QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: WHAT IS THE PROPOSED TRANSACTION FOR WHICH I AM BEING ASKED TO VOTE?

A. EMCO proposes to be acquired by Advanced Energy through a merger. In the merger, Flow Acquisition Corporation, a subsidiary of Advanced Energy, will merge into EMCO.

Q: WHAT WILL HAPPEN TO EMCO AND ITS SHAREHOLDERS AS A RESULT OF THE MERGER?

A: EMCO will become a wholly owned subsidiary of Advanced Energy, and EMCO shareholders will become Advanced Energy stockholders.

Q: WHAT WILL I RECEIVE IN THE MERGER?

A: The EMCO shareholders and option holders together will receive 900,000 shares of Advanced Energy common stock. You will receive at least 0.2018 shares of Advanced Energy common stock for each share of EMCO common stock that you own, except that Advanced Energy will not issue any fractional shares of common stock. Instead of any fractional share of common stock, you will receive cash based on the market price of the Advanced Energy common stock. See page 37.

Security holders of EMCO will receive Advanced Energy common stock and rights to acquire Advanced Energy common stock representing approximately 3% of the Advanced Energy common stock outstanding after the merger.

Advanced Energy common stock is quoted on the Nasdaq National Market under the trading symbol "AEIS." EMCO common stock is quoted on the Nasdaq National Market under the trading symbol "EMCO." On September 18, 2000, Advanced Energy common stock closed at $42.38 per share and EMCO common stock closed at $8.00 per share. Because the total number of shares of Advanced Energy common stock that Advanced Energy is obligated to issue in the merger is fixed at 900,000, the market value of the Advanced Energy common stock that you will receive in the merger will fluctuate prior to and following the merger. Advanced Energy will not be required to issue more than 900,000 shares of its common stock to the EMCO shareholders and option holders, even if the market price of the Advanced Energy common stock drops dramatically.

THE MERGER

EMCO SPECIAL MEETING (PAGE 24)

The EMCO shareholders' special meeting to approve the merger agreement will be held on Monday, October 23, 2000 9:00 a.m., local time, at EMCO's offices at 600 Diagonal Highway, Longmont, Colorado 80501. You can vote at the special meeting if you owned shares of EMCO common stock at the

opening of business on September 21, 2000. You can cast one vote for each share of EMCO common stock that you owned on that date.

EMCO VOTING AGREEMENTS (PAGE 24)

Certain EMCO shareholders, who collectively hold approximately 60.0% of the EMCO common stock outstanding, have granted Advanced Energy an irrevocable proxy to vote their shares of EMCO common stock in favor of the merger agreement and against any matter that could prevent the merger from being completed.

EMCO'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE MERGER AGREEMENT

EMCO's Board of Directors believes that the merger is in the best interests of EMCO and its shareholders and unanimously recommends that you vote FOR adoption of the merger agreement.

EMCO'S REASONS FOR THE MERGER (PAGE 28)

The EMCO Board of Directors has determined that the merger is in the best interests of EMCO and its shareholders for numerous reasons. Those reasons include:

- the exchange ratio,

- the prospects of EMCO,

- the expense and risks in developing its Mach One digital flow controller,

- the liquidity of the Advanced Energy stock,

- and the prospects of Advanced Energy.

OPINION OF EMCO'S FINANCIAL ADVISOR (PAGE 31)

In deciding to approve the merger, EMCO's board of directors considered an opinion from Quist Financial, Inc. as to the fairness of the exchange ratio from a financial point of view to the EMCO shareholders. The full text of the written opinion of the financial advisor is attached to the back of this proxy statement/prospectus as Appendix B. You should read the entire opinion carefully for an understanding of the assumptions made, matters considered and limitations on the review undertaken.

MERGER CONSIDERATION (PAGES 37 AND 48)

At the effective time of the merger, each share of your EMCO common stock will be converted into at least 0.2018 of a share of Advanced Energy common stock. In addition, EMCO options outstanding at the effective time of the merger will be assumed by Advanced Energy and converted into the right to purchase shares of Advanced Energy common stock, and amounts contributed by EMCO employees to EMCO's employee stock purchase plan will be transferred to Advanced Energy's employee stock purchase plan.

INTERESTS OF CERTAIN EMCO DIRECTORS AND OFFICERS IN THE MERGER THAT ARE IN ADDITION TO YOUR INTERESTS (PAGE 28)

When considering the recommendations of EMCO's board of directors, you should be aware that certain EMCO directors and officers have interests in the merger that are different from, or are in addition to, yours. These interests could cause the directors and officers of EMCO to be more likely to favor the merger than if they did not have these interests.

DISSENTERS' RIGHTS (PAGE 39)

Neither EMCO nor Advanced Energy stockholders are entitled to dissenters' rights with respect to the merger.

NASDAQ NATIONAL MARKET LISTING (PAGE 39)

The shares of Advanced Energy common stock to be issued to you in the merger will be listed on the Nasdaq National Market under the trading symbol "AEIS." Upon the closing of the merger, all shares of EMCO common stock will be delisted from the Nasdaq National Market and no longer traded on any market.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 39)

The merger has been structured as a tax-free reorganization for United States federal income tax purposes. Accordingly, in general EMCO common shareholders who exchange their EMCO shares for shares of Advanced Energy common stock in the merger will not recognize gain or loss for United States federal income tax purposes, except that EMCO shareholders will recognize gain or loss with respect to cash received instead of a fractional share of Advanced Energy common stock. However, all EMCO shareholders are urged to consult their own tax advisor to determine their particular tax consequences of the merger. It is a condition to the merger that both Advanced Energy and EMCO receive legal opinions that the merger constitutes a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.

ACCOUNTING TREATMENT (PAGE 41)

Advanced Energy and EMCO intend for the merger to qualify as a "pooling of interests" for financial accounting purposes, in accordance with generally accepted accounting principles. Completion of the merger is conditioned upon the receipt by Advanced Energy of a letter from Arthur Anderson LLP, its independent public accountants, stating that, in its opinion, the merger will qualify for pooling of interests accounting treatment.

RESTRICTIONS ON THE ABILITY TO SELL ADVANCED ENERGY STOCK (PAGE 41)

The shares of Advanced Energy common stock issued to EMCO shareholders in the merger will be freely transferable, except for shares received by persons who are considered to be "affiliates" of EMCO at the time of the special meeting or persons who become affiliates of Advanced Energy. Affiliates of EMCO may only resell shares of Advanced Energy common stock that they receive in the merger in accordance with the restrictions of Rule 145 under the Securities Act of 1933, unless the resale of the Advanced Energy common stock by the affiliate is registered under the Securities Act or an exemption from registration is available. Pooling of interests accounting requirements also restrict sales of Advanced Energy stock by affiliates of EMCO.

CONDITIONS TO COMPLETION (PAGE 44)

Advanced Energy's and EMCO's obligations to complete the merger are subject to the satisfaction or waiver of various closing conditions, including:

- approval of EMCO shareholders;

- the absence of breaches by the other party;

- no material adverse change to the other party;

- the receipt of legal opinions as to the tax treatment of the merger; and

- the receipt by Advanced Energy of a letter from its accountants that the transaction will be accounted for as a pooling of interests.

If EMCO waives any conditions, it will consider the facts and circumstances at that time and decide whether it should resolicit your proxy.

NO SOLICITATION; BOARD RECOMMENDATION (PAGE 45)

EMCO has agreed not to:

- solicit or participate in any discussions with any person or entity concerning an alternative acquisition proposal;

- provide any information to any person concerning an alternative acquisition proposal; or

- authorize or propose an alternative acquisition proposal.

TERMINATION OF THE MERGER AGREEMENT (PAGE 46)

The merger agreement may be terminated before completion of the merger upon the occurrence of certain events including:

- a material breach of the merger agreement by Advanced Energy or EMCO;

- the merger is not completed by December 31, 2000;

- the EMCO shareholders do not approve the merger agreement at the special meeting;

- by EMCO, if the EMCO board of directors determines that abandoning the merger is required by its fiduciary duties; or

- by Advanced Energy, if the EMCO board of directors withdraws its recommendation of the merger or recommends an alternative transaction with a third party.

PAYMENT OF TERMINATION FEES (PAGE 47)

If the merger agreement is terminated after an alternative corporate transaction has been proposed to EMCO by a third party because:

- the EMCO shareholders do not approve the merger agreement at the special meeting;

- the EMCO board of directors determines that abandoning the merger is required by its fiduciary duties; or

- the EMCO board of directors withdraws its recommendation of the merger or recommends an alternative transaction with a third party.

And if EMCO enters into a business combination or similar transaction in which a third party acquires control of EMCO or more than 50% of its assets within 2 years after termination, then EMCO will pay Advanced Energy a termination fee of $5 million.

VOTE REQUIRED TO APPROVE THE MERGER AGREEMENT (PAGE 57)

The affirmative vote of the holders of 66 2/3% of the shares of EMCO common stock that were outstanding on the record date and entitled to vote is required for approval and adoption of the merger agreement. The Advanced Energy stockholders are not required to vote on the merger agreement.

RISKS RELATED TO THE MERGER

WE MAY NOT ACHIEVE THE BENEFITS WE EXPECT FROM THE MERGER.

To realize the benefits or synergies we expect from the merger, we will need to address a number of post-merger matters in a timely and efficient manner. Key integration issues include:

- retaining and assimilating the key personnel of EMCO;

- marketing EMCO's semiconductor products and services to Advanced Energy's customers;

- retaining EMCO's existing customers and strategic partners; and

- perfecting and commercializing EMCO's Mach One technology for digital flow controllers used to improve semiconductor manufacturing.

The successful execution of these post-merger matters will involve considerable risk and may not be successful. These risks include:

- Advanced Energy is inexperienced with flow control technology and, accordingly, may not be able to integrate the technology with Advanced Energy's existing products to provide the integrated solutions it anticipates;

- integration of EMCO's operations with Advanced Energy's existing operations may require significant diversion of management's attention and other Advanced Energy resources;

- we may incur unanticipated expenses related to technology integration; and

- the majority of EMCO's present sales are not to the semiconductor capital equipment industry.

The combined company may not succeed in addressing these risks or other problems encountered in connection with the merger, which would prevent us from achieving the benefits we expect from the merger. Addressing some of these risks, by the diversion of resources or the incurrence of significant costs, could harm Advanced Energy's business and financial condition.

EMCO SHAREHOLDERS AND OPTION HOLDERS WILL RECEIVE A FIXED NUMBER OF SHARES OF ADVANCED ENERGY COMMON STOCK DESPITE CHANGES IN THE MARKET VALUE OF EMCO COMMON STOCK OR ADVANCED ENERGY COMMON STOCK.

Each share of EMCO common stock will be exchanged in the merger for at least 0.2018 of a share of Advanced Energy common stock. The actual exchange ratio will depend on the number of shares of EMCO common stock outstanding or subject to options at the effective time of the merger. There will be no adjustment for changes in the market price of EMCO common stock or Advanced Energy common stock. In addition, neither EMCO nor Advanced Energy may terminate the merger agreement solely because of changes in the market prices of their common stock. Accordingly, the specific dollar value of Advanced Energy common stock that EMCO shareholders and option holders will receive upon the merger's completion will depend on the market value of Advanced Energy common stock when the merger is completed and may decrease from the date you submit your proxy. The share price of Advanced Energy common stock is by nature subject to the general price fluctuations in the market for publicly traded equity securities and has experienced significant volatility. We urge you to obtain recent market quotations for Advanced Energy common stock and EMCO common stock. Neither Advanced Energy nor EMCO can predict the market price of Advanced Energy common stock at any time before or after the completion of the merger. See "-- Risks Related to Advanced Energy's Business -- The market price of Advanced Energy common stock is highly volatile, which could lead to losses for individual investors and costly securities class action litigation" on page 16.

MAINTAINING EMCO'S MANUFACTURING FACILITY COULD BE COSTLY.

Advanced Energy intends to maintain EMCO's manufacturing facility in Longmont, Colorado. Although members of Advanced Energy's management team have visited the Longmont facility, they will not fully understand EMCO's manufacturing process, or the strengths and shortcomings of the manufacturing facility, until after the merger has been completed and they have been operating the facility for a while. Managing the Longmont facility and integrating its operations with Advanced Energy's facilities throughout the country may involve difficulties and costs that Advanced Energy does not currently anticipate. The diversion of Advanced Energy resources, including management's attention and financial expenses, to address unanticipated difficulties or pay unanticipated costs could harm Advanced Energy's operations and results of operations.

THEM TO SUPPORT THE MERGER.

The directors and officers of EMCO participate in arrangements with Advanced Energy that provide them with interests in the merger that are different from, or in addition to, yours. These interests include an employment arrangement for Charles E. Miller, EMCO's current president, and continued indemnification from certain liabilities. In addition options held by a director of EMCO will become fully vested as a result of the merger.

These interests could cause the directors and officers of EMCO to be more likely to favor the merger than if they did not hold these interests. See "The Merger -- Interests of EMCO's Management in the Merger" on page 38.

A MEMBER OF EMCO'S BOARD OF DIRECTORS IS ALSO A MEMBER OF ADVANCED ENERGY'S

BOARD OF DIRECTORS, WHICH COULD INFLUENCE HIS VIEW OF THE MERGER, PARTICULARLY IF ANOTHER COMPANY MAKES AN ALTERNATIVE PROPOSAL TO ACQUIRE EMCO.

Trung Doan, a director of EMCO, was appointed to the Board of Directors of Advanced Energy one week after the merger agreement was signed. Mr. Doan's affiliation with both EMCO and Advanced Energy could influence his view of the merger. For example, if another company were to make an alternative proposal to acquire EMCO, Mr. Doan's affiliation with Advanced Energy could prevent him from being impartial in evaluating whether the alternative proposal would be more favorable to the EMCO shareholders. In this circumstance, Mr. Doan could be prohibited from participating in both EMCO and Advanced Energy directors' meetings on this subject, which would deprive both companies' boards of directors of a valuable advisor.

RISKS RELATED TO ADVANCED ENERGY'S BUSINESS

ADVANCED ENERGY'S QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, WHICH COULD NEGATIVELY IMPACT ITS FINANCIAL CONDITION, RESULTS OF OPERATIONS AND STOCK PRICE.

Advanced Energy's quarterly operating results have fluctuated significantly and it expects to continue to experience significant fluctuations. Downward fluctuations in its quarterly results have historically

resulted in decreases in the price of its common stock. Quarterly operating results are affected by a variety of factors, many of which are beyond Advanced Energy's control. These factors include:

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

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

- customer cancellations of previously placed orders and shipment delays;

- pricing competition from its competitors;

- component shortages resulting in manufacturing delays;

- changes in customers' inventory management practices;

- the introduction of new products by Advanced Energy or its 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. Advanced Energy's customers exert pressure on Advanced Energy to reduce prices, shorten delivery times and extend payment terms. These pressures could lead to significant changes in its quarterly operating results.

In the past, Advanced Energy has 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 its operating results in the applicable quarter or quarters.

Advanced Energy's operating results in one or more future quarters may fall below the expectations of analysts and investors. In those circumstances, the trading price of Advanced Energy's common stock would likely decrease.

THE MARKET PRICE OF ADVANCED ENERGY COMMON STOCK IS HIGHLY VOLATILE, WHICH COULD LEAD TO LOSSES FOR INDIVIDUAL INVESTORS AND COSTLY SECURITIES CLASS ACTION LITIGATION.

The market for technology stocks, including Advanced Energy common stock, has experienced significant price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of the companies. From Advanced Energy's IPO in November 1995 through September 18, 2000, the closing prices of its common stock on the Nasdaq National Market have ranged from $3.50 to $73.25. The market for Advanced Energy common stock likely will continue to be subject to fluctuations. Many factors could cause the trading price of Advanced Energy's common stock to fluctuate substantially, including the following:

- future announcements concerning its business, its technology, its customers or its competitors;

- variations in its operating results;

- introduction of new products or changes in product pricing policies by Advanced Energy, its competitors or its customers;

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

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

- general stock market trends.

In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. Many technology companies have been subject to this type of litigation. Advanced Energy may also become involved in this type of litigation. Litigation is often expensive and diverts management's attention and resources, which could significantly harm its business, financial condition and results of operations.

THE SEMICONDUCTOR AND SEMICONDUCTOR CAPITAL EQUIPMENT INDUSTRIES ARE HIGHLY VOLATILE AND ADVANCED ENERGY'S 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 capital equipment. These reductions, in turn, have significantly reduced demand for Advanced Energy's systems. During downturns, some of Advanced Energy's customers have drastically reduced their orders for Advanced Energy's systems and have implemented substantial cost reduction programs. Sales to customers in the semiconductor capital equipment industry accounted for 61% of Advanced Energy's total sales in 1997, 52% in 1998, 65% in 1999 and 69% in the first six months of 2000. Advanced Energy expects that it will continue to depend significantly on sales to the semiconductor and semiconductor capital equipment industries for the foreseeable future.

A rapid decrease in demand for Advanced Energy's products can occur with limited advance notice because it supplies subsystems to equipment manufacturers and makes a substantial and increasing proportion of its shipments on a just-in-time basis. This decrease in demand can adversely impact its business and financial results disproportionately because of its unanticipated nature.

A SIGNIFICANT PORTION OF ADVANCED ENERGY'S SALES ARE CONCENTRATED AMONG A FEW CUSTOMERS.

Advanced Energy's four largest customers accounted for 50% of its total sales in 1997, 46% in 1998, 53% in 1999 and 58% in the first half of 2000. Advanced Energy's largest customer accounted for 31% of its total sales in 1997, 24% in 1998, 34% in 1999 and 40% in the first half of 2000. The loss of any of these customers or a material reduction in any of their purchase orders would significantly harm Advanced Energy's business, financial condition and results of operations.

THE MARKETS IN WHICH ADVANCED ENERGY OPERATES ARE HIGHLY COMPETITIVE.

Advanced Energy faces substantial competition, primarily from established companies, some of which have greater financial, marketing and technical resources than it does. Advanced Energy's primary competitors are ENI, a subsidiary of Astec (BSR) plc, Applied Science and Technology (ASTeX), Huettinger, Shindingen, Kyosan, Comdel and Daihen. Advanced Energy expects that its competitors will continue to develop new products in direct competition with it, improve the design and performance of their systems and introduce new systems with enhanced performance characteristics.

To remain competitive, Advanced Energy needs to continue to improve and expand its systems and system offerings. Advanced Energy also needs to maintain a high level of investment in research and development and expand its sales and marketing efforts, particularly outside of the United States. Advanced Energy may not be able to make the technological advances and investments necessary to remain competitive.

New products developed by competitors or more efficient production by competitors could increase pressure on the pricing of Advanced Energy's 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 Advanced Energy to make significant price reductions to avoid losing orders. Further, Advanced Energy's current and prospective customers consistently exert pressure on it to lower prices, shorten delivery times and improve the capability of Advanced Energy's systems. Failure to respond adequately to these pressures could result in a loss of customers or orders.

ADVANCED ENERGY MAY NOT BE ABLE TO INTEGRATE ITS ACQUISITIONS.

Advanced Energy has experienced significant growth through acquisitions and continues to actively pursue acquisition opportunities. Prior to 1997, Advanced Energy did not make any significant acquisitions. In the three years from 1997 through 1999, Advanced Energy acquired four companies. In the first seven months of 2000, Advanced Energy has acquired or entered into agreements to acquire three additional companies. Many of Advanced Energy's acquisitions to date have been in markets in which Advanced Energy has limited experience. Advanced Energy may not be able to compete successfully in these

markets or might not be able to operate the acquired businesses efficiently. Advanced Energy's business and results of operations could be harmed if integrating these acquisitions results in substantial costs, delays or other operational or financial problems. Further, the increased pace of Advanced Energy's acquisitions has required Advanced Energy to try to integrate multiple acquisitions simultaneously. This has exponentially increased the demands placed on Advanced Energy's management team and has decreased the time and effort that management can give to integrating each acquisition, while it continues to manage Advanced Energy's existing business.

Future acquisitions could place additional strain on Advanced Energy's operations and management. Advanced Energy's ability to manage future acquisitions will depend on Advanced Energy's success in:

- evaluating new markets and investments;

- monitoring operations;

- controlling costs;

- integrating acquired operations and personnel;

- maintaining effective quality controls; and

- expanding Advanced Energy's internal management, technical and accounting systems.

Also, in connection with future acquisitions Advanced Energy 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.

