<SUBMISSION>
<ACCESSION-NUMBER>0000927356-01-000171
<TYPE>S-1/A
<PUBLIC-DOCUMENT-COUNT>18
<FILING-DATE>20010202
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>IPG PHOTONICS CORP
<CIK>0001111928
<ASSIGNED-SIC>3674
<IRS-NUMBER>043444218
<STATE-OF-INCORPORATION>DE
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>S-1/A
<ACT>33
<FILE-NUMBER>333-51560
<FILM-NUMBER>1524190
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>P O BOX 519
<STREET2>660 MAIN STREET
<CITY>STURBRIDGE
<STATE>MA
<ZIP>01566
<PHONE>5083476800
</BUSINESS-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>S-1/A
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>AMENDMENT NO. 1 TO FORM S-1
<TEXT>

<PAGE>


 As filed with the Securities and Exchange Commission on February 2, 2001

                                                 Registration No. 333-51560
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

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

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

                              AMENDMENT NO. 1

                                    TO

                                    FORM S-1
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933

                                 -------------
                           IPG Photonics Corporation
             (Exact name of Registrant as specified in its charter)

        Delaware                      3674                   04-3444218
    (State of other       (Primary Standard Industrial    (I.R.S. Employer
    jurisdiction of       Classification Code Number)   Identification No.)
    incorporation or
     organization)

                                  P.O. Box 519
                                660 Main Street
                        Sturbridge, Massachusetts 01566
                                 (508) 347-6800
              (Address, including zip code, and telephone number,
        including area code of Registrant's principal executive offices)

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

                           Dr. Valentin P. Gapontsev
               Chairman of the Board and Chief Executive Officer
                                  P.O. Box 519
                                660 Main Street
                        Sturbridge, Massachusetts 01566
                                 (508) 347-6800
           (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

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

                  Please Send Copies of All Communications To:

          Barry J. Hart, Esq.                    Alan L. Jakimo, Esq.
                                               Howard M. Kleinman, Esq.
    Daniel A. Ninivaggi, Esq.
           Winston & Strawn                        Brown & Wood LLP
            200 Park Avenue                     One World Trade Center
          New York, NY 10166                      New York, NY 10048
            (212) 294-6700                          (212) 839-5300
                                 -------------

     Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the effective date of this Registration Statement.

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

     If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [_]
     If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering: [_]
     If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
     If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

                        CALCULATION OF REGISTRATION FEE
<TABLE>
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
<CAPTION>
   Title of Each Class
  of                                  Proposed Maximum  Proposed Maximum
  Securities to be       Amount to be   Offering Per   Aggregate Offering    Amount of
  Registered              Registered      Share(1)          Price(1)      Registration Fee
------------------------------------------------------------------------------------------
<S>                      <C>          <C>              <C>                <C>
Common Stock, $0.0001
 par value.............   9,375,000        $16.00         $150,000,000       $39,600(2)
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
(1)Estimated solely for the purpose for computing the amount of registration
   fee pursuant to Rule 457(o) under the Securities Act.

(2)An aggregate of $39,600 of the fee was paid with the initial filing of the
   Registration Statement on December 8, 2000.
                                 -------------

     THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS PROSPECTUS
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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


                             Explanatory Note

      This Registration Statement contains two forms of prospectus: one to be
used in connection with a United States offering (the "U.S. Prospectus") and
one to be used in a concurrent international offering (the "International
Prospectus"). The two prospectuses will be identical in all respects except for
the front and back cover pages and the sections entitled "Underwriting." Pages
to be included in the International Prospectus and not the U.S. Prospectus are
marked "Alternate Page."
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
                             Subject to Completion

               Preliminary Prospectus Dated February 2, 2001

PROSPECTUS

                             8,200,000 Shares
                                   [IPG LOGO]
                                  Common Stock

                                  -----------

    This is IPG Photonics Corporation's initial public offering of common
stock. IPG Photonics Corporation is selling all of the shares. The U.S.
underwriters are offering      shares in the U.S. and Canada and the
international managers are offering      shares outside the U.S. and Canada.

    We expect the public offering price to be between $14.00 and $16.00 per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "IPGP."

    Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 6 of this prospectus.

                                  -----------

<TABLE>
<CAPTION>
                                                                Per Share Total
                                                                --------- -----
     <S>                                                        <C>       <C>
     Public offering price.....................................   $       $
     Underwriting discount.....................................   $       $
     Proceeds, before expenses, to IPG Photonics...............   $       $
</TABLE>

    The U.S. underwriters may also purchase up to an additional     shares from
us at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus to cover over-allotments. The international
managers may similarly purchase up to an additional      shares from us.

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

    The shares will be ready for delivery in New York, New York on or about
, 2001.

                                  -----------

Merrill Lynch & Co.
          Robertson Stephens
                   CIBC World Markets
                            U.S. Bancorp Piper Jaffray
                                                                   Wit SoundView

                                  -----------

                  The date of this prospectus is       , 2001.
<PAGE>


Inside Front Cover:

      The inside front cover is a gatefold containing three pages of graphics.

 Page One:

      The upper left-hand corner contains a photograph of optical fiber through
which light is being transmitted.

      The upper right-hand corner contains the following text, which runs along
the right-hand edge of the photograph.

      IPG Photonics is a leading supplier of:

     .  Fiber Amplifiers

     .  Raman Pump Lasers

     .  Fiber Lasers

      Along the bottom of the page is the registrant's logo which reads as
follows:

                  IPG Photonics

                    ...Enabling the Optical Network

 Pages Two and Three:

      These two pages will have one continuous graphic designed to depict the
four types of optical networks: the "Long Haul Network," the optical fiber
network that interconnects metropolitan areas; the "Metropolitan Ring," the
optical fiber network that connects central telecommunications switching
exchanges within metropolitan areas; the "Access Network," the optical fiber
network that connects individual buildings and homes to central
telecommunications switching exchanges within metropolitan and suburban areas;
and the "Free Space Access Network," the optical fiber systems that are used
for free space optical communications between buildings in metropolitan areas.

      At the upper left-hand corner of page two is the registrant's "IPG
Photonics" logo.

      At the center of page two is a triangle. The legs of this triangle depict
the segments of the Long Haul Network that interconnect metropolitan areas. The
middle of the triangle contains the words "Long Haul Network". Above the top
leg of the triangle is a photograph of an IPG Photonics High Power Erbium-Doped
Fiber Amplifier, illustrating the use of this product to amplify light signals
in long haul networks. Along the lower left-hand leg of the triangle is a
photograph of an IPG Photonics Raman pump laser, illustrating the use of this
product to effect Raman amplification of light signals in long haul networks.

      At each of the triangle's three corners is an identical image of five
high-rise buildings standing in an ellipse. Each ellipse depicts the
"Metropolitan Ring" in the metropolitan area in which the buildings are
located. Underneath each ellipse are the words "Metropolitan Ring." Underneath
and slightly to the right of the Metropolitan Ring at the right-hand corner of
the Long Haul Network triangle is a photograph of an IPG Photonics Utility
EDFA, illustrating the use of this product to amplify light signals in
metropolitan rings.

      The top half of page three is an exploded view of three of the high-rise
buildings in the metropolitan area at the right-hand corner of the Long Haul
Network triangle on page two. One of the buildings is connected to the
metropolitan ring. There are two dotted lines connecting a point near the top
of this building to each of the other two buildings in this exploded view,
depicting free space optical communications taking place between the buildings.
Above the three buildings are the words "Free Space Access Network." Underneath
the three buildings is a photograph of an IPG Photonics Dynamic Power Free
Space Amplifier, illustrating the use of this product in free space optical
communications.

<PAGE>


      The lower half of page three is an expanded view of two of the high-rise
buildings in the metropolitan area at the right-hand corner of the Long-Haul
Network triangle on page two. The exploded view also contains images of three
homes. The central telecommunications switching exchange to which the two
buildings and three homes are connected is depicted by an ellipse in the middle
of the five structures. A straight line running from each structure to this
ellipse depicts the "fiber-to-the-curb" that connects the structure to the
central telecommunications switching exchange. Below the ellipse is a
photograph of an IPG Photonics High-Power, Multiport EDFA, illustrating the use
of this product in access networks.

      At the bottom right-hand corner of page three is the registrant's
"...Enabling the Optical Network" logo.

<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                         <C>
Prospectus Summary........................................................    1
Risk Factors..............................................................    6
Forward-Looking Statements................................................   15
Use of Proceeds...........................................................   16
Dividend Policy...........................................................   16
Capitalization............................................................   17
Dilution..................................................................   19
Selected Combined Consolidated Financial Data.............................   21
Management's Discussion and Analysis of Financial Condition and Results of
 Operations...............................................................   23
Business..................................................................   33
Management................................................................   48
Transactions with Related Parties.........................................   57
Indemnification of Directors and Executive Officers and Limitation of
 Liability................................................................   62
Principal Stockholders....................................................   63
Description of Capital Stock..............................................   65
Shares Eligible for Future Sale...........................................   67
Summary of Federal Income and Estate Tax Consequences of Ownership and
 Disposition of Common Stock by Non-U.S. Holders..........................   69
Underwriting..............................................................   72
Legal Matters.............................................................   76
Experts...................................................................   76
Where You Can Find More Information.......................................   77
Index to Combined Consolidated Financial Statements.......................  F-1
</TABLE>

      Unless specifically stated, the information in this prospectus:

    .  reflects the automatic conversion of all outstanding shares of our
       Series A convertible preferred stock and Series B convertible
       redeemable preferred stock into an aggregate of 12,083,333 shares of
       our common stock upon the closing of this offering;

    .  reflects the acquisition of all of the remaining shares of IPG Laser
       GmbH by us on October 4, 2000;

    .  a 2-for-1 stock split of our common shares to be effective upon
       commencement of this offering; and

    .  assumes no exercise of the underwriters' overallotment option to
       purchase an aggregate of 1,175,000 shares of common stock.

      You should rely only on the information contained in this prospectus.
Neither we nor the underwriters have authorized any person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects
may have changed since that date.

      IPG is a trademark of IPG Photonics Corporation. This prospectus contains
product names, trade names and trademarks of IPG and other organizations.

                                       i
<PAGE>


                               PROSPECTUS SUMMARY

      The summary highlights selected information contained elsewhere in this
prospectus. Because this is only a summary, it does not contain all the
information that you should consider before buying shares in this offering. You
should read the entire prospectus carefully, including our consolidated
financial statements and the related notes included elsewhere in this
prospectus.

                           IPG Photonics Corporation


      We design, manufacture and sell high performance fiber amplifiers, Raman
pump lasers and fiber lasers for telecommunications and industrial
applications. Our proprietary technology, materials science expertise and
vertically integrated manufacturing operations enable us to meet the demands of
our customers for cost-effective fiber amplifiers and lasers having high power
output and reliable performance. Our telecommunications products are used
throughout optical communications networks. Our largest telecommunications
customers in 2000 were Alcatel, Lucent, Marconi, Siemens and TeraBeam Networks.
Our industrial products are used for a variety of manufacturing, medical and
aerospace applications. Our largest industrial customers in 2000 were GSI
Lumonics, Purup Escofot and Sunx.

      Due to rapidly increasing worldwide levels of data, voice and video
traffic, telecommunications service providers are expanding their use of fiber
optic technologies and seeking to increase the transmission capacity, or
bandwidth, of existing fiber optic networks. Fiber optic networks transmit
information as pulses of light, or optical signals, through optical fibers,
which are thin glass strands. In these networks, the distance that an optical
signal can be transmitted is limited by losses in signal strength, or
attenuation, as well as by losses to the signal as it passes through optical
components in the network, known as insertion loss. Operators of fiber optic
networks use fiber amplifiers to amplify optical signals during transmission to
overcome attenuation and insertion loss. Prior to the invention of the fiber
amplifier in 1987, this amplification could only be accomplished through the
relatively expensive and inefficient process of optical to electronic to
optical conversion. By addressing attenuation and insertion loss without the
need for this type of conversion, fiber amplifiers allow communications
networks to be deployed more cost-effectively.

      Optical signals are most commonly amplified through the use of erbium-
doped fiber amplifiers, or EDFAs, and Raman pump lasers. EDFAs are placed at
specific points along an optical network to boost the optical signal in order
to assure the signal maintains its integrity throughout transmission. Ryan,
Hankin & Kent, a leading market research and consulting firm, estimates that
revenue from the sale of erbium gain modules, the component of EDFAs in which
amplification occurs, was $641 million in 1999 and will increase to $4.2
billion in 2004, representing a compound annual growth rate of 45.3%.

      Raman pump lasers emit light at specific wavelengths that travels along a
transmission fiber to amplify the optical signal, a process known as Raman
amplification. Ryan, Hankin & Kent estimates that sales of Raman gain modules
will grow from approximately $18.0 million in 2000 to approximately $1.0
billion in 2004, representing a compound annual growth rate of 173.1%.

      Our innovative line of customized high and low power amplifiers is
designed to meet the specific needs of our telecommunications customers. For
example:

  .  Our high-power fiber amplifiers enable bandwidth-enhancing technologies,
     such as dense wavelength division multiplexing, or DWDM, by which
     multiple wavelengths of optical signals are transmitted simultaneously
     through the same fiber.

  .  Our high-power, multiple output fiber amplifiers enable fiber optic
     technology to be used in residential areas and cable television systems.

                                       1
<PAGE>



  .  Our high-power amplifiers automatically adjust power output to overcome
     atmospheric limitations, such as fog and rain, in free-space (wireless)
     optical networks.

  .  Our low- and medium-power fiber amplifiers can be widely deployed in
     metropolitan areas because of their cost-effectiveness and high
     reliability.

      In addition to telecommunications products, we also provide high power
fiber lasers for a variety of industrial applications. Industrial lasers enable
manufacturers to cut, mark and measure without physical contact which, in many
applications, allows for higher processing speeds. Our high power fiber lasers
offer several benefits compared to traditional industrial laser technologies,
such as gas or solid state such as higher beam quality and mobility, increased
reliability and efficiency, reduced size, maintenance-free operation and lower
operating costs.

      We employ more than 30 Ph.D.'s to support our proprietary technology
platform. We produce our products using vertically integrated manufacturing
operations located in the United States, Germany and Italy, all of which we are
currently expanding. We design and manufacture a significant majority of our
critical specialty components and test and qualify all of our components,
assemblies and finished products. Our vertically integrated manufacturing
operations enable us to quickly scale our production and maintain high product
quality and reliability in order to meet the needs of our telecommunications
and industrial customers.

      Our objective is to be the leading supplier of fiber amplifiers, Raman
pump lasers and fiber lasers to developers of optical communications and
industrial laser systems. Key elements of our strategy include:

  .  extending our existing technology leadership;

  .  expanding and enhancing our existing line of products;

  .  expanding our manufacturing capacity and reducing costs;

  .  expanding our sales and marketing efforts;

  .  providing our customers with a high degree of technical and engineering
     support for customization; and

  .  acquiring strategic businesses and technologies consistent with our
     growth strategy.

                             Corporate Information

      Our main office is located at 660 Main Street, Sturbridge, Massachusetts
01566 and our telephone number is (508) 347-6800.


                                       2
<PAGE>

                                  The Offering

<TABLE>
<S>                       <C>
Common stock offered by
 IPG Photonics..........  8,200,000 shares

Common stock to be
 outstanding after this
 offering...............  92,084,201 shares

Use of proceeds.........  For expansion of manufacturing facilities, marketing and
                          distribution activities, research and development
                          activities and repayment of a portion of outstanding
                          indebtedness, working capital and other general corporate
                          purposes, including acquisitions.

Proposed Nasdaq National
 Market symbol..........  IPGP
</TABLE>

      The number of shares that will be outstanding after this offering is
based on the number of shares outstanding as of December 31, 2000, including:

    .  the conversion of all outstanding Series A and Series B preferred
       stock into an aggregate of 12,083,333 shares of common stock;

    .  1,000,000 shares of restricted common stock issued under our 2000
       stock incentive plan subsequent to December 31, 2000 at a price of
       $0.50 per share;

      and excluding:

    .  5,126,532 shares of common stock issuable upon exercise of options
       outstanding at December 31, 2000 under our 2000 stock incentive plan,
       with a weighted-average exercise price of $0.99 per share, and
       2,653,000 shares of common stock issuable upon exercise of options
       granted subsequent to December 31, 2000 and prior to the date of this
       prospectus with a weighted-average exercise price of $2.06 per share;


    .  5,525,600 shares of common stock reserved for issuance under our 2000
       stock incentive plan with respect to unawarded options or other grant;
       and

    .  3,166,117 shares of common stock issuable upon exercise of warrants
       outstanding at December 31, 2000 held by owners of our Series B
       convertible redeemable preferred stock, assuming an exercise price of
       $7.50 per share.

                                       3
<PAGE>

                  Summary Combined Consolidated Financial Data

      You should read the following Summary Combined Consolidated Financial
Data in conjunction with the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our combined
consolidated financial statements and the related notes included elsewhere in
this prospectus.

      The following table sets forth our summary financial and operating data
for the periods indicated on the basis described in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained
elsewhere in this prospectus. Our combined consolidated financial statements
include the accounts of IPG Laser GmbH and IPG Fibertech S.r.l. The summary
combined consolidated financial data for each of the three years in the period
ended December 31, 1999 are derived from our combined consolidated financial
statements included elsewhere in this prospectus, which have been audited by
independent auditors. The summary combined consolidated financial data as of
September 30, 2000 and for the nine months ended September 30, 1999 and 2000
are derived from our unaudited combined consolidated financial statements
included elsewhere in this prospectus. Our results of operations for the nine
month period ended September 30, 2000 are not necessarily indicative of our
results for the full fiscal year ended December 31, 2000. For purposes of
presentation of our summary combined consolidated financial statements for the
years ended December 31, 1997 and 1998, IPG Laser and IPG Laser's 80% owned
subsidiary, IPG Fibertech, are referred to as the Predecessor.

<TABLE>
<CAPTION>
                                                               For the nine
                                      For the year ended       months ended
                                         December 31,          September 30,
                                     -----------------------  ----------------
<S>                                  <C>     <C>     <C>      <C>      <C>
                                      1997    1998    1999     1999     2000
                                     ------  ------  -------  -------  -------
                                     (in thousands, except per share data)

                                      Predecessor
                                     --------------
Statement of Operations Data:
Net sales........................... $3,097  $8,263  $18,640  $14,823  $32,689
Cost of sales (1)...................  2,436   5,560    9,688    6,882   12,610
                                     ------  ------  -------  -------  -------
Gross profit (1)....................    661   2,703    8,952    7,941   20,079
                                     ------  ------  -------  -------  -------
Operating expenses:
 Sales and marketing (2)............    219     374      677      619    1,049
 Research and development (3).......    127     682    1,477    1,036    1,127
 General, administrative and other
  (4)...............................    276   1,000    2,712    2,006    3,946
 Equity-based compensation..........     --      --       --       --   12,035
                                     ------  ------  -------  -------  -------
  Total operating expenses..........    622   2,056    4,866    3,661   18,157
                                     ------  ------  -------  -------  -------
Operating income....................     39     647    4,086    4,280    1,922
Interest income (expense), net......   (119)   (208)    (303)    (231)     (77)
Other income (expense), net.........    108     (47)     273       40      475
                                     ------  ------  -------  -------  -------
Income before provision for income
 taxes
 and minority interest..............     28     392    4,056    4,089    2,320
Provision for income taxes..........     22     234    2,102    2,178    5,828
Minority interest...................     --      (4)      (3)      (5)      --
                                     ------  ------  -------  -------  -------
Net income (loss)...................      6     154    1,951    1,906   (3,508)
Accretion of preferred stock........     --      --       --       --     (169)
                                     ------  ------  -------  -------  -------
Net income (loss) available to
 common shareholders................ $    6  $  154  $ 1,951  $ 1,906  $(3,677)
                                     ======  ======  =======  =======  =======
Net income (loss) per share: (5)
 Basic .............................     --      --  $  0.03  $  0.03  $ (0.06)
                                                     =======  =======  =======
 Diluted ...........................     --      --  $  0.03  $  0.03  $ (0.06)
                                                     =======  =======  =======
 Pro forma net loss per share--basic
  and diluted (5)...................     --      --       --       --  $ (0.05)
                                                                       =======
</TABLE>

                                       4
<PAGE>

(1)  Excludes $677 of equity-based compensation for the nine months ended
     September 30, 2000.
(2)  Excludes $166 of equity-based compensation for the nine months ended
     September 30, 2000.
(3)  Excludes $184 of equity-based compensation for the nine months ended
     September 30, 2000.

(4)  Excludes $11,008 of equity-based compensation for the nine months ended
     September 30, 2000.

(5)  The calculation of net income (loss) per share and pro forma basic and
     diluted net loss per share is described in Note 3 to the combined
     consolidated financial statements.

<TABLE>
<CAPTION>
                                                 September 30, 2000
                                        -------------------------------------
                                                                 Pro Forma
                                         Actual  Pro Forma (6) As Adjusted (7)
                                        -------- ------------- --------------
                                                   (in thousands)
<S>                                     <C>      <C>           <C>
Balance Sheet Data:
Cash and cash equivalents.............. $ 52,999   $ 73,499       $185,869
Working capital........................   56,994     77,494        189,864
Total assets...........................  102,977    123,477        235,847
Long-term debt, including current
 portion...............................    7,299      7,299          7,299
Series B preferred stock...............   62,389        --             --
Series A preferred stock...............    4,954        --             --
Shareholders' equity...................   18,354    101,243        213,613
</TABLE>

(6) The pro forma amounts give effect to (i) the issuance of an additional
    800,000 shares of Series B preferred stock at $25.00 per share subsequent
    to September 30, 2000, (ii) the issuance of 2,806,000 shares of our common
    stock in connection with the acquisition of the remaining ownership of IPG
    Laser on October 4, 2000, (iii) the issuance subsequent to September 30,
    2000 of 1,000,000 shares of common stock for $500,000 and options to
    purchase 2,000,000 shares of common stock at a price of $1.50 per share,
    reflecting a compensation charge of $12.0 million and deferred compensation
    charge of $22.0 million, (iv) the issuance subsequent to September 30, 2000
    of options to purchase 1,607,000 shares of common stock at a weighted-
    average exercise price of $3.25 per share to employees, consultants and
    members of the Board of Directors, reflecting a deferred compensation
    charge of $14.7 million, (v) the conversion of all outstanding shares of
    Series A preferred stock into 1,000,000 shares of common stock, and (vi)
    the conversion of all outstanding shares of Series B preferred stock into
    11,083,333 shares of common stock.

(7) The pro forma as adjusted amounts reflect pro forma amounts, as adjusted to
    reflect the sale of 8,200,000 shares of our common stock in this offering,
    at an assumed initial public offering price of $15.00 per share and after
    deducting the estimated underwriting discount and estimated offering
    expenses, and our receipt of the net proceeds. For more information, see
    "Use of Proceeds" and "Capitalization."


                                       5
<PAGE>

                                  RISK FACTORS

      You should carefully consider the risk factors set forth below, in
addition to the other information contained in this prospectus, before making
an investment decision. If any of the following risks actually occur, our
business could be harmed, the trading price of our common stock could decline
and you may lose all or part of your investment. You should also refer to the
other information contained in this prospectus, including our financial
statements and the related notes.

                         Risks Related to Our Business

We depend on a few key customers for a substantial portion of our sales revenue
and the loss of any of these customers or a significant reduction or
fluctuation in sales to these customers could significantly reduce our sales
revenue or cause our results of operations to fluctuate.

      Our results of operations have historically depended, and we anticipate
will continue to depend for the foreseeable future, on sales to a relatively
small number of customers. In the nine-month period ended September 30, 2000,
TeraBeam and Marconi accounted for 40.2% and 19.6% of our net sales revenue,
respectively, with eight customers accounting for 86% of our net sales revenue.
Our net sales revenue generated from these customers, individually or in the
aggregate, may not reach or exceed historic levels in any future period. In
addition, some of these customers are also competitors.

      Our net sales are dependent in part upon the ability of our customers to
develop and sell systems that incorporate our fiber amplifiers, Raman pump
lasers and fiber lasers. Adverse economic conditions, large inventory
positions, limited marketing resources and other factors affecting these
customers could have a substantial impact upon our financial results. In
addition, our customers tend to order large quantities of products on an as
needed basis. These ordering patterns may result in significant quarterly
fluctuations in our net sales revenue and results of operations. None of our
current customers have any minimum purchase obligations and may stop placing
orders with us at any time. Our customers may purchase, and in several cases
have purchased, fiber amplifiers and fiber lasers from other vendors,
regardless of any forecast they may have previously provided to us. Loss or
cancellations of orders from, or any downturn in the business of, any of these
significant customers could cause a reduction in our sales revenue. In
addition, we may not be able to reduce our dependence on a limited number of
customers if the trend toward consolidation within various segments of the
communications industry continues.

A significant portion of our sales are to a customer seeking to develop a free-
space optical telecommunications business. If this customer's business does not
develop as planned, our operating results could be materially adversely
affected.

      TeraBeam has developed a free-space optical telecommunications system to
transmit data from building to building at high speeds without the use of
copper or fiber optic cables. We understand that TeraBeam plans to introduce
this system in metropolitan areas in the coming years. Free-space optical
telecommunications systems are relatively new. We cannot predict the rate or
extent to which these new telecommunications systems will be adapted or whether
they will be widely accepted. Finally, as a private company, TeraBeam does not
publish financial statements or other reports of the type required of companies
whose securities are publicly traded. Consequently, we cannot make any
statements about TeraBeam's financial condition or resources.

Our ability to sell our products would suffer if we lose members of our senior
management team or if these members are unable to work together effectively.

      Our future success depends upon the continued services of members of our
senior management, particularly Dr. Valentin P. Gapontsev, our founder,
Chairman of the Board and Chief Executive Officer. The loss of Dr. Gapontsev
could hurt our business, and we do not have "key person" life insurance
policies covering Dr. Gapontsev or any of our other employees. We are currently
seeking to obtain a "key person" life insurance policy for Dr. Gapontsev as
well as other key employees. With the exception of John H. Dalton, John

                                       6
<PAGE>


Geagea and Angelo P. Lopresti, none of our executive officers or key employees
are bound by an employment agreement for any specific term and these
individuals may terminate their employment at any time. In addition, many of
the members of our management team have been with us only for a relatively
short period of time. For example, our President, Chief Operating Officer,
Executive Vice President of Strategic Marketing, and General Counsel joined us
within the past seven months.

If we do not successfully expand our sales and marketing organization, our
sales revenue may not increase.

      The sale of our products requires long and sustained efforts targeted at
several key departments within our customers' and prospective customers'
organizations. Our sales organization is currently limited and relies
substantially upon our senior management, scientists and engineers. We will
need to grow our sales force in order to increase market awareness and sales of
our products. Competition for these individuals is intense, and we might not be
able to hire the kind and number of sales personnel and applications engineers
we need.

If we cannot reduce our manufacturing costs and introduce higher margin
products to offset anticipated continued reductions in the average selling
price of our products, we may experience reduced sales levels, reduced gross
margins and loss of market share.

      We anticipate that average selling prices of fiber optic communications
products will continue to decrease in the future in response to technological
advances, to product introductions by competitors and by us, and to other
factors, including price pressures from significant customers. We cannot
predict the rate at which selling prices will decrease. Therefore, we must
continue to develop and introduce new products that incorporate features that
can be sold at higher prices and reduce our manufacturing costs.

Our dependence on single or limited source suppliers for some of our key
components and raw materials could adversely affect our results of operations.

      We currently purchase some of our key components and raw materials used
in the manufacture of our products from single or limited source suppliers and
we have no contractual supply arrangements with any supplier other than SDL,
our single source supplier of laser diode chips. Although we are actively
seeking alternative sources of supply for the key components that we obtain
from single or limited source suppliers, we do not anticipate supplies being
available from other sources in commercial quantities in the near future.
Financial or other difficulties faced by our suppliers or significant changes
in demand for the components and materials we obtain from them could limit the
availability of these components and materials. Any interruption or delay in
the supply of any of these components or materials, or the inability to obtain
these components and materials from alternate sources at acceptable prices and
within a reasonable amount of time would impair our ability to meet scheduled
product deliveries to our customers and could cause customers to cancel orders.
We currently manufacture many of our critical components and will attempt to
manufacture more of them to reduce our dependence on single or limited source
suppliers, but we cannot assure you that we will succeed at these efforts in a
timely manner or at all.

Some of our competitors are also our suppliers and if our relationships with
these suppliers deteriorate, we may experience delivery problems and have less
control over product pricing and quality, which would harm our business.

      Some of our component suppliers are both single source suppliers to us
and major competitors. For example, we buy some of our key components from SDL,
one of our competitors. SDL has recently announced its decision to merge with
JDS Uniphase. A change in these supply relationships in any manner adverse to
us could cause us to experience delivery problems as well as reduced control
over product pricing and quality. In addition, we could experience delays in
identifying and qualifying other suppliers in a timely manner, which could
cause production delays.

                                       7
<PAGE>


If we are unable to expand our manufacturing capacity in a timely manner, we
will have insufficient capacity, which could seriously harm our business
prospects.

      We are currently establishing additional manufacturing and research
facilities in Oxford, Massachusetts and Burbach, Germany and plan to add
additional capacity in Milan, Italy. During this process, we could face the
inability to procure and install the necessary capital equipment, a lack of
availability of manufacturing personnel to work in our existing or new
facilities and difficulties in achieving adequate yields from new manufacturing
lines. We could also experience delays, disruptions, capacity constraints or
quality control problems in our existing or new manufacturing operations. If we
experience difficulties and disruptions in the manufacture of our products, we
may not be able to deliver our products in a timely manner, which could cause
us to lose customers or make it more difficult to attract new customers and
negatively impact our sales revenue, competitive position and reputation. An
element of our manufacturing strategy is increasing use of automation in our
manufacturing and assembly processes. We cannot assure you that we will be able
to successfully increase our use of automation. In addition, if we outgrow our
existing and new facilities in Massachusetts, Germany and Italy, we will need
to locate and obtain additional space. The commercial real estate markets in
Massachusetts and Germany are extremely competitive and we may not be able to
obtain additional needed space on reasonable terms, or at all. Our failure to
obtain additional space could adversely impact our ability to expand our
business and operations and increase our sales.

If we do not achieve acceptable manufacturing costs or sufficient product
reliability in our expanded facilities or we suffer any interruption in our
manufacturing operations, our ability to compete may be impaired and our sales
could suffer.

      The manufacture of our products involves complex and precise processes,
requiring production in highly controlled clean room environments. Changes in
our manufacturing processes or those of our suppliers, or inadvertent use of
defective or contaminated materials by our suppliers or us, could significantly
reduce our manufacturing yields and product reliability. Our manufacturing
costs are relatively fixed and, thus, manufacturing yields are critical to our
results of operations. To the extent we do not achieve acceptable manufacturing
yields or experience product shipment delays, our gross margins would suffer.
In addition, we may experience manufacturing delays and reduced manufacturing
yields upon introducing new products. Furthermore, any interruption in
manufacturing resulting from shortages of parts or equipment, earthquake, fire,
equipment failures, yield fluctuations or otherwise could materially harm our
operating results and business prospects.

If we fail to predict our manufacturing requirements accurately, we could incur
additional costs or experience manufacturing delays, which could cause us to
lose orders or customers and harm our operating results.

      We need to accurately predict both the demand for our products and the
lead time required to manufacture and obtain the raw materials and components
for manufacturing our products. Lead times for raw materials and components
that we order vary significantly and depend on factors such as the size of the
order, contract terms and market demand for the raw materials or components. We
currently use historical pricing, analytical reports and industry trend
analysis to determine our requirements for components and raw materials. If we
underestimate our requirements, our company may have inadequate manufacturing
capacity or inventory, which could interrupt manufacturing of our products and
result in delays in shipments and revenues. If we overestimate our
requirements, we could have excess inventory.

                                       8
<PAGE>


If fiber optic technology is adopted at rates slower than we expect, we may
have to significantly revise our strategy and demand for our products may
decline, which would adversely impact our operating results and business
prospects.

      We have based a significant element of our business strategy on expanded
use of fiber optic technology as a means of satisfying the increasing demand
for bandwidth across communications networks, including the demand for higher
transmission rates related to Internet-based communications. While we believe
that both economic and technological factors favor the use of fiber optic
communications systems over traditional copper wire-based systems, enhancements
to copper wire-based technology, such as digital subscriber line, or DSL, could
delay or prevent the adoption of fiber optic technology. Consequently, our
sales could be adversely affected.

If we fail to manage our growth effectively, our ability to manufacture and
sell our products could be adversely affected, which could harm our operating
results.

      The increase in the number of our employees and the growth in our
operations, combined with the challenges of managing geographically-dispersed
operations, has placed, and we expect will continue to place, a significant
demand on our management systems and resources. We continue to expand the scope
of our operations in the United States, Germany and Italy, and have increased
the number of our employees substantially in the past year. In addition, we
plan to hire a significant number of employees over the next few quarters. We
expect that we will need to continue to improve our financial and managerial
controls, reporting systems and procedures and continue to expand, train and
manage our work force worldwide.

Competition in the fiber amplifier and fiber laser market for
telecommunications applications is intense and could adversely affect our sales
revenue and gross margins.

      Many of our competitors are large public companies that have long
operating histories, significantly greater financial, technical, marketing and
other resources, name recognition, extensive customer bases, well-developed
distribution channels and broad product offerings. These companies include ADC,
Alcatel, Corning, Corvis, Furakawa, JDS Uniphase, Lucent, Marconi, SDL and
Siemens. These competitors and others are able to devote greater resources than
we can to the development, marketing, sale and support of their products, and
they can leverage their customer bases and broader product offerings and adopt
aggressive pricing policies to gain market share. We expect to encounter
potential customers that, due to existing relationships with these and other
competitors, are committed to the products offered by them. The intensity of
competition in our business could both prevent us from increasing or
maintaining our market share and force us to reduce the prices of our products.
If we cannot increase our market share or if we are forced to reduce the prices
of our products, our sales revenue could stagnate or decline. Similarly, if we
are forced to reduce the prices of our products, our margins could decline.
Several of our competitors have large market capitalizations or cash reserves,
and are much better positioned than we are to acquire other companies in order
to increase their size or gain new technologies or products that may displace
ours. These competitors could also acquire one or more of our significant
customers, thereby leading to a decline in our sales revenue. In other
circumstances, some of our competitors could spin-out new companies in the
fiber optic components market that could as free-standing companies compete
more aggressively with us. Finally, additional competitors may enter our
market, and we are likely to compete with new companies in the future.

We do not have patents on our core technologies and, as a result, other
companies may develop similar products or services, which could seriously harm
our business.

      Our success and ability to compete substantially depends on our ability
to sell products in which we may not have sufficient intellectual property
rights. We currently do not have patents on any of our core technology that
would preclude or inhibit customers from using our core technologies, and we
cannot assure you that we will be successful in protecting our technology
through patent law. Historically, we have chosen to

                                       9
<PAGE>


rely upon trade secrets and contractual restrictions, as opposed to patents, to
protect our rights because of our limited resources. Attempts may be made to
copy or reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Accordingly, we may not be able to
prevent misappropriation of our technology or deter others from developing
similar technology. Furthermore, policing the unauthorized use of our products
is difficult. Although we have applied for U.S. federal trademark protection,
we do not have any U.S. federal trademark registrations for the marks "IPG,"
"IPG Photonics" or "IPG Laser" or certain of our other marks and we may not be
able to obtain such registrations due to conflicting marks or otherwise.
Litigation may be necessary in the future to enforce our intellectual property
rights or to determine the validity and scope of the proprietary rights of
others. This litigation could result in public disclosure of our proprietary
technology, substantial costs and diversion of resources.

We may be sued by third parties for infringement of their proprietary rights
and we may incur defense costs, and possibly royalty obligations, or be
prevented from using technology important to our business.

      The fiber optic components and fiber laser industries are characterized
by the existence of a large number of patents and frequent litigation based on
allegations of patent infringement or other violations of intellectual property
rights. Several manufacturers of fiber amplifiers have recently been sued for
alleged infringement of a fiber amplifier patent. As the number of participants
and the overall level of competitiveness in our markets increase, the
possibility of an intellectual property claim against us increases. Any
intellectual property claims, with or without merit, could be time consuming
and expensive to litigate or settle and could divert management attention from
administering our business. A third party asserting infringement claims against
us or our customers with respect to our current or future products may
adversely affect us by, for example, causing us to enter into costly licenses
or incur settlement or litigation costs. We cannot assure you that third-party
licenses will be available to us on commercially reasonable terms, or at all.
The inability to obtain any third-party license required to continue the
manufacture and sale of our current products or develop new products and
product enhancements could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, either of which could
seriously harm our ability to manufacture and sell our products.

If we fail to develop and successfully introduce new and enhanced products that
meet the needs of our current and potential customers or do not comply with
evolving fiber optic technology standards, our operating results would suffer.

      The fiber amplifier and fiber laser industries are characterized by rapid
technological changes, frequent new product introductions, changes in customer
requirements and evolving standards. Our failure to predict accurately the
needs of our customers and prospective customers, and to develop products or
product enhancements that address those needs and these evolving standards, may
result in the loss of current customers or the inability to convert prospective
customers into customers. While we intend to continue to invest in product and
technology development, our products could quickly become obsolete as new
technologies and standards are introduced and incorporated into new and
improved products. In addition, if laser products are not broadly accepted for
industrial applications as an alternative to current technology, we may incur
significant expenses and losses due to lack of customer demand, unusable
purchased components for these products and the diversion of our engineers from
future product development efforts. The development of new or enhanced products
is a complex and uncertain process that requires the accurate anticipation of
technological and market trends. We may experience design, manufacturing,
marketing and other difficulties that could delay or prevent the development,
introduction or marketing of new products and enhancements. The introduction of
new or enhanced products also requires that we manage the transition from older
to newer products in order to minimize disruption in customer ordering patterns
and ensure that adequate supplies of new products can be delivered to meet
anticipated customer demand. Our inability to effectively manage this
transition would cause our operating results to suffer.

                                       10
<PAGE>


The long sales cycles for our products may cause our revenue and operating
results to fluctuate significantly from quarter to quarter.

      Customers often view the purchase of our products as a significant and
strategic decision. As a result, customers typically expend significant effort
in evaluating, testing and qualifying our products and our manufacturing
process. This customer evaluation and qualification process frequently results
in a lengthy initial sales cycle. While any customer or prospective customer is
evaluating our products and before they place an order with us, we may incur
substantial sales and marketing and research and development expenses to
customize our products to their needs. We may also expend significant
management effort, increase manufacturing capacity and order long lead time
components or materials prior to receiving an order. Even after this evaluation
process, a customer or prospective customer may not purchase our products. Our
sales cycles typically last four to six months. However, because of the
evolving nature of the optical networking market and the customized nature of
our products, some sales and development cycles may be longer.

Operations of our affiliate in Russia subject us to risks inherent in doing
business in Russia.

      Our wholly-owned subsidiary, IPG Laser, has agreed in principle to
acquire a 51% interest in NTO IRE-POLUS, a company located in Russia and one of
our affiliates. NTO IRE-POLUS conducts research and development and provides
components and test equipment to us. The results of operations, business
prospects and facilities of NTO IRE-POLUS are subject to the economic and
political environment in Russia. Russia has experienced and is continuing to
experience both political and economic instability, including, the successive
turnover of persons holding the position of prime minister and other upper
level government ministers, the devaluation of the ruble and problems relating
to the bailout of Russia's economy by the International Monetary Fund. If
Russia's federal or local governments adopt new restrictions, such as those
relating to taxation, import and export tariffs, currency regulations,
environmental regulations, land use rights, property and various other matters,
or impose stricter regulations or interpretations of existing regulations, the
supply of technology, test equipment or components to us from NTO IRE-POLUS
could be limited and our operating results and financial position could be
harmed.

We may not be successful in attracting, assimilating or retaining qualified
personnel to fulfill our current or future needs, which could adversely impact
our ability to manufacture and sell our products.

      Our ability to continue to attract and retain highly skilled personnel is
critical for us. During 2000, we hired approximately 106 new employees. We will
need to increase the number, and ensure the continued quality, of our
engineering, marketing, sales and manufacturing personnel to successfully
implement our business plan. Our business requires individuals educated in
several disciplines, including physics, optics, materials sciences, chemistry
and electronics. Competition for this technical personnel is intense.

Our products are deployed in large and complex systems and may contain defects
that are not detected until after our products have been installed, which could
damage our reputation and cause us to lose customers.

      Several of our products are designed to be deployed in large and complex
optical networks. Although we test both critical components and our finished
products, they can only be fully tested for reliability when deployed in
networks for long periods of time. Our customers may discover defects in our
products only after they have been fully deployed and have operated under peak
stress conditions. In addition, our products are combined with products from
other vendors. Should problems occur, it may be difficult to identify the
source of the problem. If we are unable to fix defects or other problems, we
could experience, among other things, loss of customers, damage to our brand
reputation, failure to attract new customers or achieve market acceptance,
diversion of development and engineering resources, and legal actions by our
customers.

                                       11
<PAGE>


Our ability to grow may be limited if we need, but are unable to raise,
additional capital to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated
requirements.

      We compete in a dynamic and rapidly evolving industry and may be required
to raise substantial additional capital in the future to develop or enhance our
products, increase our manufacturing capacity or respond to future
opportunities or competitive pressures. If we are required to raise additional
funds, we may not be able to do so on favorable terms, or at all.

If we fail to successfully manage our exposure to the worldwide financial
markets and currency fluctuations, our operating results could suffer.

      During the first nine months of 2000, approximately 98% of our net sales
were denominated in the U.S. dollar, with the remainder denominated in the
German mark and the Italian lira. In addition, approximately 20% of our cost of
sales and operating expenses were denominated in the German mark or the Italian
lira and approximately $4.8 million of our capital expenditures were
denominated in the German mark. We currently do not engage in any hedging
transactions. As a result, we are exposed to fluctuations in the exchange rates
between these foreign currencies and the U.S. dollar and an increase in the
value of these foreign currencies relative to the U.S. dollar could have a
material adverse effect on our operating results. To reduce the impact of
reductions in value and the volatility of future cash flows caused by changes
in foreign exchange rates, we may need to establish hedging programs, which may
not be available on commercially reasonable terms or at all.

Any acquisitions that we undertake could be difficult to integrate, disrupt our
business, dilute stockholder value and harm our operating results and financial
condition.

      We expect to review opportunities from time to time to acquire or invest
in other businesses and technologies that would complement our current
products, expand the breadth of our markets or enhance our technical
capabilities, or that may otherwise offer growth opportunities. From time to
time, such acquisitions or investments may be required to remain competitive.
If we make any future acquisitions, we could issue stock that would dilute
existing stockholders' percentage ownership, incur substantial debt or assume
contingent liabilities. Our experience in acquiring other businesses and
technologies is limited. Potential acquisitions also involve numerous risks,
including:

    .  problems assimilating the purchased operations, technologies or
       products;

    .  unanticipated costs associated with the acquisition;

    .  diversion of management's attention from our core business;

    .  adverse effects on existing business relationships with suppliers and
       customers;

    .  risks associated with entering markets in which we have no or limited
       prior experience; and

    .  potential loss of key employees of purchased organizations.

      We cannot assure you that we would be successful in overcoming problems
encountered in connection with such acquisitions, and our inability to do so
could significantly harm our business.

                                       12
<PAGE>


If we do not comply with various government export regulations in the countries
in which we operate and in which our products are used, we could be subject to
significant fines, penalties or other adverse consequences and our
manufacturing operations and ability to satisfy purchase orders and achieve
financial projections could be harmed.

      Because our products can be used or adapted for military, weapons or
other similar uses, our products are subject to U.S., German, Italian and
Russian export control laws and regulations that regulate the export of
products, including components, and disclosure of technical information to
foreign countries and citizens. These laws and regulations may require licenses
for the export of some of our products from one or more of the countries in
which we are operating, as well as licenses for the disclosure of aspects of
our technology to our employees who are employed in, but not citizens of, those
countries. We cannot assure you that we will succeed in obtaining any of these
licenses. Depending on the outcome of any pending request, additional
applications for licenses and other approvals may be required. We cannot assure
you that any of these additional applications will be approved.

If we do not comply with various environmental and other safety regulations, we
could be subject to significant fines, penalties and forced shutdowns of our
manufacturing operations.

      We are subject to a variety of national and local laws and regulations
concerning the storage, use, discharge and disposal of toxic, volatile or
otherwise hazardous or regulated chemicals or materials used in our
manufacturing and assembly processes. Further, we are subject to other safety,
labeling and training regulations as required by local, state and federal law.
We cannot assure you that the systems we have in place to monitor and maintain
compliance with these regulations will be adequate.

The failure of our customers to sell products that incorporate our products due
to industry cyclicality, adverse economic conditions, large inventory
positions, limited marketing resources and other factors could negatively
impact our net sales.

      Our business is significantly dependent on capital expenditures by
manufacturers in the telecommunications as well as the industrial products
area. These areas are cyclical and have historically experienced periods of
oversupply, resulting in significantly reduced demand for capital equipment,
including the products manufactured and marketed by us. Our net sales are
dependent in part upon the ability of our customers to develop and sell systems
that incorporate our fiber amplifiers, Raman pump lasers and fiber lasers. In
addition, our customers could experience financial or other difficulties that
could adversely affect our operations and, in turn, our financial condition or
results of operations.

                         Risks Related to This Offering

We expect to experience volatility in our share price, which could negatively
affect your investment, and you may not be able to resell your shares at or
above the offering price.

      The market price of our common stock after the offering may vary from the
offering price. If you purchase shares of common stock, you may not be able to
resell those shares at or above the offering price. We expect that our common
stock price will fluctuate significantly in the future due to:

    .  any deviations in our net sales revenue, gross profit or net income
       or losses from levels expected by securities analysts;

    .  our relatively limited operating history;

    .  the rapid expansion of our business;

    .  changes in financial estimates by securities analysts;

                                       13
<PAGE>


    .  changes in market valuations of other fiber optic companies and the
       high volatility of the fiber optic industry; and

    .  future sales of our common stock or other securities.

      In addition, the Nasdaq National Market has experienced volatility that
has often been unrelated to the performance of particular companies. Future
market fluctuations may cause our stock price to fall regardless of our
performance.

We will have broad discretion to use the proceeds from this offering. If we do
not use the proceeds effectively to develop and grow our business, your
investment could suffer.

      We intend to use a portion of the proceeds from this offering for the
expansion of our manufacturing facilities, marketing and distribution
activities, research and development activities and general corporate purposes.
We may use the balance of the proceeds to acquire or invest in related
businesses, products and technologies. Our management will have broad
discretion in deciding how we use the net proceeds from this offering,
including the uses for which we have provided estimated amounts in "Use of
Proceeds." You will not have the opportunity to evaluate the economic,
financial or other information on which we base our decisions regarding the use
of the net proceeds from this offering and we may spend these proceeds in ways
that do not increase our results of operations or market value.

Insiders will continue to have substantial control over us after this offering
and could delay or prevent a change in our corporate control and cause our
stock price to decline.

      Upon completion of this offering and assuming no exercise of the
underwriters' over-allotment option, our executive officers, directors and our
existing principal stockholders who hold 5% or more of the outstanding common
stock and their affiliates will beneficially own approximately 90% of our
outstanding common stock based on shares outstanding as of December 31, 2000.
As a result, these stockholders will be able to continue to exercise
significant control over all matters requiring stockholder approval, including
the election of directors and approval of significant corporate transactions,
which could delay or prevent an outside party from acquiring or merging with us
and cause our stock price to decline. You should read "Principal Stockholders"
for a full presentation of the equity ownership of these stockholders.

There may be sales of a substantial amount of our common stock after this
offering that could cause our stock price to fall.

      Our current stockholders hold a substantial number of shares, a
significant portion of which they will be able to sell in the public market 180
days after the date of this prospectus. Sales of a substantial number of shares
of our common stock after this offering could cause our stock price to fall. In
addition, the sale of these shares could impair our ability to raise capital
through the sale of additional stock. You should read "Shares Eligible for
Future Sale" for a full discussion of the shares that may be sold in the public
market in the future.

Provisions of our charter documents, Delaware law and change of control
agreements may have anti-takeover effects that could prevent a change in
control, which may cause our stock price to decline.

      Provisions of our certificate of incorporation and bylaws may discourage,
delay or prevent a merger or acquisition that a stockholder may consider
favorable. These provisions include authorizing our board of directors to issue
preferred stock without stockholder approval, limitations on shareholder action
by written consent, and prohibiting cumulative voting in the election of
directors. Certain provisions of Delaware law also may discourage, delay or
prevent someone from acquiring or merging with us, which may cause the market
price of our common stock to decline. You should read "Description of Capital
Stock--Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions" for
a full discussion of the charter and bylaw provisions and Delaware anti-
takeover law.

                                       14
<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This prospectus, including the sections entitled "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," contains forward-looking statements.
These statements involve known and unknown risks, uncertainties and other
factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by the forward-looking statements. These risks and other factors
include those listed under "Risk Factors" and elsewhere in this prospectus. In
some cases, you can identify forward-looking statements by words such as "may,"
"will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue" or the negative of these terms
or other comparable words. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following:

    .  the expansion of our manufacturing capacity;

    .  improvement of our manufacturing efficiencies;

    .  development and introduction of new products;

    .  anticipated sources of future revenues;

    .  the possibility of lower prices, reduced margins and loss of market
       share due to increased competition;

    .  anticipated expenditures for research and development, sales and
       marketing and general and administrative expenses; and

    .  the adequacy of our capital resources to fund our operations.

      These statements are only predictions. Although we believe that the
expectations reflected in the forward-looking statements are reasonable at this
time, we cannot guarantee future results, levels of activity, performance or
achievements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information or future
events.

                                       15
<PAGE>

                                USE OF PROCEEDS

      We estimate our net proceeds from the sale of the 8,200,000 shares of
common stock offered by us in this offering to be approximately $112.4 million,
based on an assumed initial public offering price of $15.00 per share and after
deducting the estimated underwriting discount and offering expenses. The net
proceeds are expected to be approximately $128.7 million if the underwriters'
over-allotment option is exercised in full.

