Underwriting Agreement

DRAFT OF SEPTEMBER 17, 1999


ADVANCED ENERGY INDUSTRIES, INC.


___% CONVERTIBLE SUBORDINATED NOTES DUE 2006


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UNDERWRITING AGREEMENT


September __, 1999


Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America Securities LLC c/o Goldman, Sachs & Co. 85 Broad Street, New York, New York 10004


Ladies and Gentlemen:


Advanced Energy Industries, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc America Securities LLC (the "Underwriters") an aggregate of $_________ principal amount of the Convertible Notes, convertible into Common Stock, $0.001 par value ("Stock") of the Company, specified above (the "Firm Securities") and, at the election of the Underwriters, up to an aggregate of $_________ additional aggregate principal amount (the "Optional Securities") (the Firm Securities and the Optional Securities which the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the "Securities").


1. The Company represents and warrants to, and agrees with, each of the Underwriters that:


(a) A registration statement on Form S-3 (File No.
33-___________) (the "Initial Registration Statement") in respect of
the Securities and shares of the Stock issuable upon conversion
thereof has been filed with the Securities and Exchange Commission
(the "Commission"); the Initial Registration Statement and any
post-effective amendment


thereto, excluding exhibits thereto but including all documents
incorporated by reference in the prospectus contained therein, each
in the form heretofore delivered to you and for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the
size of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), which became effective upon filing, no other document
with respect to the Initial Registration Statement or document
incorporated by reference therein has been filed with the
Commission; and no stop order suspending the effectiveness of the
Initial Registration Statement, any post-effective amendment thereto
or the Rule 462(b) Registration Statement, if any, has been issued
and no proceeding for that purpose has been initiated or threatened
by the Commission (any preliminary prospectus included in the
Initial Registration Statement or filed with the Commission pursuant
to Rule 424(a) of the rules and regulations of the Commission under
the Act, is hereinafter called a "Preliminary Prospectus"); the
various parts of the Initial Registration Statement and the Rule
462(b) Registration Statement, if any, including all exhibits
thereto but excluding Form T-1 and including (i) the information
contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section
5(a) hereof and deemed by virtue of Rule 430A under the Act to be
part of the Initial Registration Statement at the time it was
declared effective and (ii) the documents incorporated by reference
in the prospectus contained in the Initial Registration Statement at
the time such part of the Initial Registration Statement became
effective, each as amended at the time such part of the Initial
Registration Statement became effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration
Statement"; such final prospectus, in the form first filed pursuant
to Rule 424(b) under the Act, is hereinafter called the
"Prospectus"; any reference herein to any Preliminary Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of such Preliminary Prospectus or
Prospectus, as the case may be; any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be
deemed to refer to and include any documents filed after the date of
such Preliminary Prospectus or Prospectus, as the case may be, under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and incorporated by reference in such Preliminary Prospectus
or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to
and include any annual report of the Company filed pursuant to
Section 13(a) or 15(d) of the Exchange Act after the effective date
of the Initial Registration Statement that is incorporated by
reference in the Registration Statement;


(b) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
rules and regulations of the Commission thereunder, and did not contain
an untrue statement of a


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material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by
an Underwriter through Goldman, Sachs & Co. expressly for use
therein;


(c) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus or any further
amendment or supplement thereto, when such documents become effective
or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein;


(d) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement
or the Prospectus will conform, in all material respects to the
requirements of the Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and do not and will not, as of
the applicable effective date of the Registration Statement and any
amendment thereto and as of the applicable filing date of the
Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;


(e) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, except as set
forth or contemplated in the Prospectus or as would not have,
individually or in the aggregate, a material adverse effect on the


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current or future consolidated financial position, business, prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole (a "Material Adverse Effect"); and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
change in the capital stock, capital lease obligations or long-term
debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;


(f) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not materially interfere with the use made and proposed
to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries;


(g) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with the corporate power and authority to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified or in good standing in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified or in good standing in any
such jurisdiction;


(h) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; the shares of Stock initially issuable upon
conversion of the Securities have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance with
the provisions of the Securities and the Indenture referred to below,
will be duly and validly issued, fully paid and non-assessable and will
conform to the description of the Stock contained in the


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Prospectus; and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;


(i) The Securities have been duly authorized and, when issued
and delivered pursuant to this Agreement, will have been duly executed,
authenticated, issued and delivered and will constitute valid and
legally binding obligations of the Company entitled to the benefits
provided by the indenture to be dated as of September __, 1999 (the
"Indenture") between the Company and State Street Bank and Trust, as
Trustee (the "Trustee"), under which they are to be issued, which will
be substantially in the form filed as an exhibit to the Registration
Statement; the Indenture has been duly authorized and duly qualified
under the Trust Indenture Act and, when executed and delivered by the
Company and the Trustee, will constitute a valid and legally binding
instrument, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general equity principles; and the Securities and the Indenture will
conform to the descriptions thereof in the Prospectus;


(j) The issue and sale of the Securities and the compliance by
the Company with all of the provisions of the Securities, the Indenture
and this Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any of its
subsidiaries is subject, except , in each case, (i) breaches,
violations or defaults which, individually or in the aggregate, would
not have a Material Adverse Effect and (ii) would not have an adverse
effect on the Company's ability to consummate the transactions
contemplated hereby; nor will such actions result in any violation of
the provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
of its subsidiaries or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
issue and sale of the Securities or the consummation by the Company of
the transactions contemplated by this Agreement or the Indenture,
except the registration under the Act of the Securities and the shares
of Stock issuable upon conversion thereof, such as have been obtained
under the Trust Indenture Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Securities by the Underwriters;