ADVANCED ENERGY MAY BE UNABLE TO MANAGE ITS GROWTH EFFECTIVELY.

Advanced Energy has been experiencing a period of growth and expansion. This growth and expansion is placing significant demands on Advanced Energy's management and its operating systems. Advanced Energy needs to continue to improve and expand its 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 Advanced Energy's growth, it may need to spend significant amounts of cash to:

- fund increases in expenses;

- acquire additional facilities and equipment;

- 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 Advanced Energy does not have enough cash on hand, cash generated from its operations or cash available under its credit facility to meet these cash requirements, Advanced Energy will need to seek alternative sources of financing to carry out growth and operating strategies. Advanced Energy may not be able to raise needed cash on acceptable terms, 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, Advanced Energy will be required to modify its growth and operating plans to the extent of available funding.

SHORTAGES OF COMPONENTS NECESSARY FOR ADVANCED ENERGY'S PRODUCT ASSEMBLY CAN DELAY SHIPMENTS.

Manufacturing power conversion and control systems requires numerous electronic components. Dramatic growth in the electronics industry has significantly increased demand for these components, particularly in the second and third quarters of 2000. This demand has resulted in periodic shortages and allocations of needed components, and Advanced Energy expects to experience additional shortages and allocations from time to time. Shortages and allocations could cause shipping delays for Advanced Energy's systems, adversely affecting results of operations. Shipping delays also could damage relationships with current and prospective customers.

DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS COULD AFFECT ADVANCED ENERGY'S ABILITY TO MANUFACTURE PRODUCTS AND SYSTEMS.

Reliance on sole and limited source suppliers for some of Advanced Energy's components and subassemblies that are critical to the manufacturing of its systems 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 suppliers to develop technologically advanced products to support Advanced Energy's growth and development of new systems.

Advanced Energy believes that in time it 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 Advanced Energy to redesign its systems, resulting in increased costs and likely shipping delays. Advanced Energy may be unable to manufacture the parts internally or redesign its systems, which could result in further costs and shipping delays. These increased costs would decrease its profit margins if Advanced Energy could not pass the costs to its customers. Further, shipping delays could damage Advanced Energy's relationships with current and potential customers and have a material adverse effect on its business and results of operations.

ADVANCED ENERGY IS HIGHLY DEPENDENT ON ITS INTELLECTUAL PROPERTY, BUT MAY NOT BE ABLE TO PROTECT IT ADEQUATELY.

Advanced Energy's success depends in part on its proprietary technology. Advanced Energy attempts to protect its intellectual property rights through patents, copyrights, trademarks, non-disclosure agreements and other protective instruments. However, Advanced Energy might not be able to protect its technology, and competitors might be able to develop similar technology independently. In addition, the laws of certain foreign countries might not afford intellectual property the same protection as do the laws of the United States. For example, Advanced Energy's intellectual property is not protected by patents in several countries in which it does business, and it has limited patent protection in certain other countries. The costs of applying for patents in foreign countries and translating the applications into foreign languages require Advanced Energy to select carefully the inventions for which it applies for patent protection and the countries in which it seeks such protection. Generally, Advanced Energy has concentrated its 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. Advanced Energy's inability or failure to obtain adequate patent protection in a particular country could have a material adverse effect on its ability to compete effectively in that country.

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

Advanced Energy does not believe that any of its 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 Advanced Energy, to protect its trade secrets or know-how, to defend itself 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 Advanced Energy's efforts. Moreover, an adverse determination in any litigation could cause Advanced Energy to lose proprietary rights, subject it to significant liabilities to others, require Advanced Energy to seek licenses or alternative technologies from third parties or prevent it from manufacturing or selling its products. Any of these events could have a material adverse effect on its business, financial condition and results of operations.

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

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

ADVANCED ENERGY MUST ACHIEVE DESIGN WINS TO RETAIN EXISTING CUSTOMERS AND TO OBTAIN NEW CUSTOMERS.

The constantly changing nature of semiconductor fabrication technology causes equipment manufacturers to continually design new systems. Advanced Energy often must work with these manufacturers early in their design cycles to modify its equipment to meet the requirements of the new systems. Manufacturers typically choose one or two vendors to provide the power conversion equipment for use with the early system shipments. Selection as one of these vendors is called a design win. Design wins are critical to Advanced Energy in order to retain existing customers and to obtain new customers.

Advanced Energy typically must customize its systems for particular customers to use in their equipment to achieve design wins. This customization increases Advanced Energy's research and development expenses and can strain Advanced Energy 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. Advanced Energy's sales and growth could experience material and prolonged adverse effects if it fails to achieve design wins. In addition, design wins do not always result in substantial sales or profits.

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

ADVANCED ENERGY'S EFFORTS TO BE RESPONSIVE TO CUSTOMERS MAY LEAD TO THE INCURRENCE OF COSTS THAT ARE NOT READILY RECOVERABLE.

Advanced Energy 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.

Advanced Energy often requires long lead times for development of its systems during which times it must expend substantial funds and management effort. Advanced Energy may incur significant development and other expenses as Advanced Energy develops its systems without realizing corresponding revenue in the same period, or at all.

ADVANCED ENERGY'S SUCCESS DEPENDS UPON ITS ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.

Advanced Energy's success depends upon the continued efforts of its senior management team and its technical, marketing and sales personnel. These employees may voluntarily terminate their employment at any time. Advanced Energy's success also depends on its 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 its strategy can be extremely competitive and

time-consuming. Advanced Energy may not be able to successfully retain existing personnel or identify, hire and integrate new personnel. If Advanced Energy loses the services of key personnel for any reason, including retirement, or is unable to attract additional qualified personnel, Advanced Energy's business, financial condition and results of operations could be materially and adversely affected.

ADVANCED ENERGY CONDUCTS MANUFACTURING AT ONLY A FEW SITES AND THEIR SITES ARE NOT GENERALLY INTERCHANGEABLE.

Advanced Energy conducts the majority of its manufacturing at its facilities in Fort Collins, Colorado and Voorhees, New Jersey. Advanced Energy also conducts manufacturing in Austin, Texas, Fridley, Minnesota, San Jose, California and Vancouver, Washington. Each facility generally manufactures different systems. In July 1997, a severe rainstorm in Fort Collins caused substantial damage to its Fort Collins facilities and to some equipment and inventory. The damage caused Advanced Energy to stop manufacturing at that facility temporarily and prevented it from resuming full production there until September 1997. Advanced Energy's insurance policies did not cover all of the costs that it incurred in connection with the rainstorm. Future natural or other uncontrollable occurrences at any of Advanced Energy's manufacturing facilities that negatively impact its manufacturing processes may not be fully covered by insurance and could cause significant harm to its operations and results of operations.

ADVANCED ENERGY MIGHT NOT BE ABLE TO COMPETE SUCCESSFULLY IN INTERNATIONAL MARKETS OR TO MEET THE SERVICE AND SUPPORT NEEDS OF ADVANCED ENERGY'S INTERNATIONAL CUSTOMERS.

Advanced Energy's customers increasingly require service and support on a worldwide basis as the markets in which Advanced Energy competes become increasingly globalized. Advanced Energy maintains sales and service offices in Germany, Japan, South Korea, the United Kingdom, and Taiwan.

Sales to customers outside the United States accounted for 22% of Advanced Energy's total sales in 1997, 27% in 1998, 27% in 1999 and 28% in the first six months of 2000. Advanced Energy expects international sales to continue to represent a significant portion of its 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 Advanced Energy, to penetrate.

Providing support services for Advanced Energy's systems on a worldwide basis also is subject to various risks, including:

- the ability to hire qualified support personnel;

- maintenance of Advanced Energy's standard level of support; and

- differences in local customs and practices.

Advanced Energy's international activities are also subject to the difficulties of managing overseas distributors and representatives and managing foreign subsidiary operations.

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

A portion of Advanced Energy's sales is subject to currency exchange risks as a result of its international operations. Advanced Energy has experienced fluctuations in foreign currency exchange rates, particularly against the Japanese yen. Beginning in 1997, Advanced Energy entered into various forward foreign exchange contracts as a hedge against currency fluctuations in the yen. Advanced Energy has not employed hedging techniques with respect to any other currencies. Advanced Energy's current or any future hedging techniques might not protect it adequately against sudden or substantial currency fluctuations.

ADVANCED ENERGY MUST MAINTAIN MINIMUM LEVELS OF CUSTOMIZED INVENTORY TO SUPPORT CERTAIN CUSTOMER DELIVERY REQUIREMENTS.

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

ADVANCED ENERGY IS SUBJECT TO NUMEROUS GOVERNMENTAL REGULATIONS.

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

- it could be subject to fines;

- its production could be suspended; and

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

ADVANCED ENERGY MAY INVEST IN START-UP COMPANIES AND COULD LOSE ITS ENTIRE INVESTMENT.

Advanced Energy has invested in start-up companies, and may invest in other start-up companies, that develop products and technologies which Advanced Energy believes may provide it with future benefits. These investments may not provide any benefit, and Advanced Energy may not achieve any economic return on any of these investments. Advanced Energy's investments in these start-up companies are subject to all of the risks inherent in investing in companies that are not established. Advanced Energy could lose all or any part of its investments in these companies.

ADVANCED ENERGY LEASES ITS FORT COLLINS, COLORADO FACILITIES AND A CONDOMINIUM FROM ENTITIES IN WHICH TWO INDIVIDUALS WHO ARE INSIDERS AND MAJOR STOCKHOLDERS HAVE FINANCIAL INTERESTS.

Advanced Energy leases its executive offices and manufacturing facilities in Fort Collins, Colorado from Prospect Park East Partnership and from Sharp Point Properties, LLC. Douglas S. Schatz, Advanced Energy's Chairman and Chief Executive Officer, holds a 26.7% interest in each of the leasing entities. G. Brent Backman, a director of Advanced Energy, holds a 6.6% interest in each of the leasing entities.

Aggregate rental payments under these leases for 1999 totaled approximately $1.7 million. Advanced Energy also leases a condominium in Breckenridge, Colorado to provide rewards and incentives to its customers, suppliers and employees. Advanced Energy leases 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 1999 totaled approximately $36,000.

ADVANCED ENERGY EXECUTIVE OFFICERS AND DIRECTORS OWN A SIGNIFICANT PERCENTAGE OF ADVANCED ENERGY'S COMMON STOCK, WHICH COULD ENABLE THEM TO CONTROL ADVANCED ENERGY'S BUSINESS AND AFFAIRS.

Advanced Energy's executive officers and directors together owned approximately 40.9% of its outstanding common stock outstanding as of August 18, 2000. Douglas S. Schatz, Chairman and Chief Executive Officer, owned approximately 35.2% of Advanced Energy's common stock outstanding as of September 1, 2000. These stockholdings give Advanced Energy's 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 on a particular matter, Advanced Energy's executive officers and directors collectively, and Mr. Schatz individually, may be able to elect all of the members of the board of directors and to control Advanced Energy's business and affairs for the foreseeable future.

ANTI-TAKEOVER PROVISIONS LIMIT THE ABILITY OF A PERSON OR ENTITY TO ACQUIRE CONTROL OF ADVANCED ENERGY.

Advanced Energy's 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 Advanced Energy's 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, Advanced Energy is 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 Advanced Energy. The effect of these provisions may be to limit the price that investors are willing to pay in the future for Advanced Energy's securities. These provisions might also discourage potential acquisition proposals or could diminish the opportunities for Advanced Energy's 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 its common stock.

EMCO SPECIAL MEETING

DATE, TIME AND PLACE; MATTERS TO BE CONSIDERED

We are sending you this proxy statement/prospectus as part of the solicitation of proxies by EMCO for use at the special meeting of EMCO shareholders scheduled to be held at 9:00 a.m. local time on Monday October 23, 2000, at EMCO's offices at 600 Diagonal Highway, Longmont, Colorado. We are first mailing this proxy statement/ prospectus, including a notice of the special meeting of EMCO shareholders and a form of proxy on or about September 22, 2000.

At the special meeting, EMCO shareholders of record will be asked to consider and vote upon the merger proposal and transact such other business as may properly come before the special meeting.

THE BOARD OF DIRECTORS OF EMCO HAS UNANIMOUSLY APPROVED THE MERGER

AGREEMENT AND HAS DETERMINED THAT THE MERGER IS ADVISABLE, FAIR TO YOU AND IN YOUR BEST INTERESTS. THE BOARD OF DIRECTORS OF EMCO UNANIMOUSLY RECOMMENDS THAT

YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.

RECORD DATE; QUORUM; VOTING AT THE SPECIAL MEETING

EMCO's board of directors has fixed the open of business on September 21, 2000 as the record date for the determination of shareholders entitled to notice of, and to vote at, the special meeting. Only holders of record of EMCO common stock at the open of business on the record date are entitled to notice of and to vote at the special meeting. As of the record date, there were 4,225,342 outstanding shares of EMCO common stock held of record by 449 persons.

The presence, in person or by proxy, of the holders of at least a majority of the shares entitled to vote at the special meeting is necessary to constitute a quorum. Pursuant to the Colorado Business Corporations Act and EMCO's articles of incorporation and bylaws, approval of the merger agreement requires the affirmative vote of at least 66 2/3% of the outstanding shares of EMCO common stock entitled to vote at the special meeting. Charles Miller, William A. Ringer, Saied Hosseini, Walter Kluck, Thomas G. Miller, David S. Miller and Trung Doan, who together hold approximately 60.0% of the EMCO shares entitled to vote on the merger agreement, have signed voting agreements appointing Advanced Energy their proxy to vote in favor of the merger.

Only shares affirmatively voted for approval of the merger agreement, including shares represented by properly executed proxies that do not contain voting instructions, will be counted as votes "FOR" the merger agreement.

Brokers who hold shares of EMCO common stock in street name for a customer who is the beneficial owner of those shares may not deliver a proxy to vote the customer's shares without specific instructions from the customer. These non-voted shares are referred to as broker non-votes. EMCO common stock held in street name will only be voted if the broker receives a completed voter instruction form from the beneficial owner of those shares. A voter instruction form has been sent to EMCO shareholders with this proxy statement/prospectus.

Abstentions and broker non-votes will be included in determining the presence of a quorum, but will have the same effect as voting against the merger agreement.

A list of shareholders of EMCO is available at the offices of EMCO and will be available at the special meeting.

THE MERGER

BACKGROUND OF THE MERGER

Beginning in June 1999, the EMCO board of directors began to explore various strategic alliances and arrangements for its semiconductor business. EMCO received one proposal in June 1999 which involved a distribution agreement for EMCO's products and a second proposal in the fall of 1999 to distribute the Mach One product. Another proposal was evaluated beginning in September 1999 which included a buyout of the semiconductor portion of EMCO's business for cash plus a royalty. Discussions were held with a company in late March 2000 through mid-April 2000, regarding a strategic partnership related to the Mach One product and an equity investment in EMCO by the company. A fifth company also held discussions in April 2000 with EMCO regarding purchasing the Mach One technology for cash. These proposals, each of which were from companies other than Advanced Energy, were rejected by the EMCO board of directors as not giving sufficient value to either the semiconductor business or the core flowmeter business and because of unfavorable tax consequences to EMCO and its shareholders.

At an EMCO board of directors meeting on February 3, 2000, directors Trung Doan and William Ringer were asked to search for an executive to lead EMCO's emerging semiconductor industry products division. Mr. Ringer contacted James Gentilcore, President of Advanced Energy Voorhees, Inc., a subsidiary of Advanced Energy, whom he had known for several years.

Charles E. Miller, President of EMCO, met with Mr. Gentilcore on February 14, 2000, to discuss EMCO's emerging semiconductor products division. They also discussed an Advisory Council for EMCO, which Mr. Miller was working actively to form, and whether Mr. Gentilcore would be interested in serving on EMCO's Advisory Council concerning the semiconductor industry products.

On February 24, 2000, the Board of Directors of EMCO formed the Advisory Council, consisting of Messrs. Doan, Ringer, Gentilcore, Jerry Howard and Charles Miller, to develop a business plan for the semiconductor products division. The Advisory Council met on March 9 and April 7, 2000. The Advisory Council recognized that it would be difficult for EMCO to enter the semiconductor market alone and discussed the advisability of having EMCO seek a partnership or partnerships with market leaders in complementary product areas to supplement EMCO's existing joint development agreement with Micron Technology Inc. Mr. Howard has subsequently become EMCO's Vice President of Operations.

On April 18, 2000, Advanced Energy and EMCO entered into a non-disclosure agreement relating to the exchange of non-public information in connection with the consideration of a possible business combination or similar transaction.

On April 28, 2000, Mr. Miller sent Douglas Schatz, Chairman and Chief Executive Officer of Advanced Energy, a copy of the EMCO Advisory Council's business plan and requested a meeting to discuss a possible business relationship.

At a meeting on May 4, 2000, Messrs. Miller, Schatz and Gentilcore discussed the possibility of Advanced Energy acquiring EMCO for 800,000 to 1,000,000 shares of Advanced Energy common stock. On May 4, 2000, the closing price of Advanced Energy's common stock was $60.625 per share. Mr. Miller agreed to submit the concept proposal to EMCO's board of directors for consideration.

At an EMCO board of directors meeting on May 12, 2000, Mr. Miller summarized the various discussions that he had held with representatives of Advanced Energy and the possibility of completing some form of business arrangement for EMCO's semiconductor business. At that same meeting, the EMCO board of directors heard from G. James Williams, Jr. and David J. Cook of EMCO's legal counsel, Chrisman, Bynum & Johnson P.C., regarding the directors' fiduciary duties in this setting, met with representatives of an investment advisor firm concerning work required to render a fairness opinion and the Advisory Council presented its business plan. The general terms of the proposed merger, additional possible terms and the merger process were described to the EMCO board of directors by Mr. Miller and Mr. Williams. Mr. Wayne Ehlert of Grant Thornton LLP, EMCO's accounting firm, responded to questions from EMCO's board of directors.

On May 18, 2000, Mr. Schatz spoke with Mr. Miller and proposed to issue 800,000 shares of Advanced Energy common stock in exchange for all of the EMCO common stock. On May 19, 2000, certain EMCO directors and officers discussed possible business transactions with Advanced Energy, as well as an alternative proposal from a company other than Advanced Energy. In light of Advanced Energy's then reduced stock price, the participating EMCO directors approved submitting a proposal to Advanced Energy recommending a joint venture instead of a full business combination. On May 19, 2000, the closing price of Advanced Energy's common stock was $46.50 per share. Mr. Miller sent this proposal to Mr. Schatz by e-mail on May 22, 2000.

On May 27, 2000, Mr. Ringer and Mr. Doan met with Mr. Schatz to discuss the possibility of Advanced Energy acquiring only EMCO's semiconductor business. This possibility was evaluated, but was rejected for tax and accounting reasons.

On June 14, 2000, Mr. Ringer and Mr. Miller met with Messrs. Schatz and Gentilcore and Joseph Monkowski, Senior Vice President of Advanced Energy, and representatives of Thelen Reid & Priest LLP, Advanced Energy's legal counsel, to discuss the various alternative transactions. Advanced Energy proposed acquiring EMCO for 900,000 shares of Advanced Energy common stock. On June 14, 2000, the closing price of Advanced Energy's common stock was $53.375. Messrs. Ringer and Miller indicated to Advanced Energy that they would present the proposal to EMCO's board of directors.

During the week of June 15, 2000, Mr. Ringer began the search for a financial advisor. After receiving a recommendation from a former business associate and reviewing credentials, Mr. Ringer recommended engaging Quist Financial, Inc. to serve as financial advisor to EMCO.

On June 15, 2000, the EMCO board of directors held a telephone board meeting, which Mr. Williams of Chrisman, Bynum & Johnson, P.C. also attended. Charles Miller described the terms of Advanced Energy's June 14, 2000 proposal. The Merger's consequences, risks, and benefits were discussed. Messrs. Miller and Ringer were authorized to continue negotiations with Advanced Energy. Mr. Miller was authorized to negotiate to retain Quist Financial to render a fairness opinion. On June 19, 2000 EMCO retained Quist Financial Inc.

From June 15, 2000 to June 30, 2000, Advanced Energy and EMCO conducted due diligence reviews of each other and held numerous conference calls and meetings to discuss the terms of the potential acquisition. Mr. Miller kept the EMCO board of directors fully informed as to the status of all discussions with Advanced Energy.

