thereof or the
District of Columbia and, if other than us, shall expressly assume the due
and punctual payment of the principal of and, premium, if any, and
interest on the convertible notes and the performance of our other
covenants under the indenture;

- immediately after such transaction, no event of default, and no event
which, after notice or lapse of time or both, would become an event of
default, shall have occurred and be continuing; and

- an officer's certificate and legal opinion relating to the conditions
described in the previous two bullet points above is delivered to the
trustee.

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EVENTS OF DEFAULT

The following will be events of default under the indenture:

- failure to pay principal of or premium, if any, on any convertible note
when due, whether or not payment is prohibited by the subordination
provisions of the indenture;

- failure to pay any interest on any convertible note when due, continuing
for 30 days, whether or not payment is prohibited by the subordination
provisions of the indenture;

- failure to perform any other of our covenants in the indenture, continuing
for 60 days after written notice to us by the trustee or the holders of at
least 25% in aggregate principal amount of outstanding convertible notes;

- failure to pay when due the principal of, or acceleration of, any debt for
money borrowed by us or any subsidiary in excess of $10 million if such
debt is not discharged, or such acceleration is not annulled, within 30
days after written notice to us by the trustee or the holders of at least
25% in aggregate principal amount of outstanding convertible notes;

- certain events of bankruptcy, insolvency or reorganization; and

- failure to provide a notice to note holders in the event of a change in
control, whether or not notice is prohibited by the subordination
provisions of the indenture.

The trustee is not required to exercise any of its rights or powers at the
request or direction of any of the holders, unless those holders have offered to
the trustee reasonable indemnity, except when an event of default occurs and
continues. If the trustee is adequately indemnified, the holders of a majority
in aggregate principal amount of the outstanding convertible notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee or exercising any trust or power conferred on
the trustee.

If an event of default, other than an event of default specified in the
second to the last bullet point above, occurs and is continuing, either the
trustee or the holders of at least 25% in principal amount of the outstanding
convertible notes may accelerate the maturity of all notes. However, after such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority of the outstanding convertible notes may, under certain
circumstances, rescind and annul the acceleration if all events of default,
other than the nonpayment of principal of the convertible notes which have
become due solely by such declaration of acceleration, have been cured or waived
as provided in the indenture. If an event of default specified in the last
bullet point above occurs and is continuing, then the principal of, and accrued
interest on, all of the convertible notes will automatically become immediately
due and payable. For information on waivers of defaults, see "-- Modification,
Waiver and Meetings" below.

No holder of any convertible note may institute any proceeding with respect
to the indenture or for any remedy thereunder, unless:

- that holder has previously given to the trustee written notice of a
continuing event of default;

- the holders of at least 25% of the outstanding notes have made written
request, and offered reasonable indemnity, to the trustee to institute
that proceeding as trustee;

- the trustee shall not have received from the holders of a majority of the
outstanding notes a direction inconsistent with such request; and

- and the trustee shall have failed to institute such proceeding within 60
days of the written request.

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However, these limitations do not apply to a suit for the enforcement of payment
of the principal of or premium, if any, or interest on a convertible note on or
after the respective due dates or of the right to convert that convertible note.

We must furnish to the trustee an annual statement concerning performance
(or default of performance) of certain of our obligations under the indenture.

MODIFICATION, WAIVER AND MEETINGS

Certain limited modifications of the indenture may be made without the
consent of the holders of the convertible notes. Other modifications and
amendments of the indenture may be made, and certain past defaults by us may be
waived, either

- with the written consent of the holders of not less than a majority in
aggregate principal amount of the convertible notes at the time
outstanding, or

- by a resolution adopted at a meeting of holders of the convertible notes
at which a quorum is present, by the holders of at least 66 2/3% in
aggregate principal amount of the convertible notes represented at such
meeting.