      We intend to use the net proceeds of this offering for:

<TABLE>
<CAPTION>
                            Purpose                             Amount
                            -------                         ---------------
                                                            (approximately)
      <S>                                                   <C>
      expansion of manufacturing facilities                   $80 million
      sales and marketing activities                          $14 million
      research and development activities                     $18 million
      working capital and other general corporate purposes      Remainder
</TABLE>

      If the opportunity arises, we may use a portion of the net proceeds from
this offering to acquire or invest in related businesses, joint ventures,
products and technologies. Except for the agreement in principle for IPG Laser
to acquire a 51% interest in NTO IRE-POLUS, our Russian affiliate, we currently
have no commitments or agreements for any material acquisition of, or
investment in, any third party, or creation of any joint ventures. The
estimated amounts set forth above and the timing of these expenditures will
vary depending on a number of factors, including future revenue growth, if any,
the amount of cash we generate from operations, the progress of our
manufacturing, sales and marketing expansion efforts and our international
market penetration. See "Risk Factors--We have broad discretion to use the
proceeds from this offering. If we do not use the proceeds effectively to
develop and grow our business, your investment could suffer." Pending any use
of the net proceeds for the above purposes, we intend to invest the funds in
short-term, interest-bearing, investment grade securities. For more
information, see "Business--The IPG Strategy."

                                DIVIDEND POLICY

      We have never paid dividends on our capital stock. We currently intend to
retain future earnings to finance the growth and development of our business,
and we do not anticipate paying any dividends in the foreseeable future. Our
loan agreements include covenants which may restrict our ability to pay
dividends. In addition, certain of the loans to our German subsidiary, IPG
Laser, restrict the payment of dividends to IPG. For more information about
these loans, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

                                       16
<PAGE>

                                 CAPITALIZATION

      The following table sets forth our cash, debt, minority interests and
capitalization as of September 30, 2000:

    .  on an actual basis;

    .  on a pro forma basis, giving effect to:

      .  the issuance of 2,806,000 shares of our common stock in connection
         with the acquisition of the remaining ownership of IPG Laser on
         October 4, 2000;

      .  the issuance, subsequent to September 30, 2000, of 1,000,000
         shares of common stock for $500,000 and options to purchase
         2,000,000 shares of common stock at an exercise price of $1.50 per
         share, reflecting a compensation charge of $12.0 million and
         deferred compensation charge of $22.0 million;

      .  the issuance, subsequent to September 30, 2000, of options to
         purchase 1,607,000 common shares at a weighted-average exercise
         price of $3.25 per share to employees, consultants and members of
         the Board of Directors, reflecting a deferred compensation charge
         of $14.7 million.

      .  the conversion of all outstanding shares of Series A preferred
         stock into 1,000,000 shares of common stock;

      .  the issuance of an additional 800,000 shares of Series B preferred
         stock at $25.00 per share subsequent to September 30, 2000;

      .  the conversion of all outstanding shares of Series B preferred
         stock into 11,083,333 shares of common stock; and

    .  on a pro forma as adjusted basis, giving effect to the sale of
       8,200,000 shares of our common stock in this offering, at an assumed
       initial public offering price of $15.00 per share and after deducting
       the estimated underwriting discount and estimated offering expenses,
       and our receipt and application of the net proceeds.

                                       17
<PAGE>


      You should read this table together with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Capital Stock," our combined consolidated financial statements
and the related notes and the other financial information in this prospectus.

<TABLE>
<CAPTION>
                                                       September 30, 2000
                                                  -------------------------------
                                                                       Pro Forma
                                                  Actual   Pro Forma  As Adjusted
                                                  -------  ---------  -----------
                                                    (In thousands, except per
                                                           share data)
<S>                                               <C>      <C>        <C>
Cash............................................  $52,999  $ 73,499     $185,869
                                                  =======  ========    =========
Debt, including current portion.................  $ 7,299  $  7,299      $ 7,299
                                                  -------  --------    ---------
Minority interest...............................       10        10           10
                                                  -------  --------    ---------
Convertible redeemable preferred stock--Series
 B, $0.0001 par value; 3,800,000 shares
 authorized, 3,000,000 shares issued and
 outstanding at September 30, 2000 actual; no
 shares issued or outstanding at September 30,
 2000 on a pro forma and pro forma as adjusted
 basis..........................................   62,389       --           --
                                                  -------
Shareholders' equity:
Preferred stock--$0.0001 par value; 700,000
 shares authorized, no shares issued or
 outstanding....................................      --        --           --
Convertible preferred stock--Series A, $0.0001
 par value; 500,000 shares authorized, 500,000
 shares issued and outstanding at September 30,
 2000 actual; no shares issued or outstanding at
 September 30, 2000 on a pro forma and pro forma
 as adjusted basis..............................    4,954       --           --
Common stock, $0.0001 par value, 100,000,000
 shares authorized, 67,961,868 shares issued and
 outstanding at September 30, 2000 actual;
 100,000,000 shares authorized, 83,851,201
 shares issued and outstanding at September 30,
 2000 on pro forma basis and 500,000,000 shares
 authorized, 92,051,201 issued and outstanding
 at September 30, 2000 on a pro forma as
 adjusted basis.................................        7         8            9
Additional paid-in capital......................   30,934   164,120      276,489
Warrants to issue common stock..................   12,400    15,707       15,707
Notes receivable from shareholders..............     (440)     (440)        (440)
Deferred compensation...........................  (17,452)  (54,103)     (54,103)
Accumulated deficit.............................  (11,362)  (23,362)     (23,362)
Accumulated other comprehensive income..........     (687)     (687)        (687)
                                                  -------  --------    ---------
Total shareholders' equity......................   18,354   101,243      213,613
                                                  -------  --------    ---------
  Total capitalization..........................  $88,052  $108,552    $ 220,922
                                                  =======  ========    =========
</TABLE>
--------

The information provided in the above table excludes:

    .  5,126,532 shares of common stock issuable upon exercise of options
       outstanding at December 31, 2000 under our 2000 stock incentive plan,
       with a weighted-average exercise price of $0.99 per share, 33,000
       options exercised in December 2000 and 2,653,000 shares issuable upon
       exercise of options granted subsequent to December 31, 2000, with a
       weighted-average exercise price of $2.06 per share;


    .  5,525,600 shares reserved for future issuance under our 2000 stock
       incentive plan; and

    .  3,166,667 shares of common stock issuable upon exercise of warrants
       outstanding at December 31, 2000 held by owners of our Series B
       preferred stock, assuming an exercise price of $7.50 per share.

                                       18
<PAGE>

                                    DILUTION

      The pro forma net tangible book value of our common stock as of September
30, 2000 was approximately $101.1 million, or $1.21 per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the pro forma number of shares of
common stock outstanding after giving effect to the pro forma adjustments
described in "Capitalization." Dilution in pro forma net tangible book value
per share represents the difference between the amount per share paid by
investors in this offering and the pro forma net tangible book value per share
of our common stock immediately after the offering. After giving effect to our
sale of shares of common stock offered by this prospectus, at an assumed
initial public offering price of $15.00 per share, and after deducting the
underwriting discount and estimated offering expenses payable by us, our pro
forma net tangible book value would have been approximately $213.4 million, or
$2.32 per share. This represents an immediate increase in pro forma net
tangible book value of $1.11 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $12.68 per share to
new investors purchasing shares of common stock in this offering. The following
table illustrates this dilution.

<TABLE>
<S>                                                                <C>   <C>
   Initial public offering price per share........................       $15.00
   Pro forma net tangible book value per share as of September 30,
    2000.......................................................... $1.21
   Increase per share attributable to new investors...............  1.11
                                                                   -----
   Pro forma net tangible book value per share after this
    offering......................................................         2.32
                                                                         ------
   Dilution per share to new investors............................       $12.68
                                                                         ======
</TABLE>

      The following table summarizes, on a pro forma basis after giving effect
to the pro forma adjustments described in "Capitalization," as of September 30,
2000:

    .  the number of shares of common stock issued by us;

    .  the total consideration paid to us;

    .  the average price per share paid by existing stockholders; and

    .  the average price per share paid by new investors, before deducting
       the estimated underwriting discount and offering expenses payable by
       us.

<TABLE>
<CAPTION>
                                                       Total
                                Shares Purchased   Consideration
                               ------------------ ---------------- Average Price
                                 Number   Percent  Amount  Percent   Per Share
                               ---------- ------- -------- ------- -------------
<S>                            <C>        <C>     <C>      <C>     <C>
Existing stockholders......... 83,851,201    91%  $ 86,416    41%     $ 1.03
New investors.................  8,200,000     9%  $123,000    59%     $15.00
                               ----------   ---   --------
Total......................... 92,051,201   100%  $209,416   100%     $ 2.27
                               ==========   ===   ========
</TABLE>

      The information in the above tables excludes the following:

    .  5,126,532 shares of common stock issuable upon exercise of options
       outstanding at December 31, 2000 under our 2000 stock incentive plan
       with a weighted average exercise price of $0.99 per share, options to
       purchase 33,000 shares of common stock exercised in December 2000 and
       2,653,000 shares of common stock issuable upon exercise of options
       granted subsequent to December 31, 2000 and prior to the date of this
       prospectus with a weighted average exercise price of $2.06 per share;

                                       19
<PAGE>




    .  3,166,667 shares of common stock issuable upon exercise of warrants
       outstanding at December 31, 2000 at an exercise price of $7.50 per
       share held by owners of our Series B preferred stock, assuming an
       initial public offering price of $15.00 per share; and

    .  up to 1,175,000 shares of common stock that may be issued by us
       pursuant to the underwriters' over-allotment option.

      Assuming exercise of all outstanding options and warrants, pro forma net
tangible book value per share at September 30, 2000 would be $1.38,
representing dilution of $12.52 per share to new investors. For more
information about dilution, see "Management--Stock Option Plan," "Description
of Capital Stock" and the notes to our combined consolidated financial
statements included in this prospectus.

                                       20
<PAGE>

                 SELECTED COMBINED CONSOLIDATED FINANCIAL DATA

      We were incorporated on December 2, 1998 and at that date shared an
affiliation through common ownership with IPG Laser and IPG Fibertech,
collectively known as the IPG Group. In August 2000, the IPG Group was
reorganized, resulting in IPG Laser becoming our wholly-owned subsidiary upon
completion of the reorganization. Because IPG Laser and IPG Fibertech, the 80%
owned subsidiary of IPG Laser, have been under common managerial, operational
and shareholder control since inception, the transfers of interest are
accounted for in the financial statements as a reorganization of companies
under common control in a manner similar to a pooling of interests. Our
combined consolidated financial statements include the accounts of IPG Laser
and IPG Fibertech. All intercompany transactions and balances have been
eliminated. For purposes of presentation of the combined consolidated financial
statements for the years ended December 31, 1997 and 1998, IPG Laser and IPG
Fibertech, are referred to as the Predecessor.

      We prepare our financial statements in accordance with accounting
principles generally accepted in the United States. The selected combined
consolidated financial data presented below as of December 31, 1998 and 1999
and for each of the three years in the period ended December 31, 1999 are
derived from our audited combined consolidated financial statements included
elsewhere in this prospectus. The selected combined consolidated financial data
as of December 31, 1995, 1996 and 1997 and for the years ended December 31,
1995 and 1996 are derived from our unaudited combined consolidated financial
statements that are not included in this prospectus. The unaudited combined
consolidated financial statements have been prepared on the same basis as the
audited combined consolidated financial statements and, in the opinion of our
management, include all adjustments necessary for a fair presentation of the
information set forth in such statements. Historical results are not
necessarily indicative of results that may be expected for any future period.

      The combined consolidated financial data as of September 30, 2000 and for
the nine months ended September 30, 1999 and 2000 are derived from our
unaudited combined consolidated financial statements included elsewhere in this
prospectus. We have prepared the unaudited information on the same basis as the
audited combined consolidated financial statements and have included all
adjustments that we consider necessary for a fair presentation of our financial
position and operating results for the interim periods. Our results of
operations for the nine month period ended September 30, 2000 are not
necessarily indicative of our results for the full fiscal year ended December
31, 2000.

      You should read the Selected Combined Consolidated Financial Data set
forth below in conjunction with the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our combined
consolidated financial statements and the related notes included elsewhere in
this prospectus.

                                       21
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               For the nine
                                                                                                               months ended
                                                                       For the year ended December 31,         September 30,
                                                                     ---------------------------------------  ----------------
                                                                      1995    1996    1997    1998    1999     1999     2000
                                                                     ------  ------  ------  ------  -------  -------  -------
                                                                            (in thousands, except per share data)
                                                                             Predecessor
                                                                     ------------------------------
<S>                                                                  <C>     <C>     <C>     <C>     <C>      <C>      <C>
Statement of Operations Data:
Net sales........................................................... $1,396  $1,486  $3,097  $8,263  $18,640  $14,823  $32,689
Cost of sales (1)...................................................    628     930   2,436   5,560    9,688    6,882   12,610
                                                                     ------  ------  ------  ------  -------  -------  -------
Gross profit (1)....................................................    768     556     661   2,703    8,952    7,941   20,079
                                                                     ------  ------  ------  ------  -------  -------  -------
Operating expenses:
 Sales and marketing (2)............................................     87      51     219     374      677      619    1,049
 Research and development (3).......................................    187     305     127     682    1,477    1,036    1,127
 General, administrative and other (4)..............................    270     431     276   1,000    2,712    2,006    3,946
 Equity-based compensation..........................................     --      --      --      --       --       --   12,035
                                                                     ------  ------  ------  ------  -------  -------  -------
   Total operating expenses.........................................    544     787     622   2,056    4,866    3,661   18,157
                                                                     ------  ------  ------  ------  -------  -------  -------
Operating income (loss).............................................    224    (231)     39     647    4,086    4,280    1,922
Interest income (expense), net......................................    (35)    (60)   (119)   (208)    (303)    (231)     (77)
Other income (expense), net.........................................     (2)    106     108     (47)     273       40      475
                                                                     ------  ------  ------  ------  -------  -------  -------
Income (loss) before provision (benefit) for income taxes
 and minority interest..............................................    187    (185)     28     392    4,056    4,089    2,320
Provision (benefit) for income taxes................................     72     (96)     22     234    2,102    2,178    5,828
Minority interest...................................................     --      --      --      (4)      (3)      (5)      --
                                                                     ------  ------  ------  ------  -------  -------  -------
Net income (loss)...................................................    115     (89)      6     154    1,951    1,906   (3,508)
Accretion of preferred stock........................................     --      --      --      --       --       --     (169)
                                                                     ------  ------  ------  ------  -------  -------  -------
Net income (loss) available to common shareholders.................. $  115  $  (89) $    6  $  154  $ 1,951  $ 1,906  $(3,677)
                                                                     ======  ======  ======  ======  =======  =======  =======

Net income (loss) per share: (5)
 Basic .............................................................     --      --      --      --  $  0.03  $  0.03  $ (0.06)
                                                                                                     =======  =======  =======
 Diluted ...........................................................     --      --      --      --  $  0.03  $  0.03  $ (0.06)
                                                                                                     =======  =======  =======
Pro forma net loss per share - basic and diluted (5)................     --      --      --      --       --       --  $ (0.05)
--------------------------------------------------
                                                                                                                       =======
</TABLE>
--------
(1) Excludes $677 of equity-based compensation for the nine months ended
    September 30, 2000.
(2) Excludes $166 of equity-based compensation for the nine months ended
    September 30, 2000.
(3) Excludes $184 of equity-based compensation for the nine months ended
    September 30, 2000.

(4) Excludes $11,008 of equity-based compensation for the nine months ended
    September 30, 2000.

(5) The calculation of net income (loss) per share and pro forma basic and
    diluted net loss per share is described in Note 3 to the combined
    consolidated financial statements.

<TABLE>
<CAPTION>
                                        December 31,
                             -----------------------------------  September 30,
                              1995   1996   1997   1998   1999        2000
                             ------ ------ ------ ------ -------  -------------
                                              (in thousands)
                                     Predecessor
                             ---------------------------
<S>                          <C>    <C>    <C>    <C>    <C>      <C>
Balance Sheet Data:
Cash and cash equivalents..  $  200 $   72 $  222 $1,181 $   706    $ 52,999
Working capital
 (deficiency)..............      27    587    725    547    (775)     56,994
Total assets...............   1,186  2,186  3,456  8,819  12,800     102,977
Long-term debt, including
 current portion...........     762  1,597  2,483  4,716   4,646       7,299
Convertible redeemable
 preferred stock...........      --     --     --     --      --      62,389
Convertible preferred
 stock.....................      --     --     --     --      --       4,954
Shareholders' equity.......      75    145    256    435   2,216      18,354
</TABLE>

                                       22
<PAGE>

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

      The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ substantially from
those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus. The following discussion should be read together with our combined
consolidated financial statements and related notes thereto included elsewhere
in this prospectus.

Overview

      We design, manufacture and sell high performance fiber amplifiers, Raman
pump lasers and fiber lasers for telecommunications and industrial
applications. Our proprietary technology, materials science expertise and
vertically integrated manufacturing operations enable us to meet the demands of
our customers for cost-effective fiber amplifiers and lasers having high power
output and reliable performance. Our telecommunications products are used in
several segments of optical communications networks. Our industrial products
are used for a variety of manufacturing, medical and aerospace applications.

Financial Statement Presentation

      We were incorporated as a Delaware corporation on December 2, 1998 and
began operations in the United States in 1999. In November 1994, our founding
shareholder founded and incorporated a new company in Germany, IPG Laser GmbH.
In 1998, IPG Fibertech S.r.l. was incorporated in Italy as an 80% owned
subsidiary of IPG Laser. In August 2000, we restructured the ownership of
several affiliated companies, acquiring 100% of IPG Laser and its 80% owned
subsidiary, IPG Fibertech. For more detail regarding this restructuring, see
"Transactions with Related Parties--History of IPG and Restructuring." In
addition, IPG Laser, our wholly-owned subsidiary, expects to acquire a 51%
interest in our Russian affiliate, NTO IRE-POLUS, in the first half of 2001.
NTO IRE-POLUS began its operations in 1991.

      The combined consolidated financial statements and all financial data
included throughout this prospectus include IPG Laser and IPG Fibertech. These
combined consolidated financial statements have been prepared on the basis of
accounting principles generally accepted in the United States. All inter-
company transactions and balances have been eliminated. The historical
financial statements of IPG Laser and IPG Fibertech have been prepared in their
local functional currencies and have been translated to U.S. dollars for
purposes of financial reporting. For purposes of the preparation of the
combined consolidated financial statements for the years ended December 31,
1997 and 1998, IPG Laser and IPG Laser's 80% owned subsidiary, IPG Fibertech,
are referred to as the Predecessor. The combination of these financial
statements, in the opinion of management, represents the results of our
operations and financial condition as if the acquisition of IPG Laser and IPG
Fibertech had been in place as of January 1, 1997. However, the results of our
operations may have been different if we had managed these entities as one
consolidated entity. As such, our historical results may not be indicative of
future operations.

      We currently manage our business as two segments: U.S. and Germany. We
believe that these segments share similar economic characteristics and
similarities in product, types of customers and methods of distribution. See
Note 12 to our combined consolidated financial statements included elsewhere in
this prospectus for a further discussion of our operating segments.

Net Sales

      We derive revenues from fiber amplifiers and Raman pump lasers for the
telecommunications industry, and fiber lasers for industrial applications.
Telecommunications revenue represented 76.8% of our revenue for the nine months
ended September 30, 2000.

                                       23
<PAGE>


      During 1999 and throughout 2000, we significantly expanded our sales and
customer relationships. Customers who accounted for more than $100,000 in net
sales from us or our distributors for the eleven months ended November 30, 2000
included ADC, Agilent, Alcatel, Antares Laser Calient, Corning, Corvis, Hughes
Space and Communications, JDS Uniphase, Lucent, Marconi, MIT Lincoln Labs,
Molecular OptoElectronics, Nortel, Siemens, T.E.M. and TeraBeam in our
telecommunications product line and Baasel Scheel Lasergraphics,
DaimlerChrysler Aerospace, GSI Lumonics, Krause Danmark, Purup Escofot and Sunx
in our industrial applications product line. However, we continue to derive a
significant portion of our net sales from a limited number of companies. We had
five customers that individually comprised more than 10% of our net sales in
one or more of the periods in the three year period ended December 31, 1999 and
in the nine month period ended September 30, 2000. The composition of our net
sales to our largest customers has changed significantly during these periods
due to the commencement of our U.S. operations in 1999, the significant growth
in our net sales and the addition of new customers. We seek to continue to add
new customers and to expand our relationships with existing customers. As our
sales base grows, we anticipate that the composition of our net sales to our
significant customers will continue to change. We have provided additional
information about our dependence on a limited number of customers in "Risk
Factors--We depend on a few key customers for a substantial portion of our
sales revenue and the loss of any of these customers or a significant reduction
or fluctuation in sales to these customers could significantly reduce our sales
revenue or cause our results of operations to fluctuate."

      As of September 30, 2000, we did not have any written commitments from
our customers for deliveries to be made in 2001. Our sales are made on a
purchase order basis rather than by long-term purchase commitments. As such,
our customers may cancel or defer purchase orders without penalty on short term
notice.

      The average selling prices of our products generally decrease as the
products mature, especially in the telecommunications industry. These decreases
arise from factors such as increased competition, the introduction of new
products, maintenance of market share and increases in unit volumes. In
addition, we have in the past lowered our selling prices in order to establish
new markets and niches where previously it was not economically feasible for
customers to deploy our products. We cannot predict the timing and degree of
these price declines.

Gross Profits

      Our cost of sales consists primarily of raw materials and components,
direct labor and an allocation of indirect labor and manufacturing overhead. We
are vertically integrated and currently manufacture a majority of the critical
components for our products. Our vertical integration lowers our cost of sales.
We currently maintain surplus inventory of key components sourced from outside
vendors to provide an adequate supply and to be able to fill orders quickly for
our customers. While we have not historically incurred any costs related to
inventory obsolescence, this higher inventory may be subject to a greater risk
of obsolete inventory in the future. Inventories which are considered obsolete
will be written off when identified and charged to cost of sales. For more
information, please refer to "Risk Factors--Our dependence on single or limited
source suppliers for some of our key components and raw materials could
adversely affect our results of operations."

      Our gross profits are typically greater for high power telecommunications
products. Our overall gross profits have increased over the last three years
because of increased productivity and economies of scale. As we continue
automation of our manufacturing processes in both our new and existing
facilities and manufacture additional components in-house, we anticipate
further economies and productivity gains. We expect, however, that these
economies and productivity gains will only partially offset decreases in
average selling prices. Additionally, the increase in manufacturing capacity is
reflected in increased capital expenditures on property, plant and equipment
which will result in increased depreciation expense in future periods. For more
information, please refer to "Risk Factors--If we cannot reduce our
manufacturing costs and introduce higher margin products to offset anticipated
continued reductions in the average selling price of our products, we may
experience reduced sales levels, reduced gross margins and loss of market
share."


                                       24
<PAGE>

Operating Expenses

      Sales and marketing. Sales and marketing expenses consist primarily of
salaries and related personnel costs, travel expenses, expenses related to
trade shows, exhibitions and other marketing events. One of our strategies is
to expand our marketing operations significantly to increase market awareness
and acceptance of our products and build sales from these efforts. In addition,
we expect to expand our customer service and support organizations in order to
maintain and support our customers. We expect to incur additional sales and
marketing expenses in the future as we hire staff, establish an advertising
program, print and distribute promotional material and supply sample products
to potential new customers.

      Research and development. Research and development expenses consist
primarily of salaries and related personnel costs, test and prototype expenses
related to the design of our products, and facilities costs. We use a common
research and development platform for both our telecommunications and
industrial products. Most costs related to product development are recorded as
research and development expenses in the period in which they are incurred.
However, the research and development costs of prototypes developed for
customer-specific solutions are reported as cost of sales if those prototypes
are sold. We expect that research and development expenses will increase
significantly as we continue to enhance our existing products and expand new
product development.

      General, administrative and other. General, administrative and other
expenses consist primarily of salaries and related personnel costs, recruiting
expenses and costs associated with the infrastructure that supports our
operations. We intend to create an information technology department that will
implement and maintain an enterprise resource planning system for our worldwide
operations. We anticipate that in addition to the cost of our new information
technology department, general, administrative and other costs will also
increase to support the expansion of our infrastructure and as a result of
being a public company.

      Equity-based compensation. Equity-based compensation represents the
difference between the estimated fair value of the common stock underlying the
options awarded and the exercise price of those options on the date the options
were granted to our employees and the fair value of options awarded to non-
employees. The deferred compensation charges related to options awarded to our
employees are being amortized using the straight-line method over the vesting
period of the options, which is generally four years. Deferred compensation
related to options awarded to non-employees is being amortized in accordance
with the requirements of FIN 28. In connection with the grant of stock options,
we recorded deferred compensation of approximately $29.5 million through
September 30, 2000 and equity-based compensation expense of approximately
$12.0 million for the nine months ended September 30, 2000. Given the vesting
periods of the awarded options, the $29.5 million of deferred compensation will
be recognized as follows: $16.0 million in 2000, $5.2 million in 2001, $3.9
million in 2002, $3.2 million in 2003 and $1.2 million in 2004. Certain options
awarded during 2000 require variable plan accounting, which requires that
equity-based compensation be remeasured at each reporting date. As such, our
equity-based compensation charge may increase in future periods. Subsequent to
September 30, 2000, we issued 1,000,000 shares of restricted common stock at a
price of $0.50 per share, which will result in a compensation charge of $12.0
million in 2001, and granted 3,607,000 options to purchase common stock to
employees, members of the Board of Directors and consultants which will result
in aggregate deferred compensation expense of $36.7 million, to be recognized
through 2005.

                                       25
<PAGE>

Results of Operations

      The following table sets forth for the periods indicated the percentage
of net sales represented by the items included in our combined consolidated
statements of operations for the years ended December 31, 1997, 1998 and 1999,
and the nine month periods ended September 30, 1999 and 2000.
<TABLE>
<CAPTION>
                                                                                                                  Nine Month
                                                                                              Year Ended         Period Ended
                                                                                             December 31,        September 30,
                                                                                         ----------------------  --------------
                                                                                          1997    1998    1999    1999    2000
                                                                                         ------  ------  ------  ------  ------
                                                                                          Predecessor
                                                                                         --------------
<S>                                                                                      <C>     <C>     <C>     <C>     <C>
Net sales............................................................................... 100.0%  100.0%  100.0%  100.0%  100.0%
Cost of sales(1)........................................................................  78.7%   67.3%   52.0%   46.4%   38.6%
                                                                                         ------  ------  ------  ------  ------
Gross profit(2).........................................................................  21.3%   32.7%   48.0%   53.6%   61.4%
                                                                                         ------  ------  ------  ------  ------
Operating Expenses:
 Sales and marketing(3).................................................................   7.1%    4.5%    3.6%    4.2%    3.2%
 Research and development(4)............................................................   4.1%    8.3%    7.9%    7.0%    3.4%
 General, administrative and other(5)...................................................   8.9%   12.1%   14.6%   13.5%   12.1%
 Equity-based compensation(6)...........................................................   0.0%    0.0%    0.0%    0.0%   36.8%
                                                                                         ------  ------  ------  ------  ------
Total operating expenses................................................................  20.1%   24.9%   26.1%   24.7%   55.5%
                                                                                         ------  ------  ------  ------  ------
Operating income .......................................................................   1.2%    7.8%   21.9%   28.9%    5.9%
Interest income (expense), net..........................................................  (3.8%)  (2.5%)  (1.6%)  (1.6%)  (0.2%)
Other income (expense), net.............................................................   3.5%   (0.6%)   1.5%    0.3%    1.4%
                                                                                         ------  ------  ------  ------  ------
Income before provision for income taxes and minority interest..........................   0.9%    4.7%   21.8%   27.6%    7.1%
Provision for income taxes..............................................................   0.7%    2.8%   11.3%   14.7%   17.8%
Minority interest.......................................................................   0.0%    0.0%    0.0%    0.0%    0.0%
                                                                                         ------  ------  ------  ------  ------
Net income (loss).......................................................................   0.2%    1.9%   10.5%   12.9%  (10.7%)
--------------------------------------------------
                                                                                         ======  ======  ======  ======  ======
</TABLE>
--------
(1)  After allocation of $677 equity-based compensation for the nine months
     ended September 30, 2000, the percentage of net sales would increase to
     36.1%.
(2)  After allocation of $677 equity-based compensation for the nine months
     ended September 30, 2000, the percentage of net sales would decrease to
     63.9%.
(3)  After allocation of $166 of equity-based compensation for the nine months
     ended September 30, 2000, the percentage of net sales would increase to
     3.7%.
(4)  After allocation of $184 of equity-based compensation for the nine months
     ended September 30, 2000, the percentage of net sales would increase to
     5.5%.

(5)  After allocation of $11,008 of equity-based compensation for the nine
     months ended September 30, 2000, the percentage of net sales would
     increase to 45.7%.

(6)  Percentage of net sales would be 0.0% for the nine months ended September
     30, 2000 after allocation of equity-based compensation.


Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999

      Net sales. Net sales increased $17.9 million, or 120.5%, to $32.7 million
for the nine months ended September 30, 2000 from $14.8 million during the
comparable period in 1999. This increase was due primarily to new orders for
fiber amplifiers for free-space optical communications and, in part, to orders
for long-haul fiber amplifiers and Raman pump lasers and a growth in our
industrial products sales. Our telecommunications products accounted for $25.1
million, or 76.8%, of net sales for the nine months ended September 30, 2000
and $11.4 million, or 76.8%, of net sales for the nine months ended September
30, 1999. Our industrial products accounted for the remainder of our net sales
in both of these periods. We do not foresee a significant change in our product
mix in the short term. During the nine months ended September 30, 2000, 71.2%
of our net sales were in North America and 16.7% of our net sales were in
Europe. Net sales to customers in North America increased $14.0 million, or
152.3%, to $23.3 million for the nine months ended September 30, 2000 from $9.2
million during the comparable period in 1999 due to increased sales of optical
communications products and the overall expansion of our customer base in the
United States. We expect that our sales to North American customers will
continue to comprise the significant majority of our worldwide sales.

                                       26
<PAGE>


      Gross Profits. Gross profits increased $12.1 million, or 152.9%, to $20.1
million for the nine months ended September 30, 2000 from $7.9 million during
the comparable period in 1999. This increase resulted from both an increase in
net sales and the effects of increased productivity, economies of scale and
volume component purchases.

      Sales and marketing expenses. Sales and marketing expenses increased
$430,000, or 69.5%, to $1.0 million for the nine months ended September 30,
2000 from $619,000 during the comparable period in 1999. This increase in
marketing expenses resulted principally from an increase in the number of sales
and marketing personnel, resulting in an increase of approximately $200,000,
and an increase in expenditures for public relations and promotional materials
totaling $230,000.

      Research and development expenses. Research and development expenses
increased $91,000, or 8.8%, to $1.1 million for the nine months ended September
30, 2000 from $1.0 million during the comparable period in 1999. This increase
resulted from the hiring of additional research and development personnel and
more research and development activities conducted by the existing staff.

      General, administrative and other expenses. General, administrative and
other expenses increased $1.9 million, or 96.7%, to $3.9 million for the nine
months ended September 30, 2000 from $2.0 million during the comparable period
in 1999. The increase resulted principally from $750,000 in additional costs
related to additional hiring and higher salaries, and $675,000 for legal, tax
and accounting fees related to the reorganization in the third quarter of 2000.

      Equity-based compensation expenses. During the nine months ended
September 30, 2000, we issued options to purchase approximately 2.0 million
shares of our common stock at a weighted-average exercise price of $0.60 per
share, resulting in deferred compensation of $29.5 million. This deferred
compensation will be amortized over the options' vesting periods, generally
four years, and resulted in the recognition of $12.0 million of equity-based
compensation expense during the nine month period ended September 30, 2000. Of
this amount, approximately $11.5 million was attributable to our United States
operating segment. Options to purchase our common stock issued during the
comparable period in 1999 did not result in deferred compensation.

      Interest income (expense), net. Net interest expense decreased $154,000,
or 66.7%, to $77,000 for the nine months ended September 30, 2000 from $231,000
during the comparable period in 1999. The decrease in interest expense was
caused principally by the capitalization of approximately $152,000 of interest
expense during the nine months ended September 30, 2000 for construction
projects in the United States and Germany, and the effect of interest income on
the net proceeds from the private placements of Series A and Series B preferred
stock.

      Other income (expense), net. Other income increased $435,000 to $475,000
in the nine months ended September 30, 2000 from $40,000 during the comparable
period in 1999. Other income is primarily comprised of transaction exchange
rate gains and losses from U.S. dollar denominated sales and cost of sales by
our German and Italian subsidiaries.

      Provision for income taxes. Provision for income taxes has increased $3.7
million to $5.8 million for the nine months ended September 30, 2000 from $2.2
million during the comparable period in 1999, resulting in an effective tax
rate in excess of 100% in 2000 and 53% in 1999. The increased effective tax
rate reflects nondeductible equity based compensation which was recorded in
2000.

      Net income. As a result of the foregoing factors, we had net income of
$1.9 million for the nine months ended September 30, 1999, compared to a net
loss of $3.5 million in the corresponding period in 2000. Our U.S. operations
incurred a net loss of $6.3 million, before intercompany eliminations, as
compared with net income of $3.2 million for our German operations, principally
as a result of equity-based compensation

                                       27
<PAGE>


expense related to U.S. employees and, to a lesser extent, costs related to
commencing operations in the United States. Excluding equity-based
compensation, our net income would have been $7.3 million in the nine months
ended September 30, 2000, compared to net income of $1.9 million in the
corresponding period in 1999.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      Net sales. Net sales increased $10.4 million, or 125.6%, to $18.6 million
in 1999 from $8.3 million in 1998. This increase was attributable primarily to
an increase in the number of new customers and sales growth from existing
customers, with fiber amplifiers for the access segment comprising a majority
of our net sales. Our telecommunications products accounted for 77.2% of our
net sales in 1999 and 72.1% in 1998. Net sales to North American customers
accounted for approximately 61% of the increase in net sales, with the
remainder resulting from growth at our German operations.

      Gross Profits. Gross profits increased $6.2 million, or 231%, to $9.0
million for 1999 from $2.7 million for 1998. This increase is principally due
to increased sales during the period and an overall increase in the gross
profit percentage from 32.7% to 48.0%. The increase in gross profit resulted
from increased productivity and economies of scale and volume component
purchases.

      Sales and marketing expenses. Sales and marketing expenses increased
$303,000, or 81.0%, to $677,000 in 1999 from $374,000 in 1998. This increase
resulted principally from increased senior management time devoted to sales and
marketing efforts during 1999, and to a lesser extent, our increased attendance
at trade shows and fairs.

      Research and development expenses. Research and development expenses
increased $795,000, or 116.6%, to $1.5 million in 1999 from $682,000 in 1998.
This increase resulted from the hiring of additional research and development
personnel, the continued development of our existing technology platform and
the development of new products for both telecommunications and industrial
applications.

      General, administrative and other expenses. General, administrative and
other expenses increased $1.7 million, or 171.2%, to $2.7 million in 1999 from
$1.0 million in 1998. This increase resulted from start-up costs related to the
formation of IPG Photonics in the United States, and approximately $350,000
attributable to the hiring of additional management and administrative staff,
such as our controller and vice president of corporate affairs.

      Interest income (expense), net. Net interest expense increased $95,000,
or 45.7%, to $303,000 in 1999 from $208,000 in 1998 due to an overall increase
in borrowings.

      Other income (expense), net. Other income increased $320,000 to $273,000
in 1999 from net other expense of $47,000 in 1998, reflecting primarily foreign
currency gains arising from the appreciation of the U.S. dollar relative to the
Deutsche mark in 1999.

      Provision for income taxes. Provision for income taxes increased $1.9
million to $2.1 million in 1999 from $234,000 in 1998 resulting in an effective
tax rate of 53% in 1999 and 59.7% in 1998. This decreased tax rate reflects the
contribution to total net income before taxes from our U.S. operations during
1999 where the tax rate is lower, coupled with a high statutory tax rate in
Germany.

      Net income. As a result of the foregoing factors, net income increased
from $154,000 in 1998 to $2.0 million in 1999. Substantially all of this
increase was attributable to our Germany operating segment, as we only
commenced operations in the U.S. in 1999.

                                       28
<PAGE>

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

      Net sales. Net sales increased $5.2 million, or 166.8%, to $8.3 million
in 1998 from $3.1 million in 1997. This increase was primarily due to a large
order from a new customer for use of our products in low density access
networks and, to a lesser extent, increased sales of free-space optical
communication products. Our telecommunications products accounted for 72.1% of
our net sales in 1998 and 61.3% in 1997.

      Gross Profits. Gross profits increased $2.0 million, or 308.9%, to $2.7
million for 1998 from $661,000 for 1997. This increase resulted from increased
sales during the period and an overall increase in the gross profit percentage
from 21.3% to 32.7%. The increase in gross profit percentage resulted from
increased productivity in manufacturing and assembly processes, the
implementation and improvement of training programs for our assembly personnel
and gains resulting from economies of scale, higher yields on component
production and the improved quality of purchased components.

      Sales and marketing expenses. Sales and marketing expenses increased
$155,000, or 70.8%, to $374,000 in 1998 from $219,000 in 1997. This increase
resulted principally from increased senior management time devoted to sales and
marketing efforts.

      Research and development expenses. Research and development expenses
increased $555,000, or 437.0%, to $682,000 in 1998 from $127,000 in 1997. This
increase resulted from additional resources being devoted to research and
development for the development of new products, fibers and components.

      General, administrative and other. General, administrative and other
expenses increased $724,000, or 262.3%, to $1.0 million in 1998 from $276,000
in 1997. This increase resulted from the general expansion of the business,
including additions to our senior management team in Germany and hiring
additional administrative personnel.

      Interest income (expense), net. Net interest expense increased $89,000,
or 74.8%, to $208,000 in 1998 from $119,000 in 1997. This increase resulted
from an increase in overall borrowings.

      Other income (expense), net. Other expense increased $155,000 to $47,000
in 1998 from net other income of $108,000 in 1997, reflecting foreign currency
effects.

      Provision for income taxes. Provision for income taxes increased $212,000
to $234,000 in 1998 from $22,000 in 1997, resulting in an effective tax rate of
59.7% in 1998 and 78.6% in 1997.

      Net income. As a result of the foregoing factors, net income increased to
$154,000 in 1998 from $6,000 in 1997.

Liquidity and Capital Resources

      From January 1, 1997 through September 30, 2000, our principal sources of
funds were $8.2 million from operations, $6.4 million from net borrowings and
$80.0 million in gross proceeds from the sale in 2000 of our Series A and
Series B preferred stock. Our working capital excluding cash was $4.0 million
and our cash on hand, net of $12.6 million in restricted cash, was $53.0
million at September 30, 2000. These amounts do not reflect the receipt of an
additional $20.0 million subsequent to September 30, 2000 as a result of the
sale of additional shares of our Series B preferred stock.

      Our liquidity requirements arise principally from the need to:

    .  expand our manufacturing facilities;

    .  increase our marketing and distribution activities;

                                       29
<PAGE>


    .  increase our research and development activities; and

    .  fund our working capital.

  As of December 31, 2000, we had approximately $83.0 million in cash and short
term money market investments, including the amounts held in a restricted cash
account pursuant to our debt agreement. We expect to raise $112.4 million from
this offering, net of underwriting discounts and commissions and offering
expenses. These funds, together with any cash from operations, will serve as
the principal sources to fund our capital expenditures and working capital
needs based upon our current business plan.

Cash Flow from Operating Activities

      Net cash provided by operating activities totaled $3.1 million for the
nine months ended September 30, 1999 and $1.8 for the nine months ended
September 30, 2000. Net cash provided by operating activities totaled $191,000,
$2.0 million and $4.2 million for the years ended December 31, 1997, 1998 and
1999, respectively. Our net income before non-cash charges totaled
approximately $8.8 million in the first nine months of 2000. This amount was
largely offset by a net use of cash of approximately $7.0 million to fund
working capital, reflecting an increase in accounts receivable and inventory
that was offset by increases in accrued expenses and income taxes payable. In
December 2000, we entered into a purchase agreement with our laser diode chip
supplier requiring minimum purchases by us of approximately $66.7 million
through December 31, 2002. Depending on future production levels, this
arrangement could result in higher or lower costs for these components compared
to historical costs.

Cash Flow from Investing Activities

      Cash used in investing activities totaled $3.4 million and $9.9 million
for the nine months ended September 30, 1999 and 2000, respectively. The
increase resulted from expenditures on property, plant and equipment, including
new manufacturing facilities. Cash used in investing activities totaled $1.3
million, $3.1 million and $5.2 million for the years ended December 1997, 1998
and 1999, respectively. IPG Laser expects to acquire a 51% interest in NTO IRE-
POLUS in exchange for a commitment to invest up to $5.0 million in the company.
Although we may use a portion of our cash resources to acquire additional
technology or businesses that are complementary to our business, we have no
current plans or commitments to do so. Based on our current business plan, we
expect that our capital expenditures through the end of 2002 will consist
primarily of:

    .  approximately $25.0 million for the acquisition of land and the
       construction of buildings in the United States and Germany;

    .  approximately $15.0 million for the automation and improvement of our
       manufacturing processes; and

    .  approximately $40.0 million for the acquisition of plant and
       equipment to furnish and fit the new facilities in the United States,
       Germany and Italy.

      These amounts include $11.8 million for the construction of a new
manufacturing and administrative facility in the United States, all of which
was contractually committed at September 30, 2000.

Cash Flow from Financing Activities

      Cash used in financing activities totaled $11,000 for the nine months
ended September 30, 1999, while cash provided by financing activities totaled
$60.3 million for the nine months ended September 30, 2000. Cash provided by
financing activities totaled $1.3 million, $2.0 million, and $585,000 for the
years ended December 31, 1997, 1998 and 1999, respectively. Cash generated by
financing activities in 2000 was primarily due to the gross proceeds from the
sale of shares of Series A preferred stock of $5.0 million and the gross
proceeds from

                                       30
<PAGE>


the sale of shares of Series B preferred stock and common stock warrants of
$75.0 million through September 30, 2000. An additional $20.0 million was
raised from the sale of Series B preferred stock subsequent to September 30,
2000. As part of the restructuring of the IPG Group, we acquired IPG Laser,
requiring the payment of approximately $9.9 million to certain stockholders. As
part of the initial restructuring transaction, we issued 2,300,000 shares of
our common stock to one stockholder. The completion of this restructuring in
October 2000 resulted in the issuance of an additional 2,806,000 shares of our
common stock.

      We have several construction loans and revolving credit facilities with
banks in the United States and Germany. As of November 30, 2000, we owed $12.2
million under these loans and facilities and had additional borrowing
availability of $26.9 million. Borrowings under these loans and facilities have
been used principally to finance our expansion and for working capital
purposes. Borrowings under these loans and credit facilities mature through
2006, are secured by substantially all of our assets and bore interest at a
weighted average rate of 4.56% as of November 30, 2000. These loans and
facilities cross-default to each other and contain restrictive financial and
operating covenants, including covenants requiring us to maintain a specified
ratio of total debt to tangible capital and a debt service coverage ratio. Most
of our German loans also restrict our ability to pay dividends from IPG Laser
to IPG Photonics. Based upon our current financial condition and results of
operations, we do not expect that these financial ratios and restrictions will
materially restrict our operations. Subsequent to September 30, 2000, we placed
$12,560,000 in a restricted overnight investment account which is available to
our lender to offset our obligations under the U.S. revolving credit
facilities.

      We believe that the net proceeds from this offering, along with the cash
raised in the third and fourth quarters of 2000 in private equity financings,
our cash flows from operations and borrowings available under our credit
facilities will provide us with sufficient liquidity to meet our current and
anticipated financial obligations, committed capital expenditures and other
liquidity needs through 2001. However, our future growth, including potential
acquisitions, may require additional funding. If cash generated from operations
is insufficient to satisfy our long-term liquidity requirements, we may need to
raise capital through additional equity or debt financing or additional credit
facilities. If additional funds are raised through the issuance of securities,
these securities could have rights, preferences and privileges senior to
holders of common stock, and the terms of any debt facility could impose
restrictions on our operations. The sale of additional equity or debt
securities could result in additional dilution to our stockholders, and
additional financing may not be available in amounts or on terms acceptable to
us, if at all. If we are unable to obtain this additional financing, we may be
required to reduce the scope of our planned product development, marketing
efforts and facilities expansion which could harm our business, financial
condition and operating results. For further discussion of the effect of the
failure to obtain additional capital, you should read "Risk Factors--Our
ability to grow may be limited if we need, but are unable to raise, additional
capital to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated
requirements."

Qualitative and Quantitative Risk Disclosures about Market Risk

Interest Rate Sensitivity

      We currently maintain our funds primarily in money market funds. We do
not have any derivative financial instruments. We plan to invest a significant
portion of our existing cash, together with net proceeds from the offering, in
interest bearing, investment grade securities, with maturities of less than
twelve months.

      Our long-term indebtedness in the United States is subject to periodic
interest rate adjustments, while our debt in Germany is comprised primarily of
fixed-rate instruments. The interest accruing on some of these fixed rate loans
is lower than current market rates due to government subsidy programs.

      We do not believe that our investments, future investments or our
indebtedness, in the aggregate, will have significant exposure to interest rate
risk.


                                       31
<PAGE>

Exchange Rate Sensitivity

      Due to our international operations, we are subject to fluctuations based
upon changes in the exchange rates between the U.S. dollar and the other
currencies in which we collect revenues or pay expenses. In particular, the
value of the Deutsche mark, which has an exchange rate that is fixed to the
euro, the common currency of the European Union, affects our operating results.
Approximately 2% of our sales and approximately 20% of our cost of sales and
our operating expenses in the first nine months of 2000 were denominated in
currencies other than the U.S. dollar, principally the Deutsche mark. Our cost
of sales and operating expenses are not necessarily incurred in the currency in
which revenue is generated. As a result, we are required from time to time to
convert currencies to meet our obligations. These currency conversions are
subject to exchange rate fluctuations, and changes to the value of the Deutsche
mark or the euro relative to the U.S. dollar could adversely affect our
business and results of operations.

      In addition, IPG Laser's financial statements are prepared in Deutsche
marks and translated to U.S. dollars for reporting purposes. As a result, even
when foreign currency expenses substantially offset revenues in the same
currency, our net income may be diminished, or net loss increased, when
reported in U.S. dollars in our combined consolidated financial statements. The
historical effects of foreign exchange gains and losses have been discussed
above under "--Results of Operations." We do not believe that a 10% increase or
decrease in the exchange rate of the U.S. dollar to the Deutsche mark or euro
would have a significant impact upon our financial position or results of
operations.

      We have historically not utilized any derivative instruments or other
measures to protect us against foreign currency exchange rate fluctuations. We
will continue to analyze our exposure to currency exchange rate fluctuations
and may engage in financial hedging techniques in the future to attempt to
minimize the effect of these potential fluctuations; however, exchange rate
fluctuations may adversely affect our financial results in the future.

Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board, or the FASB,
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. During June 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities, Deferral of the Effective Date of FASB Statement No. 133, to defer
the effective date of SFAS No. 133. SFAS No. 133 will now be effective for IPG
Photonics beginning January 1, 2001. Because we do not utilize derivative
instruments for hedging purposes or interest rate management, we believe that
the adoption of SFAS No. 133 will not have a significant impact on our
financial condition or results of operations.

                                       32
<PAGE>

                                    BUSINESS

      We design, manufacture and sell high performance fiber amplifiers, Raman
pump lasers and fiber lasers for telecommunications and industrial
applications. Our proprietary technology, materials science expertise and
vertically integrated manufacturing operations enable us to meet the demands of
our customers for cost-effective fiber amplifiers and lasers with high power
output and reliable performance. Our telecommunications products are used
throughout optical communications networks. Our largest telecommunications
customers in 2000 were Alcatel, Lucent, Marconi, Siemens and TeraBeam Networks.
Our industrial products are used for a variety of manufacturing, medical and
aerospace applications. Our largest industrial customers in 2000 were GSI
Lumonics, Purup Escofot and Sunx.

Industry Background

      Fiber optic technologies have advanced significantly over the last
several years. These technologies have led to the recent development of cost-
effective fiber amplifiers and fiber lasers that have enabled significant
breakthroughs in telecommunications networks and industrial applications.

Telecommunications

      The rapid growth in the worldwide volume of data, voice and video traffic
is placing unprecedented stress on existing communication networks. According
to Ryan, Hankin & Kent, Internet traffic is projected to increase from
0.4 million terabytes, or trillions of bytes, per month at the end of 1999 to
over 15 million terabytes per month in 2003. With the increasing demands on
communication networks for data transmission capacity, or bandwidth,
telecommunications service providers have sought technological solutions to
upgrade and expand their networks to provide greater bandwidth at reduced
costs. Most existing communications networks were originally designed to convey
voice traffic by means of electronic signals over copper wires. In comparison
to electronic signals transmitted over copper wires, optical signals traveling
at the speed of light through thin glass fibers can carry a significantly
higher rate of data more efficiently over far greater distances.

      The fiber optic communication market can be divided into three segments,
each of which requires customized equipment solutions. These are the long-haul,
metropolitan and access segments. The long-haul segment of the optical network
transmits data over large geographical areas, typically over 100 miles, and
connects major city centers or traffic hubs. The metropolitan segment of the
optical network connects telecommunications switching stations, or exchanges,
which receive, identify and route incoming signals to other exchanges within a
metropolitan area. The access segment of the optical network carries signals
from exchanges to the junction boxes at the curbside and from there to office
complexes or directly to both business and residential end-users and enables
enterprises and communication providers to interconnect various network
systems. The access segment consists of high density urban systems, low density
suburban systems and free space optical networks. Free space optical networks
typically can be used to transmit light waves from building to building over
relatively short distances, typically less than three miles, without the use of
optical fiber. The following graphic depicts the communication network market
segments:

      [We will insert here a diagram that graphically shows the long-haul,
metropolitan and access segments of optical communications networks.]

      Telecommunications service providers first deployed optical communication
technology in the long-haul segment, and are now deploying new fiber optic
technologies not only in this segment, but also in the metropolitan and access
segments. Although there have been significant increases in bandwidth in the
long-haul segment of the communications network, bandwidth limitations and
capacity bottlenecks still exist in the metropolitan and access segments. Until
recently, the adoption of fiber optic technologies in the metropolitan segment
has been limited in part by the lack of low cost, high performance optical
amplifiers. These amplifiers are now being offered by a number of
manufacturers.

                                       33
<PAGE>


      In fiber optic networks, optical signals are transmitted at specified
wavelengths within specified ranges, or bands. Most fiber optic networks use
the C band of the optical spectrum. As the need for bandwidth increases,
companies in the optical communications industry are seeking to expand into new
bands for use in fiber optic communications, such as the L band and the S band,
as illustrated in the chart below.

 [We will insert here a diagram that shows the useable portions of the optical
                                   spectrum.]