On June 29, 2000, the EMCO board of directors met to discuss a proposed merger agreement submitted by Advanced Energy and the fairness opinion prepared by Quist Financial. Mr. Brett Suchor of Quist Financial discussed the memorandum supporting the fairness opinion in detail and responded to questions from the EMCO board of directors. The EMCO board of directors also discussed several issues relating to pooling of interests accounting treatment with representatives of Grant Thornton LLP, EMCO's accounting firm.

From June 29, 2000 to July 6, 2000, Advanced Energy and EMCO continued to negotiate the merger agreement.

On July 6, 2000, the EMCO board of directors met with representatives of EMCO's financial, legal and accounting advisors to discuss the terms of the merger agreement. Mr. Suchor of Quist Financial presented a financial analysis of the transaction and responded to questions from the EMCO board of directors. Legal counsel and EMCO's accountants also responded to questions from board members regarding the terms of the agreement and pooling of interests accounting treatment. EMCO's accountants delivered their pooling of interests report to the EMCO board of directors. Following these discussions, the EMCO board of directors determined that the merger agreement and the merger were in the best interests of EMCO and its shareholders and authorized EMCO to enter into the merger agreement.

Also on July 6, 2000, the Advanced Energy board of directors met via teleconference to discuss the proposed transaction. After hearing presentations from Messrs. Schatz and Monkowski on the due

diligence investigations, the proposed merger agreement and the strategic benefits of the proposed acquisition, a lengthy and detailed question and answer session followed until all the director's questions had been addressed. The Advanced Energy board of directors approved the merger agreement and authorized Advanced Energy to enter into the merger agreement.

Following the Advanced Energy and EMCO board of directors meetings, Advanced Energy and EMCO entered into the merger agreement and Advanced Energy issued a press release announcing the execution of the agreement.

RECOMMENDATION OF THE EMCO BOARD OF DIRECTORS AND EMCO'S REASONS FOR THE MERGER

The board of directors of EMCO believes that the merger agreement is advisable and in the best interests of EMCO and its shareholders. Accordingly, the EMCO board of directors has unanimously approved the merger agreement and recommends that EMCO shareholders vote for the adoption of the merger agreement.

In approving the merger agreement, EMCO's board of directors considered the following benefits, which, in the view of the board, supported its determination:

- The combined company, as compared to EMCO on its own, will have greater financial resources and provide increased opportunities to expand EMCO's product offerings and markets;

- The difficulties of EMCO entering the semiconductor equipment industry, which was a business in which it had not previously engaged, and in financing that project and building a world wide sales and support organization for that market;

- The merger may increase value for EMCO shareholders, as well as provide a more stable platform for EMCO's employees and customers;

- The merger will enable shareholders to continue to share indirectly in EMCO's growth over the long term as part of a larger company with a more liquid trading market;

- The merger will yield for EMCO shareholders an attractive exchange ratio for their shares of EMCO common stock;

- The tax free treatment of the merger;

- Potential dilution of the share holdings of existing EMCO shareholders if EMCO sought to finance its expansion through a further sale of equity securities;

- The US and Israeli armies are jointly developing a Tactical High Energy Laser (THEL), of which EMCO's digital valve products are key components, as a defense against short range missiles. TRW is serving as the general contractor on this project. Should this program be deployed, there could be significant expenditures required for facilities and equipment in order to meet the demand for this product;

- The liquidity provided by the market for Advanced Energy common stock will reduce the risk associated with an investment in a smaller company such as EMCO; and

- The prospects of Advanced Energy.

In reaching its decision to approve the merger agreement, the board of directors of EMCO consulted with EMCO's management, as well as with its financial, accounting and legal advisors. The following discussion of factors considered by EMCO's board of directors is not intended to be exclusive but summarizes the material factors considered.

EMCO's board of directors reviewed various historical information concerning EMCO's and Advanced Energy's respective businesses, financial performances and conditions, stock prices and trading activity, operations, management teams and competitive positions. EMCO's board of directors considered available information about Advanced Energy, including its public reports for its most recently completed

fiscal year and subsequent fiscal quarters as filed with the Securities and Exchange Commission. In addition, the board of directors instructed management to conduct additional due diligence on Advanced Energy's financial condition and prospects, and the results of that due diligence were reported to EMCO's board of directors. The board of directors concentrated in particular on each company's financial condition, results of operations, businesses and prospects before and after giving effect to the merger. Based in part upon these factors, EMCO's board of directors believes that a merger with Advanced Energy would be in the best interests of EMCO and its shareholders.

EMCO's board of directors examined current financial market conditions and historical market prices, volatility and trading information with respect to shares of EMCO common stock and Advanced Energy common stock. In particular, EMCO's board of directors noted Advanced Energy's average daily trading volume was significantly greater than EMCO's average daily trading volume.

EMCO's board of directors compared the consideration to be received by EMCO shareholders in the merger with the consideration received in various comparable merger transactions. The details of this comparison are set forth below under "-- Opinion of Quist Financial Inc." on page 31. Based on this comparison, the board of directors of EMCO believes that the merger consideration falls within the range of what is reasonable and fair for EMCO shareholders.

EMCO's board of directors viewed the terms of the merger agreement, including but not limited to, the fixed number of shares constituting the merger consideration, the fact neither party could terminate solely based on the market price of either party's stock, the parties' representations, warranties and covenants, the conditions to their respective obligations and the termination provisions, as reasonable in light of the entire transaction. EMCO's board of directors also considered the terms of the proposed merger agreement regarding EMCO's rights to consider and negotiate other acquisition proposals in certain circumstances, as well as the possible effects of provisions regarding liquidated damages. The board of directors considered that the provisions in the merger agreement for the benefit of EMCO reasonably protected the interests of EMCO shareholders, and those for the benefit of Advanced Energy did not present any significant reasons not to proceed with the transaction considering all of the circumstances. EMCO's board of directors considered the Quist Financial, Inc. opinion that the merger consideration to be paid by Advanced Energy for each share of EMCO common stock was fair to EMCO shareholders from a financial point of view.

EMCO's board of directors considered the anticipated impact of the proposed transactions on the combined company's future performance, financial and otherwise, the relative size of EMCO and Advanced Energy, and the improved prospects of the success of the Mach One semiconductor industry product if the merger occurred. EMCO's board of directors also noted favorably that the former EMCO shareholders, if stockholders of Advanced Energy after the merger, would share the benefits of any success of the Mach One product.

EMCO's board of directors considered the merger's impact on EMCO's customers and employees. Generally, the board viewed the impact on employees as positive, in that they would become part of a diversified leader in semiconductor capital equipment manufacturing markets and participate in a successful company that has substantially greater resources than EMCO. EMCO's board of directors also generally viewed the impact on EMCO's customers as positive, in that they also would benefit from having a much larger company standing behind EMCO's products and a knowledge that EMCO likely will have the resources to continue to provide precision flowmeters for the semiconductor industry and flowmeters and controllers for liquid, gas and steam applications for other industries. Those same benefits would apply to EMCO's contract electronics manufacturing and digital valve businesses.

EMCO's board of directors received reports from EMCO's management and its financial advisor as to the results of their due diligence investigation of Advanced Energy, which consisted in part of reviewing publicly available information and research analyst reports. The reviewed reports indicated no significant issues that would preclude approval of the merger by EMCO's board of directors.

The board of directors of EMCO also identified and considered a variety of potentially negative factors in its deliberations concerning the merger, including, but not limited to:

- The challenges of integrating a business such as EMCO with a much larger company such as Advanced Energy, and the associated risk that the potential benefits sought in the merger might not be fully realized;

- The possibility that the merger might not be consummated, and the effect of public announcement of the merger on:

- EMCO's sales, operating results and stock price;

- EMCO's distributor network;

- EMCO's ability to attract and retain personnel;

- the progress of potential and actual development projects with third parties who may view working with Advanced Energy differently than working with EMCO; and

- EMCO's ability to secure financing for its future expansion.

- The possibility of substantial charges to be incurred in connection with the merger, including costs of integrating the businesses and transaction expenses arising from the merger;

- The risk that despite the efforts of the combined company, key technical and management personnel might not remain employed with the combined company;

- The interests of certain officers and directors of EMCO in the merger, including the matters described under "The Merger -- Interests of EMCO's Management in the Merger and Potential Conflicts of Interests" on page 40;

- The effect on EMCO's ability to consider competing offers prior to completion of the merger, including the effect of the covenant to not solicit other bidders and the liquidated damages provisions in the merger agreement;

- Risks associated with fluctuations in Advanced Energy's stock price prior to and after closing of the merger and the historical fluctuations in that price;

- Limitations on the ability of EMCO affiliates to resell Advanced Energy common stock; and

- Various other risks described under "Risk Factors" beginning on page 14.

In the judgment of EMCO's board of directors, the potential benefits of the merger agreement outweighed these considerations.

The board of directors of EMCO also considered what alternatives existed to the merger, including reviewing the prospects for EMCO continuing as an independent company and alternative transactions previously considered by EMCO. In light of the factors described above, the board of directors determined that the value and benefits available to EMCO shareholders from the merger agreement exceeded the potential they might realize from EMCO continuing as an independent company.

EMCO's board of directors also considered the potential that a third party might be willing to enter into a strategic relationship with EMCO or propose to acquire EMCO. The board of directors did not, however, view this possibility as likely to provide an alternative superior to the merger with Advanced Energy. In this light, the board of directors of EMCO also evaluated Advanced Energy's requirement that EMCO agree to the provisions of the merger agreement limiting EMCO's rights to consider and negotiate acquisition proposals with others. It appeared unlikely to the board of directors that EMCO would be able to enter into a transaction with Advanced Energy without these provisions.

OPINION OF QUIST FINANCIAL, INC.

Pursuant to an engagement letter dated June 19, 2000 (the "Engagement Letter"), the EMCO Board retained Quist Financial, Inc. to act as its exclusive financial advisor in connection with the merger, as described in the Engagement Letter. Quist Financial's business is the valuation of businesses and business interests, including both privately held and publicly traded companies, for all purposes, including mergers and acquisitions. Since 1984, Quist Financial, Inc. has successfully completed more than 1,500 valuation projects, principally in the Rocky Mountain region. Quist's professional staff is experienced in valuing companies in a wide range of industries (from emerging high tech and Internet companies to those in traditional manufacturing, distribution and service businesses). EMCO selected Quist Financial as its financial advisor on the basis of Quist Financial's experience and expertise in transactions similar to the merger and its reputation in the business community.

On June 29, 2000, Quist Financial delivered to the EMCO board of directors its opinion, subsequently confirmed as of July 6, 2000, that the exchange ratio is fair, from a financial point of view, to EMCO's shareholders as of that date. No limitations were imposed by the EMCO Board on Quist Financial with respect to the investigations made or procedures followed in rendering its opinion.

THE FULL TEXT OF THE QUIST FINANCIAL WRITTEN OPINION TO THE EMCO BOARD IS ATTACHED AS APPENDIX B AND IS INCORPORATED HEREIN BY REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT/ PROSPECTUS. THE FOLLOWING SUMMARY OF QUIST FINANCIAL'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.

Quist Financial's opinion is directed to the EMCO Board of directors and does not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to the merger agreement. Quist Financial's opinion addresses only the financial fairness of the Exchange Ratio to be received by the EMCO shareholders pursuant to the merger agreement and does not address the relative merits of the merger or alternatives to the merger, the underlying decision of the EMCO Board to proceed with or effect the merger or any other aspect of the merger. In furnishing this opinion, Quist Financial did not admit that it is an expert within the meaning of the term "expert" as used in the Securities Act, nor did it admit that its opinion constitutes a report or valuation within the meaning of the Securities Act.

In connection with its opinion, Quist Financial, among other things:

- reviewed a draft of the merger agreement;

- held discussions with senior management, directors, representatives and other advisors of EMCO and the Chief Financial Officer of Advanced Energy concerning the business, operations and prospects of EMCO and Advanced Energy;

- examined publicly available business and financial information relating to EMCO and Advanced Energy;

- examined financial forecasts of EMCO and other information and data for EMCO and Advanced Energy, including strategic implications and operational benefits anticipated to result from the merger;

- reviewed the financial terms of the merger in relation to, among other things, current and historical market prices and trading volumes of EMCO and Advanced Energy capital stock;

- reviewed projections regarding Advanced Energy in analysts' reports;

- reviewed the historical and projected capitalization and financial condition of EMCO;

- considered the financial terms of certain other similar transactions recently effected that it considered relevant in evaluating the exchange ratio and analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations they considered relevant in evaluating those of EMCO and Advanced Energy;

- considered and reviewed earnings projections for EMCO and Advanced Energy as published by I/B/E/S International Inc.;

- evaluated the pro forma financial impact of the EMCO projections upon these published projected earnings for Advanced Energy; and

- conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as it deemed appropriate.

The financial terms and conditions of the draft merger agreement reviewed by Quist Financial are identical to those contained in the executed merger agreement.

In connection with its review, Quist Financial relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available, furnished to them or discussed with them. Quist Financial relied upon the assurances of the management of EMCO and Advanced Energy that they were not aware of any facts that would make any of the information provided to Quist Financial inaccurate or misleading. Quist Financial assumed for purposes of its opinion that information provided to Quist Financial had been prepared on a reasonable basis in accordance with industry practice and, with respect to financial forecasts of EMCO, reflects the best currently available estimates and judgment of EMCO's management. EMCO and Advanced Energy do not publicly disclose internal management forecasts, and EMCO's forecasts provided to Quist Financial were not prepared with a view toward public disclosure. Advanced Energy did not provide Quist Financial with internal forecasts; instead Quist Financial used forecasts regarding Advanced Energy stated in analysts' reports. Any forecasts used by Quist Financial were based upon numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such forecasts.

Quist Financial assumed that the merger will be treated as a tax-free reorganization for U.S. federal income tax purposes and that it qualifies, and will be accounted for, as a "pooling of interests" in accordance with generally accepted accounting principles. Quist Financial did not make and was not provided with an independent evaluation or appraisal of the assets of EMCO or Advanced Energy and did not independently verify any pending or threatened litigation, possible unasserted claims or other contingent liabilities. Quist Financial has assumed that all necessary regulatory approvals and consents required for the transaction will be obtained in a manner that will not have adverse effects on EMCO or Advanced Energy or change the exchange ratio. Quist Financial has assumed that neither EMCO nor Advanced Energy are party to any material pending transactions, including external financing, recapitalizations, acquisitions or merger discussions, other than the merger or in the ordinary course of business. Finally, Quist Financial's opinion is based on economic, monetary and market and other conditions disclosed to Quist Financial as of, and the information made available to Quist Financial as of, the date of its opinion. Accordingly, although subsequent developments may affect its opinion, Quist Financial has not assumed any obligation to update, revise or reaffirm its opinion. Quist Financial has also assumed that the merger will be consummated in accordance with the merger agreement without waiver of any of the conditions precedent to the merger contained in the merger agreement. Set forth below is a brief summary of the report presented by Quist Financial to the EMCO Board on June 29, 2000 in connection with its opinion.

Summary of Advanced Energy Proposal

Quist Financial calculated that as of June 27, 2000, the Advanced Energy proposal reflected a fixed exchange ratio of 0.2107 shares of Advanced Energy for each share of EMCO. The estimated gross aggregate consideration or purchase price at that time was valued at $52,087,500, based on Advanced Energy's stock price of $57.875 per share on that date. Quist Financial prepared a table showing a range of potential values of the proposed transaction based upon $1 increments between Advanced Energy's 52-week trading high of $77.438 and trading low of $30 per share. The date June 27, 2000 was used in the preparation of materials presented by Quist Financial to the Board of Directors of EMCO on June 29, 2000. Quist Financial also calculated that as of July 6, 2000, the date on which the merger agreement was signed, the estimated gross aggregate consideration or purchase price at that time was valued at $47,418,750, based on Advanced Energy's closing stock price of $52.6875 on July 5, 2000.

Methodology

Quist Financial evaluated the merger proposal using two market approaches:
(i) public guideline company multiples with a control premium and comparable change of control valuations, and (ii) an income approach using a discounted cash flow analysis. To reflect the differences between the existing core business of EMCO flowmeters for conservation and industrial purposes and the new EMCO semiconductor products, Quist Financial divided EMCO's historical and projected results in two divisions -- the core business and the new products division. The new products division primarily includes the THEL digital value product and the mass flowmeter products for the semiconductor industry. The new products have not yet generated significant revenues, although EMCO has invested significant funds in their development. To obtain an accurate representation of EMCO's cash flow generation ability from its core business, Quist Financial subtracted the cost and revenues related to the new products from EMCO's consolidated income statement. In its valuation, Quist Financial separately examined the value of EMCO's core business, the value of the new products division, and the value of the consolidated company.

Market Approaches

1. Valuation Multiples of Similar Public Companies

Quist Financial used an analysis of similar public companies as an indication of the value of EMCO's core business. Quist Financial examined 135 publicly traded companies in businesses similar to EMCO's core business and selected seven of these companies as the best guideline companies for EMCO's core business.

This group consisted of the following companies:

1. Badger Meter Corporation               5. Millipore Corporation
2. Dionex Corporation                     6. Pall Corporation
3. The Donaldson Company                  7. Puroflow Corporation
4. ISCO, Inc.

From these companies, Quist Financial calculated multiples for Market Value of Invested Capital (MVIC) to Sales, MVIC to Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), MVIC to Earnings Before Interest and Taxes (EBIT) and MVIC to Projected Earnings in 2000 and 2001. Quist Financial believed that, because EMCO's earnings were at least temporarily depressed as a result of recent investments in research and development, an earnings-based approach such as MVIC to EBIT was not a good indication of value. Excluding MVIC to EBIT, this analysis imputed a range of MVIC of between $8.7 million and $18.6 million for EMCO's core business.

Quist Financial examined the market capitalization of EMCO before development of the new products. Based on the average outstanding shares for the year ended April 30, 1998, and EMCO's interest bearing debt, EMCO's MVIC was $12.3 million before the new product development effort. On June 27, 2000, the actual MVIC of EMCO was $33.0 million, implying a range of value for the new products division of between $14.4 million and $24.3 million.

1.1. Public Company Multiples by Size Within Industry

Because EMCO's revenues, market capitalization and asset size are smaller than many of the guideline companies who had similar operations, Quist Financial did a second guideline comparison using 19 companies of a similar size. Excluding MVIC to EBIT, this analysis resulted in an indicated value for EMCO's core business of between $5.7 million and $10.2 million, below the value indicated by the previous guideline companies.

1.2 Control Premium

These indicated values using multiples of MVIC are based on the trading price of minority shares in publicly traded companies. Therefore, Quist Financial applied a control premium in order to compare the value to the proposed merger. Quist Financial analyzed the average control premium in 1999 and the first quarter of 2000 for companies with SIC Codes relevant to EMCO. Quist Financial then selected a control premium range of 20-25% for the core business and a control premium range of 40-70% for the new

products business. Applying these premiums to the business segments results in a range of control value for EMCO between $42.5 million and $52.2 million.

2. Merger and Acquisition Approach

Quist Financial examined fifteen acquisitions completed between April 30, 1998 and June 27, 2000 within the SIC Codes relevant to EMCO. Based on this analysis, the valuation multiples (MVIC to EBITDA, MVIC to Book Value of Invested Capital and MVIC to Revenues) implied by the proposed merger with Advanced Energy exceeded those of all fifteen comparable transactions.

Income Approach

Quist Financial's income approach focused on future cash flows available to shareholders. Cash flows were then discounted back to the present using appropriate discount rates. EMCO's business was again broken into two divisions for the discounted future cash flow analysis.

The results for the core business are based on management's projections without the sales relating to the semiconductor industry or THEL digital valves. From Ibbotson's Cost of Capital, Quist Financial determined that the weighted average cost of capital for the industry is 14%. Applying this discount to the interim free cash flows over the period from April 30, 2000 to April 30, 2005, resulted in a total present value of free cash flow of $878,000. Quist Financial then assigned a terminal value to recognize future cash flows past 2005, based upon a multiple of EBITDA. The sum of the present value of the interim cash flows and terminal value indicated a total value of equity of $10.6 million for the core business.

A similar methodology was then applied to the new products business. However, additional financing in the amount of $10-15 million would be required for the new products line. Based upon information on venture capital costs, Quist Financial determined that the financing would result in a 50% dilution of the equity in the new product line. Based on the risk profile, Quist Financial determined a range of value between $46.6 million and $80.6 million as suitable for the new products division. After applying the dilution impact, the range of value of the current shareholders was between $23.3 million and $40.3 million.