However, no modification or amendment may be made without the consent of
every holder of outstanding notes affected that would:

- change the stated maturity of the principal of, premium, if any, on, or
any installment of interest on, any convertible note,

- reduce the principal amount of, or the premium, if any, or interest on,
any convertible note,

- reduce the amount payable on a redemption or mandatory repurchase,

- modify the provisions with respect to the repurchase right of the holders
in a manner adverse to the holders,

- change the city of any place of payment or the currency of payment of
principal of, premium, if any, or interest on, any convertible note,
including any payment of the repurchase price in respect of that
convertible note,

- impair the right to institute suit for the enforcement of any payment on
or with respect to any convertible note,

- modify our obligation to maintain an office or agency in New York City,

- adversely affect the right of holders to convert or to require us to
repurchase any convertible note other than as provided in the indenture,
except as otherwise allowed or contemplated by provisions concerning
consolidation, merger, conveyance, transfer, sale or lease of all or
substantially all of our property and assets,

- modify the subordination provisions in a manner adverse to the holders of
the convertible notes,

- reduce the percentage of outstanding convertible notes necessary to modify
or amend the indenture,

- reduce the percentage of outstanding convertible notes necessary to waive
compliance with certain provisions of the indenture or to waive certain
defaults, or

- reduce the percentage of outstanding convertible notes required for the
adoption of a resolution or the quorum required at any meeting of holders
of convertible notes at which a resolution is adopted.

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The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the
convertible notes at the time outstanding and, at any reconvened meeting
adjourned for lack of a quorum, 25% of such aggregate principal amount. In
certain circumstances, therefore, we can make certain changes with the consent
of holders of approximately 17% of the aggregate principal amount of convertible
notes.

The holders of a majority in aggregate principal amount of the outstanding
convertible notes may waive our compliance with certain restrictive provisions
of the indenture by written consent or by the adoption of a resolution at a
meeting. The holders of a majority in aggregate principal amount of the
outstanding convertible notes also may waive any past default under the
indenture, except a default in the payment of principal, premium, if any, or
interest, by written consent.

The indenture contains provisions for convening meetings of holders of
convertible notes.

NOTICES

Notice to holders of the convertible notes will be given by mail to their
addresses as they appear in the security register. These notices will be deemed
to have been given on the date they are mailed.

Notice of a redemption of convertible notes will be given at least once not
less than 30 nor more than 60 days prior to the redemption date. A redemption
notice will be irrevocable and will specify the redemption date.

REPLACEMENT OF CONVERTIBLE NOTES

We will replace convertible notes that become mutilated, destroyed, stolen
or lost at the expense of the holder upon delivery to the trustee of the
mutilated convertible notes or evidence of the loss, theft or destruction of the
convertible notes satisfactory to us and the trustee. In the case of a lost,
stolen or destroyed convertible note, indemnity satisfactory to the trustee and
us may be required at the expense of the holder of such convertible note before
a replacement convertible note will be issued.

PAYMENT OF STAMP AND OTHER TAXES

We will pay all stamp and similar duties, if any, imposed by the United
States or any of its political subdivisions or taxing authorities with respect
to the issuance of the convertible notes. We will not be required to pay any
other tax, assessment or governmental charge imposed by any government or any
political subdivision or taxing authority.

GOVERNING LAW

The indenture and the convertible notes will be governed by and construed in
accordance with the laws of the State of New York.

THE TRUSTEE

The trustee for the holders of the convertible notes issued under the
indenture will be State Street Bank and Trust Company of California, N.A. If an
event of default occurs and is not cured, the trustee will be required to use
the degree of care of a prudent person in the conduct of its own affairs in the
exercise of its powers. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any of the holders of convertible notes, unless they shall have
offered to the trustee reasonable security or indemnity.

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Except with respect to a trustee appointed by the owners of the convertible
notes, the trustee will be deemed to have resigned and its successor will be
deemed to have been appointed as trustee in accordance with the indenture if:

- no event of default under the indenture or event that, after notice or
lapse of time, or both, would become an event of default under the
indenture exists, and

- we delivered to the trustee a resolution of our board appointing a
successor trustee and that successor trustee has accepted that appointment
in accordance with the terms of the indenture.