      In early fiber optic systems, optical signals were transmitted over each
fiber using only one wavelength. In more recent fiber optic systems, an
innovative technology, called wavelength division multiplexing, or WDM, allows
optical signals of different wavelengths to be transmitted simultaneously
through a single fiber. As signals travel through the fiber they have a
tendency to be dispersed in the fiber. To protect against multiple signals
dispersing into each other, the wavelengths used to transmit signals are
separated from each other by a minimum number of unused wavelengths, forming a
buffer in which signals are not transmitted. Technological advances, such as
dense wavelength division multiplexing, or DWDM, have led to narrower channel
widths, or spacing, thereby increasing the number of signals that can be
carried by each fiber. Further advances in this technology are expected.
Bandwidth increases can also be generated by increasing the rate at which data
is transmitted, also known as modulation speed. The increasing use of DWDM,
continued narrowing of channels and increases in modulation speeds have made
fiber optic amplification more complex and critical.

      Development of the fiber amplifier has been a critical enabler of the
implementation of DWDM technology in communications networks. The distance that
an optical signal can be transmitted is limited by losses in signal strength,
or attenuation, caused by absorption and scattering of light in the fiber, as
well as by losses to the signal as it passes through optical components in the
network, or insertion loss. Prior to the invention and deployment of the fiber
amplifier in optical networks, optical signal strength could only be
regenerated by conversion of the optical signal to an electronic signal for
amplification, followed by reconversion to an optical signal. The equipment
used to convert optical signals to electronic signals, known as opto-electronic
regenerators, is expensive to procure, install and maintain. On the other hand,
fiber amplifiers with high power and high performance allow transmission of
optical signals over longer distances without conversion. A common measurement
of performance is the ratio of the strength of signals being transmitted in an
optical fiber to the amount of noise, referred to as the signal to noise ratio.
In addition, a fiber amplifier can handle a wide variety of transmission speeds
and networking protocols, allowing for upgrades of the network without
replacement of the amplifier. Fiber amplifiers are also capable of amplifying
multiple wavelengths at the same time, making them far more cost-effective for
DWDM applications. The two most common types of optical amplifiers are erbium-
doped fiber amplifiers, or EDFAs, and Raman amplifiers.

      EDFAs use the light from semiconductor laser diode modules to introduce,
or pump, optical energy into doped fiber, resulting in signal amplification as
the signals pass through the doped fiber. Doped fibers are fibers in which
small quantities of rare earth ions and other elements are introduced.
Multiclad fibers consist of layers of various glass compositions, some of which
are doped with rare earth ions and other elements. Multiclad fiber is designed
to optimize the absorption and transfer of energy from laser diode modules to
the input signals. Ryan, Hankin & Kent estimates that revenue from the sale of
erbium gain modules, the component of EDFAs in which amplification is achieved,
was $641 million in 1999 and will increase to $4.2 billion in 2004,
representing a compound annual growth rate of 45.3%.

                                       34
<PAGE>


      Two types of laser diodes that are used in EDFAs: single mode and
multimode. Compared to single mode diodes, multimode diodes have a larger
surface area from which light is emitted, resulting in higher output power with
lower power density, substantially improved reliability and longer lifetime
expectancy. Two types of fiber are used for transmission: multimode and single
mode. Multimode fiber is more efficient with a greater capacity to collect
light energy than single mode fibers, while single mode fiber generally
experiences less signal attenuation and distortion. These characteristics make
multimode fiber significantly more efficient for long distance transmission of
signals and high data transmission rates. We believe that a majority of the
fiber currently deployed in communications systems is single mode fiber.
Technological advances have made it possible to pump single mode fiber with
multimode diodes, which we believe is optimal for many applications.

      In addition to EDFAs, other significant innovations are being introduced
to improve the amplification of optical signals in DWDM networks. A significant
example is the introduction of Raman pump lasers, which are used to pump
optical energy into the transmission fiber itself to amplify the optical
signal, a process called Raman amplification. By achieving amplification
throughout the transmission fiber rather than boosting the signal at one point,
Raman amplification results in greater signal integrity. Currently, Raman
technology has been deployed on a limited basis in the long-haul and ultra
long-haul systems. Ryan Hankin & Kent estimates that sales of Raman gain
modules will grow from approximately $18.0 million in 2000 to approximately
$1.0 billion in 2004 representing a compound annual growth rate of 173.1%. The
use of Raman amplification to complement EDFAs allows for greater spacing
between amplifiers resulting in greater network efficiency. However, due to
limitations in flexibility and applications, Raman amplification will continue
to be a complementary technology to EDFAs rather than a disruptive one.

Industrial

      Light emitted by a laser can be harnessed for numerous industrial
applications, including marking, material processing, printing, micro-
machining, medicine, instrumentation, optical storage, inspection, measurement
and control, bar-coding and scanning. The characteristics of industrial lasers
enable manufacturers to cut, weld, etch, polish, mark and measure without
physical contact in many applications, permitting higher processing speeds,
greater precision and lower overall manufacturing costs than conventional
manufacturing processes. Consequently, manufacturers and others have
significantly increased their use of lasers for industrial and other commercial
applications. The global industrial laser market had total revenues in 1999 of
approximately $1.7 billion according to Laser Focus World, a leading industry
publication, and is growing at a rate of 30-35% per year.

      Most industrial lasers in use today are based on gas or solid state
technologies. Lasers are categorized by the different modes by which they
deliver light energy. In continuous wave lasers, the laser beam has a stable
average power. In pulsed beam lasers, the laser delivers short pulses of light.
Historically, pulsed beam lasers have been used in industrial applications
where very high peak power is required. The most common conventional industrial
lasers are known as YAG lasers. Conventional lasers, however, have significant
shortcomings. Integration of conventional lasers systems into industrial
applications is complex and expensive, requiring free-standing cooling systems,
a high power electrical supply and significant installation space. The
complexity of these lasers requires specially trained personnel to operate and
maintain them. Conventional lasers are large and operate from fixed positions
requiring complex optics for beam delivery. In addition, limitations on the
lasers themselves, such as inefficient conversion of electrical power to light,
poor beam quality and limited life expectancy continue to reduce their
functionality.

      Many users are replacing conventional lasers with fiber lasers in
industrial applications. They offer cost-effective alternatives to conventional
laser technologies because of their lower operating costs, smaller size, higher
reliability, greater efficiency, service-free operation and their ability to
use conventional electrical outlets. For example, fiber lasers provide
significantly better beam quality with precision micro-dot capability making
them particularly useful for marking and other applications. In addition to
these qualities, the flexible fiber delivery and portability of fiber lasers
allow for their use in applications for which conventional lasers cannot be
used, such as underwater welding and industrial cleaning.

                                       35
<PAGE>

Challenges Faced by our Customers

      Our customers purchase optical components and modules which allow them to
focus on designing systems that satisfy the growing performance demands of
telecommunications service providers, such as AT&T, WorldCom, Deutsche Telekom,
Sprint and Bell South. In addition, specific technological complexities of the
long-haul, metropolitan and access segments require customized optical
solutions.

      Our telecommunications customers have the following needs:

    .  Higher Power Amplifiers. In the long-haul segment, higher dense
       wavelength division multiplexing, or DWDM, channel counts require
       higher power. In the access segment, our customers require high power
       multiple output fiber amplifiers to power networks which bring fiber
       closer to the ultimate user, or fiber-to-the-curb applications, and
       cable television systems which use both analog digital signals with
       many end users. Emerging applications, such as free-space optical
       communications require amplifiers with greater and variable power
       output which can respond automatically to different weather
       conditions.

    .  Greater Bandwidth and Transmission Rates. The high costs of building
       and operating new telecommunications networks provides incentive to
       maximize the data that can be sent through new networks as well as
       over existing fiber networks. Telecommunications systems integrators
       are continually looking for optical amplifiers that incorporate a
       wider range of the useable optical spectrum, operate over more
       narrowly spaced channels and at higher data transmission rates, or
       modulation speeds.

    .  High Reliability. Telecommunications service providers seek more
       reliable optical components to decrease the likelihood of system
       downtime. There is a strong demand for optical amplifiers that are
       designed and built to operate without maintenance for a decade or
       longer under various climactic conditions and have a lower risk of
       technological obsolescence.

    .  Superior Performance. Telecommunications networks must maintain high
       signal to noise ratios as signals pass through amplifiers to increase
       the distance between amplifiers and to eliminate the need to use
       opto-regenerators. Some telecommunications systems integrators also
       require polarization-maintaining amplifiers. If the components of an
       optical signal are not kept aligned, or polarized, these components
       will travel at different speeds through an optical fiber and upon
       arrival the optical signal will be distorted.

    .  Economically-Priced Low Power Amplifiers. Telecommunications service
       providers seek cost-efficient, low power amplifiers to eliminate
       bandwidth bottlenecks in the metropolitan and access segments. Both
       metropolitan wavelength division multiplexing, or WDM, and networks
       which bring fiber inside the building to the desk of the ultimate
       user, or fiber-to-the-desk applications require a large number of
       fiber amplifiers driving the need for decreased amplifier costs.

    .  Scalable and High Capacity Production. Telecommunications systems
       integrators demand that manufacturers of new customized optical
       amplification products scale their production more rapidly to deliver
       high volumes of quality products with shorter delivery times.

      Our industrial customers have the following needs:

    .  Performance. Industrial customers require lasers that generate high
       quality light beams at several different wavelengths and that allow
       for precise control of numerous operating specifications, including
       operating wavelength, power output, pulse rate, pulse duration and
       beam width.

    .  Lower Total Cost of Ownership. Industrial customers desire high power
       lasers that are less expensive to purchase and maintain, and have
       longer life and greater reliability.

    .  Flexible Use and Ease of Integration. Industrial customers demand
       lasers that can be easily and flexibly integrated into their
       production processes, and that are easy to use, with no service
       requirements. Additionally, industrial customers require portable
       fiber lasers for new applications.

                                       36
<PAGE>

The IPG Solution

      We design, manufacture and sell high performance fiber amplifiers and
Raman pump lasers for telecommunications applications and high power fiber
lasers for various industrial applications. Our fiber amplifiers and Raman pump
lasers cost-effectively address the needs of telecommunications customers by
enabling transmission over a broader range of the useable optical spectrum with
a higher signal to noise ratio and improved reliability at high power outputs.
We also supply high power fiber lasers with high beam quality, high efficiency
and lower device cost that can be more easily integrated into industrial
production processes than conventional lasers.

      The success of our solution is based upon the following key attributes:

    .  Advanced Technology Platform. Our state-of-the-art products are based
       on our innovative proprietary technology platform. We believe that
       our design of critical specialty components, such as doped fibers and
       specialty couplers, together with our innovative approach in
       combining these components, allows us to cost-effectively create
       fiber amplifiers and fiber lasers that operate over a broader range
       of the optical spectrum, with higher power output, superior
       performance and greater reliability. For example, we have developed a
       pumping technology that allows us to efficiently use a greater number
       of diodes in our fiber amplifiers, thereby producing higher output
       power than achievable through traditional techniques. A key element
       of this technology is our ability to pump our proprietary single mode
       fibers with multimode diodes.

    .  Materials Science Expertise. Our expertise in non-radiative energy
       transfer between rare earth ions in solid state materials is the
       basis for the proprietary doping techniques used in manufacturing our
       multiclad fibers for our fiber amplifiers and fiber lasers. Use of
       these proprietary fibers facilitates our innovative pumping
       technology and allows us to provide a wide variety of innovative
       fiber devices in numerous customizable configurations.

    .  Simplified Integrated Design. The simplified integrated product
       design used in our fiber amplifiers and fiber lasers employs fewer
       components than the products of our competitors. Our
       multi-disciplinary scientific teams design our products to decrease
       the complexity and cost of manufacturing, testing time, integration
       and the time needed to develop new products. It also improves yield,
       increases product reliability and allows quicker ramp-up of new
       production.

    .  Vertically Integrated Manufacturing. We design and manufacture a
       significant majority of the critical specialty components and modules
       used in our products. In addition, we perform all of our
       manufacturing and assembly in-house, including manufacturing of
       specialty fibers, the energy source for the amplifiers, called laser
       diodes modules, and the components, which the amplification of the
       optical signal occurs, called gain blocks. These are all critical
       components to our products. Our in-house manufacturing helps us
       increase the performance, facilitates and accelerates new product
       development, provides us with an assured supply of the high power
       fiber optic components used in our products, lowers our total cost
       and increases product reliability. As a result of this vertically
       integrated manufacturing, we can better meet the needs of our
       telecommunications customers and industrial users by quickly
       providing them with new and customized fiber optic devices.

    .  Quality-Driven Manufacturing. We test and qualify all of our
       components and assemblies, as well as our finished products, to
       assure reliability and performance. For example, we test our laser
       diodes for up to 1,000 hours under high stress conditions before we
       install them in our fiber amplifiers and fiber lasers and employ a
       testing database for assessing the operational lifetime of principal
       components. With a large in-house testing facility, we are able to
       quickly scale our production output while continuing to assure high
       quality for new products.

                                       37
<PAGE>

The IPG Strategy

      Our objective is to be the leading supplier of fiber amplifiers, Raman
pump lasers and fiber lasers to our telecommunications and industrial
customers. Key elements of our strategy include:

    .  Extend Our Existing Technology Leadership. Dr. Valentin P. Gapontsev,
       our founder, leads our scientific team, more than 30 of whom hold
       Ph.D. degrees, in the development of new technologies to
       differentiate our products and extend our competitive advantage. Our
       multi-disciplinary technical expertise has enabled us to develop
       proprietary pumping techniques and multiclad fiber designs. Our key
       technological innovations have allowed us to become a leader in the
       design of fiber amplifiers, Raman pump lasers and industrial fiber
       lasers. For example, we believe that we are the only manufacturer of
       EDFAs with power output greater than five watts and we believe we
       sold the first commercially available Raman pump laser. We plan to
       extend our technological leadership through continued enhancement of
       our existing technologies and the development of new technologies
       that enable optical networks to use higher data transmission rates
       and a broader range of the optical spectrum to achieve increased
       bandwidth.

    .  Expand and Enhance Our Existing Line of Products. We plan to expand
       and enhance our broad product line. By offering a broad array of
       products, we are able to serve numerous customers across all segments
       of the telecommunications market. Our current development efforts are
       focused on the introduction of cost-effective, low power fiber
       amplifiers for the metropolitan and access markets, the extension of
       our Raman technology and the introduction of fiber amplifiers that
       cover a broader range of the optical spectrum. We also intend to
       leverage our technological expertise in fiber lasers to extend our
       product line into new industrial applications.

    .  Expand Our Manufacturing Capacity and Reduce Costs. We plan to
       significantly increase our manufacturing capacity in the United
       States, Germany and Italy over the immediate and long term. Also, we
       intend to continue to invest in automation of component manufacturing
       and device assembly and testing to reduce manufacturing costs and
       increase product quality. Our simplified product design should allow
       us to employ a higher degree of automation, thereby improving
       productivity. We intend to manufacture additional critical components
       that we currently purchase from third parties in order to lower
       costs, ensure component quality and assure supply.

    .  Expand Our Sales and Marketing Efforts. We plan to expand our sales
       and marketing efforts for our telecommunications and industrial
       products, including the hiring of marketing executives with
       significant experience in the fiber optics industry. We also plan to
       open two additional sales offices in the United States in 2001, and
       to increase our worldwide distributor network. We believe that we
       have significant opportunities to target new customers, and to
       strengthen our relationships and increase our sales to existing
       customers.

    .  Provide Our Customers With a High Degree of Technical and Engineering
       Support for Customization. Our experienced staff of multi-
       disciplinary scientists and engineers works closely with our
       customers at the conceptual stage of the product development cycle to
       quickly customize our products or create new products that meet our
       customers' specific requirements. We will continue to utilize this
       knowledge and approach to respond more effectively with products that
       meet our customers' needs.

    .  Acquire Strategic Businesses and Technologies. We intend to pursue
       strategic acquisitions of businesses and technologies that can
       provide us with key intellectual property, strategic products and
       highly qualified personnel to rapidly increase our technological
       expertise and expand the breadth of our product portfolio. Currently,
       we have no commitments or agreements for any material acquisition of,
       or investment in, any third party. We will explore joint ventures in
       other countries, where appropriate, to take advantage of improved
       cost structures and local partners who will help in developing new
       markets for our products.

                                       38
<PAGE>

Products

      Our products are classified in two major groups: high-performance fiber
amplifiers, Raman pump lasers and fiber lasers for telecommunications
applications, and high-power fiber lasers for industrial applications. These
products are based upon a common technology platform and are manufactured using
a set of substantially similar key components.

Optical Amplification Products For Telecommunications Applications

      We design and manufacture a full range of fiber amplifiers and Raman pump
lasers with varying output power and wavelengths that enhance data transmission
in optical networks. We believe our line of fiber amplifiers and Raman pump
lasers offers the best commercially available output power and performance,
including wavelength range, reduced dispersion, polarization maintenance,
signal to noise ratio, reliability under high stress operating conditions and
electrical efficiency. The power output from the products in this line ranges
from 10 milliWatts to 15 Watts. Our amplifiers operate across the C and L bands
and we are testing products for the S band as well as the superwide band, which
encompasses the majority of the C and L bands. Our product line of over 80
fiber amplifiers and Raman pump lasers, for use in single channel WDM and DWDM
networks, are customized and optimized pursuant to the customers' price-
performance criteria for a variety of telecommunications applications. The
following table sets forth the various categories and specifications by which
our products are defined and compared by our customers. This table demonstrates
the breadth of our product line.

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

<TABLE>
<CAPTION>
                                            Single Channel/WDM               DWDM
                                         ------------------------- -------------------------
                                          Wavelength                Wavelength
  Markets Served          Spectral Range    Range        Power        Range        Power
  --------------          -------------- ------------ ------------ ------------ ------------
<S>                       <C>            <C>          <C>          <C>          <C>
 EDFAs
  Long-Haul               C band         1528-1567 nm 10 mW-2 W    1528-1564 nm 10 mW-1 W
                          L band         1565-1620 nm 10 mW-2 W    1565-1605 nm 10 mW-1 W
                          Superwide      1530-1610 nm 100 mW-2 W   1530-1600 nm 10 mW-500 mW
                          band (Testing)
  Metropolitan            L band         1565-1620 nm 10 mW-200 mW N/A          N/A
  Access                  C band         1533-1567 nm 10 mW-1 W    N/A          N/A
                          L band         1565-1620 nm 20 mW-1 W    N/A          N/A
  Access-Free-Space       C band         1535-1567 nm 300 mW-15 W  1538-1567 nm 500 mW-10 W
   Optical Communications L band         1565-1620 nm 100 mW-10 W  1565-1605 nm 100 mW-5 W
Polarization Maintaining
 Amplifiers               C and L bands  1528-1620 nm 10 mW-10 W   1528-1620 nm 10 mW-10 W
 Raman Pump Lasers
  Long-Haul                              1240-1500 nm 500 mW-10 W  1240-1500 nm 500 mW-10 W
</TABLE>
--------------------------------------------------------------------------------
Legend: nm = nanometer; mW = milliwatt; and W = Watt.

Long-Haul Networks

      Our high power erbium-doped fiber amplifiers, or EDFAs, and Raman pump
lasers provide the minimal signal distortion, high power output and reliability
and the low power consumption needed for applications, such as submarine
systems and high capacity long-haul optical communications systems. We believe
that our Raman pump lasers comply with requirements established by Telcordia
Technologies (formerly Bellcore), an engineering and administrative services
consortium that establishes industry standards and specifications for the

                                       39
<PAGE>


telecommunications, wireless and fiber optic industries, but we have not
received qualification. The Telcordia requirements relate to the environmental,
electrical and optical testing for fiber optic transmitters and receivers, to
ensure that they offer the high reliability required for critical applications.
Our Raman pump lasers are offered in various wavelengths and output powers
which may be selected by our customers. We offer products that operate across
the current optical spectrum used for optical long-haul communication with high
power and a high signal to noise ratio. In addition, we sell EDFAs, fiber
lasers and tunable fiber lasers for designing and testing DWDM optical systems.
We also produce polarization-maintaining EDFAs that offer high signal to noise
ratios over greater distances.

Metropolitan Networks

      We provide low-power EDFAs for both single channel and WDM applications
for the metropolitan market segment. This market segment is growing rapidly,
with emphasis shifting from single channel systems to WDM systems. The design
of our products in this area as well as our manufacturing flexibility should
allow us to respond to the dynamics of this market segment.

Access Networks

      We offer digital WDM EDFAs, analog EDFAs with multiple outputs and EDFAs
utilizing multiple channels over multiple fibers for use in the local access
segment, including hybrid analog and digital cable networks, fiber-to-the-curb
and fiber-to-the-home networks that provide high speed data, voice and video
transmission in one cable. Our high power EDFAs with multiple outputs provide
cost-effective connectivity to a greater number of end-users reducing the
number of amplifiers previously needed to supply high bandwidth requirements in
access networks.

Free-Space Optical Networks

      We provide products for building to building data transmission up to 10
gigabits per second over distances of up to three miles without the use of a
fiber optic cable connecting the buildings. We provide eye-safe high power
EDFAs, transmitters and subsystems for deployment in both point-to-point and
point-to-multipoint free-space optical networks. Our products offer a wide
range of power outputs that automatically adjust to ensure reliable signal
transmission through adverse weather conditions, such as fog and rain. In
addition, free space optical technology has potential applications for
satellite-based communications. In this regard, we have developed polarization-
maintaining fiber amplifiers that can be used in sophisticated optical
satellite networks.

                                       40
<PAGE>

High-Power Fiber Lasers for Industrial Applications

      We design and manufacture high power, continuous wave and pulsed fiber
lasers for industrial applications. This product line includes lasers with a
high pulse repetition rate, high electrical efficiency, low cost, small size, a
mobile and flexible delivery system and reliable service-free operation. We
believe that we are the sole manufacturer of many kinds of commercially
available fiber lasers for numerous industrial applications. Our products are
customized and optimized pursuant to the customers' price/performance criteria.
The following table sets forth the various categories and specifications by
which our products are defined and compared by our customers.

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

<TABLE>
<CAPTION>
                                                 Pulsed/Continuous
Markets Served                 Product               Wave (CW)     Spectral Range     Power
-------------------  --------------------------- ----------------- --------------- -----------
<S>                  <C>                         <C>               <C>             <C>
Marking              Ytterbium-doped fiber laser      Both         1.04 um-1.15 um 5 W-50 W
High Speed Printing  Ytterbium-doped fiber laser      Both         1.07 um-1.10 um 10 W-20 W
Material Processing  Ytterbium-doped fiber laser      Both         1.06 um-1.12 um 5 W-100 W
                     Erbium-doped fiber laser         CW           1.54 um-1.57 um 1 W-50 W
Micromachining       Ytterbium-doped fiber laser      Both         1.05 um-1.12 um 1 W-10 W
                     Erbium-doped fiber laser         CW           1.54 um-1.57 um 1 W-10 W
                     Raman fiber lasers               Pulsed       1.10 um-1.25 um 1 W-5 W
Optical Sensory/     Tunable Erbium-doped fiber       CW           1.53 um-1.61 um 100 mW-10 W
Measurement          laser
                     Tunable Yterbium-doped           CW           1.04 um-1.10 um 100 mW-10 W
                     fiber laser
                     Single-frequency Ytterbium-      CW           1.05 um-1.10 um 1 W-5 W
                     doped fiber laser
Laboratory/Medical   Ytterbium-doped fiber laser      Both         1.02 um-1.12 um 500 mW-50 W
                     Erbium-doped fiber laser         Both         1.53 um-1.62 um 20 mW-10 W
                     Raman fiber laser                CW           1.15 um-1.50 um 500 mW-10 W
                     Fiber-pigtailed laser diode      CW           0.97 um         5 W-20 W
                     systems
</TABLE>
--------------------------------------------------------------------------------
Legend: um = micrometer; W = Watt; mW = milliWatt; and MOPFA = master
oscillator power fiber amplifier.

Marking

      Lasers are used to precisely mark a wide variety of surfaces at high
speed without contact by changing the surface structure of the material. We
produce high-energy pulsed ytterbium-doped fiber lasers, as well as continuous
wave fiber lasers with external modulation, that are substantially faster, more
precise, more reliable, smaller and more cost-effective than conventional gas
and solid state lasers. Our fiber lasers have high beam quality and micro-dot
marking capability that enables accurate identification and retrieval of marked
items in automated assembly lines.

                                       41
<PAGE>

High-Speed Printing

      High-speed laser plate and film writing systems enable printers to write
high-resolution color images directly from computer files onto a printing press
plate or onto film, thus resulting in significant time and cost savings for
commercial printers. We believe our product is the first to provide operating
modulation bandwidth of up to 200 MHz. Our ytterbium-doped fiber lasers also
offer features such as high beam quality, electro-optical efficiency, compact
size, durability and ease of integration in new or existing printing systems
where the laser component can be easily replaced.

Material Processing

      Lasers are used in a variety of material processing applications,
including welding, cutting, drilling, soldering and heat treating. Our fiber
lasers offer the high-power and portability necessary for complex tasks such as
diamond cutting and underwater repair of pipelines, hulls of ships or other
marine installations, and, we believe, enable several new applications.

Micromachining

      Our fiber lasers are used in systems by semiconductor manufacturers to
repair defective or redundant circuits in memory chips with precise laser
pulses. Our lasers can also be used for micromachining for the precise trimming
of components in printed circuit boards and in the manufacture of
semiconductors. Our fiber lasers provide a wide range of operating wavelengths,
high levels of precision, high power and reliability needed for these
applications.

Optical Sensory and Measurement

      We sell fiber lasers for light detection and ranging, known as lidar,
tunable lasers, single frequency lasers and specialty lasers for various
sensory and measurement applications. These applications include obstacle-
warning, 3-D optical radar, range finding, imaging and sensing for the aviation
industry and pollution and atmospheric data measurement, data on road traffic
flow, velocity control and security installations.

Laboratory and Medical Applications

      We provide a wide range of fiber lasers and other optical products for
use in various medical applications, such as medical imaging, surgery,
microsurgery, therapy and dentistry. We believe our fiber lasers outperform
conventional lasers for medical applications, combining a wide choice of
operating wavelengths, compact size, flexible fiber delivery, precise control
and tunability. Another benefit of these lasers is ease of use by doctors and
reduced patient trauma.

Research and Development

      We have assembled a team of scientists and engineers with specialized
experience and extensive knowledge in fiber optic amplifiers and fiber lasers,
and in manufacturing process design. Our research and development team includes
over 30 scientists who hold Ph.D. degrees and over 50 additional scientists and
engineers. We undertake research and development at our facilities in
Sturbridge, Massachusetts and Burbach, Germany and through a contractual
relationship with NTO IRE-POLUS in Fryazino, Russia.

      We are developing new lines of fiber amplifiers using fibers doped
principally with rare earth ions other than erbium. Some of these are currently
being tested. Other products under development include Raman amplifiers, and a
variety of industrial lasers such as green lasers and picosecond lasers among
others. Our future success depends on our ability to continue to extend our
existing technological leadership and to develop new products that maintain
technological competitiveness. We work closely with our telecommunications and

                                       42
<PAGE>

industrial customers to monitor changes in the marketplace and to develop new
products to address their needs. For example, our fiber amplifiers and free-
space optical transmitters are the only products of their kind to be qualified
for use by Bosch Telecom and Motorola after extensive tests for Teledesic, a
global satellite project, which is currently awaiting funding. We plan to focus
our product development activities on improving our existing products,
customizing products to client specifications and developing innovative new
products. We plan to direct part of our resources to fundamental research in
related fields to maintain our technological leadership.

      We have entered into an Assignment, Research and Development Agreement
with NTO IRE-POLUS to assist in the development of fiber amplifiers, fiber
lasers and other associated products. Under this agreement, NTO IRE-POLUS
performs research and development related to these products exclusively for us
and has agreed not to perform services involving the development of
intellectual property relating to the products listed in the agreement for any
other person or entity other than IPG Photonics, IPG Laser or IPG Fibertech.
NTO IRE-POLUS has a limited, non-exclusive right to use the developed products
as well as the technology and intellectual property resulting from these
products for products not involving telecommunications or products sold
exclusively to the other parties to this agreement, in the countries that
comprised the former Soviet Union. This agreement terminates upon the mutual
agreement of us and NTO IRE-POLUS. NTO IRE-POLUS is affiliated with us via
common ownership. For more information, see "--Transactions with Related
Parties--Transactions with NTO IRE-POLUS."

Customers

      We sell our products to customers located in the U.S., Europe and Asia.
The following is a list of customers who have purchased more than $100,000 of
our products from us or our distributors from January 1, 2000 through November
30, 2000 broken down by telecommunications and industrial customers in
alphabetical order:

    .  Telecommunications: ADC, Agilent, Alcatel, Antares Laser, Calient,
       Corning, Corvis, Hughes Space and Communications, JDS Uniphase,
       Lucent, Marconi, MIT Lincoln Labs, Nortel, Optical Crossing, Siemens,
       T.E.M. and TeraBeam.

    .  Industrial: Baasel Scheel Lasergraphics, DaimlerChrysler Aerospace,
       GSI Lumonics, L.O.T. Oriel, Molecular OptoElectronics, Purup Escofot
       and Sunx.

      In 1999, Marconi and Alcatel were our only customers that accounted for
10% or more of our total net revenues, with 40% and 10%, respectively. In the
nine months ended September 30, 2000, TeraBeam Networks and Marconi were the
sole customers who accounted for more than 10% of our sales, representing
approximately 40% and 20%, respectively. From time to time, we may in the
future provide exclusivity for our products to our customers.

Manufacturing

      We manufacture our products and components at our facilities in the
United States, Germany and Italy. Further, we source certain components from
NTO IRE-POLUS. Our Oxford, Massachusetts facility, due to be completed in the
first quarter of 2001, will manufacture our entire range of products. We
produce the majority of our critical specialty components internally, such as,
specialty fiber couplers, isolaters, spectral filters, polarizers, collimators
and optical terminators. Additionally, our vertically integrated manufacturing
operations include pre-form doping, specialty fiber drawing, laser diode module
production and gain block assembly. We also manufacture our own test
instruments, diode test racks, assembly tools and machines according to our own
designs.

                                       43
<PAGE>

Facilities

      In the United States, we rent a 25,000 square foot facility that is used
for sales and administration, manufacturing and research and development and
contains 9,000 square feet of dust-free work environment. The lease is
renewable in June 2001 for a period of one year. In the first quarter of 2001
we expect to complete the first phase of our new facility in Oxford,
Massachusetts, which will consist of two buildings aggregating 72,000 square
feet located on a 76 acre campus. Within these two buildings 10,000 square feet
will be class 10,000 clean rooms and 32,000 square feet will be dust-free
manufacturing rooms. The second phase of the Oxford facility includes an
additional 120,000 square feet and we expect to commence its construction in
2001 shortly after completion of the first phase. A portion of the proceeds of
this offering will be used to fund this second phase. When completed, the
Oxford facility will become our world headquarters.

      In Germany, we own a facility with approximately 23,000 square feet of
manufacturing and research and development space. We are currently expanding
the manufacturing capacity of our German facilities to add 24,000 square feet.
This facility is expected to be completed in the first quarter of 2001. We are
currently seeking land in Burbach to build additional facilities over the next
several years. A portion of the proceeds of this offering will be used to
expand this facility.

      In Italy, we rent a 3,000 square foot facility used for product assembly,
manufacturing and testing and we plan to lease up to an additional 15,000
square feet of space in 2001. Our current lease for this facility expires on
December 31, 2002.

      Our facilities in the United States and Germany are subject to security
interests held by our lenders. We believe that our existing facilities and
those nearing completion are adequate to meet our needs for the foreseeable
future.

Quality

      We test and qualify 100% of our internally manufactured and purchased
components and finished goods and we plan to maintain this standard going
forward. We currently have in-house testing facilities that use our internally
manufactured testing equipment for assessing the operational lifetime of laser
diodes. We test each laser diode upon receipt from the manufacturer for up to
1,000 hours, under the high stress conditions of elevated temperature and
output optical power. We assign each laser diode to an appropriate application
based on its performance during the test. We maintain a database and history of
each laser diode chip and module tested. Currently, this database includes
40,000,000 real-time device hours of laser diode test data. We test all
finished products for 200 hours for various performance criteria. In addition,
we manufacture a substantial majority of our critical components in our various
facilities in order to closely monitor our quality standards. We expect that
increased automation will also contribute to an increase in the quality of our
products.

      We have established a quality management system to assure that the
products we manufacture meet or exceed industry standards. This system is based
on ISO 9000 standards. Our German facility has been ISO 9001 certified since
July 2000.

Supply

      Various outside suppliers provide us with raw materials and components.
For some of these raw materials and components, we depend on a single or
limited number of suppliers, but we are seeking additional suppliers in order
to prevent interruptions or delays. We cannot assure you that we will obtain
any additional sources of supply. We attempt to maintain surplus inventory to
overcome shipping delays or supply interruptions and, to date, we have
generally been able to obtain sufficient supplies in a timely manner.

                                       44
<PAGE>


      Pursuant to a non-exclusive purchase agreement with SDL that terminates
on December 31, 2002, we have agreed to purchase $66.7 million of laser diode
chips that meet our specifications. We have agreed to pay SDL specified amounts
if we fail to purchase required amounts each quarter and over the life of the
contract to compensate SDL for its investment in equipment needed to meet our
quantity requirements for laser diode chips. Other than our agreement with SDL,
we do not have long-term agreements with our suppliers for any components.

Sales, Marketing and Technical Support

      We have one U.S. and two European sales offices. We plan to increase our
sales and marketing staff and open two more offices in the U.S. and one in the
U.K. within the next twelve months. In this regard, Dr. Vincent Au-Yeung joined
us as our Executive Vice President of Strategic Marketing in January 2001. We
are continuing to seek marketing executives with significant experience in the
fiber optic industry.

      In the telecommunications industry, our product specialists and engineers
work with our customers to customize our products to their needs. Because the
telecommunications industry is primarily comprised of a small number of large
companies, our senior management has been responsible for our sales and
marketing effort to these customers. Typically, these customers purchase a
small quantity of our products on a trial basis for six to nine months before
they place larger orders. Compared to orders for our telecommunications
products, orders for our industrial products tend to be smaller and the sales
cycle tends to be faster. We currently use a number of distributors worldwide
to help expand our sales and market penetration for both telecommunications and
industrial customers. In addition, we believe the high level of technical
support we offer provides us with a competitive advantage. We derive
approximately 5% of our revenue from sales made through distributors and 95%
from direct sales.

      Our marketing efforts are focused on increasing awareness of our products
and our brand name through our participation in major world trade fairs,
conferences and exhibitions. We also publish papers in scientific journals and
industry publications from time to time.

Competition

      Our markets are highly competitive. In the telecommunications industry,
we believe that our principal competitors are major manufacturers of fiber
amplifiers, fiber lasers and related components. These manufacturers include
Alcatel Optronics, Corning, JDS Uniphase, Lucent Microelectronics, Nortel, SDL,
MPB, and Furakawa. JDS Uniphase and SDL have recently announced their agreement
to merge. Our principal competitors in the industrial laser area include
Coherent, SDL, Spectra-Physics and Optocom.

      Most of our competitors have substantially greater financial, engineering
and manufacturing resources as well as greater name recognition. Some of our
customers compete with us and some may begin to compete with us. In addition,
some of our customers have been or could be acquired by, or enter into
strategic relations with, our competitors. We anticipate that further
consolidation will occur in our industry, thereby possibly increasing
competition in our target markets.

      We believe the principal competitive factors of the markets in which we
operate are:

    .  product price, features, functionality and reliability;

    .  performance characteristics;

    .  introduction of new and enhanced products before competitors;

    .  product line breadth;

    .  compliance with emerging industry trends and standards;

                                       45
<PAGE>

    .  service and support;

    .  manufacturing capacity and reliance upon outside suppliers;

    .  ability to respond to emerging technologies;

    .  brand recognition; and

    .  access to new customers.

      We believe we compete favorably with our competitors with respect to the
foregoing factors. However, we cannot assure you that we will be able to
compete successfully in the future.

Regulatory Matters

      In most countries where our products are sold, our products must comply
with the regulations of one or more governmental entities. These regulations
often are complex and vary from country to country. Depending upon the country
and the relevant product, the applicable regulations may require product
testing, approval, registration, marking, operating specifications and safety
features. All of these countries control exports of certain lasers and laser-
based items, including both physical commodities and technology. Depending upon
the technical specifications of the item and the country of destination, the
export may require the issuance of a license by the relevant government or may
be authorized without a license under general regulations.

      Most of our current products can be exported to most destinations without
the need for a license. This situation may change as we develop new and more
sophisticated products or if one or more countries in which we operate alter
their export control regulations.

      In particular, some of our products are subject to U.S., German, Italian
and Russian export control laws and regulations governing the export of
products and components and the disclosure of technical information to foreign
countries and citizens. These laws and regulations require licenses for the
export of some of these products to, and disclosure of our technology in, some
countries, including Russia. In addition, in some countries, including the
United States, these laws and regulations require licenses for the disclosure
of our technology to some of our employees who are not citizens of those
respective countries. We believe that we have the necessary licenses to conduct
our business as presently conducted. However, these laws and regulations could
change with little or no advance notice, such that items not now requiring
licenses could thereafter require licenses. We have determined what we believe
to be the proper classifications for all goods and technology that we export
from the United States and elsewhere and believe them to be reasonable and
proper. There always is the possibility, however, that if the U.S. government
were to review these classifications, the U.S. government could determine that
some or all are incorrect and would require export licensing for items that the
company believes not to require licenses. Such action on the part of the U.S.
government could prevent transfers of goods and technology while licenses are
applied for and obtained, in some cases prevent specified transfers altogether,
and result in penalties for past exports of misclassified items. If any or all
of our classifications were not honored by the U.S. government, our
manufacturing operations may be impaired, and we may face additional adverse
consequences due to these laws and regulations.

      In addition, our fiber lasers and other optical products are sometimes
incorporated into medical devices that are subject to approval or oversight by
the Food and Drug Administration and comparable regulatory bodies in other
jurisdictions. Typically, our customer, the medical device manufacturer, has
the responsibility to obtain required FDA and similar approval.

Environmental Regulations

      We are subject to a variety of national and local laws and regulations
concerning the storage, use, discharge and disposal of toxic, volatile, or
otherwise hazardous or regulated chemicals or materials used in our

                                       46
<PAGE>


manufacturing and assembly processes. Further, we are subject to other safety,
labeling and training regulations as required by local, state and federal law.
We believe that we are in substantial compliance with these regulatory
requirements.

Intellectual Property

      We rely on a combination of trade secret law, contractual restrictions,
trademark law and copyright law to establish and protect our proprietary rights
in our technology and intellectual property. Historically, we have chosen to
rely upon trade secrets and contractual restrictions, as opposed to patents, to
protect our rights because of our limited resources. However, with the
additional resources from this offering, we intend to reevaluate our strategy
with respect to protecting our intellectual property portfolio and analyze
whether we will use our additional resources to pursue patent applications. If
we do, we believe that the related expense should not be material. We require
our key employees and consultants to execute non-disclosure and proprietary
rights agreements. These agreements acknowledge our exclusive ownership of all
intellectual property developed by the individual during the course of his or
her work with us and require that all proprietary information disclosed to the
individual remain confidential. We believe that our design and manufacturing
processes make it difficult and expensive, although not impossible, for others
to reverse engineer our products. We have applied for registration of our IPG,
IPG Photonics and IPG Laser names and marks in the Patent and Trademark Office
and will apply in trademark offices elsewhere in jurisdictions where we have
facilities. We intend, where appropriate, to enforce our intellectual property
rights if infringement or misappropriation occurs.

      The steps taken by us to protect our intellectual property may not prove
sufficient to prevent misappropriation of our technology, deter independent
third-party development of similar technologies or prevent reverse engineering
of our products. In addition, we may have no legal recourse against those who
successfully reverse engineer our products without misappropriation of our
technology or violation of contractual or other legal prohibitions. The loss of
the ability to use our technology could require us to obtain the rights to use
substitute technology, which could be more expensive or offer lower quality or
performance, and therefore could harm our business. In some cases, we may not
be able to obtain such rights. Moreover, the fiber optic components and fiber
laser industries are characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement.
Third-parties could claim infringement by us with respect to current or future
technology.

Employees

      As of December 31, 2000, we had 202 full-time employees. A total of 72
employees were in the U.S. and the remainder are employed in Europe. None of
our employees are represented by a labor union. We have not experienced any
work stoppages and we consider our relations with our employees to be good.

Legal Proceedings

      We are not currently involved in any material legal proceedings, nor do
we know of any pending material legal proceedings in which we may be involved.

                                       47
<PAGE>

                                   MANAGEMENT

Directors, Executive Officers and Key Employees

      Our directors, executive officers and key employees are:

<TABLE>
<CAPTION>
 Name                            Age Positions with IPG
 ----                            --- ------------------
 <C>                             <C> <S>
 Valentin P. Gapontsev, Ph.D. ..  61 Chairman of the Board of Directors and
                                     Chief Executive Officer

 Hon. John H. Dalton............  58 President and Director

 Eugene Shcherbakov, Ph.D. .....  53 Managing Director of IPG Laser and
                                     Director

 Vincent Au-Yueng, Ph.D. .......  47 Executive Vice President, Strategic
                                     Marketing

 Timothy P. V. Mammen...........  31 Chief Financial Officer and Vice President

 Angelo P. Lopresti.............  37 Vice President, General Counsel and
                                     Secretary

 John Geagea....................  46 Chief Operating Officer

 Benjamin Peng-Chih Li..........  38 Chief Technology Officer

 Denis Gapontsev, Ph.D. ........  28 Vice President, Research and Development
                                     and Director

 Dennis Leonard.................  38 Director of Manufacturing

 Stefano Cecchi, Ph.D. .........  44 Managing Director of IPG Fibertech

 Peter V. Mammen................  68 Treasurer

 Paolo Sinni....................  49 Controller

 Valentin Fomine, Ph.D. ........  45 Department Head of IPG Laser

 Igor Samartsev.................  37 Director of Research and Development of
                                     IPG Laser

 Nicholai Platonov, Ph.D. ......  44 Principal Scientist, Department Head of
                                     IPG Photonics

 Robert A. Blair................  54 Vice Chairman of the Board of Directors

 Michael C. Child...............  46 Director

 William F. Krupke, Ph.D. ......  63 Director
</TABLE>

      VALENTIN P. GAPONTSEV, Ph.D. has been our Chief Executive Officer and
Chairman of the Board of Directors since inception. Dr. Gapontsev founded the
IPG Group with the creation of NTO IRE-POLUS, and has been President and
Managing Director since its inception. Dr. Gapontsev has over thirty years of
experience in the field of non-radiative energy transfer in rare earth ions and
solid state materials and is the author of numerous scientific articles. In
1994, he founded IPG Laser, and in 1997, he founded IPG Fibertech. Dr.
Gapontsev holds a Ph.D. degree in Physics from the Moscow Institute of Physics
and Technology.

      HON. JOHN H. DALTON has served as our President and as a member of our
Board of Directors since September 2000. Mr. Dalton was appointed Secretary of
the Navy by President Clinton in 1993 and served in that capacity until 1998.
He served as Chairman of the Board of Directors and Chief Executive Officer of
EPCAD Systems, a metal technology firm, from October 1999 until June 2000. He
has been a member of the Boards of Directors of Transtechnology Corporation
since April 1999; Fresh Del Monte Produce Inc. since May 1999; and Niagara
Mohawk Holdings Inc. since June 1999. Mr. Dalton graduated with distinction
from the U.S. Naval Academy and earned an M.B.A degree from the Wharton School
of the University of Pennsylvania. He holds an honorary Doctor of Laws degree
from Trinity College.

      EUGENE SHCHERBAKOV, Ph.D. has served as the Managing Director of IPG
Laser since August 2000 and has been a member of our Board of Directors since
September 2000. Dr. Shcherbakov served as the Technical Director of IPG Laser
from 1995 to August 2000. From 1983 to 1995, Dr. Shcherbakov was a senior
scientist in fiber optics and head of the optical communications laboratory at
the General Physics Institute, Russian Academy of Science in Moscow. Dr.
Shcherbakov graduated from the Moscow Physics and

                                       48
<PAGE>

Technology Institute with an M.S. in Physics. In addition, Dr. Shcherbakov
attended the Russian Academy of Science in Moscow, where he received a Ph.D. in
Quantum Electronics from its Lebedev Physics Institute and a Dr.Sci. degree in
Laser Physics from its General Physics Institute.

      VINCENT AU-YEUNG, Ph.D. has been our Vice President of Strategic
Marketing since January 2001. Prior to joining us, Dr. Au-Yeung was the Vice
President of E-Tek Dynamics Inc., a company involved in the design and
manufacture of passive components and modules for fiber optic systems, and
served as the General Manager of its E-Tek Kaifa Business Unit since August
1999. He had been the President of Kaifa Technology, Inc., a company he founded
in 1985 that focused on the production of fiber optic components, until its
acquisition by E-Tek Dynamics Inc. in 1999. Dr. Au-Yeung received his Ph.D.
degree in Engineering from Princeton University and his M.B.A. degree from the
University of Santa Clara.

      TIMOTHY P. V. MAMMEN has been our Chief Financial Officer since July 2000
and a Vice President since November 2000. Previously, Mr. Mammen served as the
Group Finance Director and General Manager of UK Operations for IP Fibre
Devices Ltd. since May 1999. Mr. Mammen was Finance Director and General
Manager of United Partners Plc, a commodities trading firm, from 1995 to 1999.
Mr. Mammen received an Upper Second B.Sc. Honours degree in International Trade
and Development from the London School of Economics and Political Science and
is a Chartered Accountant and a member of the Institute of Chartered
Accountants Scotland.

      ANGELO P. LOPRESTI has been our General Counsel, Secretary and one of our
Vice Presidents since January 2001. Prior to joining us, Mr. Lopresti was a
partner at Winston & Strawn, a law firm, from 1999 to 2001, where he focused
his practice in securities and technology law, and mergers and acquisitions. He
was also a partner at Hertzog, Calamari & Gleason, a law firm, from 1998 to
1999 and an associate from 1991 to 1998. Mr. Lopresti holds a B.A. in Economics
from Trinity College and a J.D. from the New York University School of Law.

      JOHN GEAGEA has been our Chief Operating Officer since June 2000. From
1987 to 2000, Mr. Geagea worked for Italtel S.p.a., a telecommunications
company, in various capacities, including as Director of Russian Operations
from 1994 to 1996, Director of the Socrates Project from 1996 to 1998, Director
of International Industrial Activities from 1998 to 1999 and Director of
Contracts Management from 1999 to 2000. Mr. Geagea holds a B.S. in Computer
Engineering from the University of Illinois (Urbana-Champaign) and an M.S. in
Electrical Engineering from the Illinois Institute of Technology.

      BENJAMIN PENG-CHIH LI has been our Chief Technology Officer since July
2000. From 1991 to 1999, Mr. Li served as a Section Manager at SDL, Inc., a
manufacturer of fiber optic components. He holds an M.S. in Electrical
Engineering from the State University of New York at Stony Brook.

      DENIS GAPONTSEV, Ph.D. has been our Vice President of Research and
Development since August 2000 and has been a member of our Board of Directors
since September 2000. From 1994 to 1996, Dr. Gapontsev worked as a scientist at
NTO IRE-POLUS. He worked at IP Fibre Devices Ltd. from 1996 to 1998 and at IPG
Laser GmbH from 1999 to 2000. In these positions he researched fiber lasers and
Raman fiber lasers. Dr. Gapontsev holds a B.S. and an M.S. in Physics from the
Moscow Physics and Technology Institute and a Ph.D. from the University of
London.

      DENNIS LEONARD has been our Director of Manufacturing since March 2000.
Mr. Leonard was the Director of Manufacturing of Specialty Optics at Lucent
Technologies (formerly SpecTran Specialty Optics Company), a corporation that
produces fibers for communication, from 1997 to 2000. From 1993 to 1997,
Mr. Leonard was the Director of Manufacturing of Laser Imaging Equipment at
Gerber Systems Corporation, a corporation that develops and manufactures laser
imaging systems. He holds a B.S. degree in Mechanical Engineering from
Worcester Polytechnic Institute and an M.B.A. degree from Rensselaer
Polytechnic Institute.

      STEFANO CECCHI, Ph.D. has been the Managing Director of IPG Fibertech
since its inception in December 1997. From 1992 to 1997, Dr. Cecchi managed the
development and production of optical amplifiers

                                       49
<PAGE>

and conducted research projects on components for fiber optic communications at
Italtel S.p.a. He holds a Ph.D. degree in Quantum Optics from the National
Institute of Optics of the University of Florence and conducted post doctoral
scientific research on lasers and non-linear spectroscopy in Italy and abroad.

      PETER V. MAMMEN has been our Treasurer since December 1998 and has been
an adviser to the IPG Group since 1996. From 1989 to 1996, Mr. Mammen was
Marketing Consultant to Francis Shaw & Company of Manchester, U.K. He holds a
B.A. in Humanities from the University of Madras.

      PAOLO SINNI has been our Secretary since August 2000 and our Controller
since January 1999. He was the Controller of Technical Communications
Corporation from 1993 to 1996, of Melles Griot, Inc. from 1996 to 1997 and of
SpecTran Specialty Optics Company from 1997 to 1999. Each of these companies is
in the fiber optics industry. Mr. Sinni holds a B.S.B.A. in Accounting from
Nichols College.

      VALENTIN FOMINE, Ph.D. has been a Department Head of IPG Laser since 1998
and previously as an Optical Engineer at NTO IRE-POLUS since 1990. Dr. Fomine
received his Ph.D. specializing in radiophysics from the Institute of Radio
Engineering and Electronics at the Russian Academy of Sciences. He received his
undergraduate education at the Department of General Physics of Saratov State
University, Russia.

      IGOR SAMARTSEV has been the Director of Research and Development of IPG
Laser since 1997 and has been employed as a scientist with NTO IRE-POLUS since
1990. He is a graduate of Chelyabinsk Physical Mathematical School and received
a First Class degree from the Moscow Physical Technical Institute.

      NICHOLAI PLATONOV, Ph.D. has been our Principal Scientist of IPG
Photonics since October 2000. Dr. Platonov served as a scientist at IPG Laser
from 1998 to 2000 and at NTO IRE-POLUS from 1996 to 1998. Dr. Platonov was a
research scientist at the Institute of Radio Engineering and Electronics of the
Russian Academy of Sciences from 1979 to 1996. He received his Ph.D. from the
Institute of Radio Engineering and Electronics of the Russian Academy of
Sciences and received his undergraduate degree from the Moscow Physical
Technical Institute.