Summing the core business and the new products business resulted in a total value of EMCO between $39.9 million and $50.9 million.

Quist Financial also performed a discounted cash flow analysis based on consolidated projections. In these projections, a majority of the revenue would result from the division with the new products of EMCO. For this analysis, Quist Financial took into account the growth rate of the total company with both divisions, EBITDA multiples and the dilution from a partial funding of the growth of new products using a secondary offering rather than venture capital financing, as well as the fact that the core business would lower the overall risk profile of EMCO resulting in a lower weighted average cost of capital. Based on these assumptions, Quist Financial determined a range of $45.6 million to $88.3 million for the value of EMCO. After accounting for the dilution impact, the total value of the equity of EMCO was between $30.9 million and $59.2 million. This amount was above the range indicated by valuing EMCO's product lines separately and near the top of the range indicated by valuing the consolidated EMCO.

THE MERGER AGREEMENT

The following is a brief summary of the material provisions of the merger agreement. Because it is a summary, it does not include all the information that may be important to you. We encourage you to read carefully the entire merger agreement, which is attached as Appendix A to this document, before you decide how to vote.

THE MERGER

The merger will close on the first business day after satisfaction or waiver of the conditions to the merger agreement, or on another date as the parties agree. The merger will become effective upon the filing of articles of merger with the Secretary of State of the State of Colorado or at a later time as may be agreed to in writing by EMCO and Advanced Energy, as specified in the articles of merger. The closing date is expected to be on or about October 23, 2000.

At the effective time:

- Flow Acquisition Corporation will be merged into EMCO;

- the separate corporate existence of Flow Acquisition Corporation will cease;

- each share of EMCO common stock outstanding will be converted into at least 0.2018 of a share of Advanced Energy common stock; and

- EMCO will become a wholly owned subsidiary of Advanced Energy.

References to the surviving corporation in this proxy statement are to EMCO following the effective time of the merger.

REPRESENTATIONS AND WARRANTIES

EMCO, Advanced Energy and Flow Acquisition Corporation have made representations in the merger agreement, relating to, among other things:

- their respective organization and similar corporate matters;

- authorization, execution, delivery and enforceability of the merger agreement;

- absence of conflicts under their charters and bylaws;

- accounting and tax treatment of the merger;

- their respective capital structures;

- required consents or approvals;

- documents filed with the SEC;

- completion of the merger not violating any agreements or law; and

- information included in this proxy statement/prospectus.

EMCO has made additional representations, relating to among other things:

- litigation;

- insurance;

- contracts and commitments;

- financial statements;

- absence of undisclosed liabilities;

- absence of material adverse events or changes;

- compliance with laws;

- intellectual property matters;

- tax laws and tax returns;

- employee benefit plans and compliance with applicable laws;

- environmental matters;

- finders' or brokers' fees; and

- title to real and personal property.

The representations and warranties in the merger agreement are not easily summarized. In addition, many of the representations and warranties are subject to various qualifications and limitations, including qualifications as to materiality. You are urged to read the merger agreement sections titled "Representations and Warranties of the Company" and "Representations and Warranties of Parent and Merger Sub" in Appendix A. None of the representations and warranties of EMCO, Flow Acquisition Corporation or Advanced Energy will survive the merger, but they must be accurate at the closing of the merger agreement or else the merger might not be completed.

CONDUCT OF BUSINESS PRIOR TO THE MERGER

The merger agreement contains certain covenants by EMCO and Advanced Energy pending the effective time of the merger. These covenants are designed to provide notice to the other party of certain events and to ensure that the intended tax and accounting treatment of the merger are maintained. Until the earlier of the termination of the merger agreement or the effective time of the merger, EMCO and Advanced Energy have agreed, unless the other party otherwise consents in writing, to:

- promptly deliver to the other party copies of any SEC filings;

- notify the other party of any material adverse change, any material litigation or governmental investigation, or the breach by it of any representation and warranty contained in the merger agreement; and

- not take any action which would prevent the merger from qualifying as a tax-free reorganization under Section 368 of the Internal Revenue Code or a pooling of interests under Accounting Principles Board Opinion No. 16.

In addition, the merger agreement contains restrictions on EMCO's conduct of business pending the effective time of the merger. These restrictions are designed to prevent major changes in EMCO until the merger takes place, except to the extent Advanced Energy consents to the changes. EMCO has agreed, unless Advanced Energy otherwise consents in writing, to:

- conduct its operations according to its ordinary and usual course of business, in substantially the same manner as previously conducted;

- not enter into or amend any employment or severance agreement with any director or executive officer except in the ordinary course of business;

- not authorize or enter into any arrangement for the acquisition or sale of assets or securities outside the ordinary course of business involving aggregate consideration greater than $100,000;

- not amend in any material respect any employee benefit plan or adopt any new employee benefit plan;

- not become liable for borrowed money or assume or guarantee the debt of another person, except in the ordinary course of business;

- not make any loans or advances except in the ordinary course of business;

- use reasonable efforts to:

- preserve intact its business organization and goodwill;

- keep available the services of its officers and employees in each business function; and

- maintain satisfactory relationships with persons with whom it has business relationships;

- not take any action which would adversely affect its ability to consummate the merger or the other transactions contemplated by the merger agreement;

- not amend its Articles of Incorporation or Bylaws;

- not declare or pay any dividend with respect to its capital stock;

- not issue any capital stock or other options, warrants or rights to purchase or acquire capital stock or change the terms of any outstanding securities, except that EMCO may issue capital stock upon the exercise of options, warrants or rights outstanding as of July 6, 2000 and pursuant to its stock purchase plan;

- not redeem or purchase shares of its capital stock except for cashless exercises of stock options;

- not make any change or material election with respect to taxes; or

- not take or agree to take, any of the specific actions described in the merger agreement, or any action which would make any of its representations or warranties contained in the merger agreement untrue or incorrect.

COVENANTS

Each of Advanced Energy, Flow Acquisition Corporation and EMCO has undertaken additional covenants in the merger agreement. The following summarizes the principal covenants.

Advanced Energy and EMCO have agreed, among other things, to:

- use all reasonable efforts to cooperate to determine which filings, consents, approvals, permits or authorizations are required to be obtained from governmental or regulatory authorities, and timely make all such filings and seek all such consents, approvals, permits or authorizations;

- allow representatives of the other party access to offices, files and other information, and furnish the other party with financial and operating data;

- consult and cooperate in making any press release or other public statement regarding the merger; and

- for a period of six years after the effective time of the merger, Advanced Energy will maintain directors' and officers' liability insurance substantially similar to that maintained by EMCO prior to the effective time.

EMCO will use all reasonable efforts to obtain letters from affiliates of EMCO whereby they agree to comply with the provisions of Rule 145 issued under the Exchange Act and the limitations of Accounting Principles Board Opinion No. 16.

CONDITIONS TO THE MERGER

The respective obligations of EMCO, Advanced Energy, and Flow Acquisition Corporation to complete the merger are subject to the fulfillment or waiver of the following conditions on or before the effective time of the merger:

- EMCO shareholders approve the merger agreement (which as a matter of law is required and cannot be waived);

- all governmental approvals, authorizations, consents, filings or expiration of waiting periods have been obtained or complied with other than those which would not be reasonably likely to have a material adverse effect on EMCO and Advanced Energy and its subsidiaries, taken as a whole; and

- none of EMCO, Advanced Energy and Flow Acquisition Corporation shall be subject to any order or injunction of a court which prohibits the completion of the merger.

In addition, the obligations of EMCO to effect the merger are subject to the fulfillment of the following conditions on or before the effective time of the merger, any one of which may be waived by EMCO:

- the representations and warranties of Advanced Energy and Flow Acquisition Corporation in the merger agreement are true and correct in all material respects, at the effective time of the merger, with the same force and effect as if made at the effective time of the merger except:

- for changes specifically permitted by the merger agreement; and

- that the accuracy of the representations and warranties that by their terms speak as of the date of the merger agreement or some other date will be determined as of that date;

- Advanced Energy has performed and complied in all material respects with all agreements required to be performed by it on or prior to the closing date of the merger;

- no material adverse change or effect with respect to Advanced Energy's business, prospects, results of operations or financial condition will have occurred; and

- EMCO has received an opinion of its counsel regarding the tax treatment of the merger.

In addition, the obligations of Advanced Energy and Flow Acquisition Corporation to effect the merger are subject to the fulfillment of the following conditions on or before the effective time of the merger, any one of which may be waived by Advanced Energy:

- the representations and warranties of EMCO contained in the merger agreement are true and correct in all material respects at the effective time of the merger, with the same force and effect as if made at the effective time of the merger except:

- for changes specifically permitted by the merger agreement; and

- that the accuracy of the representations and warranties that by their terms speak as of the date of the merger agreement or some other date will be determined as of that date;

- EMCO has performed and complied in all material respects with all agreements required by the merger agreement to be performed by it on or prior to the date of the closing of the merger;

- Advanced Energy has received a letter from its independent public accountants stating that the merger will qualify as a transaction to be accounted for in accordance with the pooling of interests method;

- Advanced Energy has received an opinion of its counsel regarding the tax treatment of the merger;

- EMCO's 1998 Stock Purchase Plan has been terminated and all stock and cash distributed as provided in the merger agreement; and

- no material adverse change, or effect with respect to EMCO's business, prospects, results of operations or financial condition has occurred.

NO SOLICITATION; BOARD RECOMMENDATION

EMCO has agreed that it will not take specified actions with respect to an "alternative proposal" or an "alternative transaction," except for actions required to be taken by the fiduciary duty of EMCO's board of directors.

The term "alternative proposal" means any bona fide offer or proposal made by a third party relating to an alternative transaction. An alternative transaction means any transaction or series of related transactions involving a business combination, merger, sale of material assets, sale of shares of capital stock or similar transaction by EMCO with a person, or company or entity other than Advanced Energy.

Specifically, EMCO has agreed that it and its officers, directors, affiliates, representatives, agents, employees, will not, directly or indirectly:

- solicit, initiate, encourage or participate in any discussions or negotiations with or provide any information to, any person or entity concerning any alternative transaction; or

- authorize, propose or announce an intention to authorize or propose any alternative transaction,

unless EMCO receives an alternative proposal in writing and EMCO's board of directors determines in its good faith judgment, based as to legal matters on the written advice of counsel, that failing to take any of the actions described in the preceding paragraph would constitute a breach of the board of directors' fiduciary duty.

In addition, EMCO has agreed to immediately provide Advanced Energy a copy of any alternative proposal if EMCO receives an alternative proposal.

The EMCO board of directors is required to recommend the adoption and approval of the merger agreement and approval of the merger to the EMCO shareholders unless the EMCO board determines in its good faith judgment, based as to legal matters on the written advice of counsel, that such approval would constitute a breach of its fiduciary duty.

The merger agreement does not, however, prohibit EMCO's board of directors from taking and disclosing to EMCO's shareholders a position contemplated by Rules 14d-9 and 14e-2 under the Securities Exchange Act with regard to a tender or exchange offer made by someone other than Advanced Energy.

CONDUCT OF BUSINESS FOLLOWING THE MERGER

Pursuant to the merger agreement Flow Acquisition Corporation will merge into EMCO and EMCO will be the surviving corporation. All property, rights, privileges, powers and franchises of EMCO and Flow Acquisition Corporation will vest in the surviving corporation. All debts, liabilities and duties of EMCO and Flow Acquisition Corporation will become the debts, liabilities and duties of the surviving corporation. The surviving corporation will be a wholly owned subsidiary of Advanced Energy.

Pursuant to the merger agreement, the articles of incorporation of Flow Acquisition Corporation in effect immediately prior to the effective time of the merger will become the articles of incorporation of the surviving corporation. The name of the surviving corporation will be "Engineering Measurements Company" and the bylaws of Flow Acquisition Corporation will become the bylaws of Engineering Measurements Company following the effective time of the merger. The directors of Flow Acquisition Corporation at the effective time of the merger will become the initial directors of the surviving corporation. The officers of Flow Acquisition Corporation immediately prior to the effective time of the merger will become the initial officers of the surviving corporation.

TERMINATION OF THE MERGER AGREEMENT

The merger agreement provides that it may be terminated at any time prior to the effective time of the merger, whether before or after approval of the merger by the shareholders of EMCO by mutual written consent of each of Advanced Energy and EMCO; or by either Advanced Energy or EMCO if:

- the merger has not closed by December 31, 2000 (provided that the right to terminate will not be available to any party whose action or failure to act has proximately contributed to the failure to close the merger by December 31, 2000 and the action or failure to act constitutes a material breach of the merger agreement);

- a court of competent jurisdiction or other governmental entity has issued a final and non-appealable order, decree or ruling, or taken any other final and non-appealable action, that permanently restrains, enjoins or otherwise prohibits the merger (provided that the party exercising the right to terminate has used all reasonable efforts to remove that order, decree or ruling); or

- the required approval of the merger by the EMCO shareholders has not been obtained at the EMCO special meeting.

Advanced Energy may terminate the merger agreement upon the occurrence of any of the following events:

- a breach by EMCO of its representations or warranties, which breach has had or is reasonably likely to have a material adverse effect on EMCO and which is not curable or, if curable, is not cured within 30 days after notice of the breach has been received by EMCO from Advanced Energy;

- a material breach by EMCO of any of the covenants or agreements contained in the merger agreement, which breach is not curable or, if curable, is not cured within 30 days after notice of the breach has been received by EMCO from Advanced Energy;

- the EMCO board of directors shall have withdrawn or modified in a manner materially adverse to Advanced Energy its approval or recommendation of the merger or the merger agreement; or

- the EMCO board of directors shall have recommended an alternative proposal to the shareholders of EMCO;

EMCO may terminate the merger agreement upon the occurrence of any of the following events:

- a breach by either of Advanced Energy or Flow Acquisition Corporation of its representations or warranties, which breach has had or is reasonably likely to have a material adverse effect on Advanced Energy and which is not curable or, if curable, is not cured within 30 days after notice of the breach has been received by Advanced Energy from EMCO;

- a material breach by Advance Energy of any of the covenants or agreements contained in the merger agreement, which breach is not curable or, if curable, is not cured within 30 days after notice of the breach has been received by Advanced Energy from EMCO; or

- The EMCO board of directors determines in its good faith judgment, based as to legal matters on the written advice of legal counsel, that termination of the merger is required by its fiduciary duties.

FEES, EXPENSES AND TERMINATION FEES

Except as set forth below, all fees and expenses incurred in connection with the merger agreement and the merger will be paid by the party that incurs them. Advanced Energy and EMCO will share equally all fees and expenses incurred in relation to the printing and filing fees paid in connection with the filing of this proxy statement and the costs of printing and mailing this proxy statement.

EMCO has agreed to pay Advanced Energy a termination fee of $5 million if prior to the termination, an alternative proposal has been made to the EMCO board of director and within two years following the termination, EMCO executes an agreement with a third party providing for the acquisition of more than 50% of EMCO's capital stock or assets and Advanced Energy or EMCO terminates the merger agreement because:

- the EMCO shareholders have not approved the merger agreement at the EMCO special meeting;

- the EMCO board of directors determines, in its good faith judgment, based as to legal matters on the written advice of legal counsel, that terminating the agreement and abandoning the merger is required by the EMCO board of directors' fiduciary duties; or

- the EMCO board of directors shall have withdrawn or modified in a manner materially adverse to Advanced Energy its approval or recommendation of the merger or the merger agreement, or shall have recommended an alternative proposal to the shareholders of EMCO.

EMCO is required to pay the termination fee within 15 business days of the execution of an agreement providing for, or completion of, the alternative transaction.

AMENDMENT

The merger agreement may be changed by written agreement of the parties at any time before or after EMCO shareholders approve the merger. Any change after the EMCO shareholders approve the merger that by law requires the approval of EMCO shareholders, however, will require their approval to be effective.

EMPLOYEE BENEFITS

STOCK OPTIONS. At the effective time of the merger Advanced Energy will assume all of the outstanding EMCO stock options. Pursuant to the EMCO stock option plans, except the 1998 Employee Stock Purchase Plans, the vesting of all options will accelerate, and all options will be immediately exercisable, as a result of the merger. Each stock option assumed will continue to have and be subject to substantially the same terms and conditions as under the EMCO stock plan under which the stock option was granted except that:

- each option will be fully vested and exercisable;

- each option will be exercisable for the number of shares of Advanced Energy common stock, rounded to the nearest whole share, equal to the product obtained from multiplying the number of shares of EMCO common stock covered by the option immediately prior to the effective time by the exchange ratio; and

- the option price per share of Advanced Energy common stock will be adjusted proportionately so that the aggregate exercise price for the options will remain substantially unchanged for each holder.

Advanced Energy will file a registration statement on Form S-8 or other appropriate form under the Securities Act covering the shares of Advanced Energy common stock issuable upon exercise of the options assumed in the merger, or will cause such shares to be included in an effective registration statement on Form S-8 relating to one or more of Advanced Energy's stock option plans.

EMPLOYEE STOCK PURCHASE PLAN. EMCO's 1998 Employee Stock Purchase Plan will be terminated prior to the effective time. All funds contributed to the 1998 Stock Purchase Plan that are not used to purchase shares of EMCO common stock prior to the effective time will be transferred or otherwise credited to the Advanced Energy 1995 Employee Stock Purchase Plan.

OTHER BENEFIT PLANS. Advanced Energy will provide or cause the surviving corporation to provide to employees of EMCO who remain employees of the surviving corporation following the effective time the same compensation and benefit plans as are provided to other employees of Advanced Energy employed in similar capacities.

INFORMATION ABOUT THE COMPANIES

ADVANCED ENERGY INDUSTRIES, INC.

OVERVIEW

Advanced Energy's primary business is the design, manufacture and support of 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. Advanced Energy's 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. Advanced Energy's 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.

Advanced Energy was incorporated in Colorado in 1981 and reincorporated in Delaware in 1995. Its main offices are located at 1625 Sharp Point Drive, Fort Collins, Colorado 80525, and its telephone number is (970) 221-4670.

RECENT DEVELOPMENTS

In April 2000, Advanced Energy acquired Noah Holdings, Inc., a privately-held manufacturer of solid state temperature control systems used to control process temperatures during semiconductor manufacturing. In August, 2000, Advanced Energy acquired Sekidenko, Inc., a supplier of optical fiber thermometers to the semiconductor capital equipment industry. Both acquisitions were accounted for as poolings of interests pursuant to Accounting Principles Board Opinion No. 16.

STRATEGY

Advanced Energy has achieved a market leadership position in the semiconductor equipment, flat panel display and data storage industries by applying its 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. Advanced Energy's strategy is to continue to build upon its leadership positions in these industries while exploring other emerging markets. Advanced Energy believes its five key growth opportunities are:

EXPANDING LEADERSHIP IN ITS CORE MARKETS. Advanced Energy believes it is the market share leader in the semiconductor capital equipment, data storage and flat panel display markets. Advanced Energy plans to continue to increase its penetration in these three markets by introducing new products and solutions for existing customers and targeting new customers, but its primary focus will continue to be on the semiconductor capital equipment market. For example, in the semiconductor capital equipment market

Advanced Energy believes that significant opportunities exist for it 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. Advanced Energy believes that customers want solutions that improve process control and yield, and decrease their total cost and time to market. Advanced Energy is developing integrated systems to provide more complete solutions that meet its customers' plasma-based process requirements. Advanced Energy is 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. Advanced Energy is 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. Advanced Energy actively seeks complementary technologies and companies as a means to expand its presence in existing and emerging markets and to provide integrated solutions for customers and potential customers. Advanced Energy has acquired and integrated several companies recently. Advanced Energy continually evaluates companies whose products and technologies could enhance its system level capabilities.

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

MARKETS

Advanced Energy markets and sells its systems primarily to large, global original equipment manufacturers of semiconductor, flat panel display, data storage and other industrial thin film manufacturing equipment. Advanced Energy has sold its systems worldwide to more than 100 OEMs and directly to more than 500 end-users. Advanced Energy's principal customers include Applied Materials, Balzers, Eaton, Lam Research, Novellus, Singulus and ULVAC. The semiconductor capital equipment industry accounted for approximately 61% of Advanced Energy's total sales in 1997, 52% in 1998, 65% in 1999 and 69% in the first six months of 2000. Following is a discussion of the major markets for Advanced Energy's systems:

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

DATA STORAGE MANUFACTURING EQUIPMENT MARKETS. Advanced Energy also sells systems to data storage equipment manufacturers and to data storage device manufacturers for use in producing a variety of products, including CDs, computer hard disks, including 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 and the consumer electronics audio and video markets.