If the trustee becomes our creditor, the indenture and the Trust Indenture
Act limit the rights of the trustee to obtain payments of claims in certain
cases or to realize on certain property received in respect of any such claim as
security or otherwise. Subject to the Trust Indenture Act, the trustee may
engage in other transactions with us or any of our affiliates or any affiliate
of Advanced Energy. However, if the trustee acquires any conflicting interest as
described in the Trust Indenture Act, it must eliminate that conflict or resign.

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of material United States federal income tax
consequences relating to the purchase, ownership and disposition of the
convertible notes and of the common stock issuable on conversion of the
convertible notes. For purposes of this summary (1) the Internal Revenue Code of
1986, as amended, is referred to as "the Code" and (2) the Internal Revenue
Service is referred to as "the IRS". The following is not a complete discussion
of all of the possible tax consequences of the occurrence of the contingent
events described below. You should contact your own tax advisor with respect to
the application of the United States federal income and estate tax laws to your
particular situation as well as any tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction or under any applicable tax
treaty.

This summary:

- does not purport to be a complete analysis of all the potential tax
considerations that may be relevant to holders in light of their
particular circumstances;

- is based on laws, rulings and decisions now in effect, all of which are
subject to change, possibly on a retroactive basis;

- deals only with holders that will hold convertible notes and common stock
as "capital assets" within the meaning of Section 1221 of the Code;

- does not address tax considerations applicable to investors that may be
subject to special tax rules, such as banks (other than as set forth
below), tax-exempt organizations, insurance companies, dealers in
securities or currencies, or persons that will hold convertible notes as a
position in a hedging transaction, "straddle", or "conversion transaction"
for tax purposes, or persons deemed to sell convertible notes or common
stock under the constructive sale provisions of the Code; and

- discusses only the tax considerations applicable to the initial purchasers
of the convertible notes who purchase the convertible notes at their
"issue price" as defined in Section 1273 of the Code and does not discuss
the tax considerations applicable to subsequent purchasers of the
convertible notes.

Advanced Energy has not sought any ruling from the IRS with respect to the
statements made and the conclusions reached in the following summary, and we
cannot assure you that the IRS will agree with the statements and conclusions
expressed in this summary. In addition, the IRS is not precluded from
successfully adopting a contrary position. This summary does not consider the
effect of any applicable foreign, state, local, or other tax laws.

INVESTORS CONSIDERING THE PURCHASE OF CONVERTIBLE NOTES SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL
INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

As used herein, the term "United States Holder" means a beneficial owner of
a convertible note or common stock that is, for United States federal income tax
purposes,

- a citizen or resident, as defined in Section 7701(b) of the Code, of the
United States;

- a corporation, partnership or other entity created or organized under the
laws of the United States or political subdivision thereof;

- an estate the income of which is subject to federal income taxation
regardless of its source; or

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- in general, a trust subject to the primary supervision of a United States
court and the control of one or more United States persons, or a trust in
existence on August 20, 1996, which has made an election to continue to be
taxed as a United States person.

A "Foreign Holder" is a beneficial owner of convertible notes or common stock
that is not a United States Holder.

UNITED STATES HOLDERS

PAYMENT OF INTEREST

Interest on a convertible note generally will be includable in the income of
a United States Holder as ordinary income at the time such interest is received
or accrued, in accordance with such United States Holder's regular method of
accounting for United States federal income tax purposes.

SALE, EXCHANGE OR REDEMPTION OF A CONVERTIBLE NOTE

Upon the sale, exchange or redemption of a convertible note, a United States
Holder generally will recognize capital gain or loss equal to the difference
between (1) the amount of cash proceeds and the fair market value of any
property received on the sale, exchange or redemption, except to the extent such
amount is attributable to accrued interest not previously included in income,
which is taxable as ordinary income, and (2) such United States Holder's
adjusted tax basis in the convertible note. A United States Holder's adjusted
tax basis in a convertible note generally will equal the cost of the convertible
note to such United States Holder, less any principal payments received by such
United States Holder.

For certain non-corporate taxpayers, including individuals, the rate of
taxation of capital gains will depend upon:

(1) the taxpayer's holding period in the capital asset, with
preferential rates available for capital assets held for more than 12
months, and

(2) the taxpayer's marginal tax rate for ordinary income.