      ROBERT A. BLAIR has been Vice Chairman of our Board of Directors since
September 2000 and Chairman of our National Advisory Board since February 2000.
He is currently the President of the Blair Law Firm P.C. Mr. Blair was an
equity partner at Manatt, Phelps & Phillips, a law firm, from 1995 to 1999. He
is a trustee under Winkler Trusts, which are the primary source of equity for,
and owners of, real estate ventures developed by The Mark Winkler Company. Mr.
Blair is managing partner of several real estate partnerships and has been a
manager/principal in cellular telephone ventures. Mr. Blair holds a B.A. in
Mathematics from The College of William and Mary and a J.D. from the University
of Virginia School of Law.

      MICHAEL C. CHILD has been a member of our Board of Directors since
September 2000. Mr. Child has been employed by TA Associates, Inc., a venture
capital investment firm, since July 1982 where he currently serves as a
Managing Director. In addition, he has served as a member of the Board of
Directors of Finisar Corporation, a producer of fiber optic subsystems and
network performance test systems, since November 1998 and Fargo Electronics
Inc., a developer, manufacturer and supplier of plastic card printers, since
July 2000. Mr. Child holds a B.S. in Electrical Engineering from the University
of California at Davis and an M.B.A. from the Stanford Graduate School of
Business.

      WILLIAM F. KRUPKE, Ph.D. has been a member of our Board of Directors
since November 2000. Since May 2000, Dr. Krupke has been the President of
Applied Lasers, a company which provides consulting services related to laser
technology and applications, and he has served as a consultant to various
companies that concentrate in those fields. From 1972 to 1999, Dr. Krupke
served as Technical Manager for Lawrence Livermore National Laboratories, which
provides research and development for the United States Department of Energy,
and Deputy Associate Director of the laboratory's Laser Directorate. He
received a B.S. degree in Physics from Rensselaer Polytechnic Institute and
M.S. and Ph.D. degrees in Physics from the University of California at Los
Angeles.

                                       50
<PAGE>

      Our Chief Executive Officer, President, Chief Financial Officer,
Treasurer and Secretary are elected by the Board of Directors. All other
executive officers are elected by the Board of Directors or appointed by the
Chief Executive Officer and all officers serve at the discretion of the Board
of Directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to the affairs of IPG Photonics.

      Our Chairman of the Board and Chief Executive Officer, Dr. Valentin P.
Gapontsev, is the father of Dr. Denis Gapontsev, our Vice President of Research
and Development and a director. Our Treasurer, Peter V. Mammen, is the father
of our Chief Financial Officer, Timothy P.V. Mammen. There are no other family
relationships among any of our directors, officers or key employees.

Composition of our Board Of Directors

      Our Board of Directors is currently fixed at seven directors. Michael
Child was elected to serve on our Board of Directors pursuant to an agreement
entered into in August 2000 in connection with the sale of our Series B
preferred stock. This agreement will terminate upon the closing of this
offering. At each annual meeting of stockholders, the successors to directors
whose terms are to expire will be elected to serve from the time of election
and qualification until the next annual meeting following their election. Our
nonemployee directors devote such time to our affairs as is necessary to
discharge their duties.

Board Committee

      The audit committee of our Board of Directors recommends the appointment
of our independent auditors, reviews our internal accounting procedures and
financial statements and consults with and reviews the services provided by our
independent auditors, including the results and scope of their audit. The audit
committee currently consists of Messrs. Blair and Child, and Dr. Krupke.

Compensation Committee Interlocks and Insider Participation

      Our entire Board of Directors determines executive compensation. The
following directors are also executive officers and participated in
deliberations of the Board of Directors concerning executive compensation: Drs.
Valentin Gapontsev, Eugene Shcherbakov and Denis Gapontsev, and Mr. Dalton.
Dr. Valentin Gapontsev served as managing director of IP Fibre Devices and NTO
IRE-POLUS. For more information, please see "Transactions With Related
Parties--Intercompany Transactions", "--Other Transactions with NTO IRE-POLUS"
and "--Other Transactions with IP Fibre Devices."

Director Compensation

      Our directors are reimbursed for expenses incurred in connection with
attending board and committee meetings but are not compensated for their
services as board or committee members. In November 2000, we granted options to
purchase 100,000 shares of common stock to each of Dr. Krupke and Mr. Child
under our 2000 stock incentive plan at an exercise price of $3.75 per share.
The options vest equally over a period of four years. For more information, see
"--Stock Option Plan."

National Advisory Board

      The National Advisory Board, or NAB, of the Company is currently composed
of eight individuals. The purpose of the NAB is to provide us with advice on
our business and strategy. The NAB meets from three to four times a year.
Members of the NAB are reimbursed for travel and other expenses incurred in
attending meetings, but are not compensated for attending meetings or for
advisory services that they provide to us. Hon. John H. Dalton, Robert Blair
and Dr. William Krupke are members of the NAB, and Mr. Blair is its Chairman.
Each individual was granted options to purchase 100,000 shares of common stock
having an exercise price of $0.50 per share. Messrs. Dalton, Blair and Krupke
joined the NAB prior to becoming an officer or director of IPG Photonics, and
Messrs. Dalton and Blair exercised their options in full in 2000. Dr. Krupke
exercised his option for 30,000 shares in 2000.

                                       51
<PAGE>

Executive Compensation

                           Summary Compensation Table

      The following table sets forth information regarding compensation
received during the years ended December 31, 1999 and 2000 by our Chairman of
the Board and Chief Executive Officer and each of our four other executive
officers whose total salary and bonus earned during the Company's last fiscal
year exceeded $100,000.

<TABLE>
<CAPTION>
                                       Annual
                                    Compensation       Long Term Compensation
                                  -------------------- -----------------------
                                                       Securities
                                                       Underlying    Other
Name and Principal Position  Year  Salary      Bonus    Options   Compensation
---------------------------  ---- --------    -------- ---------- ------------
<S>                          <C>  <C>         <C>      <C>        <C>
Dr. Valentin P. Gapontsev
 Chairman of the Board and
 Chief Executive Officer.... 2000 $397,039(1) $100,000      --          --
                             1999 $229,280(1)  $88,023      --          --
Hon. John H. Dalton
 President (2).............. 2000  $73,077         --   800,000      $1,731(3)
Dr. Eugene Shcherbakov
 Managing Director of IPG    2000 $164,068(4)      --       --          --
 Laser...................... 1999 $124,993         --       --          --
Timothy P. V. Mammen
Chief Financial Officer and
 Vice President (5)......... 2000 $138,500         --   100,000         --
John Geagea
 Chief Operating Officer
 (6)........................ 2000 $100,000         --   800,000     $28,737(7)
</TABLE>
--------

(1) Includes $10,000 and $5,872 paid to Dr. Gapontsev by NTO IRE-POLUS during
    the years ended December 31, 2000 and 1999, respectively.

(2) Hon. John H. Dalton joined as our President in September 2000. Includes
    options for 100,000 shares granted prior to Mr. Dalton's employment for
    service on the National Advisory Board. For a description of the National
    Advisory Board, please see "Management--National Advisory Board."

(3) Represents our contribution to Mr. Dalton's 401(k) plan account.

(4) Includes $2,900 paid to Dr. Shcherbakov by NTO IRE-POLUS during the year
    ended December 31, 2000.

(5) Mr. Mammen was hired as our Chief Financial Officer in July 2000, but his
    salary includes compensation paid by IP Fibre Devices Ltd. during 2000 for
    services performed on behalf of our business.

(6) Mr. Geagea was hired as our Chief Operating Officer in June 2000.

(7) Represents our $2,769 contribution to Mr. Geagea's 401(k) plan account and
    a relocation allowance of $25,968.

                                       52
<PAGE>

                     Option Grants in the Last Fiscal Year

      The following table contains information regarding the number and value
of stock options granted during the fiscal year ended December 31, 2000 to our
five most highly compensated executive officers set forth in the Summary
Compensation Table above. Neither Dr. Gapontsev nor Dr. Shcherbakov was granted
stock options during that fiscal year.
<TABLE>
<CAPTION>
                                                                                Potential Realizable
                                                                                  Value at Assumed
                                                                                Annual Rates of Stock
                                                                                  Appreciation for
                                                                                   Option Term (3)
                                                                                ---------------------
                            Number of       % of Total
                           Securities     Options Granted  Exercise
                           Underlying      to Employees    Price per Expiration
Name                     Options Granted During Period (1) Share (2)    Date        5%        10%
----                     --------------- ----------------- --------- ---------- ---------- ----------
<S>                      <C>             <C>               <C>       <C>        <C>        <C>
Hon. John H. Dalton.....     100,000           2.05%         $0.50    03/17/10   2,403,000  3,841,000
                             600,000          12.31%         $1.00    08/01/10  14,118,000 22,746,000
                             100,000           2.05%         $3.75    11/28/10   2,078,000  3,516,000
Timothy P. V. Mammen....     100,000           2.05%         $3.75    11/28/10   2,078,000  3,516,000
John Geagea.............     800,000          16.42%         $0.50    06/18/10  19,224,000 30,728,000
</TABLE>
--------

(1) The percentage of total options granted is based on an aggregate of
    4,870,000 options granted by us during the year ended December 31, 2000.

(2) The options were granted at an exercise price equal to the fair market
    value of our common stock determined in good faith by our Board of
    Directors. The options granted to Messrs. Mammen and Geagea, and 100,000 of
    the options granted to Mr. Dalton, fall under our 2000 incentive
    compensation plan, vest 25% approximately one year from the date of grant
    and 25% on each anniversary of the first vesting date thereafter. We
    granted 600,000 options granted to Mr. Dalton under our 2000 incentive
    compensation plan which vested 25% upon the date of grant and the remainder
    vest in the following proportions on each anniversary of the date of grant,
    respectively: 25%, 20%, 20% and 10%. We granted 100,000 options granted to
    Mr. Dalton outside of our 2000 incentive compensation plan for his service
    on the National Advisory Board which vested immediately upon the date of
    grant.
(3) The potential realizable value is based on the assumption that our common
    stock appreciates at specified annual rates, compounded annually, from the
    date of grant until the expiration of the ten-year term. These numbers are
    calculated based on Securities and Exchange Commission requirements and do
    not reflect our projections or estimates of future stock price growth.
    Potential realizable values are computed by:

  --multiplying the number of shares of common stock underlying each option
   by the assumed initial public offering price of $15.00 per share;

  --assuming that the aggregate stock value derived from that calculation
   compounds at the annual specified rate shown in the table until the
   expiration of the options; and

  --subtracting from that result the aggregate option exercise price.

      Actual gains, if any, on stock option exercises and common stock holdings
are dependent on the time of such exercise and the future performance of our
common stock.

                                       53
<PAGE>

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

      The following table provides summary information with respect to our five
most highly compensated executive officers set forth in the Summary
Compensation Table above and who hold stock options. As of December 31, 2000,
all options granted to such officers were granted under our 2000 incentive
compensation plan with the exception of 100,000 options granted to Hon. John H.
Dalton on March 17, 2000 for his service on the National Advisory Board.
Neither Dr. Gapontsev nor Dr. Shcherbakov hold stock options.

<TABLE>
<CAPTION>
                                                              Number of Securities
                                                             Underlying Unexercized   Value of Unexercised In-
                                                             Options/SARs at Fiscal   the-Money Options/SARs at
                                                                    Year-End             Fiscal Year-End (1)
                                                            ------------------------- -------------------------
                         Shares Acquired
Name                      Upon Exercise  Value Realized (1) Exercisable Unexercisable Exercisable Unexercisable
----                     --------------- ------------------ ----------- ------------- ----------- -------------
<S>                      <C>             <C>                <C>         <C>           <C>         <C>
Hon. John H. Dalton.....     100,000         1,450,000           --            --           --            --
                             150,000         2,100,000           --        450,000          --      6,300,000
                                 --                --            --        100,000          --      1,125,000
Timothy P. V. Mammen....         --                --         25,000       575,000      362,500     8,012,500
John Geagea.............         --                --            --        800,000          --     11,600,000
</TABLE>
--------

(1) There was no public trading market for our common stock as of December 31,
    2000. Accordingly, these values have been calculated on the basis of the
    assumed initial public offering price of $15.00 per share, less the
    applicable exercise price.

Employment Agreements

      On September 1, 1995, IPG Laser entered into an employment contract with
Dr. Valentin P. Gapontsev, our Chief Executive Officer and Chairman of the
Board of Directors. The agreement provides for Dr. Gapontsev's employment, for
no specific term, as Managing Director of IPG Laser. Under the current terms of
the agreement, Dr. Gapontsev receives annual compensation of DM 476,000, or
approximately $229,000 at December 31, 2000, as well as use of a company car
and company housing. In 2000, Dr. Gapontsev received an additional $250,000 in
compensation from IPG Photonics.

      Our employment agreement with Hon. John H. Dalton provides for his
employment from September 1, 2000 to August 31, 2004 as our President at a base
annual salary of $250,000 per year, subject to an annual increase at our
discretion. The agreement provides that during his employment with us and for a
period of two years after, Mr. Dalton will not enter into any business activity
that is competitive with any of our business activities. Pursuant to his
agreement, we granted Mr. Dalton options to purchase 600,000 shares of our
common stock, at an exercise price of $1.00 per share, vesting over a four-year
period. The agreement automatically renews for successive one-year periods if
not terminated thirty days before the end of its current term. In the event of
our termination of Mr. Dalton's employment on or after September 1, 2001 other
than for cause, Mr. Dalton is entitled to the equivalent of twelve month's
salary and benefits. In the event of such a termination, all of Mr. Dalton's
options that are scheduled to vest on the next anniversary date following
notice of termination will vest upon termination.

      Under the current terms of our agreement with Dr. Shcherbakov, he
receives an annual salary of DM 392,000, or approximately $189,000 at December
31, 2000. Either IPG or Dr. Shcherbakov may terminate the agreement after the
third year of the term upon six months notice.

      Our employment agreement with John Geagea provides for his employment
from June 1, 2000 to June 1, 2002 as our Chief Operating Officer at a base
annual salary of $200,000 per year, subject to an annual increase at our
discretion. In addition, we granted Mr. Geagea options to purchase 800,000
shares of our

                                       54
<PAGE>


common stock at an exercise price of $0.50 per share, vesting over a four-year
period. The agreement automatically renews for successive one-year periods if
not terminated thirty days before the end of its current term. In the event of
our termination of Mr. Geagea's employment with less than 180 days notice,
other than for cause, Mr. Geagea is entitled to the equivalent of 180 days of
salary and benefits continuation.

      In November 2000, we entered into an employment agreement with Vincent
Au-Yeung that provides for his at-will employment as our Executive Vice
President for Strategic Marketing at a base annual salary of $200,000 and an
annual bonus of up to 25% of this annual salary. Pursuant to the agreement, Dr.
Au-Yeung purchased 1,000,000 shares of our common stock at $0.50 per share. Dr.
Au-Yeung borrowed $1,157,000 from us to pay applicable taxes in connection with
his purchase of 1,000,000 shares of our common stock. The loan bears interest
at 5.6%, is full recourse to Dr. Au-Yeung and is secured by 1,000,000 shares of
common stock. The note is to be repaid with the proceeds from the sales of any
of the 1,000,000 shares purchased by him. This loan matures in January 2006 and
must be repaid sooner if he terminates employment. We have the right to
repurchase these shares if Dr. Au-Yeung terminates his employment prior to July
19, 2001. We have also granted to Dr. Au-Yeung an option to purchase 500,000
shares of our common stock at an exercise price of $1.50 per share. The option
vests on the earlier of October 1, 2001 or the date on which we first achieve
$200,000,000 of gross revenue. We have also granted Dr. Au-Yeung an additional
option for 1,500,000 shares at an exercise price of $1.50 per share, which
vests monthly in equal installments over thirty-six months and vests entirely
on the date we first achieve $400,000,000 of gross revenue. In the event of our
termination of Dr. Au-Yeung's employment with less than 180 days notice, other
than for cause, Dr. Au-Yeung is entitled to the equivalent of 180 days of
salary and benefits continuation.

Non-Competition Agreements

      In connection with the sale of our Series B preferred stock in August
2000, we entered into non-competition agreements with Drs. Valentin P.
Gapontsev, Denis Gapontsev, Eugene Shcherbakov and other scientists. We intend
to execute similar non-competition agreements with our scientific personnel in
the future. The agreements prohibit the employees from engaging in any way with
or in a business that is competitive with any member of the IPG Group for one
year from termination of employment with us. The agreements also provide that
the employee may not solicit other employees from IPG Photonics, IPG Laser or
IPG Fibertech within the later of 18 months after termination of employment or
two years after signing and also provide for assignment of all inventions and
nondisclosure of proprietary information.

Stock Option Plan

      Our 2000 Incentive Compensation Plan was adopted by the Board of
Directors and approved by the stockholders in April 2000. As amended in
November 2000, the plan authorizes us to issue up to 15,000,000 shares of
common stock. The Board of Directors currently administers the plan, but may
transfer its administration to the Compensation Committee. The plan allows
grants of incentive stock options to our employees, including officers and
employee directors, and employees of our "affiliates" within the meaning of
Section 424 of the Internal Revenue Code of 1986. In addition, the plan allows
grants of nonstatutory stock options, restricted stock, stock appreciation
rights, performance shares and units, and cash awards to our employees,
nonemployee directors, and independent contractors, and also to employees,
nonemployee directors and independent contractors of IPG Photonics or other
entities deemed affiliated with IPG Photonics by the Board of Directors. The
plan has a term of ten years, unless terminated sooner by the Board of
Directors.

      The plan provides the exercise price of incentive stock options granted
under the plan must not be less than the fair market value of a share of the
common stock on the date of grant, and imposes certain additional statutory
requirements. In the case of nonstatutory stock options and other awards, the
exercise price (or issuance price) must generally not be less than the fair
market value of a share of the common stock on the date of grant, unless the
Board of Directors in its sole discretion and due to special circumstances
determines otherwise on the date of grant. A maximum of 4,000,000 shares of
common stock may be awarded under the

                                       55
<PAGE>

plan to any one individual in any calendar year. The Board of Directors has the
discretion to determine vesting schedules, exercise requirements and potential
forfeiture of all awards granted under the plan. The plan provides that in
connection with a "change in control" (as defined in the plan), the Board of
Directors may, in its sole discretion, provide that an award may be assumed by
the entity taking control or may be substituted by a similar award under such
entity's compensation plan. Alternatively, in connection with a change in
control, the plan allows the Board of Directors to accelerate the vesting of
outstanding options or other awards or to cash out outstanding options and
other awards, subject to certain limitations.

      As of December 2000, nonstatutory stock options had been granted and
restricted stock issued to employees of IPG Photonics and affiliated entities
under the plan. As of December 2000 under the plan, (i) 694,868 shares of
common stock had been issued upon exercise of nonstatutory stock options, (ii)
500,000 shares of restricted common stock had been issued and (iii)
nonstatutory stock options to purchase 5,126,532 shares of common stock, with a
weighted average exercise price of $0.99, were outstanding. In November 2000,
we increased the size of the plan from 7,500,000 shares to 15,000,000 shares
and as of December 2000 5,525,600 shares of common stock remained available for
future grants.

401(k) Plan

      The IPG Photonics Corporation 401(k) Retirement Plan became effective on
March 1, 1999 and covers all of our eligible employees. Our 401(k) plan is
intended to be a qualified retirement plan under the Internal Revenue Code. All
contributions to the plan by eligible employees or by us, and the investment
earnings thereon, are not taxable to such employees until withdrawn, and any
contributions we may make are expected to be deductible by us when made. Our
eligible employees may elect to reduce their current compensation and have the
amount of such reduction contributed to our plan. We make matching
contributions in an amount equal to 50% of each employee's contribution to the
401(k) plan, subject to a maximum of 6% of such employee's annual compensation.

                                       56
<PAGE>

                       TRANSACTIONS WITH RELATED PARTIES

      Other than the compensation agreements and other arrangements described
in "Management," and the transactions described below, for the last three full
fiscal years there has not been, nor is there currently proposed, any
transaction or series of similar transactions to which we are or will be a
party:

    .  in which the amount involved exceeded or will exceed $60,000, and

    .  in which any director, executive officer, holder of more than 5% of
       our common stock on an as-converted basis or any member of their
       immediate family has or will have a direct or indirect material
       interest.

      We believe that each of the transactions described below are on terms no
less favorable than could have been obtained from unaffiliated third parties.
All future transactions between us and any director or executive officer will
be subject to approval by a majority of the disinterested members of our board
of directors.

History of IPG Photonics and Restructuring

      In November 1994, our founding shareholder, Dr. Valentin Gapontsev,
formed a new company in Germany, IPG Laser GmbH. He also subsequently formed
IPG Fibertech S.r.l. in Italy. We were incorporated as a Delaware corporation
on December 2, 1998 and began operations in the United States in 1999. Prior to
August 2000, IPG Laser, IPG Fibertech and our company were operated under the
common control and management of Dr. Gapontsev. Fifty-percent of IPG Laser was
owned by IP Fibre Devices, an affiliate of Dr. Valentin Gapontsev, and 50% was
owned directly by Dr. Gapontsev. IPG Laser owned 80% of IPG Fibertech.

      We entered into three agreements as of August 24, 2000 in connection with
the restructuring of IPG Laser and IPG Fibertech. The restructuring was
undertaken to streamline and simplify our organizational structure, to make our
operations more easily financeable and to consolidate the ownership of our
material property and technology under our direct control. The restructuring
was also a condition to the Series B preferred stock financing. As a result of
the restructuring, IPG Laser and IPG Fibertech became our subsidiaries under
our direct control.

      The first agreement relating to the restructuring was between IPG
Photonics and IP Fibre Devices, in which IP Fibre Devices sold 50% of the total
issued and outstanding shares of IPG Laser to IPG Photonics in exchange for
$7.5 million in cash and 2,300,000 shares of our common stock. Dr. Gapontsev is
the Managing Director and majority shareholder of IP Fibre Devices. The second
agreement was between IPG Photonics and Dr. Gapontsev, in which Dr. Gapontsev
sold 4% of the total issued and outstanding shares of IPG Laser to IPG
Photonics in exchange for $2.4 million in cash. The third agreement was an
option agreement in which Dr. Gapontsev granted IPG Photonics the option to
purchase the remaining 46% of the total issued and outstanding share capital of
IPG Laser from Dr. Gapontsev in exchange for 2,806,000 shares of our common
stock. On October 4, 2000, we exercised this option and now own 100% of the
issued and outstanding shares of IPG Laser. We also indirectly control IPG
Laser's 80%-held subsidiary, IPG Fibertech. The remaining 20% of IPG Fibertech
is owned by Stefano Cecchi, its Managing Director.

      IPG Photonics and IPG Laser, focus on the design, manufacture and sale of
high performance fiber amplifiers, Raman pump lasers and fiber lasers for
telecommunications and industrial applications. IP Fibre Devices is a holding
company with no significant operations and served as a distributor of our
products in the United Kingdom until December 31, 2000. Our operations have
remained substantially unchanged as a result of the restructuring, however, the
expansion of our U.S. operations since 1999 has helped expand our sales and
customer base.

      Following the restructuring, IPG Laser reached an agreement in principle
to acquire a 51% interest in NTO IRE-POLUS, a Russian affiliate of Dr.
Gapontsev that provides us with research and development services. NTO IRE-
POLUS is expected to add to our research and development capabilities. See "--
Other Transactions with NTO IRE-POLUS."

                                       57
<PAGE>


      Dr. Valentin Gapontsev is our Chairman of the Board and Chief Executive
Officer and, as of December 31, 2000, directly owned 45.6% of our common stock.
As of this date, IP Fibre Devices directly owned 28.1% of our common stock and
Dr. Valentin Gapontsev directly owned 53.0% of IP Fibre Devices' ordinary
shares. Based on these shareholdings, Dr. Gapontsev beneficially owned in the
aggregate 72.5% of our shares of common stock directly through his ownership of
IPG Photonics and indirectly through his control of IP Fibre Devices, excluding
shares held by his son, Dr. Denis Gapontsev. The following chart presents the
overlap in ownership of IPG Photonics, its subsidiaries and affiliated parties
by common members of management at December 31, 2000, without giving effect to
the offering, and giving effect to the closing of the proposed investment by
IPG Laser in NTO IRE-POLUS:


                                 [FLOW CHART]

  ---------------------------------      ----------------------------------
    Dr. Valentin Gapontsev  47.6%          Dr. Valentin Gapontsev    53.0%
    Dr. Denis Gapontsev      6.3%          Dr. Denis Gapontsev       15.0%
    Dr. Eugene Shcherbakov   0.8%          Dr. Eugene Shcherbakov     8.0%
    Dr. Valentin Fomine      0.8%          Dr. Igor Samartsev         8.0%
    Dr. Igor Samartsev       1.3%          Dr. Nikolai Platonov       8.0%
    Dr. Nikolai Platonov     0.8%          Others                     8.0%

  ---------------------------------      ----------------------------------
                 |                                      |100.0%
                 |
                 |                   -------------------------    ----------
                 |                     IP Fibre Devices Ltd.        Others
               57.6%                           28.1%                 14.3%
  --------------------------------------------------------------------------


                                                -------------------------------
              -----------------------------       Dr. Valentin Gapontsev  27.0%
                IPG Photonics Corporation         Dr. Igor Samartsev       5.0%
              -----------------------------       Dr. Nikolai Platonov     1.0%
                                                  Others                  17.0%
                                              ---------------------------------
                                              |
                                             49%
           100%                         51%

 -------------------------      -------------------
       IPG Laser GmbH              NTO IRE-PLOUS
 -------------------------      -------------------

            80%

 -------------------------
    IPG Fibertech S.R.L.
 -------------------------

Intercompany Transactions

      Prior to the restructuring, we entered into various transactions with
other companies under the common control and management of Dr. Valentin
Gapontsev. These companies included IP Fibre Devices, IPC Inc., IP Fibre Optics
Ltd., VPG Laser Components GmbH and NTO IRE-POLUS. Historically, our
transactions with these companies occurred in the ordinary course of business
and consisted primarily of intercompany sales and purchases of raw materials
and components included in our cost of sales. The following is a table
summarizing these transactions for the years ended December 31, 1997, 1998 and
1999, and for the nine months ended September 30, 2000 (in thousands). Amounts
reported as operating expenses represent management charges from IP Fibre
Devices. Interest expense represents amounts incurred on intercompany
borrowings.

                                       58
<PAGE>

<TABLE>
<CAPTION>
                               Years ended December 31,
                              ----------------------------  Nine months ended
                                1997      1998      1999    September 30, 2000
                              --------  --------  --------  ------------------
     <S>                      <C>       <C>       <C>       <C>
     Net sales............... $    811  $  1,103  $    655        $  789
     Purchases...............    1,533     2,133     2,095         3,108
     Operating expenses......      --         32       106           138
     Interest income
      (expense), net.........      (10)      (10)      (17)          --
</TABLE>

Other Transactions with NTO IRE-POLUS

      In connection with our restructuring in August 2000, we entered into an
agreement regarding intellectual property with NTO IRE-POLUS. Pursuant to the
agreement, NTO IRE-POLUS has agreed to provide us and our subsidiaries, on an
exclusive basis, with research and development services relating to fiber
amplifiers, fiber lasers and other associated products as well as all
intellectual property incorporated in or relating to these products. Under this
agreement, we are required to pay NTO IRE-POLUS's direct and overhead costs,
plus a fee of 10%, for its research and development services. For a complete
description of this arrangement, see "Business--Research and Development."

      On October 3, 2000, we agreed to loan $1,000,000 to NTO IRE-POLUS. These
funds will be used for working capital and capital expenditures to assist NTO
IRE-POLUS in providing us components and equipment. This loan bears interest at
an annual rate of 7.0% and has a term of six months from the date the money is
transferred to NTO IRE-POLUS.

      IPG Laser has agreed in principle to acquire a 51% interest in NTO IRE-
POLUS in exchange for IPG's commitment to invest up to $5.0 million in NTO IRE-
POLUS, subject to and in accordance with NTO IRE-POLUS's future business plans.
The proceeds of the investment are to be used by NTO IRE-POLUS solely for
equipment purchases and the development of additional manufacturing capacity.
The transaction is subject to satisfaction of usual and customary closing
conditions, as well as the approval of the Russian Ministry for Anti-Monopoly
Policy. While we believe that these conditions will be satisfied and the
acquisition will be consummated in the first half of 2001, we cannot assure you
that the acquisition will be completed on the terms currently contemplated or
at all.

Other Transactions with IP Fibre Devices

      In the past, we have sold products to IP Fibre Devices which resells
those products to its customers in the United Kingdom. Effective January 1,
2001, we terminated our distribution relationship with IP Fibre Devices and we
now sell our products directly to customers in the United Kingdom through a
wholly-owned subsidiary that was recently formed. Currently, we sublease office
space from, and share general and administrative expenses with, IP Fibre
Devices at an aggregate estimated annual expense to us of approximately
$250,000.

TeraBeam Agreements

      We sell a significant amount of our products to TeraBeam. In April 1998,
IP Fibre Devices entered into an agreement with TeraBeam providing for the sale
of free-space optical point-to-multipoint fiber amplifiers with an output power
of one Watt or greater. From July 1998 to August 1998, IPG Laser sold $185,370
worth of products to TeraBeam in exchange for $135,370 in cash and 571,428
shares of TeraBeam common stock. Pursuant to a partnering agreement executed
with TeraBeam in April 1998, TeraBeam issued in August 1998 1,561,144 shares of
its common stock to IP Fibre Devices in consideration of a discount on products
sold to TeraBeam. This partnering agreement terminated in 1999. From November
1999 to February 2000, we sold an aggregate of $2.0 million of our products to
TeraBeam. TeraBeam paid us $1.6 million in cash and issued 865,924 shares of
TeraBeam common stock to IP Fibre Devices. In connection with this transaction,
IP Fibre Devices issued a note to us in the principal amount of $396,656. This
note was repaid with accrued interest, totaling $32,000, in October 2000. In
connection with the 1998 agreement with TeraBeam, TeraBeam granted

                                       59
<PAGE>


Dr. Valentin Gapontsev options to purchase 100,000 shares of common stock of
TeraBeam for his services on the Technical Advisory Board of TeraBeam. All of
such options have been exercised. In February 2000, Peter V. Mammen, our
treasurer, purchased 120,000 shares of TeraBeam at an aggregate purchase price
of $60,000. We and our affiliates own approximately 2.1% of the outstanding
common stock TeraBeam.

Intercompany Loans

      In January 1999, we issued IP Fibre Devices a note in the principal
amount of $175,000 that accrued interest at the rate of 5% per annum. IPG
Photonics entered into an agreement with IP Fibre Devices in which IP Fibre
Devices agreed to pay an additional $18,000 to us and convert the note and
accrued interest, totaling $182,000, into 20,000,000 shares of our common
stock. The total consideration paid by IP Fibre Devices was $200,000, or
approximately $0.01 per common share. The common stock was issued to IP Fibre
Devices in January 2000. Because of the elements of common control, the shares
of common stock were not recorded at fair value and have been treated as
founders shares.

      In November 1997, IPG Laser issued IP Fibre Devices a note in the
principal amount of DM 156,000, or $70,100, which accrued interest at 5% per
annum. The note and accrued interest were repaid in full to IP Fibre Devices in
March 2000.

Dr. Valentin Gapontsev

      On August 13, 2000, Dr. Valentin Gapontsev borrowed DM 200,000, or
approximately $94,000, from IPG Laser, at an annual interest rate of 8%. This
loan was repaid in full on November 30, 2000. Dr. Gapontsev has personally
guaranteed $5.2 million of our outstanding obligations as of September 30,
2000. In connection with one guaranty, Dr. Gapontsev granted a security
interest in all of his securities and accounts held by one of the lenders. Dr.
Gapontsev, as our principal stockholder, provided these guarantees without any
compensation.

Dr. Denis Gapontsev

      On May 30, 2000, IPG Laser agreed to purchase land and a house adjacent
to our Burbach facility from Dr. Denis Gapontsev, one of our directors and our
Vice President of Research and Development. IPG Laser assumed the mortgages on
the land having a value of DM 900,000, or $404,500, and paid Dr. Gapontsev DM
184,000, or $82,700. Prior to the sale, IPG Laser had been leasing the land and
house from Dr. Gapontsev since December 28, 1998 for DM 9,000, or $4,000, per
month.

Robert A. Blair

      As of October 4, 1999, we entered into an agreement with Robert A. Blair,
our Vice Chairman of the Board of Directors, for legal services and non-legal
consulting services in connection with strategic business advice and other
matters. Pursuant to this agreement, Mr. Blair received options to purchase
400,000 shares of our common stock at an exercise price of $0.50 per share and
the right to purchase, as of March 2000, 500,000 shares of our common stock at
a price of $0.50 per share. We also entered into an agreement with Mr. Blair as
of February 3, 2000 for him to serve as Chairman of our National Advisory
Board. Pursuant to this agreement, he received options to purchase 100,000
shares of our common stock at a price of $0.50 per share. In March 2000, Mr.
Blair transferred options to purchase 20,000 shares to family members and
exercised the remainder of his 480,000 options. He subsequently also acquired
the 500,000 shares of our common stock at a purchase price of $0.50 per share.
He purchased these shares by payment of $50,000 cash and promissory notes with
face amounts totaling $440,000. The first note bears interest at an annual rate
of 6.8% and the second note bears interest at 6.01%. These notes become payable
in March 2005 and November 2005, respectively.

                                       60
<PAGE>


Series A and Series B Stock Purchase Agreements

      On March 30, 2000, Hon. John Dalton, our President, purchased an
aggregate of 10,000 shares of our Series A preferred stock for an aggregate
purchase price of $100,000. Mr. Dalton purchased these shares prior to becoming
our president and on the same terms as other unrelated parties. Holders of
Series A preferred stock are entitled to certain registration rights. See
"Description of Capital Stock--Preferred Stock" and "Description of Capital
Stock--Registration Rights" for a description of our Series A preferred stock
and its rights and preferences. Upon completion of this offering, the 10,000
shares of Series A preferred stock held by Mr. Dalton will convert into 20,000
shares of our common stock.

      On August 30, 2000 and August 31, 2000, TA Associates Inc., together with
affiliated entities, purchased an aggregate of 2,000,000 shares of our Series B
preferred stock and related warrants to purchase 1,666,667 shares of our common
stock at an exercise price of $7.50 per share the aggregate purchase price for
the warrants and shares was $50,000,000. Holders of Series B preferred stock
are entitled to elect a director to our board of directors as well as
redemption rights not enjoyed by holders of common stock or Series A preferred
stock. Mr. Child, one of our directors, is Managing Director of TA Associates,
Inc. Please see "Description of Capital Stock--Preferred Stock" and
"Description of Capital Stock--Registration Rights" for a description of our
Series B preferred stock and its rights. For a description of the warrants we
sold to TA Associates and its affiliates, please see "Description of Capital
Stock--Warrants." Upon completion of this offering, the 2,000,000 shares of
Series B preferred stock held by TA Associates and its affiliates will convert
into 5,833,333 shares of our common stock, assuming an offering price of $15.00
per share.

Indemnification

      We have entered into indemnification agreements with each of our
directors. Such indemnification agreements require us to indemnify our
directors to the fullest extent permitted by Delaware law. For a description of
the limitation of our directors' liability and our indemnification of officers,
see "Indemnification of Directors and Executive Officers and Limitation of
Liability."

Employment Agreements

      We have entered into employment arrangements, compensation arrangements
and severance arrangements with certain of our executive officers. For more
information regarding these arrangements, see "Management--Employment
Agreements" and "--Executive Compensation." For information regarding stock
options, see "Management--Stock Option Plan."

                                       61
<PAGE>

     INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
                                   LIABILITY

      As permitted by the Delaware General Corporation Law, we have adopted
provisions in our certificate of incorporation which provide that our
directors shall not be personally liable for monetary damages to IPG Photonics
or its stockholders for a breach of fiduciary duty as a director, except
liability for:

    .  a breach of the director's duty of loyalty to us or our stockholders;

    .  acts or omissions not in good faith or which involve intentional
       misconduct or a known violation of law;

    .  an act related to our unlawful stock repurchase or payment of a
       dividend under Section 174 of the Delaware General Corporation Law;
       or

    .  transactions from which the director derived an improper personal
       benefit.

      These limitations of liability do not apply to liabilities arising under
the federal securities laws and do not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation also authorizes us to indemnify our officers, directors and
other agents to the fullest extent permitted under the Delaware General
Corporation Law.

      As permitted by the Delaware General Corporation Law, our bylaws provide
that:

    .  we are required to indemnify our directors and officers to the
       fullest extent permitted by the Delaware General Corporation Law,
       subject to limited exceptions;

    .  we are required to advance expenses, as incurred, to our directors
       and officers in connection with a legal proceeding to the fullest
       extent permitted by the Delaware General Corporation Law, subject to
       limited exceptions; and

    .  the rights provided in the bylaws are not exclusive.

      We have entered into separate indemnification agreements with each of
our directors which are broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. These indemnification
agreements require us, among other things, to indemnify our directors against
liabilities that may arise by reason of their status or service as directors,
other than liabilities arising from willful misconduct. These indemnification
agreements also require us to advance any expenses incurred by the directors
as a result of any proceeding against them as to which they could be
indemnified and to obtain directors' and officers' insurance.

      At present, there is no pending litigation or proceeding involving any
of our directors, officers, employees or agents where indemnification by us is
sought. In addition, we are not aware of any threatened litigation or
proceeding which may result in a claim for indemnification.

      We intend to maintain directors' and officers' liability insurance if
available on reasonable terms.

                                      62
<PAGE>

                             PRINCIPAL STOCKHOLDERS

      The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of December 31, 2000, and as
adjusted to reflect the sale of the common stock offered hereby, by:

    .  each stockholder who is known by us to beneficially own more than 5%
       of common stock;

    .  our Chairman and our four other most highly compensated executive
       officers;

    .  each of our directors; and

    .  all of our executive officers and directors as a group.

<TABLE>
<CAPTION>
                                                                       Percent
                                             Beneficial      Percent    Owned
                                           Ownership Prior Owned Prior  After
               Stockholder                 to Offering(1)  to Offering Offering
               -----------                 --------------- ----------- --------
<S>                                        <C>             <C>         <C>
Dr. Valentin P. Gapontsev (2)............    60,106,000         73%       66%
Hon. John H. Dalton......................       270,000          *         *
Dr. Eugene Shcherbakov (3)...............       600,000          *         *
Timothy P. V. Mammen (4).................       125,500          *         *
John Geagea..............................             0          *         *
Dr. Denis Gapontsev (5)..................     5,000,000          6         5
Dr. William F. Krupke (6)................        25,000          *         *
Robert A. Blair..........................       980,000          1         1
Michael C. Child (7).....................        13,087          *         *
Vincent Au-Yeung.........................
IP Fibre Devices Ltd.....................    22,300,000         27        24
Entities affiliated with TA Associates,
 Inc (8).................................     7,499,987          9         8
All directors and executive officers as a
 group (9 persons).......................    76,619,877         90        80
</TABLE>
--------
*  represents less than 1%

(1) The number of shares beneficially owned and the percentage of share
    outstanding are based on (a) 82,884,201 shares outstanding as of December
    31, 2000 and assuming the conversion of 4,300,000 shares of our Series A
    and Series B preferred stock based upon an assumed offering price of $15.00
    and (b) 91,084,201 shares outstanding after completion of this offering,
    assuming no exercise of the underwriters' over-allotment option. Beneficial
    ownership is determined in accordance with the rules of the SEC and
    generally includes voting or investment power with respect to securities.
    All shares of common stock subject to options and warrants exercisable
    within 60 days following December 31, 2000 are deemed to be outstanding and
    beneficially owned by the person holding those options for the purpose of
    computing the number of shares beneficially owned and the percentage of
    ownership of that person. They are not, however, deemed to be outstanding
    and beneficially owned for the purpose of computing the percentage
    ownership of any other person. Except as indicated in the other footnotes
    to the table and subject to applicable community property laws, based on
    information provided by the persons named in the table, these persons have
    sole voting and investment power with respect to all shares of the common
    stock shown as beneficially owned by them. Unless otherwise noted below,
    the address of each of the individuals named above is c/o IPG Photonics
    Corporation, P.O. Box 519, 660 Main Street, Sturbridge, MA 01566.
(2) Excludes shares beneficially owned by Dr. Denis Gapontsev, for which Dr.
    Valentin Gapontsev disclaims beneficial ownership. Includes all shares
    beneficially owned by IP Fibre Devices, of which Dr. Valentin Gapontsev
    owns 53% of its ordinary shares.
(3) Excludes shares beneficially owned by IP Fibre Devices of which Dr.
    Shcherbakov owns 8% of its ordinary shares, for which he disclaims
    beneficial ownership.

                                       63
<PAGE>


(4) Includes 125,000 shares of common stock issuable upon exercise of options
    that are exercisable within sixty days of September 30, 2000. Excludes
    shares beneficially owned by Peter Mammen, for which Timothy Mammen
    disclaims beneficial ownership.
(5) Excludes shares beneficially owned by Dr. Valentin Gapontsev, for which Dr.
    Denis Gapontsev disclaims beneficial ownership. Excludes shares
    beneficially owned by IP Fibre Devices of which Dr. Denis Gapontsev owns
    15% of its ordinary shares, for which he disclaims beneficial ownership.

(6) Includes 25,000 shares of common stock beneficially owned by Dr. Krupke
    under a stock option granted to him for service as a member of our National
    Advisory Board.

(7) Mr. Child disclaims beneficial ownership of all shares held by affiliates
    of TA Associates, Inc. of which Mr. Child is a Managing Director, except to
    the extent of 13,086 shares of common stock in which he has an ownership
    interest through TA Investors LLC.

(8) Includes 2,998,326 shares held, and 856,667 shares beneficially owned under
    a warrant issued to, by TA IX, L.P., 1,399,997 shares held, and 400,000
    shares beneficially owned under a warrant issued to, by TA/Advent VIII
    L.P., 1,296,397 shares, and 370,400 shares of common stock beneficially
    owned under a warranted issued to, held by TA/Atlantic and Pacific IV L.P.,
    50,633 shares held, and 14,467 shares beneficially owned under a warrant
    issued to, by TA Executives Fund, LLC and 87,966 shares held, and 25,133
    shares beneficially owned under a warrant issued to, by TA Investors LLC.
    TA IX, L.P., TA/Advent VIII L.P., TA/Atlantic and Pacific IV L.P., TA
    Executives Fund LLC and TA Investors LLC are part of an affiliated group of
    investment partnerships. The general partner of TA/Advent VIII L.P. is TA
    Associates VIII LLC. In such capacity, TA Associates, Inc., through an
    executive committee, exercises sole voting and investment power with
    respect to all shares held of record by the named investment partnerships;
    individually, no stockholder, director or officer of TA Associates, Inc.,
    is deemed to have or share such voting or investment power. The address of
    TA Associates, Inc. is 125 High Street, High Street Tower, Suite 2500,
    Boston, MA 02110.

                                       64
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

      Presently we are authorized to issue 100,000,000 shares of common stock
and 5,000,000 shares of preferred stock. Upon the commencement of this
offering, we will be authorized to issue 505,000,000 shares, $0.0001 par value
per share comprised of 500,000,000 shares of common stock and 5,000,000 shares
of preferred stock.

      The following description of the material terms of our capital stock is
only a summary. You should refer to our certificate of incorporation and bylaws
as in effect upon the closing of this offering, which are included as exhibits
to the registration statement of which this prospectus forms a part.

Common Stock

      As of December 31, 2000, and assuming the conversion of all outstanding
shares of preferred stock into common stock, there were 82,884,201 shares of
common stock outstanding which were held of record by approximately 80
stockholders. There will be 91,084,201 shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options after September 30, 2000) after giving effect
to the sale of our common stock in this offering. We currently have reserved
15,000,000 shares of stock under our 2000 stock incentive plan of which there
were outstanding options to purchase 5,126,532 shares of common stock as of
December 31, 2000. See "Management--Stock Option Plan" for a description of our
stock plan.

      The holders of our common stock are entitled to one vote per share held
of record on matters submitted to a vote of the stockholders. Our amended and
restated certificate of incorporation does not provide for cumulative voting in
the election of directors. Subject to preferences that may be applicable to any
outstanding preferred stock, the holders of our common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
our board of directors out of funds legally available for that purpose. In the
event of our liquidation, holders of our common stock are entitled to share
ratably in our remaining net assets, subject to payment or provision for
payment of our debts and other liabilities and prior distribution rights of
preferred stock, if any, then outstanding. Holders of our common stock have no
preemptive or other subscription or conversion rights. There are no redemption
or sinking fund provisions applicable to our common stock. All outstanding
shares of common stock are fully paid and non-assessable and the shares of
common stock to be issued upon the completion of this offering will be fully
paid and non-assessable.

Preferred Stock

      Upon the closing of this offering, all 500,000 shares of our Series A
preferred stock outstanding will be converted on a two-for-one basis into an
aggregate of 1,000,000 shares of common stock. Upon the closing of this
offering, all 3,800,000 shares of our Series B preferred stock will convert
into common stock at a conversion price based upon the initial public offering
price (after underwriting commissions and discounts) in the offering. If such
price meets or exceeds (i) $21.88 per share, in the case of an offering which
closes on or after January 1, 2001 and prior to March 31, 2001, (ii) $25.00 per
share, in the case of an offering which closes after April 1, 2001 and prior to
December 31, 2001, (iii) $28.13 per share, in the case of an offering which
closes after January 1, 2002 and prior to August 31, 2002 or (iv) $31.25 per
share in the case of an offering which closes after August 31, 2002, each share
of Series B preferred stock converts into two shares of common stock. If the
initial offering price (after underwriting commissions and discounts) is less
than the amounts specified above, then the Series B preferred stock will
convert at a conversion price equal to the initial public offering price
divided by (i) 1.75, in the case of an offering which closes on or after
January 1, 2001 and prior to March 31, 2001, (ii) 2.00, in the case of an
offering which closes after April 1, 2001 and prior to December 31, 2001, and
(iii) 2.25, in the case of an offering which closes after August 31, 2002;
provided that in no event will the conversion price be reduced to less than
$5.00 per share. Based upon an assumed offering price of $15.00 per share, the
3,800,000 shares of Series B preferred stock convert into 11,083,333 shares of
common stock.


                                       65
<PAGE>

      Our board of directors has the authority, without action by the
stockholders, to provide for the designation and issuance of preferred stock in
one or more series, to establish the number of shares to be included in each
such series and to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
of each such series. The rights, preferences and privileges of each series of
preferred stock may be greater than the rights of our common stock. It is not
possible to state the actual effect of the issuance of any shares of preferred
stock upon the rights of holders of our common stock until the board of
directors determines the specific rights of the holders of any preferred stock
that may be issued. However, the effects might include, among other things:

    .  restricting dividends on the common stock;

    .  diluting the voting power of the common stock;

    .  impairing the liquidation rights of the common stock; and

    .  delaying or preventing a change in our control without further action
       by the stockholders.

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

Warrants

      There are outstanding warrants to purchase an aggregate of 3,166,667
shares of common stock assuming an offering price of $15.00 per share. These
warrants were granted in August, October and December 2000 to a group of
private investors in connection with the sale of our Series B preferred stock.
These warrants entitle the holders to purchase an aggregate of $23.8 million
worth of our common stock. The exercise price will equal 50% of the public
offering price or $7.50, assuming an offering price of $15.00. They are
exercisable upon the sale of all of our assets or stock or an underwritten
initial public offering of our common stock. The warrants expire on August 30,
2007, unless earlier exercised.

Registration Rights

      Under our two agreements regarding registration rights with holders of
shares of our convertible preferred stock (12,083,333 shares assuming
conversion of all outstanding shares of Series A and Series B preferred stock),
the holders of these shares are entitled to certain registration rights
regarding these shares. The registration rights provide that if we propose to
register any securities under the Securities Act of 1933, either for our own
account or for the account of other security holders exercising registration
rights, such holders are entitled to notice of the registration and are
entitled to include shares of their common stock in the registration. This
right is subject to conditions and limitations, including the right of the
underwriters in an offering to limit the number of shares included in the
registration. The holders of Series A preferred stock may require us to file
one, and holders of Series B preferred stock may require us to file up to two,
registration statements under the Securities Act at our expense with respect to
their shares. We are required to use our commercially reasonable best efforts
to effect the registrations, subject to conditions and limitations.
Furthermore, the holders of shares of our Series B preferred stock that will
convert into common stock upon completion of the offering may require us to
file additional registration statements on Form S-3, subject to conditions and
limitations.

Delaware Anti-Takeover Law And Certain Charter And Bylaw Provisions

      Certain provisions of Delaware law and our amended and restated
certificate of incorporation and bylaws could make more difficult the
acquisition of our company by means of a tender offer, a proxy contest or
otherwise and the removal of incumbent officers and directors. These
provisions, summarized below, may discourage certain types of coercive takeover
practices and inadequate takeover bids and encourage persons seeking to acquire
control of our company to first negotiate with our company. We believe that the
benefits of increased protection of our company's potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure our company outweigh the disadvantages of discouraging
such

                                       66
<PAGE>

proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.

      We will be subject to Section 203 of the Delaware General Corporation Law
regulating corporate takeovers which prohibits a Delaware corporation from
engaging in any business combination with an "interested stockholder," unless:

    .  prior to the date of the transaction, the board of directors of the
       corporation approved either the business combination or the
       transaction which resulted in the stockholder becoming an interested
       stockholder;

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

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

      Except as otherwise specified in Section 203, an "interested stockholder"
is defined to include (a) any person that is the owner of 15% or more of the
outstanding voting securities of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the date of determination and (b) the affiliates and
associates of any such person.

      Our certificate of incorporation and bylaws do not provide for cumulative
voting in the election of directors. The authorization of undesignated
preferred stock makes it possible for the board of directors to issue preferred
stock with voting or other rights or preferences that could impede the success
of any attempt to change control of our company. These and other provisions may
have the effect of deterring hostile takeovers or delaying changes in control
or management of our company.

Transfer Agent And Registrar

      The transfer agent and registrar for our common stock is Continental
Stock Transfer & Trust Company.

                        SHARES ELIGIBLE FOR FUTURE SALE

      Prior to this offering, there has not been a public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market, or the possibility of these sales could adversely affect the trading
price of the common stock.

      Upon completion of this offering, we will have outstanding 92,084,201
shares of common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options to purchase common
stock after September 30, 2000. Of these shares, the 8,200,000 shares sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by our
"affiliates," as defined in Rule 144 under the Securities Act, which would be
subject to the limitations and restrictions described below.