FLAT PANEL DISPLAY MANUFACTURING EQUIPMENT MARKET. Advanced Energy also sells its 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 and desktop computer monitors to large-screen televisions. There are three major types of flat panel displays, including liquid crystal displays, field emitter displays and gas plasma displays. There are two types of flat panel projection devices, including liquid crystal projection and digital micro-mirror displays. Advanced Energy sells its products to all five of these markets.

EMERGING MARKETS. Advanced Energy also sells its 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, barcode 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 its 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 Advanced Energy's other markets.

SALES AND MARKETING

Advanced Energy sells its systems primarily through direct sales personnel to customers in the United States, Europe and Asia, and through distributors in China, France, Israel, Italy, Singapore, and Sweden. Sales outside the United States represented 22% of its total sales during 1997, 27% in 1998, 27% in 1999 and 28% in the first six months of 2000. Advanced Energy maintains sales and service offices across the United States in California, Colorado, Massachusetts, Minnesota, New Jersey and Texas. Advanced Energy maintains sales and service offices outside the United States in Germany, Japan, South Korea, the United Kingdom and Taiwan.

ENGINEERING MEASUREMENTS COMPANY

OVERVIEW

EMCO designs, manufactures, and markets electronic and electro-mechanical instruments (flowmeters) for measuring the flow of liquids, steam and gases. EMCO operates within the flow measurement devices and systems industry segment (S.I.C. Code No. 3823). EMCO generates its revenues from the sales of flowmeter hardware in both foreign and domestic markets. Revenue is also generated through contract electronic printed circuit board assembly. With 33 years of experience in the field of flow measurement, EMCO is able to provide its customers with a family of products capable of measuring almost any kind of fluid or gas flow. While EMCO has historically been strongest in energy utility flow measurement (particularly steam metering), it has products capable of measuring most types of process fluids, as well as fuel oils and natural gas. Primarily utilizing a network of distributors and commissioned sales representatives as well as a direct sales force, EMCO markets flowmeters worldwide.

EMCO has renewed a marketing agreement with Danfoss A/S, a flowmeter company in Denmark which distributes products in different markets and runs for a period until April 2001 with a six month renegotiations period. Terms of the agreement with Danfoss A/S allow EMCO to be the non-exclusive

distributor for Danfoss' MAG and MASS flowmeters in the U.S. industrial market under the EMCO label. EMCO features six types of flowmeters capable of handling a broad spectrum of applications (steam, gas and liquid), as well as a large range of line sizes. These flowmeters position EMCO to compete on a product level with any flowmeter manufacturer in the world.

PRODUCTS

EMCO develops and markets a series of products to measure the flow of steam, chilled and hot water, natural gas, compressed gases and other fluids in a pipeline. Also included are products, which support the primary flow measurements, such as pressure, temperature measurements and supporting electronics.

Sales of flowmeters and related products account for approximately 88% of the total sales for EMCO for fiscal year 2000. The flowmeter products use two major technologies in its product lines. The sales contribution by each technology as a percent of sales for fiscal years 1999 and 2000 are as follows:

                         TECHNOLOGY                           FY 1999    FY 2000
                         ----------                           -------    -------
Volumetric..................................................    74%        68%
Mass........................................................    26%        20%

Volumetric technologies include the following products: turbine, vortex shedding, ultrasonic, and positive displacement meters. Mass technologies include the following products: electromagnetic, coriolis, flow processors and digital valves.

EMCO manufactures several series of insertion meters for various applications of steam, liquids and compressed gas measurement. The insertion meters offer solutions to customers for metering flows in large size pipes. Each is available with an assortment of options allowing for extremes in flow range, pressure and temperature, with adaptation to various output requirements which provide mass and energy measurement for totalizing or computer input.

EMCO introduced a line of vortex shedding flowmeters in fiscal year 1992. The Vortex PhD has no moving parts, provides high reliability, has low maintenance requirements and is capable of operating with dirty fluids.

EMCO introduced a clamp-on transit time ultrasonic flowmeter in January 2000. This product is a non-intrusive meter, which is attached to the outside of pipes, and is used primarily to measure water, but is capable of measuring other liquids including oil.

EMCO also develops, manufactures and markets a series of positive displacement meters which provide accurate measurements of fluid flow rates. The products' primary applications relate to the measurement of viscous fluids, such as crude oil, as well as applications requiring a high degree of accuracy.

Digital valves are digitally actuated control valves providing industry with a unique means of controlling and measuring the flow of fluids. Because of their accuracy and speed of response, these products are capable of providing a high degree of control that cannot easily be matched by other valves. In addition, this product can be configured as a metering valve, thus providing both measurement and control.

All EMCO flowmeter products utilize a family of digital flow processors to provide a wide range of measurement processing. The flow processors provide the desired outputs in engineering units, such as gallons, liters, etc., with provisions for computing density, mass flow and enthalpy.

The Company introduced a commercial vortex shedding water flowmeter in March 1997. This product is marketed into the commercial HVAC, ultra-pure and de-ionized water and landscape/irrigation markets.

The Company provides contract electronic printed circuit board assembly. These services provided 8% of EMCO's revenues in 1999 and 12% in 2000.

Control of gases is critical to the production of semiconductors. EMCO has developed the Mach One mass flow controller specifically for the semiconductor market. This product has been designed to address the gas control needs of the industry for greater accuracy, control range, response time, and adjustable capacity. In addition, the Mach One operates at sub-atmospheric pressures, is less susceptible to clogging and has no flow bypass which means improved process repeatability. The Mach One has not yet been commercialized.

SALES AND MARKETING

EMCO primarily uses a network of distributors and commissioned sales representatives, as well as a direct sales force, to market EMCO's flowmeters worldwide. EMCO utilizes a direct sales force to market its contract electronic printed circuit board assembly services.

In fiscal year 2000, EMCO had foreign sales of approximately $2,242,000, or 24.3% of sales, compared to approximately $2,691,000, or 27.8% of sales in fiscal year 1999. The decrease of sales for fiscal year 2000 in Europe is due primarily to lower sales to Danfoss in 2000. EMCO experienced a decrease in sales to Asia due to a shift in the product mix to lower cost meters. Other foreign sales are lower due to lower activity overall, rather than sales of a single large project. All foreign sales are exports from domestic operations. The breakdown of foreign sales for fiscal years 2000 and 1999, in dollars and percent of total sales are:

                                                             FY 2000               FY 1999
                                                        ------------------    ------------------
Europe..............................................    $1,335,000    14.5%   $1,580,000    16.3%
Asia................................................       658,000    7.1%       755,000     7.8%
Other...............................................       249,000    2.7%       356,000     3.7%

THE MERGER

2.1 The Basic Transaction. On the terms and subject to the conditions of this Agreement, at the Effective Time, Merger Sub shall be merged with and into the Company in accordance with this Agreement, and the separate corporate existence of Merger Sub shall thereupon cease (the "Merger"). The Company shall be the surviving corporation in the Merger (sometimes hereinafter referred to as the "Surviving Corporation"), and shall become a wholly owned subsidiary of Parent. The Merger shall have the effects specified in the Colorado Business Corporation Act (the "CBCA").

2.2 The Closing. Subject to the terms and conditions of this Agreement, the closing of the Merger (the "Closing") shall take place (a) at the offices of the Company at 10:00 a.m., local time, on the first business day immediately following the day on which the last to be fulfilled or waived of the conditions set forth in Article 7 shall be completely fulfilled or waived in accordance herewith, or (b) at such other time, date or place as Parent and the Company may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date."

2.3 Effective Time. On the Closing Date, Articles of Merger meeting the requirements of Section 7-111-105 of the CBCA in the form of Exhibit 2.3 (the "Articles of Merger") shall be executed and filed in the office of the Colorado Secretary of State, in accordance with the CBCA. The Merger shall become effective at (a) the time of filing of the Articles of Merger with the Colorado Secretary of State or (b) such later time as agreed by the parties hereto and designated in the Articles of Merger as the effective time of the Merger (the "Effective Time").

2.4 Articles of Incorporation and By-laws. The Articles of Incorporation and By-laws of Merger Sub in effect immediately prior to the Effective Time shall be the Articles of Incorporation and By-laws of the Surviving Corporation, until duly amended in accordance with applicable law.

2.5 Directors and Officers of the Surviving Corporation. The directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation until their successors are duly appointed or elected in accordance with applicable law.

ARTICLE 3

CONVERSION AND EXCHANGE OF SECURITIES

3.1 Merger Sub Stock. At the Effective Time, each share of common stock of Merger Sub outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and non-assessable share of common stock of the Surviving Corporation.

3.2 Company Stock; Options.

(a) Exchange Ratio. At the Effective Time, each share of Company Common Stock that is issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into the right to receive a number of shares of Parent Common Stock equal to the Exchange Ratio.

(b) Cancellation of Company Common Stock. At the Effective Time, as a result of the Merger and without any action on the part of the holders thereof, all shares of Company Common Stock outstanding at the Effective Time shall cease to be outstanding, shall be canceled and retired and shall cease to exist, and each holder of shares of Company Common Stock shall thereafter cease to have any rights with respect to such shares of Company Common Stock, except the right to receive upon the surrender of a certificate representing such shares of Company Common Stock (a "Certificate") (i) the number of shares of Parent Common Stock determined in accordance with this Section 3.2, and (ii) cash, without interest, payable (A) in lieu of any fractional shares of Parent Common Stock, in accordance with Section 3.3(b), and (B) as Specified Post-Closing Dividends, in accordance with Section 3.3(f).

(c) Treasury Shares and Shares Held by Subsidiaries. At the Effective Time, as a result of the Merger and without any action on the part of Parent, Merger Sub or the Company, any and all shares of Company Common Stock issued and held in the Company's treasury shall cease to be outstanding, shall be canceled and retired without payment of any consideration therefor and shall cease to exist.

(d) Options.

(i) At the Effective Time, as a result of the Merger and without any action on the part of holder thereof, each option to purchase Company Common Stock granted by the Company (collectively, "Company Options") under one of its stock option plans (collectively, "Company Option Plans") that remains outstanding and unexercised as of the Effective Time, whether or not vested or exercisable, shall be assumed by Parent and shall be converted into an option to purchase Parent Common Stock (collectively, "Substituted Options").

(ii) Subject to subsection 3.2(d)(iii) below, (A) the number of shares of Parent Common Stock underlying a Substituted Option shall be equal to the number of shares of Company Common Stock underlying the subject Company Option multiplied by the Exchange Ratio and rounded to the nearest whole number, (B) the exercise price per share of a Substituted Option shall be adjusted proportionately such that the aggregate exercise price under the Substituted Options shall remain substantially unchanged, and (C) each Substituted Option shall be exercisable on the same terms and subject to the same conditions as had been applicable to the related Company Option, except to the extent the number of shares and exercise price per share have been adjusted pursuant to (A) and (B), respectively, of this subsection 3.2(d)(ii).

(iii) It is the intention of the parties that Company Options that qualified as incentive stock options, within the meaning of Section 422 of the Code ("ISOs"), immediately prior to the Effective Time, be converted, when assumed by Parent, into Substituted Options that qualify as ISOs immediately following the Effective Time, to the extent permitted by
Section 422 of the Code and applicable terms of the Company Option Plans. In furtherance of such intention, the formulae, terms and conditions set forth in subsection 3.2(d)(ii) above may be applied to, or modified for, such Substituted Options as deemed reasonably necessary by Parent, so long as any such application or modification does not materially reduce the benefit of the Substituted Option to the holder thereof.

(iv) The Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") shall be terminated prior to the Closing. All funds invested in the Stock Purchase Plan but not used by employees to purchase stock thereunder prior to the Effective Time shall be transferred or otherwise credited to employees of the Company such that, following the Effective Time, each such employee shall have purchase rights under Parent's stock purchase plans substantially similar to those existing under the Stock Purchase Plan immediately prior to the Effective Time.

(v) On or prior to the Effective Time, Parent shall file with the Commission a Registration Statement on Form S-3 or Form S-8, as determined by Parent in its sole discretion, relating to the issuance of the Parent Common Stock underlying the Substituted Options or shall cause such Parent Common Stock to be included in an effective Registration Statement on Form S-8 relating to one or more of Parent's stock option plans (collectively, "Parent Option Plans"). So long as any Substituted Options remain outstanding, Parent shall use its reasonable best efforts to maintain the effectiveness of any Registration Statement(s) related to the Substituted Options (and to maintain the current status of the prospectus or prospectuses related thereto). At or prior to the Effective Time, Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of the Substituted Options. To the extent required by the relevant market or exchange, Parent shall list or qualify all such shares for trading on the principal market or exchange on which Parent Common Stock is traded from time to time.

3.3 Exchange of Certificates Representing Company Common Stock.

(a) As of the Effective Time, Parent shall deposit, or shall cause to be deposited, with an exchange agent reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of the holders of

Company Common Stock, for exchange in accordance with this Article 3, (i) certificates representing the shares of Parent Common Stock to be issued in connection with the Merger ("Merger Certificates"), and (ii) Parent's good faith estimate of the cash in lieu of fractional shares expected to be payable in connection with the Merger. Such cash and Merger Certificates are referred to herein as the "Exchange Fund."

(b) No fractional shares of Parent Common Stock shall be issued pursuant hereto. In lieu of the issuance of any fractional share of Parent Common Stock, cash will be paid in respect of any fractional share of Parent Common Stock that would otherwise be issuable, and the amount of such cash shall be equal to such fractional proportion of the closing price of one share of Parent Common Stock as reported in The Wall Street Journal, Eastern Edition, as of the last day prior to the Effective Time on which trading is conducted on the Nasdaq National Market. No interest will be paid or accrued on the cash payable to holders of shares of Company Common Stock.

(c) Promptly after the Effective Time, Parent shall cause the Exchange Agent to mail to each holder of record of Company Common Stock (i) a letter of transmittal, in a typical form and having such provisions as Parent may reasonably specify ("Letter of Transmittal"), which shall advise the holder that delivery of Merger Certificates shall be effected, and risk of loss to such holder's shares of Company Common Stock shall pass, only upon delivery of the Certificates representing such shares to the Exchange Agent, and (ii) instructions for use in effecting the surrender of such Certificates in exchange for Merger Certificates and cash in lieu of fractional shares from the Exchange Fund.

(d) Upon surrender of a Certificate to the Exchange Agent for cancellation, together with a duly executed and properly completed Letter of Transmittal, (i) the holder of the shares of Company Common Stock represented by such Certificate shall be entitled to receive in exchange therefor from the Exchange Fund (A) a Merger Certificate representing that number of whole shares of Parent Common Stock determined by multiplying the number of shares of Company Common Stock represented by the Certificate by the Exchange Ratio, and (B) a check representing (1) the amount of cash in lieu of fractional shares of Parent Common Stock, if any, determined pursuant to paragraph (b) of this Section 3.3, and (2) any Specified Post-Closing Dividends, in each case less any applicable tax withholding, and (ii) the Company Common Stock represented by the surrendered Certificate shall thereupon be canceled.

(e) In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, a Merger Certificate representing the proper number of shares of Parent Common Stock, together with a check for the cash to be paid in lieu of fractional shares, if any, may be issued to such transferee of such Company Common Stock, if the Certificate representing such Company Common Stock is presented to the Exchange Agent, accompanied by all documents, in form and substance reasonably satisfactory to Parent and the Exchange Agent, required to evidence and effect such transfer of Company Common Stock and to evidence that any applicable stock transfer taxes have been paid. There shall be no transfers on the transfer records of the Company, at or after the Effective Time, of shares of Company Common Stock which were outstanding immediately prior to the Effective Time.

(f) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared after the Effective Time on Parent Common Stock ("Post-Closing Dividends") shall be paid with respect to any shares of Company Common Stock represented by a Certificate until such Certificate is surrendered for exchange as provided herein. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of Post-Closing Dividends with a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock and not paid, less the amount of any withholding taxes which may be required thereon ("Specified Post-Closing Dividends"), and (ii) at the appropriate payment date, the amount of Post-Closing Dividends with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock, less the amount of any withholding taxes which may be required thereon.

(g) Certificates surrendered for exchange by any Affiliate of the Company shall not be exchanged until Parent has received a written agreement from such person as provided in Section 6.8.

(h) None of Parent, the Company, the Surviving Corporation, the Exchange Agent or any other person shall be liable to any former stockholder of the Company for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

3.4 Lost Certificates. In the event any Certificate shall have been lost, stolen or destroyed, upon the making and delivery of an affidavit (in form and substance satisfactory to the Surviving Corporation) of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Parent Common Stock and cash deliverable in respect thereof pursuant to this Agreement.

3.5 Adjustment of Exchange Ratio. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, the outstanding shares of Parent Common Stock shall have been changed into a different number of shares or a different class as a result of a stock split, reverse stock split, stock dividend, subdivision, reclassification, combination, exchange, recapitalization or other similar transaction, the Exchange Ratio shall be appropriately adjusted.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Company Disclosure Schedule, the Company makes the following representations and warranties to Parent and Merger Sub, as of the date of this Agreement.

4.1 Organization and Standing.

(a) The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (ii) has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted, and (iii) is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify, or be in good standing, would have a Company Material Adverse Effect.

(b) The Company does not have any Subsidiaries and, except as set forth in the Company Disclosure Schedule, does not own any equity securities or securities convertible into or exchangeable or exercisable for equity securities of any other company.

(c) The Company has not (i) filed or had filed against it a petition in bankruptcy or a petition to take advantage of any other insolvency act, (ii) admitted in writing its inability to pay its debts generally, (iii) made an assignment for the benefit of creditors, (iv) consented to the appointment of a receiver for itself or any substantial part of its property, or (v) generally committed any act of insolvency (including the failure to pay obligations as they become due) or bankruptcy.

4.2 Capitalization.

(a) The authorized capital stock of the Company consists of 15,000,000 shares of Company Common Stock. As of April 30, 2000, there were 4,125,259 shares of Company Common Stock issued and outstanding. From such date to the date of this Agreement, no additional shares of capital stock of the Company have been issued, except pursuant to the exercise of Company Options. As of April 30, 2000, Company Options to acquire 338,038 shares of Company Common Stock were outstanding. From such date to the date of this Agreement, no additional Company Options have been granted.

(b) All of the issued and outstanding shares of Company Common Stock have been duly authorized and validly issued and are fully paid, non-assessable and free of preemptive or similar rights. Other than Company Options, there are no existing and outstanding warrants, rights, options, subscriptions, convertible

securities or other agreements or commitments which obligate the Company to issue, transfer or sell any shares of capital stock of the Company.

(c) The Company does not have any outstanding bonds, debentures, notes or other obligations pursuant to which the holders thereof have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter.

4.3 Authorization; Enforceability; No Violation.

(a) The Company has full corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder.

(b) Subject only to the approval of this Agreement and the transactions contemplated hereby by the stockholders of the Company in accordance with the CBCA, all corporate action necessary on the part of the Company for the execution, delivery and performance of this Agreement has been duly taken.

(c) This Agreement constitutes (assuming this Agreement is a valid and legally binding obligation of Parent and Merger Sub) a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights and general principles of equity and public policy considerations (the "Enforceability Exceptions").

(d) The execution, delivery and performance of this Agreement will not result in any conflict with, breach or violation of or default (or an event which, with notice or lapse of time or both, would constitute a default), termination or forfeiture under (i) any terms or provisions of the Articles of Incorporation or the Bylaws of the Company, (ii) any statute, rule, regulation, judicial, governmental, regulatory or administrative decree, order or judgment applicable to the Company, or (iii) any agreement, lease, license, permit or other instrument to which the Company is a party or to which any of its assets are subject, except where any such breach, violation, default, termination or forfeiture would not have or result in a Company Material Adverse Effect.

(e) There is no action, suit, proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company that questions the validity of this Agreement or the right of the Company to enter into this Agreement or to consummate the transactions contemplated hereby.

4.4 No Consents. Except as set forth in the Company Disclosure Schedule, no consent, approval, authorization, order, registration, qualification or filing of or with any court or any regulatory authority or any other governmental or administrative body is required on the Company's part for the consummation by it of the transactions contemplated by this Agreement, except
(i) notices and filings required in order to comply with the Securities Act, the Exchange Act, and state securities or "blue sky" laws, and (ii) the filing of the Articles of Merger with the Colorado Secretary of State.