The deductibility of capital losses is subject to limitations.

United States Holders are urged to consult their own tax advisors with
respect to the rate of taxation of capital gains and the ability to deduct
capital losses.

CONVERSION OF THE CONVERTIBLE NOTES

A United States Holder generally will not recognize any income, gain or loss
upon conversion of a convertible note into common stock except to the extent the
common stock is considered attributable to accrued interest not previously
included in income, which is taxable as ordinary income, or with respect to cash
received in lieu of a fractional share of common stock. A United States Holder's
tax basis in the common stock received on conversion of a convertible note will
be the same as such United States Holder's adjusted tax basis in the convertible
note at the time of conversion, reduced by any basis allocable to a fractional
share interest, and the holding period for the common stock received on
conversion will generally include the holding period of the convertible note
converted. However, a United States Holder's tax basis in shares of common stock
considered attributable to accrued interest as described above generally will
equal the amount of such accrued interest included in income, and the holding
period for such shares shall begin on the date of conversion.

Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss, measured by

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the difference between the cash received for the fractional share and the United
States Holder's adjusted tax basis in the fractional share.

DIVIDENDS, ADJUSTMENTS TO CONVERSION RATE

Any dividends paid on the common stock generally will be includable in the
income of a United States Holder as ordinary income to the extent of our current
or accumulated earnings and profits. Dividends paid to holders that are United
States corporations may qualify for the dividends received deduction. To the
extent, if any, that a United States Holder receives distributions on shares of
common stock that would otherwise constitute dividends for United States federal
income tax purposes but that exceed our current and accumulated earnings and
profits, such distributions will be treated first as non-taxable return of
capital reducing the holder's basis in the shares of common stock. Any such
distributions in excess of the holder's basis in the shares of common stock
generally will be treated as capital gain realized on the disposition of common
stock.

If at any time

- we distribute cash or property to our stockholders or purchases common
stock and such distribution or purchase would be taxable for such
stockholders as a dividend for United States federal Income tax
purposes--for example, distributions of evidences of our indebtedness
or our assets, but generally not stock dividends or rights to subscribe
for common stock--and, pursuant to the antidilution provisions of the
convertible notes indenture, the conversion rate of the convertible
notes is increased; or

- the conversion rate of the convertible notes is increased at our
discretion,

the increase in the conversion rate may be deemed to be the payment of a taxable
dividend to holders of convertible notes under Section 305 of the Code. Holders
of convertible notes could therefore have taxable income as a result of an event
pursuant to which they received no cash or property, and such income would
increase their tax bases in their convertible notes.

SALE OR EXCHANGE OF COMMON STOCK

Upon the sale or exchange of common stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (1) the
amount of cash and the fair market value of any property received upon the sale
or exchange and (2) such United States Holder's adjusted tax basis in the common
stock.

For certain non-corporate taxpayers (including individuals), the rate of
taxation of capital gains will depend upon (1) the taxpayer's holding period in
the capital asset (with preferential rates available for capital assets held for
more than 12 months) and (2) the taxpayer's marginal tax rate for ordinary
income. The deductibility of capital losses is subject to limitations.

FOREIGN HOLDERS

STATED INTEREST

Payments of principal and interest on a convertible note to a Foreign Holder
will not be subject to United States federal withholding tax provided that

- the holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock entitled to
vote;

- the holder is not a controlled foreign corporation that is related to
Advanced Energy through stock ownership;

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- either (A) the beneficial owner of the convertible note, under
penalties of perjury, provides us or our agent with its name and
address and certifies that it is not a United States person or (B) a
securities clearing organization, bank, or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") certifies to us or our agent,
under penalties of perjury, that such a statement has been received
from the beneficial owner by it or another financial institution and
furnishes to us or our agent a copy thereof; and

- the holder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code (i.e., interest on an extension of credit made
pursuant to a loan entered into in the ordinary course of its trade or
business).