                                       67
<PAGE>


      The remaining 83,884,201 shares of common stock outstanding upon
completion of this offering will be "restricted securities" as defined in Rule
144. These securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701 under
the Securities Act, which are summarized below. Sales of these restricted
securities in the public market, or the availability of these shares for sale,
could adversely affect the trading price of our common stock.

      Holders of approximately     of these restricted securities, including
all of our officers and directors and the entities affiliated with them and all
of our significant stockholders, have entered into lock-up agreements providing
that, subject to limited exceptions, they will not sell, directly or
indirectly, any common stock without the prior consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated for a period of 180 days from the date of
this prospectus.

      All of these restricted securities will be eligible for sale in the
public market, subject in some cases to the volume limitations and other
restrictions of Rule 144, beginning 180 days after the date of this prospectus
upon expiration of the lock-up agreements described above.

      Shares issued upon exercise of options granted by us prior to the date of
this prospectus will be available for sale in the public market under Rule 701
of the Securities Act. Rule 701 permits resales of these shares in reliance
upon Rule 144 but without compliance with various restrictions, including the
holding period requirement, imposed under Rule 144. In general, under Rule 144,
beginning 90 days after the date of this prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned restricted securities for at
least one year would be entitled to sell within any three-month period a number
of shares not to exceed the greater of (1) one percent of the then outstanding
shares of common stock or (2) the average weekly trading volume of our common
stock during the four calendar weeks preceding the filing of a Form 144 with
respect to the sale. Sales under Rule 144 are also subject to manner of sale
and notice requirements, as well as to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have
been an affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell the shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

      Upon consummation of this offering, we will have reserved an aggregate of
15,000,000 shares of common stock for issuance pursuant to our 2000 stock
incentive plan. As of December 31, 2000, options to purchase an aggregate of
5,126,532 shares of common stock were outstanding under our stock option plan.
We intend to file registration statements on Form S-8 under the Securities Act
approximately 90 days after the date of this prospectus to register all of such
reserved shares of common stock issued or reserved for issuance under our stock
option plan. Such common stock issued under the foregoing plans, after the
filing of related registration statements, will be freely tradable in the
public market, subject in the case of the holders to the Rule 144 limitations
applicable to our affiliates, lock-up agreements with the underwriters and
vesting restrictions imposed by us.

                                       68
<PAGE>


                 SUMMARY OF FEDERAL INCOME AND ESTATE TAX

                 CONSEQUENCES OF OWNERSHIP AND DISPOSITION

                    OF COMMON STOCK BY NON-U.S. HOLDERS

      The following is a summary of certain United States federal income and
estate tax consequences of the ownership and disposition of our common stock by
non-U.S. holders. As used herein, "non-U.S. holder" means any person or entity
that holds our common stock, other than:

    .  an individual citizen or resident of the U.S.;

    .  a corporation or partnership created or organized in or under the
       laws of the U.S., or of any state of the U.S. or the District of
       Columbia, other than any partnership treated as foreign under U.S.
       Treasury Regulations;

    .  an estate the income of which is includable in gross income for U.S.
       federal income tax purposes regardless of its source; or

    .  in general, a trust if a court within the U.S. is able to exercise
       primary supervision over the administration of the trust and if one
       or more U.S. persons have the authority to control all substantial
       decisions of the trust.

      The summary is based on provisions of the U.S. Internal Revenue Code of
1986, as amended, existing, temporary and proposed U.S. Treasury Regulations
promulgated thereunder and administrative and judicial interpretations of each,
all as of the date hereof and all of which are subject to change, possibly on a
retroactive basis. This summary is for general information only. It does not
address aspects of U.S. federal taxation other than income and estate taxation.
This summary does not discuss all the tax consequences that may be relevant to
a non-U.S. holder in light of the holder's particular circumstances, for
instance, insurance companies, tax-exempt organizations, pension funds, broker-
dealers, and financial institutions. In addition, this summary does not address
any state, local, or foreign tax considerations that may be relevant to a non-
U.S. holder's decision to purchase shares of our common stock.

      PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING
THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES, AS WELL AS
OTHER U.S. FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES, AND THE NON-U.S. TAX
CONSEQUENCES, TO THEM OF OWNING AND DISPOSING OF SHARES OF OUR COMMON STOCK.

Income Tax

 Dividends

      We do not have a present intention to pay dividends on shares of our
common stock. If we were to pay dividends, however, dividends paid to a non-
U.S. holder generally will be subject to withholding of U.S. income tax at the
rate of 30% of the gross amount of the dividend, or such lower rate as may be
prescribed by an applicable income tax treaty.

      If dividends we pay are effectively connected with a non-U.S. holder's
conduct of a trade or business in the U.S., the 30% withholding tax generally
will not apply, and the non-U.S. holder generally will be subject to tax on
such dividends on a net basis (the gross amount less allowable deductions) in
the same manner as holders who are U.S. persons, provided the non-U.S. holder
files appropriate IRS forms with us. If an income tax treaty applies, dividends
which are effectively connected with the holder's conduct of a U.S. trade or
business must also be attributable to such holder's U.S. permanent
establishment or fixed base in order to be taxable on a net basis. An
additional branch profits tax of 30%, or such lower rate as may be prescribed
by an applicable income tax treaty, may apply if the non-U.S. holder is a
corporation.

                                       69
<PAGE>


      Under current U.S. Treasury Regulations, in determining whether a holder
is eligible for the benefits of an income tax treaty, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country, absent knowledge to the contrary. However, under new U.S. Treasury
Regulations generally effective for dividend payments made after December 31,
2000, a non-U.S. holder desiring to claim the benefits of an applicable tax
treaty must satisfy certification and other requirements and must provide us
with a taxpayer identification number unless an exception applies. In
addition, under these new Treasury Regulations, in the case of common stock
held by a foreign partnership, this certification requirement may be applied
to the partners, and not the partnership, and the partnership must provide
certain information, including a U.S. taxpayer identification number. These
new regulations also provide look-through rules for tiered partnerships. A
non-U.S. holder that is eligible for a reduced rate of U.S. withholding tax
pursuant to a tax treaty may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund with the IRS.

Disposition of Our Common Stock

      Generally, non-U.S. holders will not be subject to U.S. federal income
tax, or withholding thereof, in respect of gain recognized on a disposition of
our common stock unless:

    .  the gain is effectively connected with the holder's conduct of a
       trade or business within the U.S., or if a tax treaty applies, is
       attributable to a permanent establishment or fixed base of the holder


       in the U.S.; in any such case gain will be subject to regular
       graduated U.S. income tax rates and the branch profits tax described
       above may also apply if the non-U.S. holder is a corporation;

    .  in the case of a non-U.S. holder who is a non-resident alien
       individual and holds our common stock as a capital asset, the holder
       is present in the U.S. for 183 or more days in the taxable year of
       the sale and other conditions are met;

    .  we are or have been a "United States real property holding
       corporation" for U.S. federal income tax purposes and certain other
       conditions are met; we do not believe we are or have been a United
       States real property holding corporation and do not expect to become
       one in the future; or

    .  the holder is subject to tax pursuant to U.S. federal income tax
       provisions applicable to certain U.S. expatriates.

Estate Tax

      If an individual non-U.S. holder owns, or is treated as owning, our
common stock at the time of his or her death, such stock would generally be
includable in the individual's gross estate for U.S. federal estate tax
purposes. In such case, our common stock may be subject to U.S. federal estate
tax imposed on the estates of nonresident aliens, in the absence of a contrary
provision contained in an applicable estate tax treaty.

Backup Withholding and Information Reporting

 Dividends

      Generally, we must report annually to the IRS and to each non-U.S.
holder the amount of dividends that we paid to a holder, and the amount of tax
that we withheld on those dividends. This information may also be made
available to the tax authorities of a country in which the non-U.S. holder
resides or is established.

      Under current law, dividends paid on our common stock to a non-U.S.
holder at an address outside the U.S. are generally exempt from backup
withholding tax, imposed at a 31% rate, and U.S. information reporting
requirements, but not from regular withholding tax as discussed above. Backup
withholding tax and information reporting generally will apply to dividends
paid to a non-U.S. holder at an address in the U.S. if the holder fails to
establish an exemption or to furnish other information. Under the Treasury
Regulations that are applicable to dividends paid after December 31, 2000, a
non-U.S. person must generally provide proper

                                      70
<PAGE>


documentation establishing the person's non-U.S. status to a withholding agent
in order to avoid backup withholding tax.

 Broker Sales

      Payments of proceeds from the sale of our common stock by a non-U.S.
holder made to or through a U.S. office of a broker are generally subject to
both information reporting and backup withholding tax unless the holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes entitlement to an exemption. Payments of proceeds from the sale of
our common stock by a non-U.S. holder made to or through a non-U.S. office of a
broker generally will not be subject to information reporting or backup
withholding. However, payments made to or through certain non-U.S. offices,
including the non-U.S. offices of a U.S. broker and foreign brokers with
certain types of relationships to the U.S., are generally subject to
information reporting, but not backup withholding, unless the holder certifies
its non-U.S. status under penalties of perjury or otherwise establishes
entitlement to an exemption.

      Backup withholding is not an additional tax. A non-U.S. holder may obtain
a refund of any excess amounts withheld under the backup withholding rules by
filing an appropriate claim for refund with the IRS.

      Non-U.S. holders should consult their tax advisors regarding the
application of information reporting and backup withholding in their particular
situation, including the availability of an exemption from such requirements
and the procedures for obtaining such an exemption, as well as the effect of
the new Treasury Regulations generally effective for payments made after
December 31, 2000.

                                       71
<PAGE>

                                  UNDERWRITING

General

      We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Robertson Stephens, Inc., CIBC World
Markets Corp., U.S. Bancorp Piper Jaffray Inc. and Wit SoundView Corporation
are acting as U.S. representatives of the U.S. underwriters named below.
Subject to the terms and conditions described in a U.S. purchase agreement
among us and the U.S. underwriters, and concurrently with the sale of shares to
the international managers, we have agreed to sell to the U.S. underwriters,
and the U.S. underwriters severally have agreed to purchase from us, the number
of shares listed opposite their names below.

<TABLE>
<CAPTION>
                                                                          Number
                                                                            of
          U.S. Underwriters                                               Shares
          -----------------                                               ------
     <S>                                                                  <C>
     Merrill Lynch, Pierce, Fenner & Smith
              Incorporated...............................................
     Robertson Stephens, Inc. ...........................................
     CIBC World Markets Corp.............................................
     U.S. Bancorp Piper Jaffray Inc......................................
     Wit SoundView Corporation...........................................
                                                                          -----
          Total..........................................................
                                                                          =====
</TABLE>

      We have also entered into an international purchase agreement with the
international managers for sale of the shares outside the U.S. and Canada for
whom Merrill Lynch International, Robertson Stephens, Inc., CIBC World Markets
Corp., U.S. Bancorp Piper Jaffray Inc. and Wit SoundView Corporation are acting
as lead managers. Subject to the terms and conditions in the international
purchase agreement, and concurrently with the sale of shares to the U.S.
underwriters pursuant to the U.S. purchase agreement, we have agreed to sell
shares to the international managers, and the international managers severally
have agreed to purchase shares from us. The initial public offering price per
share and the total underwriting discount per share are identical under the
U.S. purchase agreement and the international purchase agreement.

      The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults on
its obligations under the U.S. or international purchase agreement, the U.S.
and international purchase agreements provide that the purchase commitments of
the nondefaulting underwriters may be increased or the purchase agreements may
be terminated. The closings for the sale of shares to be purchased by the U.S.
underwriters and the international managers are conditioned on one another. We
have agreed to indemnify the U.S. underwriters and international managers
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the U.S. underwriters and international managers may
be required to make in respect of those liabilities.

      The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part.

Commissions and Discounts

      The U.S. representatives have advised us that the U.S. underwriters
propose initially to offer the shares to the public at the initial public
offering price on the cover page of this prospectus and to dealers at that
price

                                       72
<PAGE>

less a concession not in excess of $    per share. The U.S. underwriters may
allow, and dealers may reallow, a discount not in excess of $    per share to
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

      The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the U.S. underwriters and international managers
of their over-allotment options.

<TABLE>
<CAPTION>
                                          Per Share Without Option With Option
                                          --------- -------------- -----------
     <S>                                  <C>       <C>            <C>
     Public offering price...............    $           $             $
     Underwriting discount...............    $           $             $
     Proceeds, before expenses, to IPG
      Photonics..........................    $           $             $
</TABLE>

      The expenses of the offering, not including the underwriting discount,
are estimated at $1,000,000 and are payable by us.

Over-Allotment Options

      We have granted options to the U.S. underwriters to purchase up to
additional shares at the public offering price less the underwriting discount.
The U.S. underwriters may exercise these options for 30 days from the date of
this prospectus solely to cover any over-allotments. If the U.S. underwriters
exercise these options, each will be obligated, subject to conditions contained
in the purchase agreements, to purchase a number of additional shares
proportionate to that U.S. underwriter's initial amount reflected in the above
table.

      We have also granted options to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to     additional
shares to cover any over-allotments on terms similar to those granted to the
U.S. underwriters.

Intersyndicate Agreement

      The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the U.S. underwriters and the
international managers may sell shares to each other for purposes of resale at
the initial public offering price, less an amount not greater than the selling
concession. Under the intersyndicate agreement, the U.S. underwriters and any
dealer to whom they sell shares will not offer to sell or sell shares to
persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, except in
the case of transactions under the intersyndicate agreement. Similarly, the
international managers and any dealer to whom they sell shares will not offer
to sell or sell shares to U.S. persons or Canadian persons or to persons they
believe intend to resell to U.S. or Canadian persons, except in the case of
transactions under the intersyndicate agreement.

Reserved Shares

      At our request, the underwriters have reserved for sale, at the initial
public offering price, up to ten percent of the shares offered by this
prospectus for sale to some of our employees and business associates. If these
persons purchase reserved shares, this will reduce the number of shares
available for sale to the general public. Any reserved shares that are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.


                                       73
<PAGE>

No Sales of Similar Securities

      We and our executive officers and directors and all of our significant
stockholders have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first obtaining
the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly:

    .  offer, pledge, sell or contract to sell any common stock;

    .  sell any option or contract to purchase any common stock;

    .  purchase any option or contract to sell any common stock;

    .  grant any option, right or warrant for the sale of any common stock;

    .  lend or otherwise dispose of or transfer any common stock;

    .  request or demand that we file a registration statement related to
       the common stock; or

    .  enter into any swap or other agreement that transfers, in whole or in
       part, the economic consequence of ownership of any common stock,
       whether any such swap or transaction is to be settled by delivery of
       shares or other securities, in cash or otherwise.

      This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.

Quotation on the Nasdaq National Market

      We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "IPGP."

      Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations between us and the U.S. representatives and lead managers. In
addition to prevailing market conditions, the factors to be considered in
determining the initial public offering price are:

    .  the valuation multiples of publicly traded companies that the U.S.
       representatives and the lead managers believe to be comparable to us;

    .  our financial information;

    .  the history of, and the prospects for, our company and the industry
       in which we compete;

    .  an assessment of our management, its past and present operations, and
       the prospects for, and timing of, our future revenues;

    .  the present state of our development; and

    .  the above factors in relation to market values and various valuation
       measures of other companies engaged in activities similar to ours.

      An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.

                                       74
<PAGE>

      The underwriters do not expect to sell more than 5% of the shares being
offered in this offering to accounts over which they exercise discretionary
authority.

Price Stabilization, Short Positions and Penalty Bids

      Until the distribution of the shares is completed, SEC rules may limit
the underwriters and selling group members from bidding for or purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.

      In connection with the offering, the underwriters may make short sales of
the common stock. Short sales involve the sale by the underwriters at the time
of the offering of a greater number of shares than they are required to
purchase in the offering. Covered short sales are sales made in an amount not
greater than the over-allotment options. The U.S. representatives may close out
any covered short position by either exercising the over-allotment options or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the U.S. representatives will consider,
among other things, the price of shares available for purchase in the open
market as compared to the public offering price at which they may purchase the
shares through the over-allotment option. Naked short sales are sales in excess
of the over-allotment option. The U.S. representatives must close out any naked
short position by purchasing shares in the open market. A naked short position
is more likely to be created if the U.S. representatives are concerned that
there may be downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase in the
offering. Similar to other purchase transactions, the purchases by the U.S.
representatives to cover syndicate short positions may have the effect of
raising or maintaining the market price of the common stock or preventing or
retarding a decline in the market price of the common stock. As a result, the
price of the common stock may be higher than it would otherwise be in the
absence of these transactions.

      The U.S. representatives may also impose a penalty bid on underwriters
and selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriters' short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.

      Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters make any representation that the U.S.
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.

Electronic Distribution

      Neither we nor the U.S. underwriters will rely on third party providers
to comply with the prospectus delivery requirements. All purchasers will
receive a printed version of the final prospectus.

      Merrill Lynch will be facilitating Internet distribution for this
offering to certain of its Internet subscription clients. Merrill Lynch intends
to allocate a limited number of shares for sale to its online brokerage
clients. An electronic prospectus is available on the web site maintained by
Merrill Lynch. Other than the prospectus in electronic format, the information
on the Merrill Lynch web site relating to this offering is not a part of this
prospectus.

      A prospectus in electronic format is being made available on an Internet
web site maintained by Wit SoundView Corporation's strategic partner, E*Trade
Securities, Inc. Other than the prospectus in electronic format, the
information on any U.S. underwriter's web site and any information contained in
any other web site

                                       75
<PAGE>

maintained by an U.S. underwriter is not part of the prospectus or the
registration statement of which this prospectus forms a part, has not been
approved or endorsed by us or any U.S. underwriter in its capacity as
underwriter and should not be relied upon by investors.

Other Relationships

      Merrill Lynch KECALP L.P. 1999, KECALP Inc., KECALP Inc., as Nominee for
Merrill Lynch KECALP International L.P. 1999, ML IBK Positions, Inc. and
Merrill Lynch Taurus 2000 Fund L.P., entities which are affiliated with Merrill
Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters,
beneficially own an aggregate of 600,000 shares of Series B preferred stock,
which convert into 1,749,996 shares of common stock and warrants to purchase
500,000 shares of common stock assuming an offering price of $15.00.

      Bayview 2000, L.P., an entity which is affiliated with Robertson
Stephens, one of the underwriters, beneficially owns an aggregate of 80,000
shares of Series B preferred stock, which convert into 233,333 shares of common
stock, and warrants to purchase 66,667 shares of common stock assuming an
offering price of $15.00.

                                 LEGAL MATTERS

      Selected legal matters in connection with the offering of common stock
are being passed upon for us by Winston & Strawn, New York, New York. Selected
legal matters in connection with the offering are being passed upon for the
underwriters by Brown & Wood llp, New York, New York.

                                    EXPERTS

      The combined consolidated financial statements of IPG Photonics and
related companies as of and for the year ended December 31, 1999, included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing in this prospectus and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

      The consolidated financial statements of IPG Laser as of December 31,
1998 and for each of the two years in the period ended December 31, 1998,
included in this prospectus have been audited by Deloitte & Touche GmbH,
independent auditors, as stated in their report appearing in this prospectus
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

                                       76
<PAGE>

                      WHERE YOU CAN FIND MORE INFORMATION

      We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, with respect to the shares to be sold in this offering. This
prospectus does not contain all of the information set forth in the
registration statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. For further information about us and the
shares to be sold in this offering, please refer to the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to, are not necessarily complete, and in
each instance please refer to the copy of the contract, agreement or other
document filed as an exhibit to the registration statement, each statement
being qualified in all respects by this reference.

      You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file with the SEC at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, and at the Regional Offices of the
SEC located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2551 and Room 1400, 13th Floor, 7 World Trade Center,
New York, New York 10048. Copies of such material are also available by mail
from the Public Reference Branch of the SEC at 450 Fifth Street, N.W.,
Washington, DC 20549 at prescribed rates.

      Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You can also find our SEC filings at the SEC's website at
http://www.sec.gov.

                                       77
<PAGE>

              INDEX TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
Report of Independent Auditors............................................ F-2
Report of Independent Auditors............................................ F-3
Combined Consolidated Balance Sheets as of December 31, 1998 and 1999 and
 September 2000 (unaudited)............................................... F-4
Combined Consolidated Statements of Operations for the years ended
 December 31, 1997, 1998 and 1999 and for the nine months ended September
 30, 1999 and 2000 (unaudited)............................................ F-5
Combined Consolidated Statements of Shareholders' Equity for the years
 ended December 31, 1997, 1998 and 1999 and for the nine months ended
 September 30, 2000 (unaudited)........................................... F-6
Combined Consolidated Statements of Cash Flows for the years ended
 December 31, 1997, 1998 and 1999 and for the nine months ended September
 30, 1999 and 2000 (unaudited)............................................ F-7
Notes to Combined Consolidated Financial Statements....................... F-8
</TABLE>

                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

      The accompanying combined consolidated financial statements give effect
to the completion of a 2-for-1 stock split described in the last paragraph of
Note 7 which will take place prior to the effective date of the offering. The
following report is in the form which will be furnished by Deloitte & Touche
LLP upon the completion of the stock split and assuming that no other material
events have occurred that would affect the accompanying combined consolidated
financial statements or require disclosure therein.

"To the Board of Directors and Shareholders of IPG Photonics Corporation:

      We have audited the accompanying combined consolidated balance sheet of
IPG Photonics Corporation and related companies as of December 31, 1999, and
the related combined consolidated statements of operations, shareholders'
equity and cash flows for the year then ended. The combined consolidated
financial statements include the accounts of IPG Photonics Corporation and two
related companies, IPG Laser GmbH and IPG Fibertech S.r.l. These companies are
under common ownership and common management. These financial statements are
the responsibility of the companies' management. Our responsibility is to
express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the combined consolidated financial position
of IPG Photonics Corporation and related companies as of December 31, 1999, and
the results of their combined consolidated operations and their combined
consolidated cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.

Boston, Massachusetts

December 6, 2000 (   , 2001 as to the last paragraph of Note 7)"

Deloitte & Touche LLP

Boston, Massachusetts

January 24, 2001

                                      F-2
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


      The accompanying consolidated financial statements give effect to the
completion of a 2-for-1 stock split described in the last paragraph of Note 7
which will take place prior to the effective date of the offering. The
following report is in the form which will be furnished by Deloitte & Touche
GmbH upon the completion of the stock split and assuming that no other material
events have occurred that would affect the accompanying consolidated financial
statements or require disclosure therein.

"To the Board of Directors and Shareholders of IPG Laser GmbH:

      We have audited the accompanying consolidated balance sheet of IPG Laser
GmbH and subsidiary (a German corporation) as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IPG
Laser GmbH and subsidiary as of December 31, 1998, and the results of their
consolidated operations and their consolidated cash flows for each of the two
years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America.

Duesseldorf, Germany

December 6, 2000 (   , 2001 as to the last paragraph of Note 7)"

Deloitte & Touche GmbH

Duesseldorf, Germany

January 24, 2001

                                      F-3
<PAGE>

                      COMBINED CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                                           September 30, 2000
                                                                                                           -------------------
                                                                                 December 31, December 31,
                                                                                     1998         1999      Actual   Pro forma
                                                                                 ------------ ------------ --------  ---------
                                                                                 Predecessor                  (unaudited)
                                                                                 ------------              -------------------
<S>                                                                              <C>          <C>          <C>       <C>
Assets:
Current assets:
 Cash and cash equivalents......................................................    $1,181      $   706    $ 52,999
 Accounts receivable, net of allowances of $18, $10 and $117....................     1,763        1,642      11,590
 Due from affiliates............................................................       463          221         753
 Inventories....................................................................       467        2,341       7,184
 Deferred tax assets............................................................       --            86         163
 Prepaid expenses and other assets..............................................       355          332       1,212
                                                                                    ------      -------    --------
   Total current assets.........................................................     4,229        5,328      73,901
Restricted cash.................................................................                             12,560
Non-marketable investment securities............................................        50           43          38
Deferred tax assets.............................................................        52          --        1,117
Property, plant and equipment, net..............................................     4,488        7,207      15,177
Other assets....................................................................       --           222         184
                                                                                    ------      -------    --------
     Total assets...............................................................    $8,819      $12,800    $102,977
                                                                                    ======      =======    ========
Liabilities and shareholders' equity:
Current liabilities:
 Current portion of long-term debt..............................................    $   21      $   225    $  1,982
 Accounts payable...............................................................     2,210        3,266       4,210
 Due to affiliates..............................................................       946          463         471
 Accrued expenses and other liabilities.........................................       315          472       2,310
 Income taxes payable...........................................................       145        1,677       7,934
 Deferred tax liabilities.......................................................        45          --          --
                                                                                    ------      -------    --------
   Total current liabilities....................................................     3,682        6,103      16,907
                                                                                    ------      -------    --------
Long-term debt..................................................................     4,695        4,421       5,317
                                                                                    ------      -------    --------
Deferred income taxes...........................................................       --            50         --
                                                                                    ------      -------    --------
Commitments and contingencies (See Note 9)......................................       --           --          --
Minority interest...............................................................         7           10          10
                                                                                    ------      -------    --------
Convertible redeemable preferred stock--Series B, $0.0001 par value;
 3,800,000 shares authorized, 3,000,000 shares issued and outstanding at
 September 30, 2000 actual; no shares issued or outstanding at September 30,
 2000 pro forma.................................................................       --           --       62,389  $    --
                                                                                    ------      -------    --------  --------
Shareholders' equity:
 Preferred stock--$0.0001 par value; 700,000 shares authorized, no shares issued
  or outstanding................................................................       --           --          --        --
 Convertible preferred stock--Series A, $0.0001 par value; 500,000 shares
  authorized, 500,000 shares issued and outstanding at September 30, 2000
  actual; no shares issued or outstanding on a pro forma basis at September 30,
  2000..........................................................................       --           --        4,954       --
 Common stock, $.0001par value, 100,000,000 shares authorized, 43,600,000 shares
  issued and outstanding at December 31, 1999; 67,961,868 shares issued and
  outstanding at September 30, 2000 actual; 100,000,000 shares authorized,
  77,711,868 shares issued and outstanding at September 30, 2000 pro forma......       --             4           7         8
 Additional paid-in capital.....................................................       312          310      30,934    98,276
 Warrants to issue common stock.................................................       --           --       12,400    12,400
 Notes receivable from shareholders.............................................       --           --         (440)     (440)
 Deferred compensation..........................................................       --           --      (17,452)  (17,452)
 Retained earnings (accumulated deficit)........................................       135        2,086     (11,362)  (11,362)
 Accumulated other comprehensive (loss).........................................       (12)        (184)       (687)     (687)
                                                                                    ------      -------    --------  --------
   Total shareholders' equity...................................................       435        2,216      18,354  $ 80,743
                                                                                    ------      -------    --------  ========
     Total liabilities and shareholders' equity.................................    $8,819      $12,800    $102,977
--------------------------------------------------
                                                                                    ======      =======    ========
</TABLE>
            See notes to combined consolidated financial statements.

                                      F-4
<PAGE>

                 COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                               For the nine
                                                                  months
                                         For the year         ended September
                                      ended December 31,            30,
                                     -----------------------  ----------------
                                      1997    1998    1999     1999     2000
                                     ------  ------  -------  -------  -------
                                      Predecessor               (unaudited)
                                     --------------           ----------------
<S>                                  <C>     <C>     <C>      <C>      <C>
Net sales..........................  $3,097  $8,263  $18,640  $14,823  $32,689
Cost of sales(1)...................   2,436   5,560    9,688    6,882   12,610
                                     ------  ------  -------  -------  -------
Gross profit(1)....................     661   2,703    8,952    7,941   20,079
                                     ------  ------  -------  -------  -------
Operating expenses:
  Sales and marketing(2)...........     219     374      677      619    1,049
  Research and development(3)......     127     682    1,477    1,036    1,127
  General, administrative and
   other(4)........................     276   1,000    2,712    2,006    3,946
  Equity-based compensation........     --      --       --       --    12,035
                                     ------  ------  -------  -------  -------
    Total operating expenses.......     622   2,056    4,866    3,661   18,157
                                     ------  ------  -------  -------  -------
Operating income...................      39     647    4,086    4,280    1,922
Interest income (expense), net.....    (119)   (208)    (303)    (231)     (77)
Other income (expense), net........     108     (47)     273       40      475
                                     ------  ------  -------  -------  -------
Income before provision for income
 taxes and minority interests......      28     392    4,056    4,089    2,320
Provision for income taxes.........      22     234    2,102    2,178    5,828
Minority interest..................     --       (4)      (3)      (5)     --
                                     ------  ------  -------  -------  -------
Net income (loss)..................       6     154    1,951    1,906   (3,508)
Accretion of preferred stock.......     --      --       --       --      (169)
                                     ------  ------  -------  -------  -------
Net income (loss) available to
 common shareholders...............  $    6  $  154  $ 1,951  $ 1,906  $(3,677)
                                     ======  ======  =======  =======  =======
Net income (loss) per share:
  Basic............................     --      --   $  0.03  $  0.03  $ (0.06)
                                                     =======  =======  =======
  Diluted..........................     --      --   $  0.03  $  0.03  $ (0.06)
                                                     =======  =======  =======
Pro forma net loss per share--basic
 and diluted.......................     --      --       --       --   $ (0.05)
                                                                       =======
</TABLE>
--------
(1) Excludes $677 of equity-based compensation for the nine months ended
    September 30, 2000.
(2) Excludes $166 of equity-based compensation for the nine months ended
    September 30, 2000.
(3) Excludes $184 of equity-based compensation for the nine months ended
    September 30, 2000.

(4) Excludes $11,008 of equity-based compensation for the nine months ended
    September 30, 2000.

         See notes to combined consolidated financial statements.

                                      F-5
<PAGE>

           COMBINED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                    Convertible
                  Preferred Stock
                      Series A       Common Stock               Warrants    Notes                    Retained    Accumulated
                  ---------------- ---------------- Additional  to Issue  Receivable                 Earnings       Other
                  Number of        Number of   Par   Paid-in     Common      from       Deferred   (Accumulated Comprehensive
                   Shares   Value    Shares   Value  Capital     Stock   Shareholders Compensation   Deficit)      (Loss)
                  --------- ------ ---------- ----- ----------  -------- ------------ ------------ ------------ -------------
<S>               <C>       <C>    <C>        <C>   <C>         <C>      <C>          <C>          <C>          <C>
Balance at
January 1, 1997
(Predecessor)...       --   $  --         --  $--    $   183    $   --      $ --        $    --      $    (25)      $ (13)
Contributions
from
shareholders....       --      --         --   --        129        --        --             --           --          --
Comprehensive
income:
Net income......       --      --         --   --        --         --        --             --             6         --
Translation
adjustments.....       --      --         --   --        --         --        --             --           --          (24)
Total
comprehensive
loss............       --      --         --   --        --         --        --             --           --          --
                   -------  ------ ---------- ----   -------    -------     -----       --------     --------       -----
Balance at
December 31,
1997
(Predecessor)...       --      --         --   --        312        --        --             --           (19)        (37)
Comprehensive
income:
Net income......       --      --         --   --        --         --        --             --           154         --
Translation
adjustments.....       --      --         --   --        --         --        --             --           --           25
Total
comprehensive
income .........       --      --         --   --        --         --        --             --           --          --
                   -------  ------ ---------- ----   -------    -------     -----       --------     --------       -----
Balance at
December 31,
1998
(Predecessor)...       --      --         --   --        312        --        --             --           135         (12)
Comprehensive
income:
Net income......       --      --         --   --        --         --        --             --         1,951         --
Translation
adjustments.....       --      --         --   --        --         --        --             --           --         (172)
Total
comprehensive
income..........       --      --         --   --        --         --        --             --           --          --
Common stock
issued..........       --      --  43,600,000    4       (2)        --        --             --           --          --
                   -------  ------ ---------- ----   -------    -------     -----       --------     --------       -----
Balance at
December 31,
1999............       --      --  43,600,000    4       310        --        --             --         2,086        (184)
Comprehensive
income:
Net loss........       --      --         --   --        --         --        --             --        (3,508)        --
Translation
adjustments.....       --      --         --   --        --         --        --             --           --         (503)
Total
comprehensive
loss............       --      --         --   --        --         --        --             --           --          --
Common stock
issued to IP
Fibre Devices
Ltd. In
satisfaction of
$200,000 note
payable and
accrued
interest........       --      --  20,000,000    2       198        --        --             --           --          --
Common stock
issued for notes
receivable from
stockholders at
$0.50 per
share...........       --      --     880,000    1       439        --       (440)           --           --          --
Issuance of
Series A shares
at $10.00 per
share, net of
issuance costs
totaling $63....   500,000   4,937        --   --        --         --        --             --           --          --
Warrants to
issue common
stock attached
to Series B
preferred
stock...........       --      --         --   --        --      12,400       --             --           --          --
Accretion of
Series A
Preferred
Stock...........       --       17        --   --        (17)       --        --             --           --          --
Accretion of
Series B
Preferred
Stock...........       --      --         --   --       (152)       --        --             --           --          --
Distributions to
shareholders....       --      --   2,300,000  --        --         --        --             --        (9,940)        --
Equity-based
compensation
awarded.........       --      --         --   --     29,487        --        --         (29,487)         --          --
Amortization of
equity-based
compensation....       --      --         --   --        --         --        --          12,035          --          --
Cash proceeds
from exercise of
stock options...       --      --   1,181,868  --        669        --        --             --           --          --
                   -------  ------ ---------- ----   -------    -------     -----       --------     --------       -----
Balance at
September 30,
2000
(unaudited).....   500,000  $4,954 67,961,868 $  7   $30,934    $12,400     $(440)      $(17,452)    $(11,362)      $(687)
                   =======  ====== ========== ====   =======    =======     =====       ========     ========       =====
<CAPTION>
                               Other
                           Comprehensive
                   Total   Income (Loss)
                  -------- -------------
<S>               <C>      <C>
Balance at
January 1, 1997
(Predecessor)...  $   145
Contributions
from
shareholders....      129
Comprehensive
income:
Net income......        6    $      6
Translation
adjustments.....      (24)        (24)
                           -------------
Total
comprehensive
loss............      --     $    (18)
                  -------- =============
Balance at
December 31,
1997
(Predecessor)...      256
Comprehensive
income:
Net income......      154    $    154
Translation
adjustments.....       25          25
                           -------------
Total
comprehensive
income .........      --     $    179
                  -------- =============
Balance at
December 31,
1998
(Predecessor)...      435
Comprehensive
income:
Net income......    1,951    $  1,951
Translation
adjustments.....     (172)       (172)
                           -------------
Total
comprehensive
income..........      --     $  1,779
                           =============
Common stock
issued..........        2
                  --------
Balance at
December 31,
1999............    2,216
Comprehensive
income:
Net loss........   (3,508)   $ (3,508)
Translation
adjustments.....     (503)       (503)
                           -------------
Total
comprehensive
loss............      --     $ (4,011)
                           =============
Common stock
issued to IP
Fibre Devices
Ltd. In
satisfaction of
$200,000 note
payable and
accrued
interest........      200
Common stock
issued for notes
receivable from
stockholders at
$0.50 per
share...........      --
Issuance of
Series A shares
at $10.00 per
share, net of
issuance costs
totaling $63....    4,937
Warrants to
issue common
stock attached
to Series B
preferred
stock...........   12,400
Accretion of
Series A
Preferred
Stock...........      --
Accretion of
Series B
Preferred
Stock...........     (152)
Distributions to
shareholders....   (9,940)
Equity-based
compensation
awarded.........      --
Amortization of
equity-based
compensation....   12,035
Cash proceeds
from exercise of
stock options...      669
                  --------
Balance at
September 30,
2000
(unaudited).....  $18,354
                  ========
</TABLE>

           See notes to combined consolidated financial statements.

                                      F-6
<PAGE>

                 COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                 For the year ended       For the nine months
                                    December 31,          ended September 30,
                               -------------------------  ---------------------
                                1997     1998     1999      1999        2000
                               -------  -------  -------  ---------  ----------
                                 Predecessor                  (unaudited)
                               ----------------           ---------------------
<S>                            <C>      <C>      <C>      <C>        <C>
Cash flows from operating
 activities:
 Net income (loss)...........  $     6  $   154  $ 1,951  $   1,906  $   (3,508)
 Adjustment to reconcile net
  income (loss) to net cash
  provided by operating
  activities:
 Depreciation and
  amortization...............      250      716    1,518      1,015       1,524
 Deferred income taxes.......       (4)      43      (29)       (27)     (1,244)
 Equity-based compensation...      --       --       --         --       12,035
 Minority interest...........      --         4        3          5         --
 Changes in assets and
  liabilities that provided
  (used) cash:
 Accounts receivable.........     (751)    (852)     (55)    (1,025)    (10,568)
 Due to (from) affiliates,
  net........................      483      234     (439)      (374)       (346)
 Inventories.................      (19)    (296)  (1,982)    (1,666)     (5,427)
 Prepaid expenses and other
  assets.....................       83     (218)     (20)       (61)     (1,088)
 Accounts payable............      143    1,848    1,401        677       1,592
 Accrued expenses and other
  liabilities................       (8)     268      211        581       1,568
 Income taxes payable........        8      109    1,645      2,096       7,219
                               -------  -------  -------  ---------  ----------
Net cash provided by
 operating activities........      191    2,010    4,204      3,127       1,757
                               -------  -------  -------  ---------  ----------
Cash flows from investing
 activities:
 Purchase of property, plant
  and equipment..............   (1,292)  (3,080)  (5,135)    (3,391)     (9,898)
 Other.......................      --         2      --         --          --
                               -------  -------  -------  ---------  ----------
Net cash used in investing
 activities..................   (1,292)  (3,078)  (5,135)    (3,391)     (9,898)
                               -------  -------  -------  ---------  ----------
Cash flows from financing
 activities:
 Proceeds from long-term
  borrowings.................    1,151    2,049      600        --        1,822
 Principal payments on
  borrowings.................      (13)     (81)     (15)       (11)       (832)
 Cash placed into restricted
  investment account.........      --       --       --         --      (12,560)
 Net proceeds from line of
  credit agreements..........      --       --       --         --        1,750
 Capital contributions from
  shareholders...............      129      --       --         --          --
 Proceeds from Series A
  preferred stock, net.......      --       --       --         --        4,737
 Proceeds from Series B
  preferred stock, net.......      --       --       --         --       74,635
 Distributions to
  shareholders...............      --       --       --         --       (9,940)
 Proceeds from exercise of
  stock options..............      --       --       --         --          669
                               -------  -------  -------  ---------  ----------
Net cash provided by (used
 in) financing activities....    1,267    1,968      585        (11)     60,281
                               -------  -------  -------  ---------  ----------
Effect of changes in exchange
 rates on cash...............      (16)      59     (129)       (97)        153
                               -------  -------  -------  ---------  ----------
Net increase (decrease) in
 cash and cash equivalents...      150      959     (475)      (372)     52,293
Cash and cash equivalents,
 beginning of the year.......       72      222    1,181      1,181         706
                               -------  -------  -------  ---------  ----------
Cash and cash equivalents,
 end of the year.............  $   222  $ 1,181  $   706  $     809  $   52,999
                               -------  -------  -------  ---------  ----------
Supplemental disclosures of
 cash flow information:
 Cash paid for interest, net
  of amounts capitalized.....  $   122  $   195  $   299  $     177  $      125
 Cash paid for taxes.........  $     3  $    69  $   492  $     134  $      372
 Noncash transactions:
 Conversion of payable to
  Fibre for 20,000,000 shares
  of common stock............      --       --       --         --   $      200
 Accounts receivable paid
  with nonmarketable
  securities.................      --   $    46      --         --          --
 Common stock issued for
  notes receivable from
  shareholders...............      --       --   $     2  $       2  $      440
 Preferred stock issued for
  property, plant and
  equipment..................      --       --       --         --   $      200
 Real estate acquired from
  shareholder through
  assumption of mortgage
  payable....................      --       --       --         --   $      345
 Common stock issued to Fibre
  in connection with the 2000
  Reorganization, 2,300,000
  shares at par value........      --       --       --         --          --
</TABLE>

            See notes to combined consolidated financial statements.

                                      F-7
<PAGE>

              NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the nine months ended September 30, 1999 and 2000 is
                                   unaudited)

1. Description of Business and Basis of Presentation

      IPG Photonics Corporation (the "Company") was incorporated as a Delaware
corporation in December 1998. Since inception, the Company has been affiliated
by common ownership with several entities, including NTO IRE-POLUS, Russia; IPG
Laser GmbH, Germany ("Laser"); IPG Fibertech S.r.l., Italy ("Fibertech"); and
IP Fibre Devices Ltd., United Kingdom ("Fibre"). The accompanying combined
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company, Laser and Fibertech (collectively, "IPG").
For purposes of presentation of the accompanying combined financial statements
for the years ended December 31, 1997 and 1998, Laser and Laser's 80% owned
subsidiary, Fibertech, are referred to as the "Predecessor." All intercompany
transactions and balances have been eliminated.

      Since inception of the entities comprising IPG, the Company's majority
shareholder has maintained majority ownership of all these entities. During
August 2000, the ownership of the Company and several affiliated companies was
reorganized (the "2000 Reorganization"). The 2000 Reorganization was completed
through several transactions. The Company initially purchased 50% of the shares
of Laser from Fibre for $7.5 million in cash plus 2,300,000 common shares of
the Company. In addition, the Company purchased an additional 4% of the shares
of Laser from the Company's majority shareholder for $2.4 million in cash.
Concurrently with these purchases, the Company was provided an option to
purchase the remaining 46% of Laser from the Company's majority shareholder. On
October 4, 2000, the Company exercised this option and obtained the remaining
46% ownership interest in Laser in exchange for 2,806,000 common shares of the
Company. Through this series of transactions, Laser and its 80% owned
subsidiary, Fibertech, became a wholly owned subsidiary of the Company. Because
all of these entities have been under common managerial, operational and
shareholder control since inception, the transfers of interest are accounted
for in the combined consolidated financial statements as a reorganization of
companies under common control in a manner similar to a pooling of interests.

      IPG has agreed in principle to invest $5.0 million in NTO IRE-POLUS for a
51% ownership interest subject to satisfaction of usual and customary closing
conditions, as well as the approval of the Russian Ministry for Anti-Monopoly
Policy. The Company anticipates that this transaction will close in the first
quarter of 2001. The proceeds of the investment are to be used by NTO IRE-POLUS
solely for equipment purchases and the development of additional manufacturing
capacity. Similar to the 2000 Reorganization, NTO IRE-POLUS and the Company are
under common control, and the transaction will be accounted for as a
reorganization of companies under common control in a manner similar to a
pooling of interests. This transaction will not have a significant impact upon
IPG's financial condition or results of operations.

      IPG designs, manufactures and sells high-power fiber amplifiers, Raman
pump lasers and fiber lasers for telecommunications and industrial
applications. IPG's telecommunications products are used in the long-haul,
metropolitan and access sectors of optical communications networks. IPG's
industrial products are used for marking, printing, material processing, micro-
machining, optical sensing and measurement and laboratory and medical
equipment. IPG's administrative and manufacturing facilities in the United
States are presently located in Sturbridge, Massachusetts, and European
operations are located in Burbach, Germany, and Milan, Italy. Manufacturing
activities and research and development are conducted by NTO IRE-POLUS in
Fryazino, Russia.

      Interim financial data--The interim combined consolidated financial
information at September 30, 2000 and for the nine months ended September 30,
1999 and 2000 is unaudited but, in the opinion of management, includes all
adjustments, which management considers necessary for a fair presentation of
the combined consolidated financial position and results of operations for the
interim periods. The results of operations for the nine months ended September
30, 2000 are not necessarily indicative of the results to be expected for the
full fiscal year.

                                      F-8
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2. Summary of Significant Accounting Policies

      Use of estimates--The preparation of the combined consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the combined consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from these estimates.

      Foreign currency translation--The U.S. dollar has been adopted as the
reporting currency for all periods presented. The financial information for
entities outside the United States is measured using local currencies as the
functional currency. Assets and liabilities are translated into U.S. dollars at
the exchange rate in effect on the respective balance sheet dates. Income and
expenses are translated into U.S. dollars based on the average rate of exchange
for the corresponding period. Exchange rate differences resulting from
translation adjustments are accounted for directly as a component of
accumulated other comprehensive income. Exchange rate differences due to
transactions in foreign currencies are reflected in the consolidated statements
of operations.

      Cash and cash equivalents--Cash and cash equivalents consist primarily of
highly liquid investments, such as bank deposits, with insignificant interest
rate risk and original maturities of three months or less at the date of
acquisition. Restricted cash includes cash restricted under certain Company
debt agreements (See Note 6).

      Inventories--Inventories are stated at the lower of cost or market on a
first-in, first-out basis. IPG's inventories include parts and components that
may be specialized in nature and subject to rapid obsolescence. Additionally,
our quality assurance standards result in the rejection of a portion of our
purchased components without recourse to the supplier. The costs associated
with obsolescence or component rejection are charged to cost of sales as
incurred. While IPG considers obsolescence and component rejection in
estimating required allowances to reduce recorded amounts to the lower of cost
or market values, such estimates could change in the future.

      Property, plant and equipment--Property, plant and equipment is stated at
cost less accumulated depreciation. Depreciation is calculated using the
straight-line method based on the estimated useful lives of the related assets.
In the case of leasehold improvements, the estimated useful lives of the
related assets do not exceed the remaining term of the corresponding lease. The
following table presents the assigned economic useful lives of IPG's property,
plant and equipment:

<TABLE>
<CAPTION>
     Category                             Economic useful life
     --------                             --------------------
     <S>                                  <C>
     Buildings...........................       30 years
     Machinery and equipment.............      3-5 years
     Office furniture and fixtures.......      3-5 years
     Other assets........................      3-5 years
</TABLE>

      Expenditures for maintenance and repairs are charged to operations. Cost
includes capitalized interest associated with significant capital projects. For
the years ended December 31, 1997, 1998 and 1999, IPG capitalized interest
totaling $16,000, $70,000 and $0, respectively. For the nine months ended
September 30, 1999 and 2000, IPG capitalized interest totaling $0 and $152,000,
respectively.

      Revenue recognition--Revenue on product sales is recognized at the point
in time when persuasive evidence of an arrangement exists, the price is fixed
and final, delivery has occurred and there is a reasonable assurance of
collection of the sales proceeds. IPG generally obtains oral or written
purchase authorizations from its customers for a specified amount of product at
a specified price and considers delivery to have occurred at

                                      F-9
<PAGE>

       NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the point of shipment. IPG has no obligation to provide upgrades, enhancements
or customer support subsequent to the sale. IPG's products carry a warranty
against defect for a period of one or two years, depending upon the product
type. The expected cost associated with these warranty obligations is recorded
when the revenue is recognized.

      Impairment of long-lived assets--Long-lived assets, which are comprised
primarily of property, plant and equipment, are reviewed by management for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In cases where undiscounted expected
future cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds the fair
value of assets. No impairment provisions have been recognized to date.

      Advertising expense--The cost of advertising is expensed as incurred.
IPG conducts substantially all of its sales and marketing efforts through
trade shows and professional and technical conferences. IPG's advertising
costs for the years ended December 31, 1997, 1998, and 1999, and for the nine
months ended September 30, 1999 and 2000 were not significant.

      Research and development--Internal research and development costs are
expensed as incurred.

      Income taxes--IPG accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences of temporary differences between
the carrying amounts and tax bases of assets and liabilities and net operating
loss carryforwards using enacted rates. Valuation allowances are provided
against assets that are not likely to be realized.

      Equity-based compensation--SFAS No. 123, Accounting for Stock-Based
Compensation, encourages but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. As permitted
by SFAS No. 123, IPG has elected to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
including Financial Accounting Standards Board ("FASB") Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB Opinion No. 25, and has adopted the disclosure-only
provisions of SFAS No. 123. Accordingly, for financial reporting purposes,
compensation cost for stock options is measured as the excess, if any, of the
estimated fair market value of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Equity instruments
issued to nonemployees are accounted for in accordance with SFAS No. 123 and
EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services.

      Concentration of credit risk--Financial instruments that potentially
subject IPG to credit risk consist primarily of cash and cash equivalents and
accounts receivable. IPG maintains substantially all of its cash in a single
financial institution, which is believed to be a high-credit, quality
financial institution. IPG grants credit to customers in the ordinary course
of business and provides a reserve for potential credit losses. Such losses
have been within management's expectations. See discussion related to
significant customers in Note 13.

      Fair value of financial instruments--IPG's financial instruments consist
of accounts receivable, accounts payable, and notes payable. The current
carrying amounts of such instruments are considered reasonable estimates of
their fair market value, due to the short maturity of these instruments or as
a result of the competitive market interest rates, which have been negotiated.
The fair value ascribed to the warrants issued in connection with the Series B
Preferred Stock has been determined from an independent appraisal.

      Comprehensive income--SFAS No. 130, Reporting Comprehensive Income,
established standards for reporting and displaying comprehensive income and
its components within the financial statements. Comprehensive income includes
charges and credits to equity that are not the result of transactions with

                                     F-10
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

shareholders. Included in other comprehensive income for IPG is the cumulative
translation adjustments related to the net assets of the operations in Germany
and Italy. These adjustments are accumulated within the statement of
shareholders' equity under the caption, accumulated other comprehensive income
(loss).

      Segment information--SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, was adopted by IPG in 1998 and established
standards for the reporting of information about operating segments in annual
and interim financial statements. Operating segments are defined as components
of an enterprise for which separate financial information is available that is
evaluated regularly by the chief operating decision makers in deciding how to
allocate resources and in assessing performance. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position but did affect the disclosure of segment information.

      Recently issued accounting standards--In June 1998, the FASB issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards requiring that
derivative instruments (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. In June 1999, the FASB issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities, Deferral of
the Effective Date of FASB Statement No. 133, to defer the effective date of
SFAS No. 133. SFAS No. 133, as amended, is effective for IPG beginning January
1, 2001. Because IPG has not utilized derivative instruments for hedging
purposes or interest rate management, management does not believe that the
adoption of this statement will have a significant impact on operations or
financial condition.