4.5 Compliance with Laws. Except where the failure to so comply would not have a Company Material Adverse Effect, the Company (i) has all valid and current Permits, and each Permit is in full force and effect, and (ii) has made all filings and registrations and the like, necessary or required by law to conduct its business as currently conducted. The Company has not received any governmental notice of any violation by it of any laws, rules, regulation or orders applicable to its business. Except where the failure to comply would not have a Company Material Adverse Effect, (a) the Company is not in default under any Permits and is in compliance with the same, and (b) the business and operations of the Company are in compliance with all applicable foreign, federal, state, local and county laws, ordinances, regulations, judgments, orders, decrees or rules of any court, arbitrator or governmental, regulatory or administrative agency or entity.

4.6 Company Reports.

(a) The Company has filed all reports, forms, registrations, schedules, statements and other documents required to be filed by it with the Commission since April 30, 1996 (the "Company Reports"). As of their respective dates, the Company Reports complied as to form in all material respects with the

requirements of the Securities Act or the Exchange Act, as the case may be, and the applicable rules and regulations promulgated thereunder. Except to the extent that information contained in any Company Report has been amended, revised or superseded by a Company Report subsequently filed and publicly available prior to the date of this Agreement, none of the Company Reports, when filed, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(b) Each of the balance sheets of the Company included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents in all material respects the financial position of the Company as of its date, and each of the statements of income, retained earnings and cash flows of the Company included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents in all material respects the results of operations and cash flows of the Company for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with GAAP, except as may be noted therein and subject to the fact that unaudited financial statements do not contain full notes thereto. The Company has no liabilities or obligations required to be disclosed in a balance sheet or the notes thereto prepared in accordance with GAAP, except (i) liabilities or obligations reflected on, or reserved against in, a balance sheet of the Company or in the notes thereto, and included in the Company Reports, (ii) liabilities or obligations incurred since the Last Report Date in the ordinary course of business, consistent with past practices, or (iii) liabilities disclosed in a Company Report.

4.7 Absence of Litigation, Orders, Judgments.

(a) There are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened which involve transactions of or otherwise relate to the Company or any of its businesses or properties, at law or in equity, or before any arbitrator of any kind, or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or other instrumentality, domestic or foreign, that are reasonably likely to have a Company Material Adverse Effect.

(b) There are no outstanding orders, writs, injunctions, decrees, judgments, awards, determinations or directions, which involve transactions of or otherwise relate to the Company or any of its businesses or properties, of any court or arbitrator or under any outstanding order, regulation or demand of any federal, state, municipal or other governmental instrumentality, domestic or foreign, that are reasonably likely to have a Company Material Adverse Effect.

4.8 Absence of Certain Changes. Since the Last Report Date, the Company has conducted its business only in the ordinary course of such business, and there has not been (i) any Company Material Adverse Effect or any event which is reasonably likely to result in a Company Material Adverse Effect; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to its capital stock; or (iii) any material change in its accounting principles, practices or methods.

4.9 Taxes. The Company (i) has timely filed all material federal, state and foreign tax returns required to be filed by it for tax years ended prior to the date of this Agreement or requests for extensions have been timely filed and any such request shall have been granted and not expired, and all such returns are complete in all material respects, (ii) has paid or accrued all taxes shown to be due and payable on such returns and (iii) has properly accrued all such taxes for such periods subsequent to the periods covered by such returns.

4.10 Contracts. Each (a) agreement, contract and commitment, whether written or oral, to which the Company is a party or by which it is bound and which is filed as an exhibit to or described in a Company Report and (b) material agreement, contract and commitment entered into by the Company, or by which it became bound, after the Last Report Date (collectively, "Company Contracts"), is a valid and legally binding obligation of the Company and, to the knowledge of the Company, the other parties thereto, enforceable against the Company and, to the knowledge of the Company, the other parties thereto,

in accordance with its terms, subject to the Enforceability Exceptions. The Company is not, and to the knowledge of the Company no other party to any Company Contract is, in material default thereof. The Company has not, and to the knowledge of the Company no other party to any Company Contract has, performed any act or omitted to perform any act which act or omission, with the giving of notice or passage of time or otherwise, will become a material default thereunder.

4.11 Intellectual Property.

(a) The Company owns or has the right to use all Intellectual Property used in the operation of its business as presently conducted, without any interference or conflict with or misappropriation or infringement of the Intellectual Property rights of others, other than any interference, conflict, misappropriation or infringement which is not reasonably likely to result in (i) a material adverse effect on the Company's ability to manufacture or sell any of its material products or any material line of products or otherwise to operate its business, (ii) a material liability of the Company, or (iii) material redesign or other corrective costs to the Company. The Company has taken commercially reasonable action to maintain and protect its rights in the material Intellectual Property that it owns or uses. Each material item of Intellectual Property owned or used by the Company immediately prior to the Effective Time hereunder will be owned or available for use by the Surviving Corporation on substantially identical terms and conditions immediately subsequent to the Effective Time.

(b) Section 4.11 of the Company Disclosure Schedule sets forth all Patents, registered Copyrights, registered Trademarks, joint development agreements, licenses and agreements relating to Intellectual Property owned or used by the Company (other than agreements or licenses for readily available "off-the-shelf" software) that require a consent or waiver to consummate the transactions contemplated by this Agreement.

(c) To its knowledge, the Company has not, within the past four years, interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of others other than any interference, infringement, misappropriation or conflict which did not and is not reasonably likely to result in (i) a material adverse effect on the Company's ability to manufacture or sell any of its material products or any material line of products or otherwise to operate its business, (ii) a material liability of the Company, or (iii) material redesign or other corrective costs to the Company. The Company has not received, and has no knowledge of, any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation, or conflict (including, without limitation, any claim that the Company must license or refrain from using any Intellectual Property rights of any other person), or that the Company's use of the Intellectual Property constitutes unfair competition.

(d) To the knowledge of the Company, no fraud or misrepresentation has been made by the Company or any of its officers, directors or employees or the relevant inventors during the prosecution of any of the Patents of the Company, nor has any fraud or misrepresentation been included in any documentation for or other disclosure to any governmental agency of the Intellectual Property of the Company.

4.12 Employee Benefit Plans.

(a) The Company does not maintain or contribute to or have any actual or, to its knowledge, potential liability with respect to any (i) deferred compensation or bonus or retirement plans or arrangements, (ii) qualified or nonqualified defined contribution or defined benefit plans or arrangements which are employee pension benefit plans (as defined in Section 3(2) of ERISA), or
(iii) employee welfare benefit plans, (as defined in Section 3(1) of ERISA), stock option or stock purchase plans, or material fringe benefit plans or programs whether in writing or oral and whether or not terminated. The Company has never contributed to any multiemployer pension plan (as defined in Section 3(37) of ERISA) or has ever maintained or contributed to any defined benefit plan (as defined in Section 3(35) of ERISA). The Company does not maintain or contribute to any Company Benefit Plan which provides health, accident or life insurance benefits to former employees, their spouses or dependents, other than in accordance with Section 4980B of the Code.

(b) With respect to each Company Benefit Plan that is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code, either (i) the IRS has issued a favorable determination letter that has not been revoked, or (ii) an application for a favorable determination letter was timely submitted to the IRS for which no final action has been taken by the IRS. To the knowledge of the Company, there is no reason that is not susceptible to cure why the qualified status under Section 401(a) of the Code of any Company Benefit Plan would be denied or revoked, whether retroactively or prospectively.

(c) To the knowledge of the Company, no Company Benefit Plan, any fiduciary thereof, nor the Company has incurred any liability or penalty under Section 4975 of the Code or Section 502(i) of ERISA. Except as would not have a Company Material Adverse Effect, each Company Benefit Plan has been maintained and administered in all material respects in compliance with its terms and with ERISA and the Code, to the extent applicable thereto.

(d) To the knowledge of the Company, neither the Company nor any ERISA Affiliate (during the period of its affiliated status) has any existing liability currently due and payable that has not been satisfied in full under Title IV of ERISA or Section 412 of the Code. To the knowledge of the Company, there are no current plans to terminate, whether voluntarily or involuntarily, any materially underfunded pension plan of the Company or any ERISA Affiliate that is subject to Title IV of ERISA.

(e) To the knowledge of the Company, there is no pending or anticipated claim, suit, action or other litigation against or otherwise involving any of the Company Benefit Plans (excluding claims for benefits incurred in the ordinary course of the Company Benefit Plan activities) except those which would either have no Company Material Adverse Effect or those which have been released, dismissed, settled or otherwise satisfied, each of which is set forth in Section 4.12(e) of the Company Disclosure Schedule.

(f) All material contributions required to be made as of the date hereof to the Company Benefit Plans have been made or provided for.

(g) Except as set forth in Schedule 4.12 of the Company Disclosure Schedule, the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit plan, policy, arrangement or agreement or any trust or loan that will or is reasonably likely to result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employee of the Company.

(h) The Company has not entered into any severance agreements or adopted any severance policies applicable to the Company or its employees which would have a Company Material Adverse Effect or which have not either been satisfied or provided for, and each such severance agreement and policy is set forth on
Section 4.12(h) of the Company Disclosure Schedule.

4.13 No Brokers. The Company has not entered into any contract, arrangement or understanding with any person or firm which will or is reasonably likely to result in the obligation of the Company, Parent or Merger Sub to pay any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that the Company has retained Quist Financial, Inc. to render a fairness opinion, the arrangements with which have been disclosed in writing to Parent prior to the date hereof. Other than the foregoing arrangements, the Company is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby.

4.14 Opinion of Financial Advisor. The Company has received the opinion of Quist Financial, Inc. substantially to the effect that, as of the date hereof, the Exchange Ratio is fair to the holders of Company Common Stock from a financial point of view.

4.15 Parent Stock Ownership. The Company does not own any shares of Parent Common Stock or other securities convertible into Parent Common Stock.

4.16 Pooling of Interests; Tax Reorganization. To the knowledge of the Company, having sought and obtained the advice of its accounting advisors, the Company has not taken (or as of the date hereof failed to take) any action which would prevent the accounting for the Merger as a pooling of interests in accordance with APB No. 16, the interpretative releases issued pursuant thereto, and the pronouncements of the Commission. To the knowledge of the Company, the Company has not taken or failed to take any action which would prevent the Merger from constituting a reorganization within the meaning of Section 368 of the Code.

4.17 Environmental Matters.

(a) There has not been any violation of any Environmental Requirements by the Company or, to the knowledge of the Company, any Company Predecessor, nor to the knowledge of the Company has there been any third party claim or demand based upon any Environmental Requirements against the Company or any Company Predecessor, other than violations, claims or demands that have not resulted, and are not reasonably likely to result, in a Company Material Adverse Effect.

(b) The Company has not disposed of, stored or used any Hazardous Materials on, nor has it transported any Hazardous Materials from, any of the Company Real Properties in violation of applicable Environmental Requirements other than a disposal, storage, use or transport which has not resulted in and is not reasonably likely to result in a Company Material Adverse Effect. To the knowledge of the Company, no Company Predecessor has disposed of, stored or used any Hazardous Materials on, nor has any such Company Predecessor transported any Hazardous Materials from, any of the Company Real Properties in violation of applicable Environmental Requirements.

(c) To the knowledge of the Company, none of the following exists at any of the real property currently owned, leased or occupied by the Company or existed at any of the Company Real Properties at the time the Company or the Company Predecessor operated there: (i) underground storage tanks, (ii) asbestos-containing material in any friable or damaged form or condition, (iii) materials or equipment containing polychlorinated biphenyls (PCBs), or (iv) landfills or surface impoundments.

(d) To the knowledge of the Company, none of the Company Real Properties is or has been contaminated by any Hazardous Materials, in a manner that has given or is reasonably likely to give rise to any material liability on the part of the Company to any person, including without limitation any governmental authority, for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to CERCLA, or SWDA, or any other Environmental Requirements, whether federal, state or locally imposed.

4.18 Insurance. The Company maintains insurance with financially sound and reputable insurers, in such amounts, and with such deductibles and covering such risks as is customarily carried by companies engaged in similar businesses and owning similar properties in the localities where the Company is located. The Company Disclosure Schedule contains a list of each insurance policy presently maintained by the Company.

4.19 Proprietary Information and Inventions and Confidentiality Agreement. Each employee, consultant, service provider, officer and director of the Company has executed a proprietary information and inventions and confidentiality agreement, copies of which have been provided to Parent. The Company is not aware that any of such persons is in violation thereof, and the Company will use its best efforts to prevent any such violation.

4.20 Accuracy of Documents and Information. The copies of all instruments, agreements, other documents and written information delivered by the Company to Parent or its counsel are and will be complete and correct in all material respects as of the date of delivery thereof. No representations or warranties made by the Company in this Agreement, nor any document, written information, statement, financial statement, letter, certificate or exhibit prepared and furnished or to be prepared and furnished by the Company or its representatives to Parent pursuant hereto or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or therein not

misleading. There is no presently existing event, fact or condition that would have a Company Material Adverse Effect or that could reasonably be expected to do so, which has not been set forth in this Agreement or the exhibits hereto or otherwise disclosed by the Company to Parent in writing in the Company Disclosure Schedule.

4.21 Title to Properties; Encumbrances. The Company Disclosure Schedule contains a complete and accurate list of all real property owned by the Company and all real property leases to which the Company is a party. Except as listed in the Company Disclosure Schedule, the Company has good and marketable title to its properties, interests in properties and assets, real and personal, used in or necessary for the operation of the business of Company, free and clear of all liens and encumbrances. The equipment of Company used in the operation of its business is, taken as a whole, (i) adequate for the business conducted by Company and (ii) in good operating condition and repair, ordinary wear and tear excepted. To the knowledge of the Company, all real or personal property leases to which Company is a party are valid, binding and enforceable against Company and effective in accordance with their respective terms.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Parent and Merger Sub make the following representations and warranties to the Company as of the date of this Agreement.

5.1 Organization and Standing.

(a) Parent and each of its Significant Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (ii) has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted, and (iii) is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify, or be in good standing, would have a Parent Material Adverse Effect.

(b) Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Merger Sub was organized for purposes of consummating the transactions contemplated by this Agreement. Merger Sub has not engaged in any activity other than as provided in, or contemplated by, this Agreement and, as of the date hereof, has no liabilities of any nature, contingent or otherwise, other than liabilities or obligations that may arise from this Agreement or the transactions contemplated hereby. The authorized capital stock of Merger Sub consists of 1,000 shares of Merger Sub Common Stock, all of which are validly issued, fully paid and nonassessable and are owned by Parent.

(c) Neither Parent nor any of its Subsidiaries (including without limitation Merger Sub) has (i) filed or had filed against it a petition in bankruptcy or a petition to take advantage of any other insolvency act, (ii) admitted in writing its inability to pay its debts generally, (iii) made an assignment for the benefit of creditors, (iv) consented to the appointment of a receiver for itself or any substantial part of its property or (v) generally committed any act of insolvency (including the failure to pay obligations as they become due) or bankruptcy.

5.2 Capitalization.

(a) The authorized capital stock of Parent consists of 40,000,000 shares of Parent Common Stock and 1,000,000 shares of Parent Preferred Stock. As of March 31, 2000, there were 28,487,941 shares of Parent Common Stock, and no shares of Parent Preferred Stock, issued and outstanding. From such date to the date of this Agreement, no additional shares of capital stock of Parent have been issued, except pursuant to the exercise of Parent Options. As of March 31, 2000, Parent Options to acquire 1,933,578 shares of Parent Common Stock were outstanding. From such date to the date of this Agreement, no additional Parent Options have been granted.

(b) All of the issued and outstanding shares of Parent Common Stock have been duly authorized and validly issued and are fully paid, non-assessable and free of preemptive rights. Other than Parent Options, there are no existing and outstanding warrants, rights, options, subscriptions, convertible securities or other agreements or commitments which obligate Parent to issue, transfer or sell any shares of capital stock of Parent or Merger Sub.

(c) All of the shares of Parent Common Stock issuable as consideration in the Merger at the Effective Time, when issued in accordance with the terms and conditions of this Agreement, will be duly authorized, validly issued, fully paid and non-assessable and free of preemptive rights.

5.3 Authorization; Enforceability; No Violation.

(a) Each of Parent and Merger Sub has full corporate power and authority to execute and deliver this Agreement, and to perform its respective obligations hereunder.

(b) All corporate action necessary on the part of Parent and Merger Sub for the execution, delivery and performance of this Agreement has been duly taken. No approval of the stockholders of Parent is required by applicable law or the rules of the Nasdaq National Market in connection with the consummation by Parent or Merger Sub of the transactions contemplated hereby.

(c) This Agreement constitutes (assuming this Agreement is a valid and binding obligation of the Company), a valid and legally binding obligation of each of Parent and Merger Sub, enforceable against Parent and Merger Sub, as applicable, in accordance with its terms, subject to the Enforceability Exceptions.

(d) The execution, delivery and performance of this Agreement will not result in any conflict with, breach or violation of or default (or an event which, with notice or lapse of time or both, would constitute a default), termination or forfeiture under (i) any terms or provisions of the Certificate of Incorporation or the By-laws of Parent or any of its Subsidiaries (including without limitation Merger Sub), (ii) any statute, rule, regulation, judicial, governmental, regulatory or administrative decree, order or judgment applicable to Parent or any of its Subsidiaries (including without limitation Merger Sub), or (iii) any agreement, lease, license, permit or other instrument to which Parent or any of its Subsidiaries (including without limitation Merger Sub) is a party or to which any of its assets are subject, except where any such breach, violation, default, termination or forfeiture would not have or result in a Parent Material Adverse Effect.

(e) There is no action, suit, proceeding or investigation pending or threatened against Parent or any of its Subsidiaries that questions the validity of this Agreement or the right of Parent or Merger Sub to enter into this Agreement or to consummate the transactions contemplated hereby.

5.4 No Consents. No consent, approval, authorization, order, registration, qualification or filing of or with any court or any regulatory authority or any other governmental or administrative body is required on the part of Parent or any of its Subsidiaries for the consummation by Parent and Merger Sub of the transactions contemplated by this Agreement, except (i) notices and filings required in order to comply with the Securities Act, the Exchange Act and state securities or "blue sky" laws, (ii) the filing of the Articles of Merger with the Colorado Secretary of State and (iii) any notices and filings necessary to comply with the rules of the Nasdaq National Market System.

5.5 Parent Reports.

(a) Parent has filed all reports, forms, registrations, schedules, statements and other documents required to be filed by it with the Commission since November 17, 1995 (the "Parent Reports"). As of their respective dates, the Parent Reports complied as to form in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the applicable rules and regulations promulgated thereunder. Except to the extent that information contained in any Parent Report has been amended, revised or superseded by a Parent Report subsequently filed and publicly available prior to the date of this Agreement, none of the Parent Reports, when filed, contained any untrue statement of a

material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(b) Each of the consolidated balance sheets of Parent included in or incorporated by reference into the Parent Reports (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of Parent and its Subsidiaries as of its date, and each of the consolidated statements of income, stockholders' equity and cash flows of Parent included in or incorporated by reference into the Parent Reports (including any related notes and schedules) fairly presents in all material respects the income, stockholders' equity and cash flows, as the case may be, of Parent and its Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which would not be material in amount or effect), in each case in accordance with GAAP, except as may be noted therein and subject to the fact that unaudited financial statements do not contain full notes thereto. Parent and its Subsidiaries do not have any liabilities or obligations required to be disclosed in a consolidated balance sheet or the notes thereto prepared in accordance with GAAP, except (i) liabilities or obligations reflected on, or reserved against in, a consolidated balance sheet of Parent or in the notes thereto, and included in the Parent Reports, (ii) liabilities or obligations incurred since March 31, 2000 in the ordinary course of business, consistent with past practices, or (iii) liabilities disclosed in a Parent Report.

5.6 Pooling of Interests; Tax Reorganization. To the knowledge of Parent, having sought and obtained the advice of its accounting advisors, neither Parent nor any of its Subsidiaries has taken (or as of the date hereof failed to take) any action which would prevent the accounting for the Merger as a pooling of interests in accordance with APB No. 16, the interpretative releases issued pursuant thereto, and the pronouncements of the Commission. To the knowledge of Parent, neither Parent nor any of its Subsidiaries has taken or failed to take any action which would prevent the Merger from constituting a reorganization within the meaning of section 368 of the Code.