For purposes of this summary, we refer to this exemption from United States
federal withholding tax as the "Portfolio Interest Exemption". Under United
States Treasury regulations, which generally are effective for payments made
after December 31, 2000, subject to certain transition rules, (i) the
certification statements of the beneficial owner described above must be
provided on a validly executed Form W-8 (or an acceptable variation thereof),
and (ii) the certification described in clause (B) of the third bullet point
above may also be provided by a qualified intermediary on behalf of one or more
beneficial owners or other intermediaries, provided that such intermediary has
entered into a withholding agreement with the IRS and certain other conditions
are met.

The gross amount of payments to a Foreign Holder of interest that does not
qualify for the Portfolio Interest Exemption and that is not effectively
connected with a United States trade or business will be subject to United
States federal withholding tax at the rate of 30%, unless a United States income
tax treaty applies to reduce or eliminate withholding.

A Foreign Holder will generally be subject to tax in the same manner as a
United States corporation or resident with respect to payments of interest if
such payments are effectively connected with the conduct of trade or business in
the Unites States. Such effectively connected income received by a Foreign
Holder which is a corporation may in certain circumstances be subject to an
additional "branch profits tax" at a 30% rate or, if applicable, a lower treaty
rate.

Foreign Holders should consult their own tax advisors regarding applicable
income tax treaties, which may provide different rules.

To claim the benefit of a tax treaty or to claim exemption from withholding
because the income is effectively connected with a U.S. trade or business, the
Foreign Holder must provide a properly executed Form 1001 or 4224, as
applicable, or an acceptable alternative to those forms, prior to the payment of
interest. These forms must be periodically updated. United States Treasury
regulations, which generally are effective for payments made after December 31,
2000, subject to certain transition rules, require Foreign Holders or, under
certain circumstances, a qualified intermediary to file a validly executed
withholding certificate on Form W-8 (or an acceptable variation thereof) with
the Company's withholding agent to obtain the benefit of an applicable tax
treaty providing for a lower rate of withholding tax. Such certificate must
contain, among other information, the name and address of the Foreign Holder,
and may have to be provided prior to the date on which a current certificate
would otherwise have expired.

SALE, EXCHANGE OR REDEMPTION OF A CONVERTIBLE NOTE

A Foreign Holder generally will not be subject to United States federal
income tax or withholding tax on gain realized on the sale or exchange of
convertible notes unless (1) the holder is an individual who was present in the
United States for 183 days or more during the taxable year, such gain is U.S.
source and certain other conditions are met, or (2) the gain is effectively
connected with the conduct of a trade or business of the holder in the United
States and, if a treaty

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applies, such gain is attributable to an office or other fixed place of business
maintained in the United States by such holder.

In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a convertible note into common stock by a Foreign
Holder except (1) to the extent the common stock is considered attributable to
accrued interest not previously included in income, which may be taxable under
the rules set forth in "Foreign Holders--Stated Interest", (2) with respect to
the receipt of cash in lieu of fractional shares by Foreign Holders upon
conversion of a
convertible note, in each case where either the conditions described in (1) or
(2) above, under "Foreign Holders--Sale, Exchange or Redemption of a Convertible
Note" is satisfied or (3) if we are deemed to be a United States real property
holding corporation as discussed below.

SALE OR EXCHANGE OF COMMON STOCK

A Foreign Holder will generally not be subject to United States federal
income tax or withholding tax on the sale or exchange of common stock unless
either of the conditions described in (1) or (2) above under "Foreign
Holders--Sale, Exchange or Redemption of a Convertible Note" is satisfied or we
are or have been deemed to be a United States real property holding corporation
for United States federal income tax purposes within the meaning of Section 897
of the Code (a "USRPHC") at any time within the shorter of the five year period
preceding such disposition or such Foreign Holder's holding period. We do not
believe we are, nor do we believe we have ever been a USRPHC. Further, we do not
expect in the foreseeable future to become a USRPHC. If we are, have been or
become a USRPHC, so long as the common stock continues to be regularly traded on
an established securities market within the meaning of Section 897(c)(3) of the
Code, only a Foreign Holder who holds or held, at any time during the shorter of
the five-year period preceding the date of disposition or the holder's holding
period, more than 5% of the common stock will be subject to U.S. federal income
tax on the disposition of the common stock.