3. Net Income (Loss) Per Share and Pro Forma Financial Data

      Net income (loss) per share--Basic net income (loss) per share amounts
for the year ended December 31, 1999 and for the nine months ended September
30, 1999 and 2000 are computed by dividing net income (loss) available to
common shareholders by the weighted-average common shares of the Company
outstanding during those periods. For purposes of computing net income (loss)
per share, the common stock that was issued to the founders, the common stock
issued to Fibre in satisfaction of certain liabilities and the stock issued to
Fibre in connection with the 2000 Reorganization are considered nominal
issuances and have been treated in a manner similar to a stock split or stock
dividend. Diluted net income per share reflects the potential dilution that
could occur if (i) the Series A and Series B preferred stock is converted to
common stock, and (ii) options issued under the Company's stock compensation
plan and the common stock warrants attached to the Series B preferred stock
were exercised. Due to the net loss recorded for the nine months ended
September 30, 2000, the calculation of diluted net loss per share excludes
5,597,060 common equivalent shares as their effects would be antidilutive. Net
income per share amounts for the Predecessor have not been reported for the
years ended December 31, 1997 and 1998 due to the closely held nature of these
entities, and as such, per share amounts would not be meaningful.

      A summary of the weighted-average number of common shares and weighted-
average number of common shares and common equivalent shares follows:

<TABLE>
<CAPTION>
                                                          Nine months ended
                                                            September 30,
                                         Year ended     ---------------------
                                      December 31, 1999    1999       2000
                                      ----------------- ---------- ----------
     <S>                              <C>               <C>        <C>
     Basic weighted-average ordinary
      common shares outstanding......    65,900,000     65,900,000 67,271,715
     Weighted-average common
      equivalent shares..............     1,595,000      1,450,000        --
                                         ----------     ---------- ----------
     Diluted weighted-average common
      shares outstanding.............    67,495,000     67,350,000 67,271,715
                                         ==========     ========== ==========
</TABLE>


                                      F-11
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Pro forma financial data--The Board of Directors has authorized the
filing of a registration statement with the Securities and Exchange Commission
that would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). If the offering is
consummated under the terms presently anticipated, the 500,000 outstanding
shares of Series A Preferred Stock and the 3,000,000 outstanding shares of
Series B Preferred Stock will automatically convert into 1,000,000 shares and
8,750,000 shares, respectively, of common stock upon the closing of the IPO.
The conversion of the preferred stock has been reflected in the accompanying
unaudited pro forma combined consolidated balance sheet. The Series B Preferred
Stock convert to the Company's common stock subject to adjustment pursuant to
the amended and restated certificate of incorporation as discussed in Note 7.
Pro forma basic and diluted net loss per share data has been calculated
assuming conversion of the Series A and Series B preferred stock into shares of
common stock from the date of original issuance of the preferred stock. In
addition, no effect is given to accretion of the preferred stock for purposes
of this computation. Shares used in computing pro forma basic and diluted net
loss per share aggregated 68,935,635 for the nine months ended September 30,
2000.

4. Inventories

      Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                        December
                                                           31,
                                                       ----------- September 30,
                                                       1998  1999      2000
                                                       ---- ------ -------------
     <S>                                               <C>  <C>    <C>
     Components and raw materials..................... $424 $2,116    $6,523
     Work in process..................................   43    225       661
                                                       ---- ------    ------
       Total.......................................... $467 $2,341    $7,184
                                                       ==== ======    ======
</TABLE>

5. Property, Plant and Equipment

      Property, plant and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                  December 31,
                                                 ----------------  September 30,
                                                  1998     1999        2000
                                                 -------  -------  -------------
     <S>                                         <C>      <C>      <C>
     Land....................................... $    72  $ 1,030     $ 1,184
     Buildings..................................   2,618    2,490       2,452
     Machinery and equipment....................   2,426    5,151       6,954
     Office furniture and fixtures..............     248      523         714
     Construction in progress...................     295      420       7,236
                                                 -------  -------     -------
                                                   5,659    9,614      18,540
     Accumulated depreciation...................  (1,171)  (2,407)     (3,363)
                                                 -------  -------     -------
       Total.................................... $ 4,488  $ 7,207     $15,177
                                                 =======  =======     =======
</TABLE>

                                      F-12
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6. Debt

      Debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                 December 31,
                                                 --------------  September 30,
                                                  1998    1999       2000
                                                 ------  ------  -------------
     <S>                                         <C>     <C>     <C>
     U.S. demand line of credit, collaterized
      by substantially all assets of the
      Company and the personal guarantee of the
      majority shareholder.....................  $  --   $  --      $ 1,750
     U.S. construction loan, collateralized by
      substantially all assets of the Company..     --      --          531
     U.S. dollar mortgage note payable,
      collateralized by land, 10% fixed rate,
      maturing November 2001 (paid in March
      2000)....................................     --      600         --
     Euro credit facility, collateralized by
      substantially all assets of Laser and the
      personal guaranty of the majority
      shareholder, 5.25% fixed rate, maturing
      September 2010...........................     --      --        1,349
     Deutsche mark note payable, collateralized
      by guaranty of majority shareholder, 6%
      adjustable not to exceed 10%, maturing
      September 2006...........................   2,028   1,746       1,528
     Deutsche mark note payable, collateralized
      by property, plant and equipment, 4.5%
      fixed rate, maturing semi-annually
      through March 2008.......................   2,147   1,848       1,517
     Deutsche mark notes and mortgages payable,
      collateralized by property, plant and
      equipment ranging from 4.7% to 6.25% at
      fixed rates and variable rates, maturing
      monthly through January 2019.............     443     363         624
     Deutsche mark overdraft facility..........     --      --          --
     Related party note payable to Fibre,
      unsecured, 6.0% fixed rate, due March
      2000.....................................      98      89         --
                                                 ------  ------     -------
     Total debt................................   4,716   4,646       7,299
     Less current portion......................     (21)   (225)     (1,982)
                                                 ------  ------     -------
       Long-term debt..........................  $4,695  $4,421     $ 5,317
                                                 ======  ======     =======
</TABLE>

      Principal maturities of long-term debt as of December 31, 1999 are as
follows (in thousands):

<TABLE>
     <S>                                                                  <C>
     2000................................................................ $  225
     2001................................................................    252
     2002................................................................    254
     2003................................................................    256
     2004................................................................    258
     2005 and thereafter.................................................  3,401
                                                                          ------
       Total............................................................. $4,646
                                                                          ======
</TABLE>

      U.S. demand line of credit--In March 2000, the Company negotiated a
demand line of credit facility with available principal totaling $4.0 million,
expiring May 31, 2001. Outstanding principal on this facility bears interest at
a monthly adjustable rate of London Interbank Offering Rate ("LIBOR") plus
2.75% (9.4% at September 30, 2000). This facility is collateralized by
substantially all the assets of the Company, a guaranty from Fibre, and a
personal guaranty of the Company's majority shareholder.

                                      F-13
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      U.S. construction loan--In April 2000, the Company entered into a $6.5
million construction loan facility to finance construction of new
administrative and manufacturing facilities in Massachusetts. The construction
loan has an initial term of nine months, during which time interest-only
payments are due monthly. After the construction period, principal payments are
due for five years, after which time the remaining outstanding balance is due.
During the construction period the construction loan bears interest at LIBOR
plus 3% (9.6% at September 30, 2000) and at a fixed rate equal to the Five-Year
Treasury Rate plus 3% for the five-year term following the construction period.
This facility is collateralized by substantially all the assets of the Company,
including the related real estate and building construction. Subsequent to
September 30, 2000, the Company placed $12,560,000 in a restricted overnight
investment account which is available to the bank to offset the Company's
obligations under the facilities.

      The demand line of credit and the construction loans contain cross-
defaults and certain covenants, including maintenance of specific financial
ratios which are not considered restrictive to the Company's operations. The
most restrictive provisions of the Company's borrowing arrangements are as
follows: a ratio of total debt to tangible capital of no more than 3.4 to 1 at
December 31, 2000, and the debt service coverage ratio should not be below 2.0
to 1 for the year ending December 31, 2000.

      Euro construction loan--During 2000, Laser entered into a financing
agreement with a syndicate of banks. The syndicate has provided available
credit of (Euro)10.0 million (or $8.8 million) to finance construction of a new
manufacturing facility in Germany and to meet the working capital needs of
Laser. Principal payments are due semiannually beginning in September 2002
through September 2010. Interest accrues at 5.25%. A portion of this loan is
personally guaranteed by IPG's majority shareholder.

      Deutsche mark ("DM") overdraft facility--In March 2000, Laser negotiated
a syndicated overdraft facility with available principal of DM 4.7 million (or
$2.1 million). This facility bears interest at market rates that vary depending
upon the principal outstanding (from 9.125% to 10.5% at September 30, 2000).
The facility is payable upon demand. No principal was outstanding at September
30, 2000. This facility and the Euro construction loan are collateralized by a
common pool of the assets of Laser. A portion of this loan is partially
guaranteed by IPG's majority shareholder.

7. Shareholders' Equity

Predecessor equity

      Laser has authorized capital totaling DM 500,000, all of which was
outstanding at December 31, 1998, 1999 and September 30, 2000. The equity of
the Predecessor entities has been reported as additional paid-in capital in the
combined consolidated financial statements.

Common stock

      The Company was incorporated in December 1998 at which time 20,000 common
shares (par value $0.01) were authorized. On December 28, 1999, total
authorized shares were increased to 100 million and the par value was changed
to $0.0001 per share. The founding shareholders subscribed for 43,600,000
shares for total consideration of $2,000, after giving effect to the increase
in authorized shares.

      In January 2000, at the direction of the majority shareholder, Fibre paid
$18,000 in cash to the Company and converted an intercompany note payable and
related accrued interest totaling $182,000 into 20,000,000 shares of common
stock.

Reserved shares

      In addition to the shares of common stock reserved for issuance under the
Company's stock option plan, the Company has reserved a sufficient number of
shares of common stock for potential conversion of the Series A and Series B
preferred stock and for the exercise of outstanding common stock warrants.

                                      F-14
<PAGE>

       NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Preferred stock

      The Company has authorized 5,000,000 shares of preferred stock, par
value of $0.0001, of which 500,000 shares have been designated as Series A
convertible preferred stock (the "Series A Preferred Stock"); 3,800,000 shares
have been designated as Series B redeemable convertible preferred stock (the
"Series B Preferred Stock").

      On March 31, 2000, the Company issued 500,000 shares of Series A
Preferred Stock for total consideration of $5.0 million. Issuance costs of
$63,000 are being accreted to the liquidation value of the Series A Preferred
Stock through March 31, 2002, the first conversion date.

      In August 2000, the Company issued 3,000,000 shares of Series B
Preferred Stock and warrants to purchase shares of the Company's common stock
(the "Series B Warrants") for total consideration of $75.0 million. Issuance
costs totaled $363,000. The Series B warrants issued in connection with the
sale of the Series B preferred stock have been valued at $12.4 million. The
Series B Preferred Stock is being accreted to redemption value over the period
to the Series B Preferred Stock's scheduled redemption dates of August 25,
2006, 2007 and 2008.

      Subsequent to September 30, 2000, the Company issued an additional
800,000 shares of Series B Preferred Stock and Series B Warrants for total
consideration of $20.0 million. The Series B Warrants have been valued at $3.3
million.

      Activity with respect to the Series B Preferred Stock through September
30, 2000 is as follows:

<TABLE>
<CAPTION>
                                                     Number of
                                                      Shares        Amount
                                                    Outstanding (in thousands)
                                                    ----------- --------------
     <S>                                            <C>         <C>
     Balance, January 1, 2000......................        --          --
     Proceeds from sale of Series B Preferred
      Stock, net of issuance costs.................  3,000,000     $62,237
     Accretion related to issuance cost and Series
      B Warrants...................................                    152
                                                     ---------     -------
     Balance, September 30, 2000...................  3,000,000     $62,389
                                                     =========     =======
</TABLE>

      The rights and preferences of the Series A and Series B Preferred Stock
are as follows:

      Dividends--The holders of the Series A and Series B Preferred Stock are
entitled to receive cumulative dividends at the rate paid on the common
shares.

      Liquidation--In the event of any voluntary or involuntary liquidation,
dissolution or merger of the Company, each holder of the Series A and Series B
Preferred Stock will be entitled to be paid, before any distributions are made
to the common shareholders, a liquidation preference. The holders of the
Series A Preferred Stock will be entitled to be paid an amount equal to the
preference value of $10.00 per share plus accrued dividends, and the holders
of the Series B Preferred Stock will be entitled to be paid an amount equal to
the preference value of $12.50 per share plus accrued dividends. After such
distributions, the holders of the Series A Preferred Stock do not participate
in any further distributions. The holders of the Series B Preferred Stock
participate in further available distributions in the amount that would have
been payable per share if the holders of the Series B Preferred Stock had been
converted to common shares. If the total payout under the investors
participation rights exceeds $50.00 per share, the preference amount declines
linearly from $12.50 per share to $0 as the participation amount payout
increases from $50.00 to $62.50. If the assets are not sufficient to generate
cash sufficient to pay in full the Series A and Series B Preferred Stock
preference values, then the holders of the Series A and Series B Preferred
Stock will be entitled to share ratably in any distribution of cash generated
by assets in accordance with the respective amounts that would have been
payable in such

                                     F-15
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

distribution if the amounts to which the holders of the Series A and Series B
Preferred Stock are paid in full. All assets remaining after distribution to
the holders of Series A and Series B Preferred Stock are available for
distribution to the holders of the Company's common shares.

      Voting Rights--The holders of the Series A Preferred Stock, except with
respect to the matters regarding the rights and preferences of their own
shares, are not entitled to vote on any matter. The holders of the Series B
Preferred Stock are entitled to a number of votes equal to the number of shares
of common stock into which such Series B Preferred Stock are then convertible,
and voting together as a separate class, are entitled to elect one director of
the Company. In addition, without approval of the majority of the Series B
shareholders, the Company is restricted from issuing convertible debt, altering
the Company's certificate of incorporation or bylaws with the effect of
altering the rights of the Series B Preferred Stock, increasing the authorized
shares of Series B Preferred Stock or, with certain exceptions, reclassifying
and declaring or paying dividends or making distributions of the Company's
property.

      Redemption--At the election of the holders of the Series B Preferred
Stock, the Company is obligated to redeem up to 33.3% after August 25, 2006, up
to 66.7% after August 25, 2007 and up to 100% after August 25, 2008 of the
outstanding Series B Preferred Stock at a redemption price equal to $12.50 per
share plus accrued and unpaid dividends. In the event that the Company has
insufficient funds to redeem the shares, the Series B Preferred Stock will
accrue interest at a rate equal to the prime rate plus 3%.

      Conversion--The Series A Preferred Stock has a preference value of $5.00
per share and is convertible at the option of the holder at any time subsequent
to March 31, 2002 into the number of shares of common stock of the Company as
is determined by dividing the preference value by the conversion price then in
effect. Immediately following a qualifying initial public offering or
consummation of a sale or merger of the Company, all Series A Preferred Stock
shall automatically convert into the number of common shares of the Company as
is determined by dividing the preference value by the conversion price then in
effect. For the purposes of the conversion of the Series A preferred stock, a
qualified public offering is the sale of the common stock of IPG to the public
in a firm commitment public offering that generates gross proceeds to IPG of at
least $35,000,000 at a pre-money valuation of at least $500,000,000.

      The Series B Preferred Stock has a preference value of $25.00 per share
and is convertible at the option of the holder into the number of common shares
of the Company as is determined by dividing the preference value by the
conversion price then in effect. All Series B Preferred Stock automatically
converts into the number of common shares of the Company as is determined by
dividing the preference value by the conversion price then in effect upon the
completion of a qualified public offering. A qualified public offering is
defined as an offer of the Company's common stock (i) registered under the
Securities Act of 1933, as amended, (ii) with net proceeds (after underwriting
commissions and discounts) in excess of $100.0 million, (iii) in which such
common stock is listed for trading on the New York Stock Exchange or the NASDAQ
National Market, and (iv) at a specified offering price, after underwriting
commissions and discounts, which graduates from (i) $21.88 per share, in the
case of an offering which closes from January 1, 2001 to March 31, 2001, (ii)
$25.00 per share in the case of an offering which closes from April 1, 2001 to
December 31, 2001, (iii) $28.13 per share, in the case of an offering which
closes from January 1, 2002 to August 31, 2002 or (iv) $31.25 per share in the
case of an offering which closes after August 31, 2002. An offering which does
not meet the offering price targets will continue to be a qualified offering,
however, the conversion price will be adjusted downward such that the adjusted
conversion price will be equal to the initial public offering price per share
divided by a factor which increases from (i) 1.75, in the case of an offering
which closes from January 1, 2001 to March 31, 2001, (ii) 2.00, in the case of
an offering which closes from April 1, 2001 to December 31, 2001, (iii) 2.25,
in the case of an offering which closes from January 1, 2002 to August 31, 2002
or (iv) 2.50, in the case of an offering which closes after August 31, 2002;
provided that in no event will the conversion price be reduced to less than
$5.00 per share. The conversion ratio was 1 for 1 on the date the Series B
Preferred Stock was issued.

                                      F-16
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Assuming an offering price of $15.00 per common share in an offering
completed prior to March 31, 2001 each share of Series B Preferred Stock will
convert to 2.91666 shares of common stock.

      The holders of Series A and Series B Preferred Stock have certain tag-
along and drag-along rights, as described in the articles of incorporation.

      Registration Rights--If the Company at any time proposes to register any
of its common shares under the Securities Act of 1933, the holders of the
Series B Preferred Stock are entitled to participate in such registration. In
addition, the holders of the Series A Preferred Stock may require the Company
to file one, and the holders of the Series B Preferred Stock may require the
Company to file up to two, registration statements under the Securities Act of
1933 at the expense of the Company with respect to their shares (the "Demand
Registration Rights"). These Demand Registration Rights become effective if a
registration has not occurred prior to March 31, 2003 for the Series A
Preferred Stock or August 31, 2003 for the Series B Preferred Stock. The
holders of the Series B Preferred Stock who convert their preferred stock to
common stock in connection with an IPO may also require the Company to file
additional registration statements.

Warrants

      In connection with the issuance of the Series B Preferred Stock, the
Company issued Series B Warrants to purchase, in the aggregate, $18.8 million
of the Company's common shares at an equivalent per share price of 50% of the
fair value on the date of an initial public offering of such shares. The fair
value of the Series B Warrants, approximating $12.4 million, was deducted from
the proceeds of the Series B Preferred Stock and was allocated to the Series B
Warrants. The Series B Warrants are exercisable upon the completion of an IPO
or sale of a significant portion of the Company's assets and are being accreted
to the carrying value of the Series B Preferred Stock through the scheduled
redemption dates of the Series B Preferred Stock. These warrants expire in
August 2007. In connection with the Series B Preferred Stock that was issued
subsequent to September 30, 2000, the Company issued Series B Warrants to
purchase, in the aggregate, $5.0 million of the Company's common stock at an
equivalent per share price of 50% of the fair value of such shares. The fair
value of the Series B Warrants related to the issuance of Series B Preferred
Stock subsequent to September 30, 2000 approximates $3.3 million.

Notes receivable from sales of shares

      The Company has received notes from an individual who subsequently became
a Company director in connection with this individual's exercise of 380,000
nonqualified stock options in March 2000 as well as the issuance of 500,000
shares of common stock under a professional services contract. The notes
receivable have principal balances of $190,000 and $250,000 and are full
recourse promissory notes bearing interest at 6.8% and 6.0% and are
collateralized by the shares of the Company's common stock held by this
individual. Principal is due through November 2005. The notes receivable are
presented on the combined consolidated balance sheet as a reduction to
shareholders' equity.

      Additionally, the Company issued 43,600,000 shares of common stock to the
founding shareholders in January 1999 in exchange for notes aggregating $2,000.
These shares were fully paid in October 2000 and have been reported as current
assets and shareholders' equity at December 31, 1999 and at September 30, 2000.

Minority interest

      Minority interest reported in the accompanying combined consolidated
financial statements consists of the 20% of Fibertech held by the management of
Fibertech.

                                      F-17
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Stock Split

      On      , 2001, the Company's board of directors declared a 2-for-1 split
of the common shares of the Company. All share and per share amounts in the
accompanying combined consolidated financial statements have been retroactively
adjusted to reflect the stock split.

8. Related Party Transactions

      The Company and the other members comprising IPG have entered into
certain transactions with other entities affiliated with IPG. These entities
which have not been combined or consolidated in the accompanying financial
statements include NTO IRE-POLUS, Fibre, IP Fibre Optics Ltd., IPC Inc., and
VPG Laser Components GmbH (the "Non-Group Affiliates"). The related party
transactions included in the accompanying financial statements are primarily
comprised of intercompany sales of IPG's products in which the Non-Group
Affiliates are acting as a distributor of IPG's products or IPG is purchasing
raw materials and components from the Non-Group Affiliates. Additionally,
effective January 1, 2000, the Company entered into a one year management
agreement with Fibre, under which Fibre provides accounting advice and
consulting services for a monthly fee of $7,500 plus expenses. Upon expiration,
the agreement was not renewed.

      The transactions with Non-Group Affiliates are included in the combined
consolidated statements of operations as follows (in thousands):
<TABLE>
<CAPTION>
                                                            Nine months ended
                               Years ended December 31,       September 30,
                              ----------------------------  ------------------
                                1997      1998      1999      1999      2000
                              --------  --------  --------  --------  --------
     <S>                      <C>       <C>       <C>       <C>       <C>
     Net sales............... $    811  $  1,103  $    655  $    524  $    789
     Purchases included in
      cost of sales..........    1,533     2,133     2,095     1,610     3,108
     Operating expenses......      --         32       106        32       138
     Interest income
      (expense), net.........      (10)      (10)      (17)       (7)      --
</TABLE>

      Amounts included in the combined consolidated balance sheets are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                         December
                                                            31,
                                                         --------- September 30,
                                                         1998 1999     2000
                                                         ---- ---- -------------
     <S>                                                 <C>  <C>  <C>
     Amounts due from Non-Group Affiliates:
       IP Fibre Devices Ltd. ........................... $ 70 $221     $560
       IPC Inc. ........................................  345  --       --
       NTO IRE-POLUS....................................   48  --       193
                                                         ---- ----     ----
         Total.......................................... $463 $221     $753
                                                         ==== ====     ====

     Amounts due to Non-Group Affiliates:
       IP Fibre Devices Ltd. ........................... $--  $309     $--
       IPC Inc. ........................................  665   12      --
       VPG Laser Components GmbH........................   70   33      --
       NTO IRE-POLUS....................................  211  109      471
                                                         ---- ----     ----
         Total.......................................... $946 $463     $471
                                                         ==== ====     ====
</TABLE>

      In May 2000, Laser entered into an agreement with a shareholder holding
more than 5% of the Company's common stock to purchase real estate located in
Burbach, Germany, in exchange for assuming the outstanding mortgage on the real
estate and a payment of approximately $84,000, which approximated the fair
market value of the real estate. Prior to purchasing the real estate, Laser had
been renting the Burbach real estate from the shareholder for approximately
$4,000 per month.

                                      F-18
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      In October 1999, the Company awarded an individual who subsequently
became a Company director 500,000 shares of the Company's common stock for a
purchase price of $0.50 per share, its estimated fair value on the date of the
award, in exchange for future legal and advisory services. In March 2000, such
legal and advisory services had been performed and this individual purchased
500,000 shares of the Company's common stock with an estimated fair market
value of $2.00 per share in exchange for a $250,000 note receivable. The
Company has recognized $750,000 in equity-based compensation in respect of this
agreement.

      This individual had also been granted options to purchase 400,000 shares
of the Company's common stock at $0.50 per share in exchange for continued
advisory services to the Company through January 1, 2002. These options have a
term of ten years and vested upon issuance. The Company is accounting for these
shares under variable plan accounting and, accordingly, recognized $3.3 million
in equity-based compensation during the nine months ended September 30, 2000.
The individual exercised the option in exchange for $10,000 in cash and a note
receivable of $190,000, discussed in Note 7. In the event of nonperformance,
these shares are subject to repurchase by the Company.

      In August 2000, a shareholder holding more than 5% of IPG's common stock
borrowed approximately $90,000 from Laser, at an annual interest rate of 8%.
This loan was repaid in full on November 30, 2000. This note is reported in
other current assets at September 30, 2000.

      In connection with the 2000 Reorganization, IPG entered into an agreement
with NTO IRE-POLUS regarding intellectual property. Under this agreement, NTO
IRE-POLUS provides research and development exclusively for IPG in exchange for
payment of all direct and overhead costs plus a fee of 10%. No amounts were
incurred under this agreement during the nine months ended September 30, 2000.

      In October 2000, IPG agreed to loan $1.0 million to NTO IRE-POLUS. These
funds will be used for working capital and capital expenditures. This loan
bears interest at an annual rate of 7.0% and has a term of six months from the
date the money is transferred to NTO IRE-POLUS.

      During 1999, IPG purchased capital equipment from NTO IRE-POLUS in the
aggregate amounts of $176,000. For the nine-month period ended September 30,
2000, NTO IRE-POLUS purchased equipment from IPG in the aggregate amount of
$187,000.

      IPG sells products to Fibre which resells those products to Fibre's
customers in the United Kingdom. These sales are included in the table above.
Effective January 1, 2001, IPG plans to terminate that distribution
relationship and intends to sell directly to customers in the United Kingdom
through a wholly-owned subsidiary to be formed. Consequently, IPG plans to
sublease office space from, and share general and administrative expenses of,
Fibre at an aggregate estimated annual amount of approximately $250,000.

      In 1998, Fibre entered into a supplier agreement to provide certain
products to a significant customer for a period of 36 months. Pursuant to this
agreement, the customer issued 1,561,144 shares of its common stock to Fibre in
consideration of a discount on products to be delivered under the supply
agreement. Additionally, a shareholder holding more than 5% of IPG's common
stock was granted options to purchase 100,000 shares of the customer's common
stock in exchange for serving on the customer's advisory board. All of such
options have been exercised. During 1998, Laser sold amplifiers totaling
approximately $185,000 to this customer in exchange for cash and 571,428 shares
of this customer's common stock. The fair value of these shares, estimated to
be approximately $46,000, became the cost basis of Laser's investment in these
non-marketable securities, and Laser continues to carry this investment at
cost. During 1999 and 2000, IPG sold approximately $2.0 million of products to
this customer under the terms of the supplier agreement. The customer paid IPG
approximately $1.6 million (or 75% of the invoice price) in cash and issued
865,924 shares of the customer's common stock, valued at approximately
$400,000, to Fibre. In connection with this transaction, Fibre issued a note to
IPG for approximately $400,000. This note along with accrued interest, totaling
approximately $32,000, was repaid in October 2000.

                                      F-19
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


9. Commitments and Contingencies

Operating leases

      IPG leases its current facility in the United States under a
noncancelable operating lease agreement which expires during 2001. Rental
expense under this lease agreement for the year ended December 31, 1999, and
for the nine months ended September 30, 1999 and 2000 was approximately
$121,000, $60,000 and $172,000, respectively. Future minimum lease payments
under noncancelable leases as of December 31, 1999 are approximately $225,000
and $113,000 for the years ending December 31, 2000 and 2001, respectively.

Firm purchase commitments

      In December 2000, IPG entered into a purchase agreement with a component
supplier requiring minimum purchases by IPG of approximately $66.7 million
through December 31, 2002.

      IPG has a variety of commitments with suppliers for the purchase of raw
materials and components for delivery in future years at prevailing market
prices.

Capital expenditures

      In 2000, the Board of Directors authorized expenditures on the
construction of a new manufacturing and administrative facility in the United
States with a total projected cost of $11.8 million, all of which has been
contractually committed at September 30, 2000. As of September 30, 2000,
approximately $3.2 million has been paid under these contracts. This project is
expected to be completed in the first quarter of 2001.

Employment agreements

      IPG has entered into employment agreements with certain members of senior
management. The terms of these agreements range from one to five years and
include noncompete and nondisclosure provisions as well as provide for defined
severance payments in the event of termination.

Litigation

      IPG is not currently subject to any material legal proceedings, nor does
IPG know of any pending material legal proceedings.

10. Employee Benefit Plans

Profit Sharing Plan

      IPG maintains a 401(k) profit-sharing plan covering substantially all
U.S. employees. Employees are eligible for a discretionary contribution from
IPG based on each employee's total contribution, not to exceed 6% of an
employee's compensation. Compensation expense related to this plan for the
years ended December 31, 1999 and for the nine months ended September 30, 1999
and 2000 approximated $18,000, $9,000 and $46,000, respectively.

Employee Stock Option Plan

      Beginning in 1999, IPG's majority shareholder and sole member of the
Board of Directors, at that time, granted stock options to certain employees,
officers and advisors. In March 2000, the shareholders approved the IPG 2000
Incentive Compensation Plan (the "Plan"). At September 30, 2000, 7,500,000
common

                                      F-20
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

shares had been reserved for grant under the Plan. Subsequent to September 30,
2000, the Board of Directors increased the number of shares reserved under the
Plan to 15,000,000. At December 31, 2000, after giving effect to the increase
in the number of reserved shares an additional 5,525,600 shares were issuable
under the Plan. Options are subject to the vesting provisions associated with
each grant, generally vesting on a straight-line basis over four years. All
options expire ten years from the date of grant.

      In addition to the Plan, IPG has issued 700,000 options to purchase IPG's
common stock to the members of its National Advisory Board and 400,000 options
to an IPG director for legal and advisory services. These options were issued
with an exercise price of $0.50 per share. A total of 900,000 of these options
were exercised during 2000. These options have similar terms to those options
issued under the terms of the Plan; however, these options generally vested
immediately. In accordance with SFAS No. 123 and EITF 96-18, IPG measured these
awards at fair value, using the Black-Scholes valuation model. These options
provide IPG with the right to repurchase a specified amount of any shares
acquired should the optionees not fulfill the terms of their contract. Under
EITF 96-18, this creates variable plan accounting. As such, IPG will continue
to remeasure the fair value of these options at each reporting date until a
performance commitment date has been achieved or the right to repurchase the
options has expired. The fair value of each option at September 30, 2000 was
estimated at $12.06 per share. For the nine months ended September 30, 2000,
IPG recognized approximately $8.7 million in respect of these options.

      The following table presents a summary of the share option activity and
related information:

<TABLE>
<CAPTION>
                                                    Number of   Weighted-Average
                                                     Options     Exercise Price
                                                    ----------  ----------------
     <S>                                            <C>         <C>
     Outstanding, January 1, 1999..................        --
       Granted.....................................  2,600,000       $0.50
       Exercised...................................        --
       Forfeited...................................        --
                                                    ----------
     Outstanding, December 31, 1999................  2,600,000        0.50
       Granted.....................................  3,918,600        0.60
       Exercised................................... (1,561,868)       0.60
       Forfeited...................................     (1,200)       0.50
                                                    ----------
     Outstanding, September 30, 2000...............  4,955,532       $0.57
                                                    ==========
</TABLE>

      The weighted-average minimum fair value of the options granted to
employees was $0.08 in 1999 and $2.77 in 2000.

      Additional information regarding options outstanding at September 30,
2000 is as follows:

<TABLE>
<CAPTION>
                   Options Outstanding                     Number Exercisable
     ----------------------------------------------------------------------------
     Exercise     Number    Weighted-Average Remaining December 31, September 30,
      Price     Outstanding  Contractual Life (years)      1999         2000
     --------   ----------- -------------------------- ------------ -------------
     <S>        <C>         <C>                        <C>          <C>
      $0.50      4,363,632             9.02                --          358,100
      $1.00        500,500             9.84                --              --
      $1.50         91,400             9.86                --           10,000
                 ---------                                 ---         -------
                 4,955,532                                 --          368,100
                 =========                                 ===         =======
</TABLE>

      Compensation related to options awarded during the nine months ended
September 30, 2000 (approximately $29.5 million) has been deferred for
financial reporting purposes and is generally being amortized on a straight-
line basis over the vesting period of the related options for fixed awards.
Options which

                                      F-21
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

require variable plan accounting are being amortized using the methodologies
prescribed by FASB Interpretation No. 28, Accounting for Stock Appreciation
Rights and Other Variable Stock Option or Award Plans.

      IPG has adopted the disclosure requirements of SFAS 123. SFAS 123
requires that the fair value of stock-based awards to employees be calculated
through the use of option pricing models, even though such models were
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from IPG's
stock option awards. These models also require subjective assumptions, which
greatly affect the calculated values. IPG's calculations were made using the
minimum value method with the following weighted average assumptions: expected
life, 4 years; stock volatility of 0%; risk-free interest rate of 6.5%; and no
dividend payments during the expected term. Forfeitures are recognized as they
occur.

      IPG has utilized the Black-Scholes option-pricing model in determining
the fair value of the options granted to non-employees or outside of the Plan.
In addition to the aforementioned assumptions, IPG used a volatility factor of
60% in the Black-Scholes option-pricing model.

      If the computed minimum values of the options awarded to employees had
been amortized to expense over the vesting period of the awards, net income and
related pro forma basic and diluted per share amounts would have been reduced
to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                              For the nine
                                        For the year ended    months ended
                                        December 31, 1999  September 30, 2000
                                        ------------------ ------------------
     <S>                                <C>                <C>
     Net income (loss) available to
      common shareholders (in
      thousands):
       As reported.....................       $1,951            $(3,677)
       Pro forma.......................        1,906             (4,174)
     Basic and diluted net income
      (loss) per share:
       As reported.....................       $ 0.03            $ (0.06)
       Pro forma.......................         0.03              (0.06)
</TABLE>

      Subsequent to September 30, 2000, IPG entered into an employment
agreement which granted an employee 1,000,000 shares of common stock at the
price of $0.50 per share, subject to certain repurchase rights by IPG. IPG also
granted this employee options to purchase (i) 500,000 shares of common stock at
$1.50 per share, which will vest on the earlier of October 1, 2001 or the date
that IPG first recognizes $200.0 million of gross sales at $1.50 per share, and
(ii) 1,500,000 shares at $1.50 per share which vest monthly for thirty-six
months and will all vest immediately on the date IPG first recognizes $400.0
million of gross sales. Additionally, subsequent to September 30, 2000, IPG
issued options to purchase 1,607,000 shares of common stock to employees and
members of the Board of Directors at a weighted-average exercise price of $3.25
per share.

11. Income Taxes

      Income before minority interest and income taxes consisted of (in
thousands):

<TABLE>
<CAPTION>
                                                                  Years ended
                                                                  December 31,
                                                                ----------------
                                                                1997 1998  1999
                                                                ---- ---- ------
     <S>                                                        <C>  <C>  <C>
     Domestic.................................................. $--  $--  $  375
     Foreign...................................................   28  392  3,681
                                                                ---- ---- ------
       Total................................................... $ 28 $392 $4,056
                                                                ==== ==== ======
</TABLE>


                                      F-22
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      IPG's provision for income taxes consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                Years ended
                                                                December 31,
                                                              -----------------
                                                              1997  1998  1999
                                                              ----  ---- ------
     <S>                                                      <C>   <C>  <C>
     Current:
       Federal............................................... $--   $--  $  151
       State.................................................  --    --      46
       Foreign...............................................   26   191  1,934
     Deferred:
       Federal...............................................  --    --     (29)
       State.................................................  --    --      (9)
       Foreign...............................................   (4)   43      9
                                                              ----  ---- ------
         Total............................................... $ 22  $234 $2,102
                                                              ====  ==== ======
</TABLE>

      The provision for income taxes is different from that which would be
obtained by applying the statutory federal income tax rate to income before
income taxes. The principal items causing this difference are as follows (in
thousands):

<TABLE>
<CAPTION>
                                      Years ended December 31,  September 30,
                                      ------------------------- --------------
                                       1997    1998     1999     1999    2000
                                      ------------------------- ------  ------
     <S>                              <C>     <C>     <C>       <C>     <C>
     Tax expense at statutory rate..  $    10 $   133 $   1,379 $1,390  $  789
     State and local taxes..........      --      --         23     (3)    253
     Differences in federal and
      foreign tax rates.............        2      79       657    679   1,352
     Nondeductible equity-based
      compensation..................      --      --        --     --    3,303
     Tax credits....................      --      --        --     --      (58)
     Nondeductible items and other..       10      22        43    112     189
                                      ------- ------- --------- ------  ------
       Total........................  $    22 $   234 $   2,102 $2,178  $5,828
                                      ======= ======= ========= ======  ======
</TABLE>

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

<TABLE>
<CAPTION>
                                                     December
                                                       31,       September 30,
                                                    1998  1999       2000
                                                    ----  -----  -------------
     <S>                                            <C>   <C>    <C>
     Current deferred tax assets (liabilities):
       Deferred revenues........................... $(45) $ --      $  --
       Allowances and accrued liabilities..........          86        163
                                                    ----  -----     ------
     Net current deferred tax assets
      (liabilities)................................ $(45) $  86     $  163
                                                    ----  -----     ------
     Long-term deferred tax assets (liabilities):
       Property, plant and equipment............... $ 52  $ (50)    $ (103)
       Deferred compensation.......................                  1,220
                                                    ----  -----     ------
     Net long-term deferred tax assets
      (liabilities)................................ $ 52  $ (50)    $1,117
                                                    ====  =====     ======
</TABLE>

                                      F-23
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


12. Geographic and Segment Information

      IPG markets and sells its products throughout the world through both
direct sales and distribution channels. IPG has adopted SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, and
applies those criteria in reporting segment information. IPG currently manages
its business as two segments: U.S.A. and Germany. The segments are considered
to share similar economic characteristics and similarities in product, types of
customers and methods of distribution. Accounting policies of the segments are
the same as those described in the Summary of Significant Accounting Policies
in Note 2. All intercompany transactions between segments have been eliminated.
The following table summarizes net sales, operating expenses, net income
(loss), identifiable assets, current liabilities and capital expenditures of
IPG in its segments (in thousands):

<TABLE>
<CAPTION>
                                                          Intercompany
                                         U.S.A.   Germany Eliminations  Total
                                         -------  ------- ------------ --------
<S>                                      <C>      <C>     <C>          <C>
September 30, 2000:
  Net revenues.......................... $29,756  $21,149   $(18,216)  $ 32,689
  Operating expenses....................  15,333    2,824        --      18,157
  Net income (loss).....................  (6,328)   3,245       (425)    (3,508)
  Assets................................  87,227   18,683     (2,933)   102,977
  Current liabilities...................  10,540    8,720     (2,353)    16,907
  Capital expenditures..................   4,971    4,927        --       9,898

December 31:
1999:
  Net revenues.......................... $ 9,763  $16,535   $ (7,658)  $ 18,640
  Operating expenses....................   1,498    3,368        --       4,866
  Net income (loss).....................     215    1,898       (162)     1,951
  Assets................................   6,001   10,103     (3,304)    12,800
  Current liabilities...................   5,135    4,110     (3,142)     6,103
  Capital expenditures..................   2,863    2,272        --       5,135

1998:
  Net revenues.......................... $   --   $ 8,263   $    --    $  8,263
  Operating expenses....................     --     2,056        --       2,056
  Net income............................     --       154        --         154
  Assets................................     --     8,819        --       8,819
  Current liabilities...................     --     3,682        --       3,682
  Capital expenditures..................     --     3,080        --       3,080

1997:
  Net revenues.......................... $   --   $ 3,097   $    --    $  3,097
  Operating expenses....................     --       622        --         622
  Net income............................     --         6        --           6
  Assets................................     --     3,456        --       3,456
  Current liabilities...................     --       801        --         801
  Capital expenditures..................     --     1,292        --       1,292
</TABLE>

                                      F-24
<PAGE>

        NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      The geographic sources of IPG's revenues, based on billing addresses of
IPG's customers, are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  Nine months
                                          Years ended December  ended September
                                                   31,                30,
                                          --------------------- ---------------
                                           1997   1998   1999    1999    2000
                                          ------ ------ ------- ------- -------
<S>                                       <C>    <C>    <C>     <C>     <C>
United States and other North America.... $1,581 $5,369 $11,455 $ 9,219 $23,261
Europe:
 Germany.................................    260    853   3,796   2,865   3,518
 United Kingdom..........................    798    769     564     449     672
 Other...................................    202    380     969     513   1,257
Asia:
 Japan...................................    256    892   1,830   1,777   3,920
 Other...................................    --     --       26     --       61
                                          ------ ------ ------- ------- -------
  Total.................................. $3,097 $8,263 $18,640 $14,823 $32,689
                                          ====== ====== ======= ======= =======
</TABLE>

      Through September 30, 2000, IPG has derived revenues from two product
lines: fiber amplifiers and Raman pump lasers for telecommunications
applications and fiber lasers for industrial applications. While complete
financial information for these product lines is not available, IPG has
identified its historic net sales for these product lines as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                   Nine months
                                           Years ended December  ended September
                                                    31,                30,
                                           --------------------- ---------------
                                            1997   1998   1999    1999    2000
                                           ------ ------ ------- ------- -------
     <S>                                   <C>    <C>    <C>     <C>     <C>
     Telecommunications................... $1,898 $5,957 $14,383 $11,394 $25,106
     Industrial applications..............  1,199  2,306   4,257   3,429   7,583
                                           ------ ------ ------- ------- -------
       Total.............................. $3,097 $8,263 $18,640 $14,823 $32,689
                                           ====== ====== ======= ======= =======
</TABLE>

13. Significant Customers

      IPG's largest customers are national and international telecommunications
companies. IPG has five customers that individually comprised more than 10% of
net sales. The following table presents the percentage of net sales that these
customers represent during each period:

<TABLE>
<CAPTION>
                                                                         Nine
                                                                        months
                                                                         ended
                                                         Years ended   September
                                                         December 31,     30,
                                                        -------------- ---------
                          Customer                      1997 1998 1999 1999 2000
                          --------                      ---- ---- ---- ---- ----
     <S>                                                <C>  <C>  <C>  <C>  <C>
     A................................................. --    2%   9%   2%  40%
     B................................................. 15%  43%  40%  50%  20%
     C................................................. 27%   2%  --   --   --
     D................................................. 25%   9%   2%   3%  --
     E................................................. --   --   10%  12%   3%
                                                        ---  ---  ---  ---  ---
       Total........................................... 67%  56%  61%  67%  63%
                                                        ===  ===  ===  ===  ===
</TABLE>

      Accounts receivable related to these five customers totaled approximately
69% of the September 30, 2000 accounts receivable balance.

      As discussed in Note 8, in September 1999, Fibre entered into a supplier
agreement with Customer A. Fibre, Laser and certain shareholders maintain an
insignificant ownership interest in Customer A.

                                      F-25
<PAGE>


Inside Back Cover Page:

      Along the top edge of the page is the caption: "Fiber Lasers for
Industrial Applications".

      Under the top edge caption and in the upper left-hand corner of the page
is a photograph of medical professionals performing surgery with the word
"Medical" above the photograph, illustrating the use of fiber lasers in medical
applications.

      Under the top edge caption and in the upper right-hand corner of the page
is a photograph of [an aerospace setting] with the word "Aerospace" above the
photograph, illustrating the use of fiber lasers in aerospace applications.

      In the center of the page is a photograph of several of the registrant's
fiber lasers for industrial applications.

      In the lower left-hand corner of the page is a photograph of [a product
being micromachine] with the word "Micromachining" below the photograph,
illustrating the use of fiber lasers in micromachining applications.

      In the lower right-hand corner of the page is a photograph of [a product
being printed] with the word "Printing" below the photograph, illustrating the
use of fiber lasers in printing applications.
<PAGE>

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

      Through and including    , 2001 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

                             8,200,000 Shares

                           IPG Photonics Corporation

                                     [LOGO]

                                  Common Stock

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

                                   PROSPECTUS

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

                              Merrill Lynch & Co.

                               Robertson Stevens

                               CIBC World Markets

                           U.S. Bancorp Piper Jaffray

                                 Wit SoundView

                                       , 2001

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

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the     +
+Securities and Exchange Commission is effective. This prospectus is not an    +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted.             +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                                                           [ALTERNATE PAGE]
                             Subject to Completion

               Preliminary Prospectus Dated February 2, 2001

PROSPECTUS

                             8,200,000 Shares
                                   [IPG LOGO]
                                  Common Stock

                                  -----------

    This is IPG Photonics Corporation's initial public offering of common
stock. IPG Photonics Corporation is selling all of the shares. The U.S.
international managers are offering      shares outside the U.S. and Canada and
the U.S. underwriters are offering      shares in the U.S. and Canada.

    We expect the public offering price to be between $14.00 and $16.00 per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "IPGP."

    Investing in the common stock involves risks that are described in the
"Risk Factors" section beginning on page 6 of this prospectus.

                                  -----------

<TABLE>
<CAPTION>
                                                                Per Share Total
                                                                --------- -----
     <S>                                                        <C>       <C>
     Public offering price.....................................   $       $
     Underwriting discount.....................................   $       $
     Proceeds, before expenses, to IPG Photonics...............   $       $
</TABLE>

    The international managers may also purchase up to an additional     shares
from us at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. The U.S.
underwriters may similarly purchase up to an additional      shares from us.

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

    The shares will be ready for delivery in New York, New York on or about
, 2001.

                                  -----------

Merrill Lynch International
          Robertson Stephens
                   CIBC World Markets
                            U.S. Bancorp Piper Jaffray
                                                                   Wit SoundView

                                  -----------

                The date of this prospectus is      , 2001.
<PAGE>


                                                           [ALTERNATE PAGE]
                                  UNDERWRITING

General

      We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S.
underwriters. Merrill Lynch International, Robertson Stephens, Inc., CIBC World
Markets Corp., U.S. Bancorp Piper Jaffray Inc. and Wit SoundView Corporation,
are acting as lead managers for the international managers named below. Subject
to the terms and conditions described in an international purchase agreement
among us and the international managers, and concurrently with the sale of
shares to the U.S. underwriters, we have agreed to sell to the international
managers, and the international managers severally have agreed to purchase from
us, the number of shares listed opposite its name below.

<TABLE>
<CAPTION>
                      International Managers                    Number of Shares
                      ----------------------                    ----------------
   <S>                                                          <C>
   Merrill Lynch International.................................
   Robertson Stephens, Inc.....................................
   CIBC World Markets Corp. ...................................
   U.S. Bancorp Piper Jaffray Inc. ............................
   Wit SoundView Corporation...................................
     Total.....................................................
</TABLE>

      We have also entered into a U.S. purchase agreement with the U.S.
underwriters for sale of the shares in the U.S. and Canada for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Robertson Stephens, Inc., CIBC
World Markets Corp., U.S. Bancorp Piper Jaffray Inc. and Wit SoundView
Corporation are acting as U.S. representatives. Subject to the terms and
conditions in the U.S. purchase agreement, and concurrently with the sale of
shares to the international managers pursuant to the international purchase
agreement, we have agreed to sell shares to the U.S. underwriters, and the U.S.
underwriters severally have agreed to purchase shares from us. The initial
public offering price per share and the total underwriting discount per share
are identical under the international purchase agreement and the U.S. purchase
agreement.

      The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults on
its obligations under the international or U.S. purchase agreements, the
international and U.S. purchase agreements provide that the purchase
commitments of the nondefaulting underwriters may be increased or the purchase
agreements may be terminated. The closings for the sale of shares to be
purchased by the international managers and the U.S. underwriters are
conditioned on one another. We have agreed to indemnify the international
managers and the U.S. underwriters against certain liabilities, including
liabilities under the Securities Act, and to contribute to payments the
international managers and U.S. underwriters may be required to make in respect
of those liabilities.

      The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters
of officer's certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to reject orders
in whole or in part.

Commissions and Discounts

      The lead managers have advised us that the international managers propose
initially to offer the shares to the public at the initial public offering
price on the cover page of this prospectus, and to dealers at that price less a
concession not in excess of $   per share. The international managers may
allow, and the dealers may reallow, a discount not in excess of $   per share
to other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

                                       66
<PAGE>


                                                           [ALTERNATE PAGE]

      The following table shows the public offering price, underwriting
discount and proceeds before expenses to us. The information assumes either no
exercise or full exercise by the international managers and the U.S.
underwriters of their over-allotment options.

<TABLE>
<CAPTION>
                                          Per Share Without Option With Option
                                          --------- -------------- -----------
   <S>                                    <C>       <C>            <C>
   Public offering price.................   $            $            $
   Underwriting discount.................   $            $            $
   Proceeds, before expenses, to IPG
    Photonics............................   $            $            $
</TABLE>

      The expenses of the offering, not including the underwriting discount,
are estimated at $1,000,000 and are payable by us.

Over-Allotment Options

      We have granted options to the international managers to purchase up to
     additional shares at the public offering price less the underwriting
discount. The international managers may exercise these options for 30 days
from the date of this prospectus solely to cover any over-allotments. If the
international managers exercise these options, each international manager will
be obligated, subject to conditions contained in the purchase agreements, to
purchase a number of additional shares proportionate to that international
manager's initial amount reflected in the above table.

      We have also granted options to the U.S. underwriters, exercisable for 30
days from the date of this prospectus, to purchase up to      additional shares
to cover any over-allotments on terms similar to those granted to the
international managers.

Intersyndicate Agreement

      The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their
activities. Under the intersyndicate agreement, the international managers and
the U.S. underwriters may sell shares to each other for purposes of resale at
the initial public offering price, less an amount not greater than the selling
concession. Under the intersyndicate agreement, the international managers and
any dealer to whom they sell shares will not offer to sell or sell shares to
U.S. or Canadian persons or to persons they believe intend to resell to U.S. or
Canadian persons, except in the case of transactions under the intersyndicate
agreement. Similarly, the U.S. underwriters and any dealer to whom they sell
shares will not offer to sell or sell shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, except in the case of transactions under
the intersyndicate agreement.

Reserved Shares

      At our request, the underwriters have reserved for sale, at the initial
public offering price, up to   % of the shares offered by this prospectus for
sale to some of our employees and business associates. If these persons
purchase reserved shares, this will reduce the number of shares available for
sale to the general public. Any reserved shares that are not orally confirmed
for purchase within one day of the pricing of this offering will be offered by
the underwriters to the general public on the same terms as the other shares
offered by this prospectus.

No Sales of Similar Securities

      We and our executive officers and directors and substantially all other
stockholders have agreed, with exceptions, not to sell or transfer any common
stock for 180 days after the date of this prospectus without first obtaining
the written consent of Merrill Lynch. Specifically, we and these other
individuals have agreed not to directly or indirectly:

    .  offer, pledge, sell or contract to sell any common stock;

                                       67
<PAGE>


                                                           [ALTERNATE PAGE]

    .  sell any option or contract to purchase any common stock;

    .  purchase any option or contract to sell any common stock;

    .  grant any option, right or warrant for the sale of any common stock;

    .  lend or otherwise dispose of or transfer any common stock;

    .  request or demand that we file a registration statement related to
       the common stock; or

    .  enter into any swap or other agreement that transfers, in whole or in
       part, the economic consequence of ownership of any common stock,
       whether any such swap or transaction is to be settled by delivery of
       shares or other securities, in cash or otherwise.