5.7 Accuracy of Documents and Information. The copies of all instruments, agreements, other documents and written information delivered by Parent to the Company or its counsel are and will be complete and correct in all material respects as of the date of delivery thereof. No representations or warranties made by Parent in this Agreement, nor any document, written information, statement, financial statement, letter, certificate or exhibit prepared and furnished or to be prepared and furnished by Parent or its representatives to the Company pursuant hereto or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or therein not misleading. There is no presently existing event, fact or condition that would have a Parent Material Adverse Effect or that could reasonably be expected to do so, which has not been set forth in this Agreement or the exhibits hereto.

5.8 Company Options. Parent acknowledges that the vesting of all Company Options will accelerate at the Effective Time.

ARTICLE 6

COVENANTS

6.1 Alternative Proposals.

(a) Upon execution and delivery of this Agreement, the Company, its affiliates and their respective officers, directors, employees, representatives and agents shall immediately cease any existing discussions or negotiations, if any, conducted with any parties heretofore with respect to any acquisition of all or any material portion of the assets of, or any equity interest in, the Company or any business combination with the Company. Notwithstanding the foregoing, the Company may issue Company Common Stock issuable upon exercise of the Company Options outstanding on the date hereof and pursuant to the Stock Purchase Plan, subject to the limitations set forth in Section 3.2(d)(iv).

(b) Prior to the Closing Date, the Company may, solely in response to unsolicited requests therefor, furnish non-public information regarding itself to any corporation, partnership, person or other entity or group in respect of, and may participate in discussions and negotiate with such entity or group concerning, a business combination, merger, sale of material assets, sale of shares of capital stock or similar transaction involving the Company (a "Transaction"), provided that (i) such entity or group has submitted a written proposal to the Board of Directors of the Company relating to any such Transaction (an "Alternative Proposal"), (ii) the entity or group enters into confidentiality agreements with the Company with respect to such non-public information, and (iii) the Company Board, by a majority vote, determines in its good faith judgment, based as to legal matters on the written advice of legal counsel, that failing to take such action would constitute a breach of the Company Board's fiduciary duty. The Company Board shall provide a copy of any such written proposal to Parent and Merger Sub immediately after receipt thereof, unless prohibited by the terms of such proposal.

(c) Neither the Company nor any of its affiliates, nor any of such Persons' respective officers, directors, employees, representatives or agents, shall, directly or indirectly (i) encourage, solicit, participate in or initiate discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group (other than Parent and Merger Sub, any affiliate or associate of Parent and Merger Sub or any designees of Parent and Merger Sub) concerning any Transaction, or (ii) authorize, propose or announce an intention to authorize or propose any Transaction (other than the Merger), unless and until the Company has received an Alternative Proposal in writing and the Company Board, by majority vote, has determined in its good faith judgment, based as to legal matters on the written advice of legal counsel, that failing to take such action would constitute a breach of the Company Board's fiduciary duty; provided, however, that nothing herein shall prevent the Company Board from taking, and disclosing to the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to any tender offers; provided, further, that the Company Board shall not recommend that the stockholders of the Company tender their shares in connection with any such tender offer unless the Company Board by a majority vote determines in its good faith judgment, based as to legal matters on the written advice of legal counsel, that failing to take such action would constitute a breach of the Company Board's fiduciary duty.

(d) Nothing in this Section 6.1 shall (i) permit the Company to terminate this Agreement (except as specifically provided in Article 8 hereof), (ii) permit the Company to enter into any agreement with respect to a Transaction during the term of this Agreement (it being agreed that during the term of this Agreement, the Company shall not enter into any agreement with any person that provides for, or in any way facilitates, a Transaction, other than a confidentiality agreement in customary form), or (iii) except as specifically provided in Article 8, affect any other obligation of the Company under this Agreement.

6.2 Interim Operations of the Company.

(a) Prior to the Effective Time, except as set forth in Section 6.2 of the Company Disclosure Schedule or as contemplated by any other provision of this Agreement, unless Parent has consented in writing thereto, the Company:

(i) shall conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted;

(ii) shall use its reasonable efforts to preserve intact its business organizations and goodwill, keep available the services of its officers and employees and maintain satisfactory relationships with those persons having business relationships with them;

(iii) shall not amend its Articles of Incorporation or Bylaws;

(iv) shall promptly notify Parent of (A) any material adverse change in its condition (financial or otherwise), business, properties, assets, liabilities or the normal course of its business or of its properties, (B) any material litigation or, to the extent known to the Company, any material governmental complaints, investigations or hearings against or otherwise involving the Company (or

communications indicating that the same may be contemplated), or (C) the breach of any representation or warranty of the Company contained herein;

(v) shall promptly deliver to Parent true and correct copies of any report, statement or schedule filed by the Company with the Commission subsequent to the date of this Agreement;

(vi) shall not enter into or amend any employment, severance or similar agreements or arrangements with any of its directors or executive officers, except (A) in the ordinary course of business consistent with past practice, or (B) as otherwise provided in this Agreement;

(vii) shall not authorize, propose or announce an intention to authorize or propose, or enter into negotiations or an agreement with respect to any acquisition of assets or securities, any disposition of assets or securities or any release or relinquishment of any contract rights, which acquisitions, dispositions, releases or relinquishments would be outside the ordinary course of business and would involve aggregate consideration in excess of $100,000;

(viii) shall not issue any shares of capital stock or securities, except as permitted by the last sentence of Section 6.1(a), or effect any stock split or otherwise change its capitalization;

(ix) shall not grant, confer or award any options, appreciation rights, warrants, conversion rights, restricted stock, stock units, performance shares or other rights, not existing on the date hereof, with respect to any shares of its capital stock or other securities of the Company;

(x) shall not take any actions which would, or would be reasonably likely to, prevent the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code;

(xi) shall not take any actions which would, or would be reasonably likely to, prevent the Merger from qualifying as a transaction to be accounted for as a pooling of interests in accordance with APB No. 16;

(xii) except as required by applicable law (in which case prompt notice shall be given by the Company to Parent), shall not amend in any material respect the terms of the Company Benefit Plans, including without limitation any employment, severance or similar agreements or arrangements in existence on the date hereof, or adopt any new employee benefit plans, programs or arrangements or any employment, severance or similar agreements or arrangements;

(xiii) shall not incur, create, assume or otherwise become liable for borrowed money or assume, guarantee, endorse or otherwise become responsible or liable for the obligations of any other individual, corporation or other entity, except in the ordinary course of business;

(xiv) shall not make any loans or advances to any other Person, except in the ordinary course of business;

(xv) shall not make any material tax election other than in the ordinary course, or without the consent of Parent, which shall not unreasonably be withheld, settle or compromise any material tax liability;

(xvi) shall not declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or other ownership interests;

(xvii) shall not directly or indirectly redeem, purchase or otherwise acquire any shares of its capital stock, or make any commitment for any such action; provided that cashless exercises of stock options shall not be in violation of this clause (xvii); and

(xviii) shall not agree, in writing or otherwise, to take any of the foregoing actions or take any action which would make any representation or warranty in Article 4 hereof untrue or incorrect in any material respect as of the Closing Date.

6.3 Meeting of Stockholders. The Company will take all action necessary in accordance with applicable law and its Articles of Incorporation and Bylaws to convene a Stockholders' Meeting as

promptly as practicable to consider and vote upon the approval of this Agreement and the transactions contemplated hereby. Unless the Company Board by a majority vote determines in its good faith judgment, based as to legal matters on the written advice of legal counsel, that taking such action would constitute a breach of the Company Board's fiduciary duty, the Company Board shall recommend such approval, and the Company shall take all lawful action to solicit such approval, including, without limitation, timely mailing the Proxy Statement/Prospectus.

6.4 Filings; Other Actions. Subject to the terms and conditions herein provided, the Company and Parent shall: (a) use all reasonable efforts to cooperate with one another in (i) determining which filings are required to be made prior to the Effective Time with, and which other consents, approvals, permits or authorizations are required to be obtained prior to the Effective Time from, governmental or regulatory authorities of the United States, the several states and foreign jurisdictions in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and (ii) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; and (b) use all reasonable efforts to take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate to consummate and make effective the transactions contemplated by this Agreement.

6.5 Inspection of Records. From the date hereof to the Effective Time, each of the Company and Parent shall (a) allow all designated officers, attorneys, accountants and other representatives of the other party reasonable access at all reasonable times to its respective offices, records and files, correspondence, audits and properties, as well as to all information relating to its respective commitments, contracts, titles and financial position, or otherwise pertaining to its respective business and affairs, (b) furnish to the other party and the other party's counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such persons may reasonably request and (c) instruct its respective employees, counsel and financial advisors to cooperate with the other party in the other party's investigation of its respective business.

6.6 Publicity. The initial press release relating to this Agreement shall be a joint press release and thereafter, until the Effective Time, the Company and Parent shall, subject to their respective legal obligations (including requirements of stock exchanges and similar self regulatory bodies), consult with each other, and use reasonable efforts to agree upon the text of any press release, before issuing any such press release or otherwise making public statements with respect to the transactions contemplated hereby and in making any filings with any federal or state governmental or regulatory agency or with any national securities exchange with respect thereto.

6.7 Proxy Statement/Prospectus.

(a) Parent and the Company shall cooperate and promptly prepare and Parent shall file with the Commission as soon as practicable a Registration Statement on Form S-4 under the Securities Act (the "Registration Statement"), with respect to the Parent Common Stock issuable in the Merger, which Registration Statement shall contain the proxy statement with respect to the meeting of the stockholders of the Company in connection with the Merger (the "Proxy Statement/Prospectus").

(b) The parties will cause the Proxy Statement/Prospectus, and Parent will cause the Registration Statement, to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. Parent shall use all reasonable efforts, and the Company shall cooperate with Parent, to have the Registration Statement declared effective by the Commission as promptly as practicable.

(c) The information supplied by the Company for inclusion or incorporation by reference in the Proxy Statement/Prospectus and the Registration Statement shall not (i) at the time the Registration Statement is declared effective, (ii) at the time the Proxy Statement/Prospectus (or any amendment thereof or supplement thereto) is first mailed to holders of Company Common Stock, (iii) at the time of the Stockholders' Meeting, or (iv) at the Effective Time, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein,

in the light of the circumstances under which they are made, not misleading, and shall comply as to form and substance with the requirements of the Securities Act and the Exchange Act.

(d) The information supplied by Parent for inclusion or incorporation by reference in the Proxy Statement/ Prospectus and the Registration Statement shall not (i) at the time the Registration Statement is declared effective, (ii) at the time the Proxy Statement/Prospectus (or any amendment thereof or supplement thereto) is first mailed to holders of Company Common Stock, (iii) at the time of the Stockholders' Meeting, or (iv) at the Effective Time, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading, and shall comply as to form and substance with the requirements of the Securities Act and the Exchange Act.

(e) No amendment or supplement to the Proxy Statement/Prospectus will be made by the Company or Parent without the approval of the other (except to the extent such amendment or supplement incorporates by reference other filings of the Company or Parent). Parent will advise the Company, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or any request by the Commission for amendment of the Proxy Statement/Prospectus or the Registration Statement or comments thereon and responses thereto or requests by the Commission for additional information.

6.8 Affiliate Letters. Promptly after the date hereof, the Company shall deliver to Parent a list of names and addresses of those persons who were, in the Company's reasonable judgment, as of the record date for the Stockholders' Meeting, Affiliates of the Company. The Company shall provide Parent such information and documents as Parent shall reasonably request with respect to such Affiliates. The Company shall use all reasonable efforts to deliver or cause to be delivered to Parent, prior to the Closing Date, from each of the Affiliates of the Company identified in the foregoing list, an affiliate letter in form and substance reasonably acceptable to Parent in order to satisfy the requirements of Rule 145 of the Securities Act and APB No. 16 (collectively, "Affiliate Letters"). Parent shall be entitled to place legends as specified in such Affiliate Letters on the certificates evidencing any Parent Common Stock to be received by such Affiliates pursuant to the terms of this Agreement, and to issue appropriate stop transfer instructions to the transfer agent for the Parent Common Stock, consistent with the terms of such Affiliate Letters. Subject to the receipt by Parent of satisfactory representations and warranties from the relevant holders and/or brokers, such legends shall be removed and such transfer instructions terminated at the earliest possible date under all applicable laws and regulations.

6.9 Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses except as expressly provided herein and except that the filing fee in connection with the filing of the Registration Statement or Proxy Statement/Prospectus with the Commission and the expenses incurred in connection with printing and mailing the Registration Statement and the Proxy Statement/Prospectus shall be shared equally by the Company and Parent.

6.10 Employee Benefits.

(a) From and after the Effective Time, Parent shall provide or cause the Surviving Corporation to provide to persons who are employees of the Company at the Effective Time and who will continue as employees of the Surviving Corporation after the Effective Time (the "Company Personnel") the same employee compensation and benefit plans, programs and arrangements as are provided to other employees of Parent employed in similar capacities to such Company Personnel; provided, however, that subject to the foregoing, Parent shall not be precluded from amending or terminating any particular plan, program or arrangement, or from substituting any such plans, programs or arrangements with plans, programs or arrangements applicable and available to other employees of Parent and its Subsidiaries.

(b) Following the Effective Time, Parent shall cause the benefit plans covering the Company Personnel following the Effective Time (the "Future Benefit Plans") to continue to recognize the service credit of the Company Personnel accrued as of the Effective Time under the Company Benefit Plans for purposes of participation, eligibility and vesting of benefits, to the extent permissible by the terms of such Future Benefit Plans.

6.11 Agreements. Between the date hereof and the Closing Date, the Company shall not enter into any agreement which the Company knows or has reason to know is reasonably likely to cause any major customer of the Company to terminate any material contracts, agreements or other obligations that exist between that customer on the one hand, and the Company (or the Company following the Merger), on the other hand and the Company shall take all reasonable action appropriate to an effort to avoid such termination.

6.12 Takeover Statute. If any "fair price," "moratorium," "control share acquisition" or other form of anti-takeover statute or regulation shall become applicable to the transactions contemplated hereby, the Company and the Company Board shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby; provided, however, that the Company and the Company Board shall not be required to grant such approvals or take such actions if the Company Board, by majority vote, determines in its good faith judgment, based as to legal matters on the written advice of legal counsel, that granting such approvals or taking such actions would constitute a breach of the Company's Board's fiduciary duties.

6.13 Interim Operations of Parent.

(a) Prior to the Effective Time, except as contemplated by any other provision of this Agreement, unless the Company has consented in writing thereto, Parent:

(i) shall promptly notify the Company of (A) any material adverse change in its condition (financial or otherwise), business, properties, assets, liabilities or the normal course of its business or of its properties, (B) any material litigation or, to the extent known to Parent, any material governmental complaints, investigations or hearings against or otherwise involving Parent (or communications indicating that the same may be contemplated), or (C) the breach of any representation or warranty of Parent contained herein;

(ii) shall promptly deliver to the Company true and correct copies of any report, statement or schedule filed by Parent with the Commission subsequent to the date of this Agreement;

(iii) shall not take any actions which would, or would be reasonably likely to, prevent the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code;

(iv) shall not take any actions which would, or would be reasonably likely to, prevent the Merger from qualifying as a transaction to be accounted for as a pooling of interests in accordance with APB No. 16; and

(b) shall not agree, in writing or otherwise, to take any of the foregoing actions or take any action which would make any representation or warranty in Article 5 hereof untrue or incorrect in any material respect as of the Closing Date.

6.14 Directors' and Officers' Indemnification and Insurance.

(a) The Articles of Incorporation and By-laws of the Surviving Corporation shall contain the respective provisions that are set forth, as of the date of this Agreement, in the Articles of Incorporation and the By-laws of the Company dealing with indemnification of officers, directors and employees of the Company and other persons specified therein, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would affect

adversely the rights thereunder with respect to actions or events occurring prior to the Effective Time of individuals who were entitled to such indemnification prior to the Effective Time.

(b) The Surviving Corporation shall maintain in effect for at least six years from the Effective Time directors' and officers' liability insurance with an insurance company rated at least "A" by A.M. Best Company, covering the persons who, as of the date of this Agreement, are covered by the Company's directors' and officers' liability insurance policy (the "Current Policy"). The coverage provided by the directors' and officers' liability insurance maintained by the Surviving Corporation shall be substantially similar to the coverage provided by the Current Policy.

(c) Parent shall guarantee the obligations of the Surviving Corporation provided by this Section 6.14.

(d) This Section 6.14 shall survive the consummation of the Merger, is intended to benefit the Company, the Surviving Corporation and each indemnified party, and shall be enforceable by the indemnified parties.

6.15 Rule 145 Compliance. For so long as resales of shares of Parent Common Stock issued pursuant to the Merger are subject to the resale restrictions set forth in Rule 145 under the Securities Act, Parent will use reasonable efforts to comply with Rule 144(c)(1) under the Securities Act.

6.16 Tax Matters. Each party represents and warrants to the other parties that the statements in the proposed form of certificate of such party (each, a "Party's Certificate" and, together, the "Parties' Certificates") to be delivered by such party in connection with the opinions to be delivered pursuant to Article 7 are true and correct as of the date hereof, assuming for purposes of this sentence that the Merger had been consummated on the date hereof. Each party agrees that, at and prior to the Effective Time, it will not take any action that would cause any of the statements in such party's Party's Certificate to be false as of the Effective Time. Unless (and then only to the extent) otherwise required by a "determination" (as defined in Section 1313(a)(1) of the Code) or by a similar applicable provision of state or local income or franchise tax law, each party agrees (i) to report the Merger on all tax returns and other filings as a tax-free reorganization within the meaning of
Section 368(a) of the Code and (ii) not to take any position in any audit, administrative proceeding or litigation that is inconsistent with the characterization of the Merger as such a reorganization.

ARTICLE 7

CONDITIONS TO CLOSING

7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligation of each party to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a) This Agreement and the transactions contemplated hereby shall have been approved by the requisite vote of the holders of the issued and outstanding shares of capital stock of the Company.

(b) None of the parties hereto shall be subject to any order or injunction of a court of competent jurisdiction in the United States which prohibits the consummation of the transactions contemplated by this Agreement. In the event any such order or injunction shall have been issued, each party agrees to use its best efforts to have any such injunction lifted.

(c) The Registration Statement shall have become effective and shall be effective at the Effective Time, and no stop order suspending effectiveness of the Registration Statement shall have been issued, no action, suit, proceeding or investigation by the Commission to suspend the effectiveness thereof shall have been initiated and be continuing, and all material approvals under state securities laws relating to the issuance or trading of the Parent Common Stock to be issued to the Company stockholders in connection with the Merger shall have been received.

(d) All consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board or other regulatory body required in connection with the execution,

delivery and performance of this Agreement shall have been obtained or made, except for the filing of the Articles of Merger and any other documents required to be filed after the Effective Time and except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration would not have a material adverse effect on the business of Parent (and its Subsidiaries) and the Company, taken as a whole, following the Effective Time.

7.2 Conditions to Obligation of the Company to Effect the Merger. The obligation of the Company to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a) Parent shall have performed in all material respects its agreements contained in this Agreement required to be performed on or prior to the Closing Date, the representations and warranties of Parent and Merger Sub contained in this Agreement and in any document delivered in connection herewith shall be true and correct in all material respects as of the Closing Date, except that those representations and warranties which address matters only as of a particular date shall have been true and correct as of such date, and the Company shall have received a certificate of an executive officer of Parent, dated the Closing Date, certifying to such effect.

(b) The Company shall have received, prior to the effective date of the Registration Statement, the opinion of Chrisman, Bynum & Johnson, P.C., counsel to the Company, to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of section 368(a) of the Code, and that the Company, Parent and Merger Sub each will be a party to that reorganization within the meaning of section 368(b) of the Code, and such firm shall have reconfirmed such opinion as of the Closing Date. In rendering such opinion, Chrisman, Bynum & Johnson, P.C. may require and rely upon such certificates of the Company, Parent and Merger Sub and/or their respective officers or principal stockholders as are customary for such opinions.

(c) From the date of this Agreement through the Effective Time, there shall not have occurred a Parent Material Adverse Effect.