DIVIDENDS

Distributions by us with respect to the common stock that are treated as
dividends paid or deemed paid, as described above under "United States
Holders--Dividends, Adjustments to Conversion Rate", to a Foreign Holder,
excluding dividends that are effectively connected with the conduct of a trade
or business in the United States by such Holder which are taxable as described
below, will be subject to United States federal withholding tax at a 30% rate,
or lower rate provided under any applicable income tax treaty. Except to the
extent that an applicable tax treaty otherwise provides, a Foreign Holder will
be subject to tax in the same manner as a United States Holder on dividends paid
or deemed paid that are effectively connected with the conduct of a trade or
business in the United States by the Foreign Holder. If such Foreign Holder is a
foreign corporation, it may also be subject to a United States "branch profits
tax" on such effectively connected income at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. Even though such
effectively connected dividends are subject to income tax, and may be subject to
the branch profits tax, they will not be subject to U.S. withholding tax if the
Foreign Holder delivers IRS Form 4224 (or appropriate successor form) to the
payer.

Under current United States Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, unless the payer has knowledge to the contrary, for purposes of the
withholding discussed above, and under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. However, under United States Treasury regulations which
generally are effective for payments made after December 31, 2000, subject to
certain transition rules, a Foreign Holder of common stock who wishes to claim
the benefit of an applicable treaty rate would be required to satisfy applicable
certification requirements.

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DEATH OF A FOREIGN HOLDER

A convertible note held by an individual who is not a citizen or resident of
the United States at the time of death will not be includable in the decedent's
gross estate for United States estate tax purposes, provided that such holder or
beneficial owner did not at the time of death actually or constructively own 10%
or more of the combined voting power of all classes of our stock entitled to
vote, and provided that, at the time of death, payments with respect to the
convertible note would not have been effectively connected with the conduct by
such Foreign Holder of a trade or business within the United States.

Common stock actually or beneficially held, other than through a foreign
corporation, by an individual who is not a citizen or resident of the United
States at the time of his or her death, or previously transferred subject to
certain retained rights or powers, will be subject to United States federal
estate tax unless otherwise provided by an applicable estate tax treaty.

INFORMATION REPORTING AND BACKUP WITHHOLDING

In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a convertible note, dividends on
common stock, and payments of the proceeds of the sale of a convertible note or
common stock to certain non-corporate United States Holders, and a 31% backup
withholding tax may apply to such payment if the United States Holder (1) fails
to furnish or certify his correct taxpayer identification number and other
required information to the payer in the manner required, (2) is notified by the
IRS that he has failed to report payments of interest or dividends properly or
(3) under certain circumstances, fails to certify that he has not been notified
by the IRS that he is subject to backup withholding for failure to report
interest or dividend payments.

Information reporting requirements will apply to payments of interest or
dividends to Foreign Holders where such interest or dividends are (i) subject to
withholding, (ii) with respect to payments of dividends or interest made before
January 1, 2001, exempt from United States withholding tax pursuant to a tax
treaty, (iii) exempt from United States tax under the Portfolio Interest
Exemption, or (iv) with respect to payments of dividends or interest made after
December 31, 2000, effectively connected with the conduct of a United States
trade or business. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Foreign Holder resides.

United States Treasury regulations provide that backup withholding and
information reporting will not, however, apply to our payments of principal on
the convertible notes to a Foreign Holder if the Foreign Holder certifies as to
its status as a Foreign Holder under penalties of perjury or otherwise
establishes an exemption (provided that neither we nor our paying agent has
actual knowledge that the holder is a United States person or that the
conditions of any other exemption are not, in fact, satisfied.)

The payment of the proceeds from the disposition of convertible notes or
common stock to or through the United States office of any broker, United States
or foreign, will be subject to information reporting and possible backup
withholding unless the owner certifies as to its non-United States status under
penalty of perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge that the holder is a United States person
or that the conditions of any other exemption are not, in fact, satisfied. The
payment of the proceeds from the disposition of a convertible note or common
stock to or through a non-United States office of a

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non-United States broker that is not a United States related person will not be
subject to information reporting or backup withholding. For this purpose, a
"United States related person" is

- a "controlled foreign corporation" for United States federal income tax
purposes; or

- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a United States trade or business.