      This lockup provision applies to common stock and to securities
convertible into or exchangeable or exercisable for or repayable with common
stock. It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing the agreement
later acquires the power of disposition.

Quotation on the Nasdaq National Market

      We expect the shares to be approved for quotation on the Nasdaq National
Market, subject to notice of issuance, under the symbol "IPGP."

      Before this offering, there has been no public market for our common
stock. The initial public offering price will be determined through
negotiations between us and the U.S. representatives and the lead managers. In
addition to prevailing market conditions, the factors to be considered in
determining the initial public offering price are:

    .  the valuation multiples of publicly traded companies that the U.S.
       representatives and the lead managers believe to be comparable to us;

    .  our financial information;

    .  the history of, and the prospects for, our company and the industry
       in which we compete;

    .  an assessment of our management, its past and present operations, and
       the prospects for, and timing of, our future revenues;

    .  the present state of our development; and

    .  the above factors in relation to market values and various valuation
       measures of other companies engaged in activities similar to ours.

      An active trading market for the shares may not develop. It is also
possible that after the offering the shares will not trade in the public market
at or above the initial public offering price.

      The underwriters do not expect to sell more than 5% of the shares being
offered in this offering to accounts over which they exercise discretionary
authority.

Price Stabilization, Short Positions and Penalty Bids

      Until the distribution of the shares is completed, SEC rules may limit
the underwriters and selling group members from bidding for or purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.

      In connection with the offering, the underwriters may make short sales of
the common stock. Short sales involve the sale by the underwriters at the time
of the offering of a greater number of shares than they are

                                       68
<PAGE>


                                                           [ALTERNATE PAGE]
required to purchase in the offering. Covered short sales are sales made in an
amount not greater than the over-allotment options. The U.S. representatives
may close out any covered short position by either exercising the over-
allotment options or purchasing shares in the open market. In determining the
source of shares to close out the covered short position, the U.S.
representatives will consider, among other things, the price of shares
available for purchase in the open market as compared to the public offering
price at which they may purchase the shares through the over-allotment option.
Naked short sales are sales in excess of the over-allotment option. The U.S.
representatives must close out any naked short position by purchasing shares in
the open market. A naked short position is more likely to be created if the
U.S. representatives are concerned that there may be downward pressure on the
price of the shares in the open market after pricing that could adversely
affect investors who purchase in the offering. Similar to other purchase
transactions, the purchases by the U.S. representatives to cover syndicate
short positions may have the effect of raising or maintaining the market price
of the common stock or preventing or retarding a decline in the market price of
the common stock. As a result, the price of the common stock may be higher than
it would otherwise be in the absence of these transactions.

      The U.S. representatives may also impose a penalty bid on underwriters
and selling group members. This means that if the U.S. representatives purchase
shares in the open market to reduce the underwriters' short position or to
stabilize the price of such shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of the shares
in that it discourages resales of those shares.

      Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters make any representation that the U.S.
representatives will engage in these transactions or that these transactions,
once commenced, will not be discontinued without notice.

UK Selling Restrictions

      Each international manager has agreed that

    .  it has not offered or sold and will not offer or sell any shares of
       common stock to persons in the United Kingdom, except to persons
       whose ordinary activities involve them in acquiring, holding,
       managing or disposing of investments (as principal or agent) for the
       purposes of their businesses or otherwise in circumstances which do
       not constitute an offer to the public in the United Kingdom within
       the meaning of the Public Offers of Securities Regulations 1995;

    .  it has complied and will comply with all applicable provisions of the
       Financial Services Act 1986 with respect to anything done by it in
       relation to the common stock in, from or otherwise involving the
       United Kingdom; and

    .  it has only issued or passed on and will only issue or pass on in the
       United Kingdom any document received by it in connection with the
       issuance of common stock to a person who is kind described in Article
       11(3) of the Financial Services Act 1986 (Investment Advertisements)
       (Exemptions) Order 1996 as amended by the Financial Services Act 1986
       (Investment Advertisements) (Exemptions) Order 1997 or is a person to
       whom such document may otherwise lawfully be issued or passed on.

[No Public Offering Outside the United States

      No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with

                                       69
<PAGE>


                                                           [ALTERNATE PAGE]
the shares of common stock may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.

      Purchasers of the shares offered by this prospectus may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price on the cover page of
this prospectus.

Other Relationships

      Merrill Lynch KECALP L.P. 1999, KECALP Inc., KECALP Inc., as Nominee for
Merrill Lynch KECALP International L.P. 1999, ML IBK Positions, Inc. and
Merrill Lynch Taurus 2000 Fund L.P., entities which are affiliated with Merrill
Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters,
beneficially own an aggregate of 600,000 shares of Series B preferred stock,
which convert into 1,749,999 shares of common stock, and warrants to purchase
500,000 shares of common stock assuming an offering price of $15.00.

      Bayview 2000, L.P., an entity which is affiliated with Robertson
Stephens, one of the underwriters, beneficially owns an aggregate of 80,000
shares of Series B preferred stock, which convert into 233,333 shares of common
stock, and warrants to purchase 66,667 shares of common stock assuming an
offering price of $15.00 per share.

                                       70
<PAGE>

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

                                                           [ALTERNATE PAGE]

      Through and including    , 2001 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

                             8,200,000 Shares

                           IPG Photonics Corporation

                                     [LOGO]

                                  Common Stock

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

                                   PROSPECTUS

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

                              Merrill Lynch & Co.

                               Robertson Stevens

                               CIBC World Markets

                           U.S. Bancorp Piper Jaffray

                                 Wit SoundView

                                       , 2001

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

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

      The following are the estimated expenses to be incurred in connection
with the issuance and distribution of the securities registered under this
Registration Statement, other than underwriting discounts and commissions. All
amounts shown are estimates except the Securities and Exchange Commission
registration fee and the National Association of Securities Dealers, Inc.
filing fee. The following expenses will be borne solely by the Registrant.

<TABLE>
      <S>                                                            <C>
      Securities and Exchange Commission Registration Fees.......... $   39,600
      National Association of Securities Dealers, Inc. Filing Fee...     15,500
      NASDAQ Listing Fee............................................     95,000
      Blue Sky Fees and Expenses....................................     10,000
      Printing and Engraving Expenses...............................    500,000
      Legal Fees and Expenses.......................................  1,000,000
      Accounting Fees and Expenses..................................    375,000
      Transfer Agent and Registrar Fees.............................     10,000
      Miscellaneous.................................................     54,900
                                                                     ----------
        Total....................................................... $2,100,000
                                                                     ==========
</TABLE>
--------
* To be supplied by amendment.

Item 14. Indemnification of Directors and Officers.

      Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.

      The Registrant's certificate of incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law. The Registrant's bylaws provide for the indemnification to the fullest
extent as required or permitted by Delaware law of officers and directors
acting on behalf of the Registrant with respect to any criminal action or
proceeding.

      We have entered into an indemnification agreement with each of our
directors which requires us, among other things, to indemnify them against
certain liabilities which may arise by reason of his status or service as a
director (other than liabilities arising from willful misconduct of a culpable
nature). We also intend to maintain director and officer liability insurance,
if available on reasonable terms.

      Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.

Item 15. Recent Sales of Unregistered Securities.

      Since incorporation, the Registrant has issued the following securities
that were not registered under the Securities Act as summarized below:

      None of these transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the Registrant believes
that each transaction was exempt from the registration requirements

                                      II-1
<PAGE>

of the Securities Act by virtue of Section 4(2) thereof, Rule 506 of Regulation
D promulgated thereunder or Rule 701 promulgated under from 3(b) of the
Securities Act pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the stock
certificates and instruments issued in such transactions. All recipients either
received adequate information or had access, through their employment or other
relationships with the Registrant, to such information about the Registrant.
For additional information regarding these equity investment transactions, see
the section entitled "Transactions with Related Parties" in the Prospectus.

      (a) Issuances of Capital Stock.

            1. In January 1999, the Registrant issued and sold an aggregate of
               43,600,000 shares of common stock to individuals who founded
               the Registrant for an aggregate purchase price of $2,180.

            2. On January 15, 2000, the Registrant issued and sold 20,000,000
               shares of common stock to IP Fibre Devices Ltd. in satisfaction
               of $182,000 of intercompany debt and accrued interest and a
               cash payment of $18,000.

            3. On March 31, 2000, the Registrant issued and sold an aggregate
               of 1,000,000 shares of its Series A preferred stock to a group
               of private investors for an aggregate purchase price of
               $5,000,000.

            4. Between August 30, 2000 and December 6, 2000, the Registrant
               issued and sold an aggregate of 7,600,000 shares of its Series
               B preferred stock to a group of private investors for an
               aggregate purchase price of $95,000,000.

            5. On August 24, 2000, the Registrant issued 2,300,000 shares of
               its common stock and paid $7,500,000 to IP Fibre Devices Ltd.
               to purchase 51% of IPG Laser GmbH.

            6. On October 4, 2000, we exercised our rights under a
               Contribution and Exchange Agreement, dated August 24, 2000,
               between us and Dr. Valentin P. Gapontsev, our Chairman of the
               Board of Directors and Chief Executive Officer, under which we
               received the remaining 46% of the total issued and outstanding
               interest in IPG Laser GmbH from Dr. Valentin P. Gapontsev in
               exchange for an aggregate of 2,806,000 shares of our common
               stock.

            7. On January 22, 2001, the Registrant issued and sold 1,000,000
               shares of our common stock to an executive officer of the
               Registrant for an aggregate purchase price of $500,000 in
               connection with his employment agreement with the Registrant.

      (b) Certain Grants of Warrants to Purchase Common Stock

            1. Between August 30 and December 8, 2000, the Registrant granted
               warrants to purchase an aggregate of 3,166,667 shares of its
               common stock to a group of private investors in connection with
               the sale of the Registrant's Series B preferred stock, assuming
               an offering price of $15.00.

      (c) Certain Grants and Exercises of Stock Options and Warrants

            1. From incorporation through January 22, 2001, the Registrant
               granted stock options to purchase 9,372,600 shares of common
               stock at exercise prices ranging from $0.50 to $3.75 per share
               to employees, consultants and directors pursuant to its 2000
               stock incentive plan. Of such options, 694,868 have been
               exercised through December 31, 2000 at prices ranging from
               $0.50 to $1.00 per share.

                                      II-2
<PAGE>


            2. On February 3, 2000, the Registrant granted options to an
               individual to purchase 400,000 shares of the Registrant's
               common stock at $0.50 per share. The individual exercised these
               options immediately upon grant contemporaneously assigning an
               aggregate of 20,000 such options to three family members.
               Subsequently, the Registrant issued and sold 500,000 restricted
               shares of its common stock to the same individual for an
               aggregate purchase price of $250,000. In March 2000, the
               Registrant issued and sold 500,000 shares of restricted common
               stock to the same individual for an aggregate purchase price of
               $250,000.

            3. On February 3, 2000, the Registrant granted options to purchase
               500,000 shares of common stock outside of its 2000 stock
               incentive plan at an exercise price of $0.50 per share to
               members of its National Advisory Board, and 500,000 of such
               options were exercised on March 17, 2000 for an aggregate
               purchase price of $250,000. Also on February 3, 2000, the
               Registrant granted options to purchase 100,000 shares of common
               stock under its 2000 stock incentive plan at an exercise price
               of $0.50 per share to two other members of its National
               Advisory Board. Of these options, 30,000 were exercised in
               December 2000 for an aggregate purchase price of $15,000. On
               November 28, 2000 the Registrant granted options to purchase
               50,000 shares of common stock under its 2000 incentive
               compensation plan at an exercise price of $3.75 per share to an
               additional member of its National Advisory Board.

                                      II-3
<PAGE>

Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
   Exhibit
   Number  Description
   ------- -----------
   <C>     <S>
    1.1    Form of Underwriting Agreement
    3.1*   Amended and Restated Certificate of Incorporation of the Registrant,
           as amended
    3.2*   Bylaws of the Registrant, as amended
    4.1    Specimen certificate representing the common stock
    4.2*   Form of Warrant to Purchase Common Stock of the Registrant
    4.3*   Series A Preferred Stockholders Agreement, dated as of March 31,
           2000, among the Registrant and the owners of Series A Preferred
           Stock of the Company listed on Schedule I attached thereto
    4.4*   Registration Rights Agreement, dated as of August 30, 2000, by and
           between the Registrant and the Investors named therein
    5.1**  Form of Opinion of Winston & Strawn
   10.1*   2000 Stock Incentive Plan, as amended
   10.2*   $6,500,000.00 Construction Loan Furnished by Family Bank, FSB to the
           Registrant, Guaranteed by IP Fibre Devices Ltd. and Dr. Valentin P.
           Gapontsev, dated April 28, 2000
   10.3*   Assignment, Research and Development Agreement, dated as of August,
           30, 2000, by and among the Registrant, IPG Laser GmbH, IPG Fibertech
           S.r.l and NTO IRE-POLUS
   10.4*   Purchase and Sales Agreement, dated October 6, 1999, by and between
           the Registrant and Daniel Prouty and Melvin Glickman as trustees for
           Elmar Realty Trust
   10.5*   Employment Agreement, entered into as of June 19, 2000, by and
           between the Registrant and John Geagea
   10.6*   Employment Agreement, entered into as of August 9, 2000, by and
           between the Registrant and Hon. John H. Dalton
   10.7    Employment Contract between IPG Laser and Its Managing Director, Dr.
           Valentin P. Gapontsev, dated August 25, 1995
   10.8    Employment Agreement, dated November 29, 2000, by and between the
           Registrant and Vincent Au-Yeung
   10.9*   Form of Indemnification Agreement by and between the Registrant and
           its Directors
   10.10*  Design and Building Agreement, dated March 10, 2000, by and between
           the Registrant and AHO Construction, Inc.
   10.11   Contribution and Exchange Agreement, dated August 24, 2000, by and
           between the Registrant and Dr. Valentin P. Gapontsev
   10.12   Purchase Agreement, dated August 24, 2000, by and between the
           Registrant and IP Fibre Devices U.K. (Limited)
   10.13   Purchase Agreement, dated August 24, 2000, by and between the
           Registrant and Dr. Valentin P. Gapontsev
   10.14   Loan Agreement No. LA-201003/01, made October 3, 2000, by and
           between the Registrant and NTO IRE-POLUS
   10.15   Form of Non-Competition and Confirmatory Assignment Agreement
   10.16   Employment Contract, effective September 18, 2000, between IPG Laser
           GbmH and Dr. Eugene Shcherbakov
   10.17   Agreements between Registrant and Robert A. Blair
   10.18+  IPG Photonics Corporation Purchase and Sales Agreement No. 1/99,
           dated May 14, 1999, between the Registrant and SDL, Inc., as amended
   10.19   Stock Issuance Agreement, effective as of January 22, 2001, by and
           between the Registrant and Vincent Au-Yeung
   10.20   Services Agreement between IP Fibre Devices Ltd. and new IPG
           Photonics (UK) Ltd., dated as of January 1, 2001
   21.1*   List of Subsidiaries
   23.1**  Consent of Winston & Strawn (See Exhibit 5.1)
   23.2    Consent of Deloitte & Touche GmbH
   23.3    Consent of Deloitte & Touche LLP
   27.1    Financial Data Schedule
</TABLE>
--------

(*) Previously filed.

(**) To be filed by amendment.

(+) Portions of this exhibit have been omitted pursuant to a request for
    confidential treatment.

                                      II-4
<PAGE>

Item 17. Undertakings.

      The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

      Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions described
under Item 14 of this Registration Statement or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act, and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.

      The undersigned Registrant hereby undertakes that:

                  (1) For purposes of determining any liability under the
            Securities Act, the information omitted from the form of
            Prospectus filed as part of this Registration Statement in
            reliance upon Rule 430A and contained in the form of prospectus
            filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
            497(h) under the Securities Act shall be deemed to be part of this
            Registration Statement as of the time it was declared effective;
            and

                  (2) For the purpose of determining any liability under the
            Securities Act, each post-effective amendment that contains a form
            of Prospectus shall be deemed to be a new registration statement
            relating to the securities offered therein, and the offering of
            such securities at the time shall be deemed to be the initial bona
            fide offering thereof.

                                      II-5
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933 (the
"Securities Act"), the Company certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-1 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Sturbridge, Massachusetts on
February 2, 2001.

                                          IPG Photonics Corporation

                                               /s/ Dr. Valentin P. Gapontsev

                                          By: _________________________________
                                             Name: Dr. Valentin P. Gapontsev
                                             Title: Chairman of the Board of
                                                 Directors and Chief Executive
                                                 Officer

                             POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Dr. Valentin P. Gapontsev and
Hon. John H. Dalton, and each of them acting individually, as his true and
lawful attorneys-in-fact and agents, each with full power of substitution, for
him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments or any abbreviated
registration statement and any amendments thereto filed pursuant to Rule 462(b)
increasing the number of securities for which registration is sought), and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, with full power of each to act alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully for all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in their capacities on the
dates indicated below.

<TABLE>
<CAPTION>
              Signature                            Title                     Date
              ---------                            -----                     ----

<S>                                    <C>                            <C>
    /s/ Dr. Valentin P. Gapontsev      Chairman of the Board of        February 2, 2001
______________________________________  Directors and Chief Executive
      Dr. Valentin P. Gapontsev         Officer
                                       (Principal Executive Officer)

       /s/ Hon. John H. Dalton         President and Director          February 2, 2001
______________________________________
         Hon. John H. Dalton

      /s/ Dr. Eugene Shcherbakov       Director                        February 2, 2001
______________________________________
        Dr. Eugene Shcherbakov

       /s/ Timothy P.V. Mammen         Chief Financial Officer and     February 2, 2001
______________________________________  Vice President
         Timothy P.V. Mammen
                                       (Principal Accounting Officer)
</TABLE>


                                      II-6
<PAGE>

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
       /s/ Dr. Denis Gapontsev         Vice President of Research  February 2, 2001
______________________________________  and Development and
         Dr. Denis Gapontsev            Director

         /s/ Robert A. Blair           Vice Chairman of the Board  February 2, 2001
______________________________________  of Directors
           Robert A. Blair

         /s/ Michael C. Child          Director                    February 2, 2001
______________________________________
           Michael C. Child

      /s/ Dr. William F. Krupke        Director                    February 2, 2001
______________________________________
        Dr. William F. Krupke
</TABLE>


                                      II-7
<PAGE>

                               Index to Exhibits

<TABLE>
<CAPTION>
   Exhibit
   Number  Description
   ------- -----------
   <C>     <S>
    1.1    Form of Underwriting Agreement
    3.1*   Amended and Restated Certificate of Incorporation of the Registrant,
           as amended
    3.2*   Bylaws of the Registrant, as amended
    4.1    Specimen certificate representing the common stock
    4.2*   Form of Warrant to Purchase Common Stock of the Registrant
    4.3*   Series A Preferred Stockholders Agreement, dated as of March 31,
           2000, among the Registrant and the owners of Series A Preferred
           Stock of the Company listed on Schedule I attached thereto
    4.4*   Registration Rights Agreement, dated as of August 30, 2000, by and
           between the Registrant and the Investors named therein
    5.1**  Form of Opinion of Winston & Strawn
   10.1*   2000 Stock Incentive Plan, as amended
   10.2*   $6,500,000.00 Construction Loan Furnished by Family Bank, FSB to the
           Registrant, Guaranteed by IP Fibre Devices Ltd. and Dr. Valentin P.
           Gapontsev, dated April 28, 2000
   10.3*   Assignment, Research and Development Agreement, dated as of August,
           30, 2000, by and among the Registrant, IPG Laser GmbH, IPG Fibertech
           S.r.l and NTO IRE-POLUS
   10.4*   Purchase and Sales Agreement, dated October 6, 1999, by and between
           the Registrant and Daniel Prouty and Melvin Glickman as trustees for
           Elmar Realty Trust
   10.5*   Employment Agreement, entered into as of June 19, 2000, by and
           between the Registrant and John Geagea
   10.6*   Employment Agreement, entered into as of August 9, 2000, by and
           between the Registrant and Hon. John H. Dalton
   10.7    Employment Contract between IPG Laser and Its Managing Director, Dr.
           Valentin P. Gapontsev, dated August 25, 1995
   10.8    Employment Agreement, dated November 29, 2000, by and between the
           Registrant and Vincent Au-Yeung
   10.9*   Form of Indemnification Agreement by and between the Registrant and
           its Directors
   10.10*  Design and Building Agreement, dated March 10, 2000, by and between
           the Registrant and AHO Construction, Inc.
   10.11   Contribution and Exchange Agreement, dated August 24, 2000, by and
           between the Registrant and Dr. Valentin P. Gapontsev
   10.12   Purchase Agreement, dated August 24, 2000, by and between the
           Registrant and IP Fibre Devices U.K. (Limited)
   10.13   Purchase Agreement, dated August 24, 2000, by and between the
           Registrant and Dr. Valentin P. Gapontsev
   10.14   Loan Agreement No. LA-201003/01, made October 3, 2000, by and
           between the Registrant and NTO IRE-POLUS
   10.15   Form of Non-Competition and Confirmatory Assignment Agreement
   10.16   Employment Contract, effective September 18, 2000, between IPG Laser
           GbmH and Dr. Eugene Shcherbakov
   10.17   Agreements between the Registrant and Robert A. Blair
   10.18+  IPG Photonics Corporation Purchase and Sales Agreement No. 1/99,
           dated May 14, 1999, between the Registrant and SDL, Inc., as amended
   10.19   Stock Issuance Agreement, effective as of January 22, 2001, by and
           between the Registrant and Vincent Au-Yeung
   10.20   Services Agreement between IP Fibre Devices Ltd. and new IPG
           Photonics (UK) Ltd., dated as of January 1, 2001
   21.1*   List of Subsidiaries
   23.1**  Consent of Winston & Strawn (See Exhibit 5.1)
   23.2    Consent of Deloitte & Touche GmbH
   23.3    Consent of Deloitte & Touche LLP
   27.1    Financial Data Schedule
</TABLE>
--------

(*) Previously filed.

(**) To be filed by amendment.

(+)  Portions of this exhibit have been omitted pursuant to a request for
     confidential treatment.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>FORM OF UNDERWRITING AGREEMENT
<TEXT>

<PAGE>

                                                                     Exhibit 1.1



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




                           IPG PHOTONICS CORPORATION
                           (a Delaware corporation)


                          [ ] Shares of Common Stock



                            U.S. PURCHASE AGREEMENT
                            -----------------------



Dated:  ___________, 2001


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


<PAGE>

                                Table of Contents

<TABLE>
<CAPTION>
                                                                                                               Page
<S>                                                                                                            <C>
SECTION 1.        Representations and Warranties...............................................................   3

         (a)      Representations and Warranties by the Company................................................   3
                  (i)      Compliance with Registration Requirements...........................................   3
                  (ii)     Independent Accountants.............................................................   4
                  (iii)    Financial Statements................................................................   4
                  (iv)     No Material Adverse Change in Business..............................................   5
                  (v)      Good Standing of the Company........................................................   5
                  (vi)     Good Standing of Subsidiaries.......................................................   5
                  (vii)    Restructuring.......................................................................   6
                  (viii)   Capitalization......................................................................   6
                  (ix)     Authorization of Agreement..........................................................   6
                  (x)      Authorization and Description of Securities.........................................   6
                  (xi)     Export Controls. ...................................................................   7
                  (xii)    Absence of Defaults and Conflicts...................................................   7
                  (xiii)   Absence of Labor Dispute............................................................   7
                  (xiv)    Absence of Proceedings..............................................................   7
                  (xv)     Accuracy of Exhibits................................................................   8
                  (xvi)    Possession of Intellectual Property.................................................   8
                  (xvii)   Absence of Further Requirements.....................................................   8
                  (xviii)  Possession of Licenses and Permits..................................................   8
                  (xix)    Title to Property...................................................................   9
                  (xx)     Investment Company Act..............................................................   9
                  (xxi)    Environmental Laws..................................................................   9
                  (xxii)   Registration Rights.................................................................  10
                  (xxiii)  No Stamp Taxes......................................................................  10
                  (xxiv)   Certain Relationships...............................................................  10
         (b)      Officer's Certificates.......................................................................  10

SECTION 2.        Sale and Delivery to U.S. Underwriters; Closing..............................................  10

         (a)      Initial Securities...........................................................................  10
         (b)      Option Securities............................................................................  10
         (c)      Payment......................................................................................  11
         (d)      Denominations; Registration..................................................................  11

SECTION 3.        Covenants of the Company.....................................................................  12

         (a)      Compliance with Securities Regulations and Commission Requests...............................  12
         (b)      Filing of Amendments.........................................................................  12
         (c)      Export Controls..............................................................................  12
         (d)      Delivery of Registration Statements..........................................................  12
         (e)      Delivery of Prospectuses.....................................................................  13
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                            <C>
         (f)      Continued Compliance with Securities Laws...................................................   13
         (g)      Blue Sky Qualifications.....................................................................   13
         (h)      Rule 158....................................................................................   14
         (i)      Use of Proceeds.............................................................................   14
         (j)      Listing.....................................................................................   14
         (k)      Restriction on Sale of Securities...........................................................   14
         (l)      Reporting Requirements......................................................................   14
         (m)      Compliance with NASD Rules..................................................................   15
         (n)      Compliance with Rule 463....................................................................   15

SECTION 4.        Payment of Expenses.........................................................................   15

         (a)      Expenses....................................................................................   15
         (b)      Termination of Agreement....................................................................   16

SECTION 5.        Conditions of U.S. Underwriters' Obligations................................................   16

         (a)      Effectiveness of Registration Statement.....................................................   16
         (b)      Opinion of U.S. Counsel for Company. .......................................................   16
         (c)      Opinion of Italian Counsel for Company. ....................................................   16
         (d)      Opinion of German Counsel for Company. .....................................................   16
         (e)      Opinion of Russian Counsel for Company......................................................   17
         (f)      Opinion of UK Counsel for Company...........................................................   17
         (g)      Opinion of Counsel for U.S. Underwriters....................................................   17
         (h)      Officers' Certificate.......................................................................   17
         (i)      Accountant's Comfort Letter.................................................................   18
         (j)      Bring-down Comfort Letter...................................................................   18
         (k)      Approval of Listing.........................................................................   18
         (l)      No Objection................................................................................   18
         (m)      Lock-up Agreements..........................................................................   18
         (n)      Restructuring...............................................................................   18
         (o)      Purchase of Initial International Securities................................................   18
         (p)      Conditions to Purchase of U.S. Option Securities............................................   18
                  (i)    Officer's Certificate................................................................   18
                  (ii)   Opinion of U.S. Counsel..............................................................   19
                  (iii)  Opinion of Italian Counsel...........................................................   19
                  (iv)   Opinion of German Counsel............................................................   19
                  (v)    Opinion of Russian Counsel...........................................................   19
                  (vi)   Opinion of UK Counsel................................................................   19
                  (vii)  Opinion of Counsel for U.S. Underwriters.............................................   19
                  (viii) Bring-down Comfort Letter............................................................   19
         (q)      Additional Documents........................................................................   20
         (r)      Termination of Agreement....................................................................   20
</TABLE>

                                      ii
<PAGE>

<TABLE>
<S>                                                                                                            <C>
SECTION 6.        Indemnification.............................................................................   20

         (a)      Indemnification of U.S. Underwriters........................................................   20
         (b)      Indemnification of Company, Directors and Officers..........................................   21
         (c)      Actions against Parties; Notification.......................................................   21
         (d)      Settlement without Consent if Failure to Reimburse..........................................   22
         (e)      Indemnification for Reserved Securities.....................................................   22

SECTION 7.        Contribution................................................................................   22

SECTION 8.        Representations, Warranties and Agreements to Survive Delivery..............................   24

SECTION 9.        Termination of Agreement....................................................................   24

         (a)      Termination; General........................................................................   24

SECTION 10.       Default by One or More of the U.S. Underwriters.............................................   25

SECTION 11.       Notices.....................................................................................   25

SECTION 12.       Parties.....................................................................................   25

SECTION 13.       GOVERNING LAW AND TIME......................................................................   26

SECTION 14.       Effect of Headings..........................................................................   26


SCHEDULES

         Schedule A - List of U.S. Underwriters..........................................................   Sch A-1
         Schedule B - Pricing Information................................................................   Sch B-1
         Schedule C - List of Persons Subject to Lock-up.................................................   Sch C-1

EXHIBITS

         Exhibit A - Form of Opinion of Company's U.S. Counsel to be Delivered
         Pursuant to 5(b)....................................................................................   A-1
         Exhibit B - Form of Opinion of Company's Italian Council to be Delivered
         Pursuant to 5(c)....................................................................................   B-1
         Exhibit C - Form of Opinion of Company's German Council to be Delivered
         Pursuant to 5(d)....................................................................................   C-1
         Exhibit D - Form of  Opinion of Company's Russian Council to be Delivered
</TABLE>

                                      iii
<PAGE>

<TABLE>
<S>                                                                                                            <C>
         Pursuant to 5(e)....................................................................................   D-1
         Exhibit E - Form of Opinion of Company's UK Council to be Delivered
         Pursuant to 5(f)....................................................................................   E-1
         Exhibit F - Form of Lock-up Letter..................................................................   F-1
</TABLE>

                                      iv
<PAGE>

                           IPG PHOTONICS CORPORATION

                           (a Delaware Corporation)

                           [ ] Shares of Common Stock

                          (Par Value $.0001 Per Share)

                             U.S. PURCHASE AGREEMENT
                             -----------------------
                                                               ___________, 2001


MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
                Incorporated
    as U.S. Representative of the several U.S. Underwriters
c/o Merrill Lynch & Co.
    Merrill Lynch, Pierce, Fenner & Smith
                     Incorporated

North Tower
World Financial Center
New York, New York  10281-1209

Ladies and Gentlemen:

         IPG Photonics Corporation, a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters
named in Schedule A hereto (collectively, the "U.S. Underwriters," which term
shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch is acting as representative (in such
capacity, the "U.S. Representative"), with respect to the issue and sale by the
Company and the purchase by the U.S. Underwriters, acting severally and not
jointly, of the respective number of shares of Common Stock, par value $.0001
per share, of the Company ("Common Stock") set forth in said Schedule A, and
with respect to the grant by the Company to the U.S. Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of [insert overallotment] additional shares of Common
Stock to cover over-allotments, if any. The aforesaid [ ] shares of Common Stock
(the "Initial U.S. Securities") to be purchased by the U.S. Underwriters and all
or any part of the [ ] shares of Common Stock subject to the option described in
Section 2(b) hereof (the "U.S. Option Securities") are hereinafter called,
collectively, the "U.S. Securities."

         It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of [   ] shares of
Common Stock (the "Initial International Securities") through arrangements with
certain underwriters outside the United States and Canada (the "International
Managers") for which Merrill Lynch International and is acting as lead manager
(the "Lead

                                       1
<PAGE>

Manager") and the grant by the Company to the International Managers, acting
severally and not jointly, of an option to purchase all or any part of the
International Manager's pro rata portion of up to [   ] additional shares of
Common Stock solely to cover overallotments, if any (the "International Option
Securities" and, together with the U.S. Option Securities, the "Option
Securities"). The Initial International Securities and the International Option
Securities are hereinafter called the "International Securities." It is
understood that the Company is not obligated to sell and the U.S. Underwriters
are not obligated to purchase, any Initial U.S. Securities unless all of the
Initial International Securities are contemporaneously purchased by the
International Managers.

         The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities," and the U.S. Securities, and the International Securities
are hereinafter collectively called the "Securities."

         The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").

         The Company understands that the U.S. Underwriters propose to make a
public offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.

         [The Company and the U.S. Underwriters agree that up to [   ] shares of
the Initial U.S. Securities to be purchased by the U.S. Underwriters [and that
up to [   ] shares of the Initial International Securities to be purchased by
the International Mangers] ([collectively,] the "Reserved Securities") shall be
reserved for sale by the Underwriters to certain eligible employees and persons
having business relationships with the Company, as part of the distribution of
the Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. (the "NASD") and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not orally
confirmed for purchase by such eligible employees and persons having business
relationships with the Company by the end of the first business day after the
date of this Agreement, such Reserved Securities may be offered to the public as
part of the public offering contemplated hereby.]

         The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-51560) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection

                                       2
<PAGE>

with the offering and sale of the Securities: one relating to the U.S.
Securities (the "Form of U.S. Prospectus") and one relating to the International
Securities (the "Form of International Prospectus"). The Form of International
Prospectus is identical to the Form of U.S. Prospectus, except for [the front
cover and back cover pages and the information under the caption "Underwriting"
and the inclusion in the Form of International Prospectus of a section under the
caption "Certain United States Tax Considerations for Non-United States
Holders."] The information included in any such prospectus or in any such Term
Sheet, as the case may be, that was omitted from such registration statement at
the time it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each Form of U.S.
Prospectus and Form of International Prospectus used before such registration
statement became effective, and any prospectus that omitted, as applicable, the
Rule 430A Information or the Rule 434 Information, that was used after such
effectiveness and prior to the execution and delivery of this Agreement, is
herein called a "preliminary prospectus." Such registration statement, including
the exhibits thereto and schedules thereto at the time it became effective and
including the Rule 430A Information and the Rule 434 Information, as applicable,
is herein called the "Registration Statement." Any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
The final Form of U.S. Prospectus and the final Form of International Prospectus
in the forms first furnished to the Underwriters for use in connection with the
offering of the Securities are herein called the "U.S. Prospectus" and the
"International Prospectus," respectively, and collectively, the "Prospectuses."
If Rule 434 is relied on, the terms "U.S. Prospectus" and "International
Prospectus" shall refer to the preliminary U.S. Prospectus dated __, 2001 and
preliminary International Prospectus dated ____, 2001, respectively, each
together with the applicable Term Sheet and all references in this Agreement to
the date of such Prospectuses shall mean the date of the applicable Term Sheet.
For purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus, the U.S. Prospectus, the International Prospectus or
any Term Sheet or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").

     SECTION 1.   Representations and Warranties.
                  ------------------------------

     (a)  Representations and Warranties by the Company. The Company represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b), hereof and agrees with each U.S. Underwriter,
as follows:

               (i)   Compliance with Registration Requirements. Each of the
                     -----------------------------------------
         Registration Statement and any Rule 462(b) Registration Statement has
         become effective under the 1933 Act and no stop order suspending the
         effectiveness of the Registration Statement or any Rule 462(b)
         Registration Statement has been issued under the 1933 Act and no
         proceedings for that purpose have been instituted or are pending or, to
         the knowledge of the Company, are contemplated by the Commission, and
         any request on the part of the Commission for additional information
         has been complied with.

                                       3
<PAGE>

                  At the respective times the Registration Statement, any Rule
         462(b) Registration Statement and any post-effective amendments thereto
         became effective and at the Closing Time (and, if any U.S. Option
         Securities are purchased, at the Date of Delivery), the Registration
         Statement, the Rule 462(b) Registration Statement and any amendments
         and supplements thereto complied and will comply in all material
         respects with the requirements of the 1933 Act and the 1933 Act
         Regulations and did not and will not contain an untrue statement of a
         material fact or omit to state a material fact required to be stated
         therein or necessary to make the statements therein not misleading, and
         the Prospectuses, any preliminary prospectuses and any supplement
         thereto or prospectus wrapper prepared in connection therewith, at
         their respective times of issuance and at the Closing Time, complied
         and will comply in all material respects with any applicable laws or
         regulations of foreign jurisdictions in which the Prospectuses and such
         preliminary prospectuses, as amended or supplemented, if applicable,
         are distributed in connection with the offer and sale of Reserved
         Securities. Neither of the Prospectuses nor any amendments or
         supplements thereto (including any prospectus wrapper), at the time the
         Prospectuses or any amendments or supplements thereto were issued and
         at the Closing Time (and, if any U.S. Option Securities are purchased,
         at the Date of Delivery), included or will include an untrue statement
         of a material fact or omitted or will omit to state a material fact
         necessary in order to make the statements therein, in the light of the
         circumstances under which they were made, not misleading. If Rule 434
         is used, the Company will comply with the requirements of Rule 434 and
         the Prospectuses shall not be "materially different," as such term is
         used in Rule 434, from the prospectuses included in the Registration
         Statement at the time it became effective. The representations and
         warranties in this subsection shall not apply to statements in or
         omissions from the Registration Statement or the U.S. Prospectus made
         in reliance upon and in conformity with information furnished to the
         Company in writing by any U.S. Underwriter through the U.S.
         Representatives expressly for use in the Registration Statement or the
         U.S. Prospectus.

                  Each preliminary prospectus and the prospectuses filed as part
         of the Registration Statement as originally filed or as part of any
         amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
         complied when so filed in all material respects with the 1933 Act
         Regulations and each preliminary prospectus and the Prospectuses
         delivered to the Underwriters for use in connection with this offering
         was identical to the electronically transmitted copies thereof filed
         with the Commission pursuant to EDGAR, except to the extent permitted
         by Regulation S-T.

                         (ii)   Independent Accountants. The accountants who
                                -----------------------
         certified the financial statements and supporting schedules included in
         the Registration Statement are independent public accountants as
         required by the 1933 Act and the 1933 Act Regulations.

                         (iii)  Financial Statements. The combined financial
                                --------------------
         statements included in the Registration Statement and the Prospectuses,
         together with the related schedules and notes, present fairly the
         combined financial position of the Company and its combined
         consolidated subsidiaries, NTO IRE-POLUS, IPG Laser GmbH, and IPG
         Fibertech S.r.l. at the dates indicated and the statement of
         operations, stockholders' equity and cash flows

                                       4
<PAGE>

         of the Company and its consolidated subsidiaries, NTO IRE-POLUS, IPG
         Laser GmbH, and IPG Fibertech S.r.l., as the case may be, for the
         periods specified; said financial statements have been prepared in
         conformity with United States generally accepted accounting principles
         ("GAAP") applied on a consistent basis throughout the periods involved.
         The supporting schedules included in the Registration Statement present
         fairly in accordance with GAAP the information required to be stated
         therein. The selected financial data and the summary financial
         information included in the Prospectuses present fairly the information
         shown therein and have been compiled on a basis consistent with that of
         the audited financial statements included in the Registration
         Statement.

               (iv)  No Material Adverse Change in Business. Since the
                     --------------------------------------
         respective dates as of which information is given in the Registration
         Statement and the Prospectuses, except as otherwise stated therein, (A)
         there has been no material adverse change in the condition, financial
         or otherwise, or in the earnings, business affairs or business
         prospects of the Company and its subsidiaries considered as one
         enterprise, whether or not arising in the ordinary course of business
         (a "Material Adverse Effect"), (B) there have been no transactions
         entered into by the Company or any of its subsidiaries, other than
         those in the ordinary course of business, which are material with
         respect to the Company and its subsidiaries considered as one
         enterprise, and (C) there has been no dividend or distribution of any
         kind declared, paid or made by the Company on any class of its capital
         stock.

               (v)   Good Standing of the Company. The Company has been duly
                     ----------------------------
         organized and is validly existing as a corporation in good standing
         under the laws of the State of Delaware and has corporate power and
         authority to own, lease and operate its properties and to conduct its
         business as described in the Prospectuses and to enter into and perform
         its obligations under this Agreement; and the Company is duly qualified
         as a foreign corporation to transact business and is in good standing
         in each other jurisdiction in which such qualification is required,
         whether by reason of the ownership or leasing of property or the
         conduct of business, except where the failure so to qualify or to be in
         good standing would not result in a Material Adverse Effect.

               (vi)  Good Standing of Subsidiaries. Each subsidiary (as such
                     -----------------------------
         [and which term shall be deemed to include NTO IRE-POLUS]) of the
         Company (each a "Subsidiary" and, collectively, the "Subsidiaries") has
         been duly organized and is validly existing as a corporation in good
         standing under the laws of the jurisdiction of its incorporation, has
         corporate power and authority to own, lease and operate its properties
         and to conduct its business as described in the Prospectuses and is
         duly qualified as a foreign corporation to transact business and is in
         good standing in each jurisdiction in which such qualification is
         required, whether by reason of the ownership or leasing of property or
         the conduct of business, except where the failure so to qualify or to
         be in good standing would not result in a Material Adverse Effect;
         except as otherwise disclosed in the Registration Statement, all of the
         issued and outstanding sharecapital, capital stock, or partnership
         interest of each such Subsidiary has been duly authorized and validly
         issued, is fully paid and non-assessable and is owned by the Company,
         directly or through subsidiaries, free and clear of any security
         interest, mortgage, pledge, lien, encumbrance, claim or equity; none

                                       5
<PAGE>

     of the outstanding shares of capital stock of any Subsidiary was issued in
     violation of the preemptive or similar rights of any securityholder of such
     Subsidiary. The only Subsidiaries of the Company are (a) the Subsidiaries
     listed on Exhibit 21 to the Registration Statement and (b) certain other
     Subsidiaries which, considered in the aggregate as a single Subsidiary, do
     not constitute a "Significant Subsidiary" as defined in Rule 1.02 of the
     Regulation S-X.

          (vii)  Restructuring.  The description of the restructuring of the
                 -------------
     Company (the "Restructuring") in the Registration Statement and Prospectus
     under the caption "Transaction with Related Parties - Restructuring" is
     complete and accurate and the transactions contemplated to affect the
     Restructuring have been duly authorized by all necessary corporate and
     shareholder action, as the case may be, of the parties to the Restructuring
     (collectively, the "Restructuring Parties"), does not conflict with, or
     result in a breach of or, (with or without the giving of notice, lapse of
     time, or both) constitute a default under, the charter or by-laws of the
     Company or any of the other parties to the Restructuring or any other
     material agreements to which the Company or any other party is bound and no
     other action on the part of any Restructuring Party is necessary to
     authorize the execution delivery and performance of the agreements
     affecting the Restructuring (collectively, the "Restructuring Documents")
     and the consummation of the transactions contemplated thereby; and, prior
     to the Closing Time, the Restructuring Documents will be duly executed and
     delivered by each Restructuring Party and, when so executed and delivered
     by each party thereto, the Restructuring Documents will be a valid and
     binding obligation of each of them enforceable against each of them in
     accordance with their terms.

          (viii) Capitalization. The authorized, issued and outstanding capital
                 --------------
     stock of the Company is as set forth in the Prospectuses in the column
     entitled "Actual" under the caption "Capitalization" (except for subsequent
     issuances, if any, pursuant to this Agreement, pursuant to reservations,
     agreements or employee benefit plans referred to in the Prospectuses or
     pursuant to the exercise of convertible securities or options referred to
     in the Prospectuses). The shares of issued and outstanding capital stock of
     the Company have been duly authorized and validly issued and are fully paid
     and non-assessable; none of the outstanding shares of capital stock of the
     Company was issued in violation of the preemptive or other similar rights
     of any securityholder of the Company.

          (ix)   Authorization of Agreement. This Agreement and the
                 --------------------------
     International Purchase Agreement have been duly authorized, executed and
     delivered by the Company.

          (x)    Authorization and Description of Securities. The Securities to
                 -------------------------------------------
     be purchased by the U.S. Underwriters and the International Managers from
     the Company have been duly authorized for issuance and sale to the U.S.
     Underwriters pursuant to this Agreement and the International Managers
     pursuant to the International Purchase Agreement, respectively, and, when
     issued and delivered by the Company pursuant to this Agreement and the
     International Purchase Agreement, respectively, against payment of the
     consideration set forth herein and the International Purchase Agreement,
     respectively, will be validly issued, fully paid and non-assessable; the
     Common Stock

                                       6
<PAGE>

     conforms to all statements relating thereto contained in the Prospectuses
     and such description conforms to the rights set forth in the instruments
     defining the same; no holder of the Securities will be subject to personal
     liability by reason of being such a holder; and the issuance of the
     Securities is not subject to the preemptive or other similar rights of any
     securityholder of the Company.

          (xi)   Export Controls. The Company and its Subsidiaries possess all
                 ---------------
     licenses, approvals and permits under the export control laws and
     regulations to which it or its Subsidiaries are subject necessary to export
     its products or disclose its technical information to foreign countries or
     citizens. The Company and its Subsidiaries have filed applications to
     obtain commodity classifications necessary to export their products or
     disclose their technical information to foreign countries or citizens.

          (xii)  Absence of Defaults and Conflicts. Neither the Company nor any
                 ---------------------------------
     of its Subsidiaries is in violation of its charter or by-laws or in default
     in the performance or observance of any obligation, agreement, covenant or
     lease or other agreement or instrument to which the Company or any of its
     Subsidiaries is a party or by which it or any of them may be bound, or to
     which any of the property or assets of the Company or any Subsidiary is
     subject (collectively, "Agreements and Instruments") except for such
     defaults that would not result in a Material Adverse Effect; and the
     execution, delivery and performance of this Agreement and the International
     Purchase Agreement and the consummation of the transactions contemplated in
     this Agreement, the International Purchase Agreement and in the
     Registration Statement (including the issuance and sale of the Securities
     and the use of the proceeds from the sale of the Securities as described in
     the Prospectuses under the caption "Use of Proceeds") and compliance by the
     Company with its obligations under this Agreement and the International
     Purchase Agreement have been duly authorized by all necessary corporate
     action and do not and will not, whether with or without the giving of
     notice or passage of time or both, conflict with or constitute a breach of,
     or default or Repayment Event (as defined below) under, or result in the
     creation or imposition of any lien, charge or encumbrance upon any property
     or assets of the Company or any Subsidiary pursuant to, the Agreements and
     Instruments (except for such conflicts, breaches or defaults or liens,
     charges or encumbrances that would not result in a Material Adverse
     Effect), nor will such action result in any violation of the provisions of
     the charter or by-laws of the Company or any Subsidiary or any applicable
     law, statute, rule, regulation, judgment, order, writ or decree of any
     government, government instrumentality or court, domestic or foreign,
     having jurisdiction over the Company or any Subsidiary or any of their
     assets, properties or operations. As used herein, a "Repayment Event" means
     any event or condition which gives the holder of any note, debenture or
     other evidence of indebtedness (or any person acting on such holder's
     behalf) the right to require the repurchase, redemption or repayment of all
     or a portion of such indebtedness by the Company or any Subsidiary.

          (xiii) Absence of Labor Dispute. No labor dispute with the employees
                 ------------------------
     of the Company or any Subsidiary exists or, to the knowledge of the
     Company, is imminent, and the Company is not aware of any existing or
     imminent labor disturbance by the

                                       7
<PAGE>

     employees of any of its or any Subsidiary's principal suppliers,
     manufacturers, customers or contractors, which, in either case, may
     reasonably be expected to result in a Material Adverse Effect.

          (xiv)  Absence of Proceedings. There is no action, suit, proceeding,
                 ----------------------
     inquiry or investigation before or brought by any court or governmental
     agency or body, domestic or foreign, now pending, or, to the knowledge of
     the Company, threatened, against or affecting the Company or any
     Subsidiary, which is required to be disclosed in the Registration Statement
     (other than as disclosed therein), or which might reasonably be expected to
     result in a Material Adverse Effect, or which might reasonably be expected
     to materially and adversely affect the properties or assets thereof or the
     consummation of the transactions contemplated in this Agreement and the
     International Purchase Agreement or the performance by the Company of its
     obligations hereunder or thereunder; the aggregate of all pending legal or
     governmental proceedings to which the Company or any Subsidiary is a party
     or of which any of their respective property or assets is the subject which
     are not described in the Registration Statement, including ordinary routine
     litigation incidental to the business, could not reasonably be expected to
     result in a Material Adverse Effect.

          (xv)   Accuracy of Exhibits. There are no contracts or documents which
                 --------------------
     are required to be described in the Registration Statement or the
     Prospectuses or to be filed as exhibits thereto which have not been so
     described and filed as required.

          (xvi)  Possession of Intellectual Property. The Company and its
                 -----------------------------------
     Subsidiaries own or possess, or can acquire on reasonable terms, adequate
     patents, patent rights, licenses, inventions, copyrights, know-how
     (including trade secrets and other unpatented and/or unpatentable
     proprietary or confidential information, systems or procedures),
     trademarks, service marks, trade names or other intellectual property
     (collectively, "Intellectual Property") necessary to carry on the business
     now operated by them, and neither the Company nor any of its subsidiaries
     has received any notice or is otherwise aware of any infringement of or
     conflict with asserted rights of others with respect to any Intellectual
     Property or of any facts or circumstances which would render any
     Intellectual Property invalid or inadequate to protect the interest of the
     Company or any of its Subsidiaries therein, and which infringement or
     conflict (if the subject of any unfavorable decision, ruling or finding) or
     invalidity or inadequacy, singly or in the aggregate, would result in a
     Material Adverse Effect; and all agreements between the Company and its
     Subsidiaries for the license of Intellectual Property owned by any of them
     to each of them have been duly authorized, executed and delivered and are
     enforceable in accordance with their terms.

          (xvii) Absence of Further Requirements. No filing with, or
                 -------------------------------
     authorization, approval, consent, license, order, registration,
     qualification or decree of, any court or governmental authority or agency
     or any stock exchange authority, domestic or foreign, (collectively,
     "Filings and Approvals") is necessary or required for the performance by
     the Company of its obligations hereunder, in connection with the offering,
     issuance or sale of the Securities under this Agreement and the
     International Purchase Agreement or the consummation of the transactions
     contemplated by this Agreement and the

                                       8
<PAGE>

     International Purchase Agreement, except (i) such as have been already
     obtained or as may be required under the 1933 Act or the 1933 Act
     Regulations and foreign or state securities or blue sky laws (ii) such as
     have been obtained under the laws and regulations of jurisdictions outside
     the United States in which the Reserved Securities are offered (iii) such
     as have been obtained or may be required by rules and regulations of the
     NASD (iv) such as have been obtained with respect to the approval of the
     Nasdaq National Market for listing of the Securities, all of which filings
     and approvals have been obtained and are in full force and effect.

          (xviii) Possession of Licenses and Permits. The Company and its
                  ----------------------------------
     Subsidiaries possess such permits, licenses, approvals, consents and other
     authorizations (collectively, "Governmental Licenses") issued by the
     appropriate federal, state, local or foreign regulatory agencies or bodies
     necessary to conduct the business now operated by them; the Company and its
     Subsidiaries are in compliance with the terms and conditions of all such
     Governmental Licenses, except where the failure so to comply would not,
     singly or in the aggregate, have a Material Adverse Effect; all of the
     Governmental Licenses are valid and in full force and effect, except when
     the invalidity of such Governmental Licenses or the failure of such
     Governmental Licenses to be in full force and effect would not have a
     Material Adverse Effect; and neither the Company nor any of its
     Subsidiaries has received any notice of proceedings relating to the
     revocation or modification of any such Governmental Licenses which, singly
     or in the aggregate, if the subject of an unfavorable decision, ruling or
     finding, would result in a Material Adverse Effect.