7.3 Conditions to Obligation of Parent and Merger Sub to Effect the Merger. The obligations of Parent and Merger Sub to effect the Merger shall be subject to the fulfillment at or prior to the Closing Date of the following conditions:

(a) The Company shall have performed in all material respects its agreements contained in this Agreement required to be performed on or prior to the Closing Date, the representations and warranties of the Company contained in this Agreement and in any document delivered in connection herewith shall be true and correct in all material respects as of the Closing Date, except that those representations and warranties which address matters only as of a particular date shall have been true and correct as of such date, and Parent shall have received a certificate of an executive officer of the Company, dated the Closing Date, certifying to such effect.

(b) Parent shall have received a letter of Arthur Andersen LLC, its independent public accountants, dated as of the Closing Date, in form and substance reasonably satisfactory to Parent, stating that such accountants concur with management's conclusion that the Merger will qualify as a transaction to be accounted for in accordance with the pooling of interests method of accounting under the requirements of APB No. 16.

(c) Parent shall have received, prior to the effective date of the Registration Statement, the opinion of Thelen Reid & Priest LLP, counsel to Parent and Merger Sub, to the effect that the Merger will be treated for federal income tax purposes as a reorganization within the meaning of section 368(a) of the Code, and that the Company, Parent and Merger Sub each will be a party to that reorganization within the meaning of section 368(b) of the Code, and such firm shall have reconfirmed such opinion as of the Closing Date. In rendering such opinion, Thelen Reid & Priest LLP may require and rely upon such certificates of the Company, Parent and Merger Sub and/or their respective officers or principal stockholders as are customary for such opinions.

(d) The Stock Purchase Plan shall have been terminated and any stock and/or cash distributed thereunder as set forth in Section 3.2(d)(iv).

(e) From the date of this Agreement through the Effective Time, there shall not have occurred a Company Material Adverse Effect.

ARTICLE 8

TERMINATION

8.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the approval of this Agreement by the stockholders of the Company, by the mutual consent of Parent and the Company.

8.2 Termination by Either Parent or the Company. This Agreement may be terminated and the Merger may be abandoned by action of the Board of Directors of either Parent or the Company if (a) the Merger shall not have been consummated by December 31, 2000, or (b) the approval of the Company's stockholders required by Section 7.1(a) shall not have been obtained at the Stockholders' Meeting or any adjournment thereof, or (c) a United States federal or state court of competent jurisdiction or United States federal or state governmental, regulatory or administrative agency or commission shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and non-appealable; provided, that the party seeking to terminate this Agreement pursuant to this paragraph (c) shall have used all reasonable efforts to remove such injunction, order or decree; and provided, in the case of a termination pursuant to paragraph (a) of this Section 8.2, that the terminating party shall not have breached in any material respect its obligations under this Agreement in any manner that shall have proximately contributed to the failure to consummate the Merger by December 31, 2000.

8.3 Termination by the Company. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, before or after the adoption and approval by the stockholders of the Company referred to in paragraph (a) of Section 7.1, by action of the Company Board, if (a) the Company Board, by majority vote, determines in its good faith judgment, based as to legal matters on the written advice of legal counsel, that terminating this Agreement and abandoning the Merger is required by the Company Board's fiduciary duties, or (b) there has been a breach by Parent or Merger Sub of any representation or warranty contained in this Agreement that has had or is reasonably likely to have a Parent Material Adverse Effect, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by the Company to Parent, or (c) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of Parent, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by the Company to Parent.

8.4 Termination by Parent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, by action of the Board of Directors of Parent, if (a) the Company Board shall have (i) withdrawn or modified in a manner materially adverse to Parent its approval or recommendation of this Agreement or the Merger or (ii) recommended an Alternative Proposal to the Company stockholders, or (b) there has been a breach by the Company of any representation or warranty contained in this Agreement that has had or is reasonably likely to have a Company Material Adverse Effect, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Parent to the Company, or (c) there has been a material breach of any of the covenants or agreements set forth in this Agreement on the part of the Company, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Parent to the Company.

8.5 Effect of Termination and Abandonment.

(a) If this Agreement is terminated by the Company or Parent pursuant to
Section 8.2(b), 8.3(a) or 8.4(a), and (x) prior to such termination, a proposal with respect to a Transaction shall have been made, and (y) within two (2) years after such termination, either the Company enters into any agreement with respect to a Transaction whereby any third party shall acquire beneficial ownership of more than 50% of the Company's (i) outstanding shares of voting stock or (ii) assets (measured by fair market value), then the Company shall pay Parent, by wire transfer of immediately available funds, a fee (the "Termination Fee") of Five Million Dollars ($5,000,000) within fifteen (15) business days after the execution of such agreement or the consummation of such acquisition (whichever shall first occur).

(b) The Company acknowledges that the agreements contained in this Section 8.5 are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Parent and Merger Sub would not enter into this Agreement; accordingly, if the Company fails to promptly pay the Termination Fee when due and, in order to obtain such payment, Parent or Merger Sub commences a suit which results in a judgment against the Company, the Company shall reimburse Parent for its costs and expenses (including attorneys' fees) incurred in connection with such suit, together with interest on the amount of the Termination Fee at the prime rate, as then quoted in The Wall Street Journal, from the date the Termination Fee was required to be paid.

(c) In the event of termination of this Agreement and the abandonment of the Merger pursuant to this Article 8, all obligations of the parties hereto shall terminate, except (i) the obligations of the parties set forth in this
Section 8.5 and Section 6.9, (ii) the provisions of Sections 9.3, 9.6, 9.9 and 9.13, and (iii) the Confidentiality Agreement previously executed between the Company and Parent (the "Confidentiality Agreement"). Moreover, in the event of termination of this Agreement pursuant to Section 8.3 or 8.4, nothing herein shall prejudice the ability of the nonbreaching party from seeking damages, after taking into account payment of the Termination Fee, if such fee has been paid, from any other party for any willful breach of this Agreement, including without limitation, attorneys' fees and the right to pursue any remedy at law or in equity.

8.6 Extension; Waiver. At any time prior to the Effective Time, any party hereto, by action taken by its Board of Directors, may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

ARTICLE 9

GENERAL PROVISIONS

9.1 Nonsurvival of Representations, Warranties and Covenants. The representations, warranties and covenants in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Merger; provided, however, that the covenants contained in Article 3, Section 6.9, Section 6.14 and this Article 9 shall survive the Merger, but not beyond the extent, if any, specified therein.

9.2 Notices. Any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission and by courier service (with proof of service), hand delivery or certified or registered mail (return receipt requested and first-class postage prepaid), addressed as follows:

If to Parent or Merger Sub:

Advanced Energy Industries, Inc.
1625 Sharp Point Drive
Fort Collins, Colorado 80525

Attn.: Richard P. Beck
Facsimile: (970) 407-5300

with copies to:

Thelen Reid & Priest LLP
333 West San Carlos Street, 17th Floor San Jose, CA 95110-2701
Attn.: Jay L. Margulies, Esq.
Facsimile: (408) 287-8040

If to the Company:

Engineering Measurements Company
600 Diagonal Highway
Longmont, Colorado 80501

Attn.: Charles E. Miller
Facsimile: (303) 678-7152

with copies to:

Chrisman, Bynum & Johnson, P.C. 1900 Fifteenth Street
Boulder, CO 80302
Attn: G. James Williams, Jr.
Facsimile: (303) 449-5426

or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed.

9.3 Assignment; Binding Effect. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary (except as provided in Section 6.14), nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

9.4 Entire Agreement. This Agreement, the Exhibits, the Company Disclosure Schedule, the Confidentiality Agreement and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto.

9.5 Amendment. This Agreement may be amended by the parties hereto, by action taken by their respective Boards of Directors, at any time before or after approval of the Merger by the stockholders of the Company, but after any such stockholder approval, no amendment shall be made which by law

requires the further approval of stockholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.

9.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado without regard to its rules of conflict of laws.

9.7 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto.

9.8 Headings. Headings of the Articles and Sections of this Agreement are for the convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever.

9.9 Interpretation. In this Agreement, unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, and words denoting any gender shall include all genders and words denoting natural persons shall include corporations, partnerships and other business entities and vice versa.

9.10 Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder.

9.11 Incorporation of Exhibits. The Company Disclosure Schedule and all Exhibits attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein.

9.12 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

9.13 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any Colorado court, this being in addition to any other remedy to which they are entitled at law or in equity.

9.14 Knowledge. For purposes of this Agreement, (a) "to the knowledge of the Company" or words of like import shall mean to the knowledge of Charles Miller or William Ringer, and (b) "to the knowledge of Parent" or words of like import shall mean to the knowledge of Douglas Schatz, Richard Beck or Joseph Monkowski.

IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year set forth in the Preamble hereto.

COMPANY: ENGINEERING MEASUREMENTS COMPANY

By:      /s/ CHARLES E. MILLER
------------------------------------------

Title: President

MERGER SUB: FLOW ACQUISITION CORPORATION

By:      /s/ DOUGLAS S. SCHATZ
------------------------------------------

Title: Chairman of the Board

PARENT: ADVANCED ENERGY INDUSTRIES, INC.

By:      /s/ DOUGLAS S. SCHATZ
------------------------------------------

Title: Chairman of the Board and
       Chief Executive Officer

APPENDIX B

OPINION OF QUIST FINANCIAL, INC.

[QUIST FINANCIAL, INC. LETTERHEAD]

July 6, 2000

The Board of Directors
Engineering Measurements Company
600 Diagonal Highway
Longmont, CO 80501

Gentlemen:

Quist Financial, Inc. ("Quist") was retained by the Board of Directors of Engineering Measurements Company ("Company"), a Colorado corporation, to express an opinion as to the fairness from a financial point of view to the Company's shareholders of the Exchange Ratio (as defined below) contemplated by the draft Agreement and Plan of Reorganization (the "Agreement") to be entered into between the Company and Advanced Energy Industries ("AEI"), a Delaware corporation.

As more specifically set forth in the Agreement, and subject to the terms and conditions thereof, the Company and AEI propose to enter into a business combination (the "Business Combination") in which all of the Company's outstanding shares of common stock and options would be exchanged for shares of AEI common stock. The Exchange Ratio is the number determined by dividing (i) 900,000 by (ii) the total number of (A) outstanding shares of Company common stock plus (B) the outstanding Company options.

Quist's principal business is the valuation of businesses and business interests, including both privately held and publicly traded companies, for all purposes, including mergers and acquisitions, divestitures, gift and estate taxes, Employee Stock Ownership Plans, corporate and partnership recapitalizations, dissolutions, and other purposes. Quist has had no prior dealings with EMCO, its Board of Directors, or officers.

In arriving at our opinion, we reviewed a draft of the Agreement, and held discussions with senior officers, directors and other representatives and advisors of the Company and the Chief Financial Officer of AEI concerning the business, operations and prospects of the Company and AEI. We examined publicly available business and financial information relating to the Company and AEI as well as financial forecasts and other information and data for the Company and AEI that were provided to or otherwise discussed with us by the management of the Company, including strategic implications and operational benefits anticipated to result from the Business Combination as projected by the managements of the Company and AEI. We reviewed the financial terms of the Business Combination as set forth in the Agreement in relation to, among other things: current and historical market prices and trading volumes of Company and AEI capital stock; the historical and projected earnings and other operating data of the Company; projections regarding AEI in analysts' reports, and the historical and projected capitalization and financial condition of the Company. We considered, to the extent publicly available, the financial terms of certain other similar transactions recently effected that we considered relevant in evaluation the Exchange Ratio and analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations we considered relevant in evaluating those of the Company and AEI. We considered and reviewed earnings projections published by I/B/E/S International, Inc. for AEI and the Company. We also evaluated the pro forma financial impact of the Company's projections upon I/B/E/S International, Inc.'s projected earnings for AEI's. In addition, we conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as we deemed appropriate in arriving at our opinion.

In rendering our opinion, we relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available, furnished to us, or discussed with us. We relied upon the assurances of the managements of the Company and AEI that they are not aware of any facts that would make any of the information provided to us inaccurate or misleading. We have further relied upon the assurances of the Company's and AEI's managements that the information provided has been prepared on a reasonable basis in accordance with industry practice, and, with respect to financial planning data, reflects the best currently available estimates and judgment of the Company's management and that they are not aware of any information or facts that would make the information provided to us incomplete or misleading.

We assumed, with your consent, that the Business Combination will be treated as a tax-free reorganization for U.S. federal income tax purposes and that it qualifies, and will be accounted for, as a "pooling of interests" in accordance with generally accepted accounting principles. We have not made or been provided with an independent evaluation or appraisal of the assets or liabilities of the Company or AEI. Without limiting the generality of the foregoing, we have undertaken no independent analysis of any pending or threatened litigation, possible unasserted claims or other contingent liabilities, to which the Company or AEI, or any of their respective affiliates is a party or may be subject; and our opinion makes no assumption concerning, and therefore does not consider, the possible assertions of claims, outcomes or damages arising out of any such matters. We have also assumed that all the necessary regulatory approvals and consents required for the transaction will be obtained in a manner that will not have adverse effects on the Company or AEI or change the Exchange Ratio. We have assumed that neither the Company nor AEI are party to any material pending transactions, including external financing, recapitalizations, acquisitions or merger discussions, other than the Business Combination or in the ordinary course of business. You have advised us, and we have assumed, that the final terms of the Agreement will not vary materially from those set forth in the draft reviewed by us. We have further assumed that the Business Combination will be consummated in accordance with the terms of the Agreement without waiver of any of the conditions precedent to the Business Combination contained in the Agreement.

We were not requested to consider, and our opinion does not address, the relative merits of the Business Combination as compared to any alternative business strategies that might exist for the Company. Our opinion is limited to the fairness, from a financial point of view, of the Exchange Ratio in the Business Combination and does not address the Company's underlying business decision to effect the Business Combination. We are not expressing any opinion as to the likely trading range of AEI's common stock subsequent to the Business Combination. Our opinion necessarily is based upon information available to us and financial, stock market and other conditions and circumstances existing and disclosed to us as of the date hereof and we assume no responsibility to update or revise our opinion based upon circumstances or events occurring after the date hereof. Events occurring after the date hereof could materially affect assumptions used in preparing this opinion.

Our opinion expressed herein is provided for the information of the Board of Directors of the Company in its evaluation of the Business Combination and our opinion is not intended to be and does not constitute a recommendation of the Business Combination to the Company or a recommendation to any stockholder as to how such stockholder should vote on any matters relating to the Business Combination.

Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to the Company's shareholders.

QUIST FINANCIAL, INC.

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

FOR THE FISCAL YEAR ENDED: APRIL 30, 2000

OR

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

                COLORADO                                                 84-0572936
    (STATE OR OTHER JURISDICTION OF                             (I.R.S. IDENTIFICATION NO.)
     INCORPORATION OR ORGANIZATION)
600 DIAGONAL HIGHWAY, LONGMONT, COLORADO                                   80501
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                                 (ZIP CODE)

ISSUER'S TELEPHONE NUMBER: (303) 651-0550

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:

COMMON STOCK PAR VALUE $.01
(TITLE OF CLASS)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]

Issuer's revenues for its most recent fiscal year: $9,234,052.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of July 12, 2000 was $41,525,284.

The number of shares outstanding of Registrant's $.01 par value common stock, as of July 12, 2000 was 4,205,092.

No documents are incorporated by reference into the text of this report.

Transitional Small Business Disclosure Format: Yes [ ] No [X]

PART I

ITEM 1. BUSINESS

GENERAL

Engineering Measurements Company ("EMCO" or the "Company") is a Colorado corporation that was incorporated on January 4, 1967. The Company's executive offices and factory are located at 600 Diagonal Highway, Longmont, Colorado 80501. Its telephone number is (303) 651-0550. The Company has a website at www.emcoflow.com.

The Company designs, manufactures, and markets electronic and electro-mechanical instruments (flowmeters) for measuring the flow of liquids, steam and gases. The Company operates within the flow measurement devices and systems industry segment (S.I.C. Code No. 3823). The Company generates its revenues from the sales of flowmeter hardware in both foreign and domestic markets. Revenue is also generated through contract electronic printed circuit board assembly. With its 33 years experience in the field of flow measurement, EMCO is able to provide its customers with a family of products capable of measuring almost any kind of fluid or gas flow. While the Company has historically been strongest in energy utility flow measurement (particularly steam metering), it has products capable of measuring most types of process fluids, as well as fuel oils and natural gas. Primarily utilizing a network of distributors and commissioned sales representatives as well as a direct sales force, the Company markets flowmeters worldwide.

The Company has a marketing agreement with Danfoss A/S, a flowmeter company in Denmark which distributes products in different markets, which was renewed October 6, 1998, and runs for a period of 30 months with a six month renegotiation period. Terms of the agreement with Danfoss A/S allow the Company to be the non-exclusive distributor for Danfoss' MAG and MASS flowmeters in the U.S. industrial market under the "EMCO" label. EMCO features six types of flowmeters capable of handling a broad spectrum of applications (steam, gas and liquid), as well as a large range of line sizes. These flowmeters position the Company to compete on a product level with any flowmeter manufacturer in the world.

PRODUCTS

The Company has developed and markets a series of products to measure the flow of steam, chilled and hot water, natural gas, compressed gases and other fluids in a pipeline. Also included are products, which support the primary flow measurements, such as pressure and temperature measurements and supporting electronics.

Sales of flowmeters and related products account for approximately 88% of the total sales for the Company. The Company flowmeter products use two major technologies in its product lines. The sales contribution by each technology as a percent of sales for fiscal years 1999 and 1998 are as follows:

                         TECHNOLOGY                           FY 1999   FY 2000
                         ----------                           -------   -------
Volumetric..................................................    74%       68%
Mass........................................................    26%       20%

Volumetric technologies include the following products: turbine, vortex shedding, ultrasonic, and positive displacement meters.

Mass technologies include the following products: electromagnetic, coriolis, flow processors and digital valves. The Company manufactures several series of insertion meters for various applications of steam, liquids and compressed gas measurement. The insertion meters offer customers solutions for metering flows in large size pipes. Each is available with an assortment of options allowing for extremes in flow range, pressure and temperature, with adaptation to various output requirements which provide mass and energy measurement for totalizing or computer input.

The Company introduced a line of vortex shedding flowmeters in fiscal year 1992. The Vortex PhD has no moving parts, provides high reliability, has low maintenance requirements and is capable of operating with dirty fluids.

The Company introduced a clamp-on transit time ultrasonic flowmeter in January 2000. This product is a non-intrusive meter, which is attached to the outside of pipes, and is used primarily to measure water, but is capable of measuring other liquids including oil.

The Company also develops, manufactures and markets a series of positive displacement meters which provide accurate measurements of fluid flow rates. The products' primary applications relate to the measurement of viscous fluids, such as crude oil, as well as applications requiring a high degree of accuracy.

As a result of the marketing agreement with Danfoss A/S of Denmark, EMCO serves as the non-exclusive distributor for Danfoss' electromagnetic (MAG) flowmeters and coriolis (MASS) flowmeters in the U.S. industrial marketplace. These two Danfoss meters are marketed and distributed under the "EMCO" label in the U.S., establishing EMCO as one of the few companies in the world to offer a complete line of flowmetering technologies.

Digital valves are digitally actuated control valves providing industry with a unique means of controlling and measuring the flow of fluids. Because of their accuracy and speed of response, these products are capable of providing a high degree of control that cannot easily be matched by other valves. In addition, this product can be configured as a metering valve, thus providing both measurement and control.

All Company flowmeter products utilize a family of digital flow processors to provide a wide range of measurement processing. The flow processors provide the desired outputs in engineering units, such as gallons, liters, etc., with provisions for computing density, mass flow and enthalpy.

The Company introduced a commercial vortex shedding water flowmeter in March 1997. This product is marketed into the commercial HVAC, ultra-pure and de-ionized water and landscape/irrigation markets.

The Company provides contract electronic printed circuit board assembly. These services provided 8% of EMCO's revenues in 1999 and 12% in 2000.

PRODUCT DISTRIBUTION

The Company primarily uses a network of distributors and commissioned sales representatives, as well as a direct sales force, to market the Company's flowmeters worldwide. The Company utilizes a direct sales force to market its contract electronic printed circuit board assembly services.

                                                                   FY 2000               FY 1999
                                                              ------------------    ------------------
Europe......................................................  $1,335,000    14.5%   $1,580,000    16.3%
Asia........................................................     658,000     7.1%      755,000     7.8%
Other.......................................................     249,000     2.7%      356,000     3.7%