In the case of the payment of proceeds from the disposition of convertible
notes or common stock to or through a non-United States office of a broker that
is either a United States person or a United States related person, United
States Treasury regulations require information reporting on the payment unless
the broker has appropriate documentary evidence in its files that the owner is a
Foreign Holder, the broker has no knowledge to the contrary, and certain other
conditions are met.

Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's United States federal income tax
liability provided the required information is furnished to the IRS.

United States Treasury regulations, which generally are effective for
payments made after December 31, 2000, subject to certain transition rules, will
generally expand the circumstances under which information reporting and backup
withholding may apply. Holders of convertible notes should consult their tax
advisors regarding the application of the information and reporting and backup
withholding rules, including such Treasury regulations.

The preceding discussion of certain United States federal income tax
consequences is for general information only and is not tax advice. Accordingly,
holders of the convertible notes should consult their own tax advisers as to
particular tax consequences to them or purchasing, holding and disposing of the
convertible notes and the common stock, including the applicability and effect
of any state, local or foreign tax laws, and of any proposed changes in
applicable law.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 under the Securities Act of 1933, relating to the
convertible notes being offered. This prospectus is filed as part of the
registration statement. Other parts of the registration statement are omitted
from this prospectus. Statements made in this prospectus concerning the contents
of any contract or other document are not necessarily complete. For a more
complete description of the matter involved, you should read the entire contract
or other document, which has been filed as an exhibit to the registration
statement.

We are required by the Securities Exchange Act of 1934 to file reports,
proxy statements and other information with the SEC. You may read and copy such
reports, proxy statements and other information at the SEC's public reference
facilities:

<TABLE>
<S> <C> <C>
WASHINGTON, D.C. NEW YORK CHICAGO
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661-2511
</TABLE>

You may call 1-800-SEC-0330 for further information about the public
reference facilities. For a fee, the SEC will send copies of any of our filings
to you. In addition, our filed reports, proxy statements and other information
are contained in the Internet web site maintained by the SEC. The address is
http://www.sec.gov.

75
<PAGE>
Our common stock is quoted on the Nasdaq National Market under the symbol
"AEIS", and our SEC filings can also be read at the following Nasdaq address:

Nasdaq Operations
1735 K Street, N.W.
Washington, D.C. 20006

The SEC allows us to incorporate by reference the information we file with
it, which means we can disclose important information to you by referring you to
those documents. The information incorporated by reference is considered to be a
part of this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
we sell all of the securities:

- our annual report on Form 10-K for the year ended December 31, 1998;

- our quarterly reports on Form 10-Q for the quarters ended March 31, 1999
and June 30, 1999; and

- the description of our common stock contained in our Registration
Statement on Form 8-A filed October 12, 1995, and any amendment or report
filed for the purpose of updating such description.

You may request a copy of these filings, at no cost, by writing us at the
following address:

Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, Colorado 80525
Attention: Richard P. Beck

or by calling Investor Relations at (970) 221-4670.

LEGAL MATTERS

The validity of the convertible notes and the common stock issuable on
conversion of the convertible notes will be passed upon for us by Thelen Reid &
Priest LLP, San Francisco, California, who have acted as counsel to Advanced
Energy in connection with this offering. Certain legal matters will be passed
upon for the underwriters by Kaye, Scholer, Fierman, Hays & Handler, LLP, Los
Angeles, California.

EXPERTS

The financial statements and schedules included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their reports. In those
reports, that firm states that with respect to a certain subsidiary its opinion
is based on the reports of other independent public accountants. The financial
statements and supporting schedules referred to above have been included herein
in reliance upon the authority of those firms as experts in giving said reports.

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<PAGE>
UNDERWRITING

Advanced Energy and the underwriters for the offering named below have
entered into an underwriting agreement with respect to the convertible notes
being offered. Subject to certain conditions, each underwriter has severally
agreed to purchase the principal amount of convertible notes indicated in the
following table.