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(k) Neither the Company nor any of its subsidiaries (i) is in
violation of its Certificate of Incorporation or By-laws or (ii) in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound,
except in the case of (ii) above where such default would not have a
Material Adverse Effect and would not have an adverse effect on the
Company's ability to consummate the transactions contemplated hereby;


(l) The statements set forth in the Prospectus under the
captions "Description of Notes" and "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, under the caption "Material United States
Federal Income Tax Consequences", and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;


(m) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined
adversely to the Company or any of its subsidiaries, would individually
or in the aggregate have a Material Adverse Effect; and, to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;


(n) The Company is not and, after giving effect to the
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended
(the "Investment Company Act");


(o) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida
Statutes;


(p) Arthur Andersen LLP, who has opined as to certain
financial statements of the Company and its subsidiaries, and KPMG LLP,
who has opined as to certain financial statements of RF Power Products,
Inc., are each independent public accountants as required by the Act
and the rules and regulations of the Commission thereunder;


(q) The Company has reviewed its operations and that of its
subsidiaries and has made reasonable inquiries of any third parties
with which the Company or any of its subsidiaries has a material
relationship to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries will be affected by the Year
2000 Problem. As a result of such review, except as specifically
described in the Prospectus, the Company has no reason to believe, and
does not believe, that the Year 2000 Problem will


6


have a material adverse effect on the general affairs, management,
the current or future consolidated financial position, business,
prospects, stockholders' equity or results of operations of the
Company and its subsidiaries or result in any material loss or
interference with the Company's business or operations. The "Year
2000 Problem" as used herein means any significant risk that
computer hardware, firmware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case
of dates or time periods occurring after December 31, 1999, function
at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000; and


(r) Neither the Company not any of its subsidiaries own any
real property.


2. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a purchase price of ____% of the principal amount thereof, plus accrued interest, if any, from ____________, 1999 to the First Time of Delivery hereunder, the principal amount of Firm Securities set forth opposite the name of such Underwriter in Schedule I hereto, and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Securities as provided below, the Company agrees to issue and sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at the same purchase price set forth in clause (a) of this Section 2, that portion of the aggregate principal amount of the Optional Securities as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractions of $_________), determined by multiplying such aggregate principal amount of Optional Securities by a fraction, the numerator of which is the maximum aggregate principal amount of Optional Securities which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum aggregate principal amount of Optional Securities which all of the Underwriters are entitled to purchase hereunder.


The Company hereby grants to the Underwriters the right to purchase at their election up to $_________ aggregate principal amount of Optional Securities, at the purchase price set forth in clause (a) of the first paragraph of this Section 2, for the sole purpose of covering sale of Securities in excess of the number of Firm Securities. Any such election to purchase Optional Securities may be exercised by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement, setting forth the aggregate principal amount of Optional Securities to be purchased and the date on which such Optional Securities are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice.


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3. Upon the authorization by you of the release of the Firm Securities, the several Underwriters propose to offer the Firm Securities for sale upon the terms and conditions set forth in the Prospectus.


4. (a) The Securities to be purchased by each Underwriter
hereunder will be represented by one or more definitive global
Securities in book-entry form which will be deposited by or on
behalf of the Company with The Depository Trust Company ("DTC") or
its designated custodian. The Company will deliver the Securities to
Goldman, Sachs & Co., for the account of each Underwriter, against
payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer of Federal (same-day) funds to the account
specified by the Company to Goldman, Sachs & Co. at least
forty-eight hours in advance, by causing DTC to credit the
Securities to the account of Goldman, Sachs & Co. at DTC. The
Company will cause the certificates representing the Securities to
be made available to Goldman, Sachs & Co. for checking at least
twenty-four hours prior to the Time of Delivery (as defined below)
at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be,
with respect to the Firm Securities, 9:30 a.m., New York City time,
on ____________, 1999 or such other time and date as Goldman, Sachs
& Co. and the Company may agree upon in writing, and, with respect
to the Optional Securities, 9:30 a.m., New York City time, on the
date specified by Goldman, Sachs & Co. in the written notice given
by Goldman, Sachs & Co. of the Underwriters' election to purchase
such Optional Securities, or such other time and date as Goldman,
Sachs & Co. and the Company may agree upon in writing. Such time and
date for delivery of the Firm Securities is herein called the "First
Time of Delivery", such time and date for delivery of the Optional
Securities, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery
is herein called a "Time of Delivery".


(b) The documents to be delivered at each Time of Delivery by
or on behalf of the parties hereto pursuant to Section 7 hereof,
including the cross-receipt for the Securities and any additional
documents requested by the Underwriters pursuant to Section 7(k)
hereof, will be delivered at the offices of [Kaye, Scholer, Fierman,
Hays & Handler, LLP, 1999 Avenue of the Stars, Suite 1600, Los Angeles,
California 90067] (the "Closing Location"), and the Securities will be
delivered at the Designated Office, all at such Time of Delivery. A
meeting will be held at the Closing Location at _______ p.m., New York
City time, on ...