<TABLE>
<CAPTION>
Principal Amount
Underwriters of Notes
- ---------------------------------------------------------- ----------------
<S> <C>
Goldman, Sachs & Co.......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Banc of America Securities LLC............................
----------------
Total................................................... $ 100,000,000
----------------
----------------
</TABLE>

If the underwriters sell more convertible notes than the total principal
amount set forth in the table above, the underwriters have an option to buy up
to an additional $15,000,000 principal amount of convertible notes from Advanced
Energy to cover such sales. They may exercise that option for 30 days. If any
convertible notes are purchased pursuant to this option, the underwriters will
severally purchase convertible notes in approximately the same proportion as set
forth in the table above.

The following table shows the per convertible note and total underwriting
discounts and commissions to be paid to the underwriters by Advanced Energy.
Such amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional convertible notes.

<TABLE>
<CAPTION>
Paid by Advanced Energy
-------------------------
Full
No Exercise Exercise
----------- ------------
<S> <C> <C>
Per Convertible Note............................ % %
Total......................................... $ $
</TABLE>

Convertible notes sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus. Any convertible notes sold by the underwriters to securities dealers
may be sold at a discount from the initial public offering price of up to % of
the principal amount of the convertible notes. Any such securities dealers may
resell any convertible notes purchased from the underwriters to certain other
brokers or dealers at a discount from the initial public offering price of up to
% of the principal amount of the convertible notes. If all the convertible
notes are not sold at the initial public offering price to public, the
underwriters may change the offering price and the other selling terms.

Advanced Energy has agreed with the underwriters not to dispose of or hedge
any of its common stock or securities convertible into or exchangeable for
shares of common stock during the period from the date of this prospectus
continuing through the date 90 days after the date of this prospectus, except
with the prior written consent of the underwriters. This agreement does not
apply to any existing employee benefit plans.

The convertible notes are a new issue of securities with no established
trading market. Advanced Energy has been advised by the underwriters that the
underwriters intend to make a market in the convertible notes but are not
obligated to do so and may discontinue market making

U-1
<PAGE>
at any time without notice. No assurance can be given as to the liquidity of the
trading market for the convertible notes.

In connection with this offering, the underwriters may purchase and sell
convertible notes and common stock in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the underwriters of a
greater principal amount of convertible notes than they are required to purchase
in this offering. Stabilizing transactions consist of certain bids or purchases
made for the purpose of preventing or retarding a decline in the market price of
the convertible notes or the common stock while the offering is in progress.

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

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the convertible notes and the common stock. As a
result, the price of the convertible notes or the common stock may be higher
than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. These transactions may be effected in the over-the-counter market or
otherwise.

Advanced Energy estimates that its share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $410,000.

Advanced Energy has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.

Concurrently with this convertible notes offering and by means of a separate
prospectus Advanced Energy and six of Advanced Energy's stockholders are
offering a total of 3,000,000 shares of common stock, plus an additional 450,000
shares (to be offered by the selling stockholders) to cover over-allotments by
the underwriters for that offering. The completion of this convertible notes
offering and the common stock offering are not dependent on one another. The
underwriters for the common stock offering, of which Goldman, Sachs & Co. is
one, will receive customary compensation in connection with the common stock
offering.

U-2
<PAGE>
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No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the convertible notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 11
Cautionary Note on Forward-Looking Statements............................. 20
Use of Proceeds........................................................... 21
Price Range of Common Stock............................................... 21
Dividend Policy........................................................... 21
Capitalization............................................................ 22
Selected Consolidated Financial Data...................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 25
Business.................................................................. 35
Management................................................................ 47
Principal and Selling Stockholders........................................ 49
Description of Capital Stock.............................................. 51
Description of Convertible Notes.......................................... 52
Material United States Federal Income Tax Consequences.................... 69
Where You Can Find More Information....................................... 75
Legal Matters............................................................. 76
Experts................................................................... 76
Underwriting.............................................................. U-1
</TABLE>

$100,000,000

ADVANCED ENERGY
INDUSTRIES, INC.

% Convertible Subordinated Notes due 2006

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[LOGO]

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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
BANC OF AMERICA
SECURITIES LLC

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