          (xix)   Title to Property. The Company and its Subsidiaries have good
                  -----------------
     and marketable title to all real property owned by the Company and its
     Subsidiaries and good title to all other properties owned by them, in each
     case, free and clear of all mortgages, pledges, liens, security interests,
     claims, restrictions or encumbrances of any kind except such as (a) are
     described in the Prospectuses or (b) do not, singly or in the aggregate,
     materially affect the value of such property and do not interfere with the
     use made and proposed to be made of such property by the Company or any of
     its Subsidiaries; and all of the leases and subleases material to the
     business of the Company and its Subsidiaries, considered as one enterprise,
     and under which the Company or any of its Subsidiaries holds properties
     described in the Prospectuses, are in full force and effect, and neither
     the Company nor any Subsidiary has any notice of any material claim of any
     sort that has been asserted by anyone adverse to the rights of the Company
     or any Subsidiary under any of the leases or subleases mentioned above, or
     affecting or questioning the rights of the Company or such Subsidiary to
     the continued possession of the leased or subleased premises under any such
     lease or sublease.

          (xx)    Compliance with All Applicable Laws. The Company and its
                  -----------------------------------
     Subsidiaries are in compliance with all applicable laws, statutes,
     ordinances, rules or regulations, the breach or violation of which,
     individually or in the aggregate, could be reasonably expected to have a
     Material Adverse Effect.

          (xxi)   Filing of Tax Returns. The Company and its Subsidiaries have
                  ---------------------
     filed all federal, state, local and foreign tax returns that are required
     to be filed or have duly requested extensions thereof and have paid all
     taxes required to be paid by any of them

                                       9
<PAGE>

     and any related assessments, fines or penalties, except for any such tax,
     assessment, fine or penalty that is being contested in good faith and by
     appropriate proceedings and, except where the failure to file any such
     return or pay any such tax would not, individually or in the aggregate,
     have a Material Adverse Effect; and adequate charges, accruals and reserves
     have been provided for in the financial statements referred to above in
     respect of all federal, state, local and foreign taxes for all periods as
     to which the tax liability of the Company or any of its subsidiaries has
     not been finally determined or remains open to examination by applicable
     taxing authorities; the formation of the Company and the transfers of
     property and businesses to it in connection therewith do not give and have
     not given rise to any actual or contingent tax liability that could be to
     the Company's knowledge, there is no material proposed tax deficiency,
     assessment, charge or levy against it or any of its Subsidiaries as to
     which a reserve would be required to be established under GAAP which has
     not been so reserved.

          (xxii)  Insurance. The Company and its Subsidiaries carry or are
                  ---------
     entitle to the benefits of insurance in such amounts and covering such
     risks as is generally maintained by companies of established repute engaged
     in the same or similar business, and such insurance is in full force and
     effect.

          (xxiii) Internal Accounting. The Company maintains a system of
                  -------------------
     internal accounting controls sufficient to provide reasonable assurance
     that (i) transactions are executed in accordance with management's general
     and specific authorizations; (ii) transactions are recorded as necessary to
     permit preparations of financial statements in conformity with GAAP and to
     maintain accountability for assets; (iii) access to assets is permitted
     only in accordance with management's general or specific authorizations;
     and (iv) the recorded accountability for assets is compared with the
     existing assets at reasonable intervals and appropriate action is taken
     with respect to any differences.

          (xxiv)  Investment Company Act. The Company is not, and upon the
                  ----------------------
     issuance and sale of the Securities herein contemplated and the application
     of the net proceeds therefrom as described in the Prospectuses will not be,
     an "investment company" as such terms are defined in the Investment Company
     Act of 1940, as amended (the "1940 Act").

          (xxv)   Environmental Laws. Except as described in the Registration
                  ------------------
     Statement or the Prospectuses and except as would not, singly or in the
     aggregate, result in a Material Adverse Effect, (A) neither the Company nor
     any of its Subsidiaries is in violation of any federal, state, local or
     foreign statute, law, rule, regulation, ordinance, code, policy or rule of
     common law or any judicial or administrative interpretation thereof,
     including any judicial or administrative order, consent, decree or
     judgment, relating to pollution or protection of human health, the
     environment (including, without limitation, ambient air, surface water,
     groundwater, land surface or subsurface strata) or wildlife, including,
     without limitation, laws and regulations relating to the release or
     threatened release of chemicals, pollutants, contaminants, wastes, toxic
     substances, hazardous substances, petroleum or petroleum products
     (collectively, "Hazardous Materials") or to the manufacture, processing,
     distribution, use, treatment, storage, disposal, transport or handling of
     Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
     and its Subsidiaries have all permits, authorizations and

                                      10
<PAGE>

     approvals required under any applicable Environmental Laws and are each in
     compliance with their requirements, (C) there are no pending or threatened
     administrative, regulatory or judicial actions, suits, demands, demand
     letters, claims, liens, notices of noncompliance or violation,
     investigation or proceedings relating to any Environmental Law against the
     Company or any of its Subsidiaries and (D) there are no events or
     circumstances that might reasonably be expected to form the basis of an
     order for clean-up or remediation, or an action, suit or proceeding by any
     private party or governmental body or agency, against or affecting the
     Company or any of its Subsidiaries relating to Hazardous Materials or any
     Environmental Laws.

          (xxvi)   Registration Rights. Except as disclosed in the Registration
                   -------------------
     Statement or the Prospectuses, there are no persons with registration
     rights or other similar rights to have any securities registered pursuant
     to the Registration Statement or otherwise registered by the Company under
     the 1933 Act.

          (xxvii)  No Stamp Taxes. No stamp duty or similar tax or duty is
                   --------------
     payable by or on behalf of the U.S. Underwriters in connection with the
     issuance, sale and delivery of the Securities as contemplated by this
     Agreement or the International Purchase Agreement.

          (xxviii) Certain Relationships. No relationship, direct or indirect,
                   ---------------------
     exists between or among any of the Company or any affiliate of the Company,
     on the one hand, and any director, officer, stockholder, customer or
     supplier of any of them, on the other hand, which is required by the 1933
     Act or by the 1933 Act Regulations to be described in the Registration
     Statement or the Prospectuses which is not so described or is not described
     as required.

     (b)  Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby.

     SECTION 2.    Sale and Delivery to U.S. Underwriters; Closing.
                   -----------------------------------------------

     (a)  Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each U.S. Underwriter, severally and not jointly, and
each U.S. Underwriter, severally and not jointly, agrees to purchase from the
Company, at the price per share set forth in Schedule B, the number of Initial
U.S. Securities set forth in Schedule A opposite the name of such U.S.
Underwriter, plus any additional number of Initial U.S. Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.

     (b)  Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the U.S. Underwriters,
severally and not jointly, to purchase up to an additional [ ] shares of Common
Stock at the price per share set forth in Schedule B, less an amount per share
equal to any dividends or distributions declared by the Company and payable on
the Initial U.S. Securities but not payable on the U.S. Option Securities. The
option hereby

                                      11
<PAGE>

granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial U.S. Securities upon notice by the Global Coordinator to the Company
setting forth the number of U.S. Option Securities as to which the several U.S.
Underwriters are then exercising the option and the time and date of payment and
delivery for such U.S. Option Securities. Any such time and date of delivery for
the U.S. Option Securities (a "Date of Delivery") shall be determined by the
Global Coordinator, but shall not be later than seven full business days after
the exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
U.S. Option Securities, each of the U.S. Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of U.S. Option
Securities then being purchased which the number of Initial U.S. Securities set
forth in Schedule A opposite the name of such U.S. Underwriter bears to the
total number of Initial U.S. Securities, subject in each case to such
adjustments as the Global Coordinator in its discretion shall make to eliminate
any sales or purchases of fractional shares.

     (c)  Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Brown &
Wood LLP, One World Trade Center, New York, NY 10048, or at such other place as
shall be agreed upon by the Global Coordinator and the Company, at 9:00 A.M.
(Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Global Coordinator and the Company (such time and date of payment and delivery
being herein called "Closing Time").

     In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.

     Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. It is understood
that each U.S. Underwriter has authorized the U.S. Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.

     (d)  Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or

                                      12
<PAGE>

the relevant Date of Delivery, as the case may be. The certificates for the
Initial U.S. Securities and the U.S. Option Securities, if any, will be made
available for examination and packaging by the U.S. Representatives in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.

     SECTION 3.  Covenants of the Company. The Company covenants with each U.S.
                 ------------------------
Underwriter as follows:

          (a)  Compliance with Securities Regulations and Commission Requests.
     The Company, subject to Section 3(b), will comply with the requirements of
     Rule 430A or Rule 434, as applicable, and will notify the Global
     Coordinator immediately, and confirm the notice in writing, (i) when any
     post-effective amendment to the Registration Statement shall become
     effective, or any supplement to the Prospectuses or any amended
     Prospectuses shall have been filed, (ii) of the receipt of any comments
     from the Commission, (iii) of any request by the Commission for any
     amendment to the Registration Statement or any amendment or supplement to
     the Prospectuses or for additional information, and (iv) of the issuance by
     the Commission of any stop order suspending the effectiveness of the
     Registration Statement or of any order preventing or suspending the use of
     any preliminary prospectus, or of the suspension of the qualification of
     the Securities for offering or sale in any jurisdiction, or of the
     initiation or threatening of any proceedings for any of such purposes. The
     Company will promptly effect the filings necessary pursuant to Rule 424(b)
     and will take such steps as it deems necessary to ascertain promptly
     whether the form of prospectus transmitted for filing under Rule 424(b) was
     received for filing by the Commission and, in the event that it was not, it
     will promptly file such prospectus. The Company will make every reasonable
     effort to prevent the issuance of any stop order and, if any stop order is
     issued, to obtain the lifting thereof at the earliest possible moment.

          (b)  Filing of Amendments. The Company will give the Global
     Coordinator notice of its intention to file or prepare any amendment to the
     Registration Statement (including any filing under Rule 462(b)), any Term
     Sheet or any amendment, supplement or revision to either the prospectus
     included in the Registration Statement at the time it became effective or
     to the Prospectuses, will furnish the Global Coordinator with copies of any
     such documents a reasonable amount of time prior to such proposed filing or
     use, as the case may be, and will not file or use any such document to
     which the Global Coordinator or counsel for the U.S. Underwriters shall
     object.

          (c)  Export Controls. The Company will take all necessary steps to
     maintain all licenses, approvals, permits and commodity classifications
     under the export control laws and regulations to which it or its
     Subsidiaries are subject necessary to export its products or disclose its
     technical information to foreign countries or citizens.

          (d)  Delivery of Registration Statements. The Company has furnished or
     will deliver to the U.S. Representatives and counsel for the U.S.
     Underwriters, without charge, signed copies of the Registration Statement
     as originally filed and of each amendment thereto (including exhibits filed
     therewith or incorporated by reference therein) and signed copies of all
     consents and certificates of experts, and will also deliver

                                      13
<PAGE>

     to the U.S. Representatives, without charge, a conformed copy of the
     Registration Statement as originally filed and of each amendment thereto
     (without exhibits) for each of the U.S. Underwriters. The copies of the
     Registration Statement and each amendment thereto furnished to the U.S.
     Underwriters will be identical to the electronically transmitted copies
     thereof filed with the Commission pursuant to EDGAR, except to the extent
     permitted by Regulation S-T.

          (e)  Delivery of Prospectuses. The Company has delivered to each U.S.
     Underwriter, without charge, as many copies of each preliminary prospectus
     as such U.S. Underwriter reasonably requested, and the Company hereby
     consents to the use of such copies for purposes permitted by the 1933 Act.
     The Company will furnish to each U.S. Underwriter, without charge, during
     the period when the U.S. Prospectus is required to be delivered under the
     1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such
     number of copies of the U.S. Prospectus (as amended or supplemented) as
     such U.S. Underwriter may reasonably request. The U.S. Prospectus and any
     amendments or supplements thereto furnished to the U.S. Underwriters will
     be identical to the electronically transmitted copies thereof filed with
     the Commission pursuant to EDGAR, except to the extent permitted by
     Regulation S-T.

          (f)  Continued Compliance with Securities Laws. The Company will
     comply with the 1933 Act, the 1933 Act Regulations, the 1934 Act and the
     rules and regulations promulgated thereunder (the "1934 Act Regulations"),
     and the rules and regulations of the NASDAQ so as to permit the completion
     of the distribution of the Securities as contemplated in this Agreement,
     the International Purchase Agreement and in the Prospectuses. If at any
     time when a prospectus is required by the 1933 Act to be delivered in
     connection with sales of the Securities, any event shall occur or condition
     shall exist as a result of which it is necessary, in the opinion of counsel
     for the U.S. Underwriters or for the Company, to amend the Registration
     Statement or amend or supplement any Prospectus in order that the
     Prospectuses will not include any untrue statements of a material fact or
     omit to state a material fact necessary in order to make the statements
     therein not misleading in the light of the circumstances existing at the
     time it is delivered to a purchaser, or if it shall be necessary, in the
     opinion of such counsel, at any such time to amend the Registration
     Statement or amend or supplement any Prospectus in order to comply with the
     requirements of the 1933 Act or the 1933 Act Regulations, the Company will
     promptly prepare and file with the Commission, subject to Section 3(b),
     such amendment or supplement as may be necessary to correct such statement
     or omission or to make the Registration Statement or the Prospectuses
     comply with such requirements, and the Company will furnish to the U.S.
     Underwriters such number of copies of such amendment or supplement as the
     U.S. Underwriters may reasonably request.

          (g)  Blue Sky Qualifications. The Company will use its best efforts,
     in cooperation with the U.S. Underwriters, to qualify the Securities for
     offering and sale under the applicable securities laws of such states and
     other jurisdictions (domestic or foreign) as the Global Coordinator may
     designate and to maintain such qualifications in effect for a period of not
     less than one year from the later of the effective date of the Registration
     Statement and any Rule 462(b) Registration Statement; provided, however,

                                      14
<PAGE>

     that the Company shall not be obligated to file any general consent to
     service of process or to qualify as a foreign corporation or as a dealer in
     securities in any jurisdiction in which it is not so qualified or to
     subject itself to taxation in respect of doing business in any jurisdiction
     in which it is not otherwise so subject. In each jurisdiction in which the
     Securities have been so qualified, the Company will file such statements
     and reports as may be required by the laws of such jurisdiction to continue
     such qualification in effect for a period of not less than one year from
     the effective date of the Registration Statement and any Rule 462(b)
     Registration Statement.

          (h)  Rule 158. The Company will timely file such reports pursuant to
     the 1934 Act as are necessary in order to make generally available to its
     securityholders as soon as practicable an earnings statement for the
     purposes of, and to provide the benefits contemplated by, the last
     paragraph of Section 11(a) of the 1933 Act.

          (i)  Use of Proceeds. The Company will use the net proceeds received
     by it from the sale of the Securities in the manner specified in the
     Prospectuses under "Use of Proceeds."

          (j)  Listing. The Company will use its best efforts to effect and
     maintain the quotation of the Securities on the Nasdaq National Market and
     will file with the Nasdaq National Market all documents and notices
     required by the Nasdaq National Market of companies that have securities
     that are traded in the over-the-counter market and quotations for which are
     reported by the Nasdaq National Market.

          (k)  Restriction on Sale of Securities. During a period of [180] days
     from the date of the Prospectuses, the Company will not, without the prior
     written consent of the Global Coordinator, (i) directly or indirectly,
     offer, pledge, sell, contract to sell, sell any option or contract to
     purchase, purchase any option or contract to sell, grant any option, right
     or warrant to purchase or otherwise transfer or dispose of any share of
     Common Stock or any securities convertible into or exercisable or
     exchangeable for Common Stock or file any registration statement under the
     1933 Act with respect to any of the foregoing or (ii) enter into any swap
     or any other agreement or any transaction that transfers, in whole or in
     part, directly or indirectly, the economic consequence of ownership of the
     Common Stock, whether any such swap or transaction described in clause (i)
     or (ii) above is to be settled by delivery of Common Stock or such other
     securities, in cash or otherwise. The foregoing sentence shall not apply to
     (A) the Securities to be sold hereunder or under the International Purchase
     Agreement, (B) any shares of Common Stock issued by the Company upon the
     exercise of an option or warrant or the conversion of a security
     outstanding on the date hereof and referred to in the Prospectuses, (C) any
     shares of Common Stock issued or options to purchase Common Stock granted
     pursuant to existing employee benefit plans of the Company referred to in
     the Prospectuses or (D) any shares of Common Stock issued pursuant to any
     non-employee director stock plan or dividend reinvestment plan.

          (l)  Taxes and Fees. The Company and the Selling Shareholders agrees
     to indemnify and hold harmless the U.S. Underwriters against any
     documentary, stamp or similar transfer or issue tax, or fees, including any
     interest and penalties, which are or

                                      15
<PAGE>

     may be required to be paid on or in connection with the creation, offer and
     distribution of the Securities or on the execution or delivery of the U.S.
     Purchase Agreement.

          (m) Reporting Requirements. The Company, during the period when the
     Prospectuses are required to be delivered under the 1933 Act or the 1934
     Act, will file all documents required to be filed with the Commission
     pursuant to the 1934 Act within the time periods required by the 1934 Act
     and the rules and regulations of the Commission thereunder.

          (n) Compliance with NASD Rules. [The Company hereby agrees that it
     will ensure that the Reserved Securities will be restricted as required by
     the NASD or the NASD rules from sale, transfer, assignment, pledge or
     hypothecation for a period of three months following the date of this
     Agreement. The Underwriters will notify the Company as to which persons
     will need to be so restricted. At the request of the Underwriters, the
     Company will direct the transfer agent to place a stop transfer restriction
     upon such securities for such period of time. Should the Company release,
     or seek to release, from such restrictions any of the Reserved Securities,
     the Company agrees to reimburse the Underwriters for any reasonable
     expenses (including, without limitation, legal expenses) they incur in
     connection with such release.]

          (o)  Compliance with Rule 463. The Company will file with the
     Commission such reports on Form SR as may be required pursuant to Rule 463
     of the 1933 Act Regulations.

     SECTION 4.  Payment of Expenses.
                 -------------------

          (a)  Expenses. The Company will pay all expenses incident to the
     performance of its obligations under this Agreement, including (i) the
     preparation, printing and filing of the Registration Statement (including
     financial statements and exhibits) as originally filed and of each
     amendment thereto, (ii) the preparation, printing and delivery to the
     Underwriters of this Agreement, any Agreement among Underwriters and such
     other documents as may be required in connection with the offering,
     purchase, sale, issuance or delivery of the Securities, (iii) the
     preparation, issuance and delivery of the certificates for the Securities
     to the Underwriters, including any stock or other transfer taxes and any
     stamp or other duties payable upon the sale, issuance or delivery of the
     Securities to the Underwriters and the transfer of the Securities between
     the U.S. Underwriters and the International Managers, (iv) the fees and
     disbursements of the Company's counsel, accountants and other advisors, (v)
     the qualification of the Securities under securities laws in accordance
     with the provisions of Section 3(f) hereof, including filing fees and the
     reasonable fees and disbursements of counsel for the Underwriters in
     connection therewith and in connection with the preparation of the Blue Sky
     Survey and any supplement thereto, (vi) the printing and delivery to the
     Underwriters of copies of each preliminary prospectus, any Term Sheets and
     of the Prospectuses and any amendments or supplements thereto, (vii) the
     preparation, printing and delivery to the Underwriters of copies of the
     Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
     any transfer agent or registrar for the Securities, (ix) the filing fees
     incident to, and the reasonable fees and disbursements of counsel to the
     Underwriters in connection with, the

                                      16
<PAGE>

     review by the NASD of the terms of the sale of the Securities, (x) the fees
     and expenses incurred in connection with the inclusion of the Securities in
     the Nasdaq National Market and (xi) all costs and expenses of the
     Underwriters, including the fees and disbursements of counsel for the
     Underwriters in connection with matters related to the Reserved Securities
     which are designated by the Company for sale to employees and others having
     a business relationship with the Company.

     (b) Termination of Agreement. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.

     SECTION 5.  Conditions of U.S. Underwriters' Obligations. The obligations
                 --------------------------------------------
of the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any Subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

               (a)  Effectiveness of Registration Statement. The Registration
     Statement, including any Rule 462(b) Registration Statement, has become
     effective and at Closing Time no stop order suspending the effectiveness of
     the Registration Statement shall have been issued under the 1933 Act or
     proceedings therefor initiated or threatened by the Commission, and any
     request on the part of the Commission for additional information shall have
     been complied with to the reasonable satisfaction of counsel to the U.S.
     Underwriters. A prospectus containing the Rule 430A Information shall have
     been filed with the Commission in accordance with Rule 424(b) (or a post-
     effective amendment providing such information shall have been filed and
     declared effective in accordance with the requirements of Rule 430A) or, if
     the Company has elected to rely upon Rule 434, a Term Sheet shall have been
     filed with the Commission in accordance with Rule 424(b).

               (b)  Opinion of U.S. Counsel for Company. At Closing Time, the
     U.S. Representatives shall have received the favorable opinion, dated as of
     Closing Time, of Winston & Strawn, counsel for the Company, in form and
     substance satisfactory to counsel for the U.S. Underwriters, together with
     signed or reproduced copies of such letter for each of the other U.S.
     Underwriters to the effect set forth in Exhibit A hereto and to such
     further effect as counsel to the U.S. Underwriters may reasonably request.

               (c)  Opinion of Italian Counsel for Company. At Closing Time, the
     U.S. Representatives shall have received the favorable opinion, dated as of
     Closing Time, of ___________, Italian counsel for the Company, in form and
     substance satisfactory to counsel for the U.S. Underwriters, together with
     signed or reproduced copies of such letter for each of the other U.S.
     Underwriters to the effect set forth in Exhibit B hereto and to such
     further effect as counsel to the U.S. Underwriters may reasonably request.

                                      17
<PAGE>

               (d)  Opinion of German Counsel for Company. At Closing Time, the
         U.S. Representatives shall have received the favorable opinion, dated
         as of Closing Time, of ___________, German counsel for the Company, in
         form and substance satisfactory to counsel for the U.S. Underwriters,
         together with signed or reproduced copies of such letter for each of
         the other U.S. Underwriters to the effect set forth in Exhibit C hereto
         and to such further effect as counsel to the U.S. Underwriters may
         reasonably request..

               (e)  Opinion of Russian Counsel for Company. At Closing Time, the
         U.S. Representatives shall have received the favorable opinion, dated
         as of Closing Time, of _______, Russian counsel for the Company, in
         form and substance satisfactory to counsel for the U.S. Underwriters,
         together with signed or reproduced copies of such letter for each of
         the other U.S. Underwriters to the effect set forth in Exhibit D hereto
         and to such further effect as counsel to the U.S. Underwriters may
         reasonably request.

               (f)  Opinion of UK Counsel for Company. At Closing Time, the U.S.
         Representatives shall have received the favorable opinion, dated as of
         Closing Time, of _______, UK counsel for the Company, in form and
         substance satisfactory to counsel for the U.S. Underwriters, together
         with signed or reproduced copies of such letter for each of the other
         U.S. Underwriters to the effect set forth in Exhibit E hereto and to
         such further effect as counsel to the U.S. Underwriters may reasonably
         request.

               (g)  Opinion of Counsel for U.S. Underwriters. At Closing Time,
         the U.S. Representatives shall have received the favorable opinion,
         dated as of Closing Time, of Brown & Wood LLP, counsel for the U.S.
         Underwriters, together with signed or reproduced copies of such letter
         for each of the other U.S. Underwriters with respect to the matters set
         forth in clauses (i), (ii), (v), (vi) (solely as to preemptive or other
         similar rights arising by operation of law or under the charter or by-
         laws of the Company), (viii) through (x), inclusive, (xii), (xiv)
         (solely as to the information in the Prospectus under "Description of
         Capital Stock--Common Stock") and the penultimate paragraph of Exhibit
         A hereto. In giving such opinion such counsel may rely, as to all
         matters governed by the laws of jurisdictions other than the law of the
         State of New York and the federal law of the United States and the
         General Corporation Law of the State of Delaware, upon the opinions of
         counsel satisfactory to the U.S. Representatives. Such counsel may also
         state that, insofar as such opinion involves factual matters, they have
         relied, to the extent they deem proper, upon certificates of officers
         of the Company and its subsidiaries and certificates of public
         officials.

               (h)  Officers' Certificate. At Closing Time, there shall not have
         been, since the date hereof or since the respective dates as of which
         information is given in the Prospectuses, any material adverse change
         in the condition, financial or otherwise, or in the earnings, business
         affairs or business prospects of the Company and its Subsidiaries
         considered as one enterprise, whether or not arising in the ordinary
         course of business, and the U.S. Representatives shall have received a
         certificate of the President or a Vice President of the Company and of
         the chief financial or chief accounting officer of the Company, dated
         as of Closing Time, to the effect that (i) there has been no such
         material adverse change, (ii) the representations and warranties in
         Section 1(a) hereof are true and correct with the same force and effect
         as though expressly made at and as of Closing

                                      18
<PAGE>

         Time, (iii) the Company has complied with all agreements and satisfied
         all conditions on its part to be performed or satisfied at or prior to
         Closing Time, and (iv) no stop order suspending the effectiveness of
         the Registration Statement has been issued and no proceedings for that
         purpose have been instituted or are pending or are contemplated by the
         Commission.

               (i)  Accountant's Comfort Letter. At the time of the execution of
         this Agreement, the U.S. Representatives shall have received from
         Deloitte & Touche LLP a letter dated such date, in form and substance
         satisfactory to the U.S. Representatives, together with signed or
         reproduced copies of such letter for each of the other U.S.
         Underwriters containing statements and information of the type
         ordinarily included in accountants' "comfort letters" to underwriters
         with respect to the financial statements and certain financial
         information contained in the Registration Statement and the
         Prospectuses.

               (j)  Bring-down Comfort Letter. At Closing Time, the U.S.
         Representative(s) shall have received from Deloitte & Touche LLP a
         letter, dated as of Closing Time, to the effect that they reaffirm the
         statements made in the letter furnished pursuant to subsection (i) of
         this Section, except that the specified date referred to shall be a
         date not more than three business days prior to Closing Time.

               (k)  Approval of Listing. At Closing Time, the Securities shall
         have been approved for inclusion in the Nasdaq National Market, subject
         only to official notice of issuance.

               (l)  No Objection. The NASD has confirmed that it has not raised
         any objection with respect to the fairness and reasonableness of the
         underwriting terms and arrangements.

               (m)  Lock-up Agreements. At the date of this Agreement, the U.S.
         Representatives shall have received an agreement substantially in the
         form of Exhibit F hereto signed by the persons listed on Schedule C
         hereto.

               (n)  Restructuring. Prior to the Closing Time, all
         authorizations, approvals and consents, governmental and otherwise,
         necessary for the consummation of the Restructuring and for the
         execution, delivery and performance of the Restructuring Documents will
         be obtained and will be in full force and effect satisfactory to
         counsel to the U.S. Underwriters.

               (o)  Purchase of Initial International Securities.
         Contemporaneously with the purchase by the U.S. Underwriters of the
         Initial U.S. Securities under this Agreement, the International
         Managers shall have purchased the Initial International Securities
         under the International Purchase Agreement.

               (p)  Conditions to Purchase of U.S. Option Securities. In the
         event that the U.S. Underwriters exercise their option provided in
         Section 2(b) hereof to purchase all or any portion of the U.S. Option
         Securities, the representations and warranties of the Company contained
         herein and the statements in any certificates furnished by the Company
         or any Subsidiary of the Company hereunder shall be true and correct as
         of each Date of

                                      19
<PAGE>

         Delivery and, at the relevant Date of Delivery, the U.S.
         Representatives shall have received:

               (i)    Officers' Certificate. A certificate, dated such Date of
                      ---------------------
               Delivery, of the President or a Vice President of the Company and
               of the chief financial or chief accounting officer of the Company
               confirming that the certificate delivered at the Closing Time
               pursuant to Section 5(g) hereof remains true and correct as of
               such Date of Delivery.

               (ii)   Opinion of U.S. Counsel for Company. The favorable opinion
                      -----------------------------------
               of Winston & Strawn, counsel for the Company, in form and
               substance satisfactory to counsel for the U.S. Underwriters,
               dated such Date of Delivery, relating to the U.S. Option
               Securities to be purchased on such Date of Delivery and otherwise
               to the same effect as the opinion required by Section 5(b)
               hereof.

               (iii)  Opinion of Italian Counsel for Company. The favorable
                      --------------------------------------
               opinion of ________, German counsel for the Company, in form and
               substance satisfactory to counsel for the U.S. Underwriters,
               dated such Date of Delivery, relating to the U.S. Option
               Securities to be purchased on such Date of Delivery and otherwise
               to the same effect as the opinion required by Section 5(c)
               hereof.

               (iv)   Opinion of German Counsel for Company. The favorable
                      -------------------------------------
               opinion of ________, German counsel for the Company, in form and
               substance satisfactory to counsel for the U.S. Underwriters,
               dated such Date of Delivery, relating to the U.S. Option
               Securities to be purchased on such Date of Delivery and otherwise
               to the same effect as the opinion required by Section 5(d)
               hereof.

               (v)    Opinion of Russian Counsel for Company. The favorable
                      --------------------------------------
               opinion of ________, Russian counsel for the Company, in form and
               substance satisfactory to counsel for the U.S. Underwriters,
               dated such Date of Delivery, relating to the U.S. Option
               Securities to be purchased on such Date of Delivery and otherwise
               to the same effect as the opinion required by Section 5(e)
               hereof.

               (vi)   Opinion of UK Counsel for Company. The favorable opinion
                      ---------------------------------
               of __________, UK counsel for the Company, in form and substance
               satisfactory to counsel for the U.S. Underwriters, dated such
               Date of Delivery, relating to the U.S. Option Securities to be
               purchased on such Date of Delivery and otherwise to the same
               effect as the opinion required by Section 5(f) hereof.

               (vii)  Opinion of Counsel for U.S. Underwriters. The favorable
                      ----------------------------------------
               opinion of Brown & Wood LLP, counsel for the U.S. Underwriters,
               dated such Date of Delivery, relating to the U.S. Option
               Securities to be purchased on such Date of Delivery and otherwise
               to the same effect as the opinion required by Section 5(g)
               hereof.

               (viii) Bring-down Comfort Letter. A letter from Deloitte & Touche
                      -------------------------
               LLP, in form and substance satisfactory to the U.S.
               Representatives and dated such Date of Delivery, substantially in
               the same form and substance as the letter furnished to

                                      20
<PAGE>

               the U.S. Representatives pursuant to Section 5(j) hereof, except
               that the "specified date" in the letter furnished pursuant to
               this paragraph shall be a date not more than five days prior to
               such Date of Delivery.

               (q)    Additional Documents. At Closing Time and at each Date of
         Delivery, counsel for the U.S. Underwriters shall have been furnished
         with such documents and opinions as they may require for the purpose of
         enabling them to pass upon the issuance and sale of the Securities as
         herein contemplated, or in order to evidence the accuracy of any of the
         representations or warranties, or the fulfillment of any of the
         conditions, herein contained; and all proceedings taken by the Company
         in connection with the issuance and sale of the Securities as herein
         contemplated shall be satisfactory in form and substance to the U.S.
         Representatives and counsel for the U.S. Underwriters.

               (r)    Termination of Agreement. If any condition specified in
         this Section shall not have been fulfilled when and as required to be
         fulfilled, this Agreement, or, in the case of any condition to the
         purchase of U.S. Option Securities on a Date of Delivery which is after
         the Closing Time, the obligations of the several U.S. Underwriters to
         purchase the relevant Option Securities, may be terminated by the U.S.
         Representatives by notice to the Company at any time at or prior to
         Closing Time or such Date of Delivery, as the case may be, and such
         termination shall be without liability of any party to any other party
         except as provided in Section 4 and except that Sections 1, 6, 7 and 8
         shall survive any such termination and remain in full force and effect.

         SECTION 6.   Indemnification.
                      ---------------

         (a)  Indemnification of U.S. Underwriters. The Company agrees to
indemnify and hold harmless each U.S. Underwriter and each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:

               (i)    against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, arising out of any untrue statement or
         alleged untrue statement of a material fact contained in the
         Registration Statement (or any amendment thereto), including the Rule
         430A Information and the Rule 434 Information, if applicable, or the
         omission or alleged omission therefrom of a material fact required to
         be stated therein or necessary to make the statements therein not
         misleading or arising out of any untrue statement or alleged untrue
         statement of a material fact included in any preliminary prospectus or
         the Prospectuses (or any amendment or supplement thereto), or the
         omission or alleged omission therefrom of a material fact necessary in
         order to make the statements therein, in the light of the circumstances
         under which they were made, not misleading;

               (ii)   against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, arising out of (A) the violation of
         any applicable laws or regulations of foreign jurisdictions where
         Reserved Securities have been offered and (B) any untrue statement or
         alleged untrue statement of a material fact included in the supplement
         or prospectus wrapper material distributed in Canada in connection with
         the reservation and sale of the Reserved Securities to [eligible
         employees and ______________ of the Company] or the omission or alleged
         omission therefrom of a material fact necessary to

                                      21
<PAGE>

         make the statements therein, when considered in conjunction with the
         Prospectuses or preliminary prospectuses, not misleading;

               (iii)  against any and all loss, liability, claim, damage and
         expense whatsoever, as incurred, to the extent of the aggregate amount
         paid in settlement of any litigation, or any investigation or
         proceeding by any governmental agency or body, commenced or threatened,
         or of any claim whatsoever based upon any such untrue statement or
         omission, or any such alleged untrue statement or omission or in
         connection with any violation of the nature referred to in Section
         6(a)(ii)(A) hereof; provided that (subject to Section 6(d) below) any
         such settlement is effected with the written consent of the Company;
         and

               (iv)   against any and all expense whatsoever, as incurred
         (including the fees and disbursements of counsel chosen by Merrill
         Lynch), reasonably incurred in investigating, preparing or defending
         against any litigation, or any investigation or proceeding by any
         governmental agency or body, commenced or threatened, or any claim
         whatsoever based upon any such untrue statement or omission, or any
         such alleged untrue statement or omission or in connection with any
         violation of the nature referred to in Section 6(a)(ii)(A) hereof, to
         the extent that any such expense is not paid under (i), (ii) or (iii)
         above;

provided, however, that this indemnity agreement shall not apply to any loss,
--------  -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto).

         (b)   Indemnification of Company, Directors and Officers. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary U.S. prospectus or
the U.S. Prospectus (or any amendment or supplement thereto) in reliance upon
and in conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto).

         (c)   Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the

                                      22
<PAGE>

extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

         (d)   Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) and (iii) effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.

         (e)   Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request, in writing to indemnify and hold harmless the U.S. Underwriters from
and against any and all losses, liabilities, claims, damages and expenses
incurred by them as a result of the failure of [eligible employees and
_________________ of the Company] to pay for and accept delivery of Reserved
Securities which, by the end of the first business day following the date of
this Agreement, were subject to a properly confirmed agreement to purchase.

         SECTION 7. Contribution. If the indemnification provided for in Section
                    ------------
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the U.S. Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or

                                      23
<PAGE>

(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the U.S. Underwriters on the other hand in
connection with the statements or omissions, or in connection with any violation
of the nature referred to in Section 6(a)(ii)(A) hereof, which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.

         The relative benefits received by the Company on the one hand and the
U.S. Underwriters on the other hand in connection with the offering of the U.S.
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the U.S.
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.

         The relative fault of the Company on the one hand and the U.S.
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.

         The Company and the U.S. Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the U.S. Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

         Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.

         No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

         For purposes of this Section 7, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each

                                      24
<PAGE>

officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution as
the Company. The U.S. Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the number of Initial
U.S. Securities set forth opposite their respective names in Schedule A hereto
and not joint.

          SECTION 8.  Representations, Warranties and Agreements to Survive
                      -----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
--------
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the U.S. Underwriters.

          SECTION 9.  Termination of Agreement.
                      ------------------------

          (a)  Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the Nasdaq
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.

          (b)  Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.

          SECTION 10. Default by One or More of the U.S. Underwriters. If one or
                      -----------------------------------------------
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,

                                      25
<PAGE>


but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:

          (a)  if the number of Defaulted Securities does not exceed 10% of the
     number of U.S. Securities to be purchased on such date, each of the non-
     defaulting U.S. Underwriters shall be obligated, severally and not jointly,
     to purchase the full amount thereof in the proportions that their
     respective underwriting obligations hereunder bear to the underwriting
     obligations of all non-defaulting U.S. Underwriters, or

          (b)  if the number of Defaulted Securities exceeds 10% of the number
     of U.S. Securities to be purchased on such date, this Agreement or, with
     respect to any Date of Delivery which occurs after the Closing Time, the
     obligation of the U.S. Underwriters to purchase and of the Company to sell
     the Option Securities to be purchased and sold on such Date of Delivery
     shall terminate without liability on the part of any non-defaulting U.S.
     Underwriter.

     No action taken pursuant to this Section shall relieve any defaulting U.S.
Underwriter from liability in respect of its default.

     In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section 10.

     SECTION 11.  Notices. All notices and other communications hereunder shall
                  -------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of ______________;
and notices to the Company shall be directed to it at _________, attention of
______________.

     SECTION 12.  Parties. This Agreement shall each inure to the benefit of and
                  -------
be binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other

                                      26
<PAGE>


person, firm or corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of such purchase.

     SECTION 13.  GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
                  ----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

     SECTION 14.  Effect of Headings. The Article and Section headings herein
                  ------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.

                                      27
<PAGE>


     If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the U.S. Underwriters and the Company in accordance with its terms.

                                                Very truly yours,

                                                IPG PHOTONICS CORPORATION



                                                By______________________________
                                                  Title:


CONFIRMED AND ACCEPTED,
 as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
 INCORPORATED

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
    INCORPORATED

By____________________________________________
              Authorized Signatory

For itself and as U.S. Representatives of the
other U.S. Underwriters named in Schedule A hereto.

                                      28
<PAGE>


                                  SCHEDULE A

                                                                   Number of
                                                                   Initial U.S.
      Name of U.S. Underwriter                                      Securities
      ------------------------                                      ----------

Merrill Lynch, Pierce, Fenner & Smith
            Incorporated......................................
Robertson Stephens, Inc.......................................
CIBC World Markets Corp.......................................
U.S. Bancorp Piper Jaffray Inc................................
Wit SoundView Corporation.....................................
                                                                    ----------

Total.........................................................      ==========

                                   Sch A - 1
<PAGE>


                                  SCHEDULE B

                           IPG PHOTONICS CORPORATION

                          [ ] Shares of Common Stock

                         (Par Value $.0001 Per Share)

     1.   The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $_________.

     2.   The purchase price per share for the U.S. Securities to be paid by the
several U.S. Underwriters shall be $_________, being an amount equal to the
initial public offering price set forth above less $_________ per share;
provided that the purchase price per share for any U.S. Option Securities
purchased upon the exercise of the over-allotment option described in Section
2(b) shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial U.S. Securities
but not payable on the U.S. Option Securities.

                                   Sch B - 1
<PAGE>


                                  SCHEDULE C

                         List of persons and entities
                              subject to lock-up

                                   Sch C - 1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>SPECIMEN CERTIFICATE REPRESENTING THE COMMON STOCK
<TEXT>

<PAGE>
                                                                     Exhibit 4.1


                                [COMPANY LOGO]

           NUMBER                                               SHARES

        COMMON STOCK                                      SEE REVERSE FOR
                                                          CERTAIN DEFINITIONS
                                                          CUSIP 44980X 10 9

                           IPG PHOTONICS CORPORATION

                  THIS CERTIFIED that _______ is the owner of

 FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.0001 PER
                                   SHARE, OF

                           IPG PHOTONICS CORPORATION

transferable only on the books of the Corporation by the holders hereof in
person or by a duly authorized attorney upon surrender of this Certificate
properly endorsed.  This Certificate is not valid until countersigned and
registered by this Agent and Registrar.

        IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Corporation.


Dated

                                                   Authorized Signature

/s/ Dr. Valentin P. Gapontsev [Company Seal]       /s/ Angelo P. Lopresti
Chairman of the Board and                          Secretary
Chief Executive Officer


COUNTERSIGNED
        CONTINENTAL STOCK TRANSFER & TRUST COMPANY
                JERSEY CITY, NEW JERSEY         TRANSFER AGENT
                                                AND REGISTRAR
<PAGE>

                           IPG PHOTONICS CORPORATION

        The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences, and relative
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations, or restrictions of such
preferences and/or rights.

        The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

<TABLE>
<S>                                                    <C>
TEN COM - as tenants in common                          UNIF GIFT MIN ACT--________Custodian_________
TEN ENT - as tenants of the entities
OT TEN - as joint tenants with right of survivorship    Other Uniform Gifts to Minors
         and not as tenants in common
                                                        -----------------------------
</TABLE>

Additional abbreviations may also be used though not in above list.

FOR VALUE RECEIVED ________________ hereby sell, assign and transfer into


PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
---------------------------------------
|                                     |
---------------------------------------


--------------------------------------------------------------------------------
   (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
                                   ASSIGNEE)

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

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

--------------------------------------------------------------------------------
of the common stock represented by the within Certificate and do hereby
irrevocably constitute and appoint

--------------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises

Dated
     ----------------------------------

                                           -------------------------------------
                                           Signature


                                           -------------------------------------
                                           Signature Guaranteed

THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE
FACE OF THIS CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST
COMPANY OR A MEMBER FIRM OF THE CONTINENTAL STOCK EXCHANGE, NEW YORK STOCK
EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR BOSTON STOCK
EXCHANGE
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>EMPLOYMENT CONTRACT/IPG LASER & MANAGING DIRECTOR
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.7

                         PART TIME EMPLOYMENT CONTRACT
                            BETWEEN IPG LASER GMBH
                           AND ITS MANAGING DIRECTOR
                         Mr. Dr. Valentin P. GAPONTSEV

Between the Company

          IPG Laser GmbH
          Siemensstr. 7
          57299 Burbach

          - hereafter called company -

          represented by the share holder's meeting, consisting of
          IP Fibre Devices (U.K.) Ldt., London
          Mr. Dr. V.P. Gapontsev

and       Mr. Dr. Valentin P. Gapontsev
          22/230 Mira Av.
          Fryazino, Moskau 141120, RuBland

          - hereafter called managing director


the following employment contract is concluded:
<PAGE>

                              EMPLOYMENT CONTRACT

                         (S) 1 Tasks and other duties

(1)  The shareholder Dr. Valentin P. Gapontsev will be ordered as per 25.8.1995
     to be the managing director of the company. The employment contract is
     valid as per 1.09.1995.

(2)  The managing director solely represents the company according to law and
     statutes.

     He is obliged and authorized to solely carry out the company business.

     The managing director renders 50 % of his working time to the company.

     The managing director is exempted from the restrictions concerning self-
     business acc. (S) 181 of the statutes and this contract.

(3)  Instructions of the share holder meeting have to be adhered to.

(4)  The managing director has to fulfill the legal and constitutional duties of
     the company in the course of the management.

     Furthermore he has to take best care of the economical, financial and
     organizational aspects of the company. All decisions of the managing
     director should be made for the benefit of the company.

(5)  The managing director has to keep strictly silent about all business,
     operational or technical information made know to him or otherwise
     informed.

     This obligation exists also after termination of this contract.

(6)  Business or operational documents have to carefully stored and may only be
     used for the purpose of the company. These documents may not be made
     available to third parties.

     The managing director has no right to hold back these files.

(7)  The managing director is only liable for premeditated damages against the
     company towards the share holders.

(8)  The managing director has the right to perform his duties also away from
     the place of residence of the company.

     The weekly working hours amount to 20 hours, the managing director is not
     fixed to special working times.

     The managing director is obliged to be available for the company, whenever
     and as much as it is necessary for the benefit of the company.

                                      --                                       2
<PAGE>

                         (S) 2 Additional occupation

     The managing director is allowed to take up or carry on additional
     occupations. The consent of the share holders is not necessary for starting
     an additional occupation nor for carrying it on.

                          (S) 3 Duration of contract

(1)  This contract becomes valid on 1.9.1995 and is concluded for an unlimited
     time.

(2)  In the first 3 years of the duration the contract can only be cancelled
     from both parties for serious reasons.

     Such a reason would be for example the non-acknowledgement of this contract
     or some of his regulations by the tax authorities.

     After that the contract can be cancelled by either party with a notice of
     ... months to the end of a calendar year.

(3)  The managing director can only be recalled for serious reasons. The recall
     does not automatically terminate this contract.

     In case of a mutually agreed exemption, the company is obliged to continue
     paying the salary.

     In case the recall is legally stated, the contract ends with the day the
     verdict becomes final.

                                 (S) 4 Salary

(1)  The managing director will receive a monthly partial salary in the amount
     of DM 6.000,00.

     The salary is due at the last working day of the month.

     In addition Dr. Gapontsev receives an additional 13th and 14th salary in
     the same amount. The additional salaries will be paid out in July and
     November.

     Dr. Gapontsev is a Russian citizen. He will not stay longer than 6 months
     per year in Germany.

     The legal wage tax well as the insurance obligations for foreign citizens
     has to be considered.

(2)  Furthermore the managing director receives a bonus in the amount of 20 % of
     the profit subject to bonus of the company.

     The tax balance sheet profit is the profit subject to bonus.

                                      --                                       3
<PAGE>

     Payment of the bonus is due with the yearly balance sheet and may be paid
     in at least 2 , but maximum 6 installments within a period of 6 months.

     If in case of tax assessment notice or audits differences are noted between
     the profit shown in the tax declaration and the tax assessment notice, this
     difference will be considered subject to bonus. The corrected payment is
     due as soon as the tax assessment notice becomes valid.

(3)  In case of absence from work due to illness or accident the managing
     director will receive all salary for a further 8 weeks.

(4)  In case of death of the managing director his family will receive all
     salaries for a six months time period.

                             (S) 5 Other benefits

(1)  For the time of this contract the managing director has the right to
     receive an upper class company car from the company which also may be used
     for private use.

     Taxation of the such arising monetary profit will be done by the managing
     director.

(2)  The managing director is entitled to all voluntary, contractual or legal
     special- and social benefits, which the company renders also to the other
     employees.

     In addition the company is obliged to grant the following benefits to the
     managing director:

            Private pension insurance including accident insurance.

(3)  The managing director will receive of the company outlays and expenses
     against receipts in the highest taxable amount or as per tax lump sum
     rates.

(4)  The management director may wholly or partially waive (defer) the payment
     of his salary for the benefit of the company. His claims for payment of his
     salary are untouched by this waiver.

     In such a case a written credit contract has to be concluded soonest in
     which the interest rate and the repayment terms are stated.

     Waiver of salaries without written credit contract are not valid.

                            (S) 6 Final agreements

(1)  This employment contract has to be checked each year on December 31st for
     the effectiveness and actuality of the statutes as well with regard to the
     adequacy of the salary.

                                      --                                       4
<PAGE>

     If this check-up shows that single statutes have become invalid or will
     become invalid or that extraordinary economical changes have to be
     accounted for, an amended form of this contract has to be drawn up within 6
     weeks and has to be signed latest 2 weeks after by the contract parties.

(2)  In case single clauses of this contract become invalid or will become
     invalid, the validity of the remaining contract is untouched.

     The invalid clauses shall be replaced by adequate substitutes.

(3)  Verbal agreements concerning this contract were not made.

     As a rule, all changes and amendments concerning this contract shall be
     made in written form.

     Back dated changes and amendments however are not allowed.

(4)  In case of doubt the statutes have priority before the agreements of this
     contract.

Burbach, 1.9.1995

For the share holders                  IP FIBRE DEVICES (U.K.) Ltd. share holder
                                       represented by MD Dr. S. Chernikov

                                       Dr. V. Gapontsev, share holder

For the company                        IPG Laser GmbH represented by GF Dr. V.
                                       Gapontsev

Dr. V.P. Gapontsev

                                      --                                       5
<PAGE>

                                Credit Contract

Between                        Mr. Dr. Valentin P. Gapontsev
                               as managing director

and                            IPG Laser GmbH
                               Siemensstr. 7
                               D-57299 Burbach

the following credit contract is concluded:

          (1)  Dr. Gapontsev grants to the IPG Laser GmbH his monthly salary in
          the amount of DM 6.000,00 as a loan from 01.09.1995 up to 31.12.1995.

          (2)  The loan will bear 8/12 % interest per month

          (3)  The loan will be prolonged, if necessary, under the same
          conditions, beyond 31.12.1995, longest however until 31.12.1996.

          (4)  Starting 1996 the interest is due every 3 months.

          (5)  The repayment of the loan has to be effected latest on 0. 1.
          1997. The repay has to be effected in 4 installments, at the beginning
          of a quarter year. Earlier repayments, in total or partially, are
          allowed.

Burbach, 01.09.1995


________________________________________________________________________________
IPG Laser GmbH,
represented by managing director Dr. V. Gapontsev


________________________________________________________________________________
Dr. Valentin Gapontsev

                                      --                                       6
<PAGE>

Employment Contract dated 01. 09. 1995


                             DEFERRAL DECLARATION

     IPG Laser GmbH develops new generations of lasers and introduces these
     products in the market. Due to the lack of capital any profit shall be
     invested into research and marketing activities.

     Due to this, I as managing director, waive (defer) the payment of the
     salary for my job as managing director until 31st December 1995.

     At the end of each year and based on the liquidity of the company, the
     deferral or the partial waiver of the salary shall be newly stipulated.

     The waiver for payment (deferral) of the salary does not impair the claim
     of the salary payment. Together with the deferral declaration a credit
     contract will be made between me and IPG Laser GmbH.

Burbach, 01.09.1995


________________________________________________________________________________
Dr. Valentin Gapontsev

                                      --                                       7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>EMPLOYMENT AGREEMENT/REGISTRANT & VINCENT AU-YEUNG
<TEXT>

<PAGE>

                                                                    Exhibit 10.8


                                   FORM OF
                      DIRECTOR INDEMNIFICATION AGREEMENT

     This Agreement made and entered into this [_______________] ("Agreement"),
by and between IPG Photonics Corporation, a Delaware corporation (the "Company"
which term shall include, where appropriate, any Entity (as hereinafter defined)
controlled directly or indirectly by the Company) and [___________] (the
"Indemnitee").

     WHEREAS, it is essential to the Company that it be able to retain and
attract as directors the most capable persons available;

     WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;

     WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of any such by-laws or any change in the ownership of the
Company or the composition of its Board of Directors); and

     WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in continuing in Indemnitee's position as a director of the Company:

     NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:

1.  Definitions.

    (a)  "Corporate Status" describes the status of a person who is serving or
has served (i) as a director of the Company, including as a member of any
committee thereof, (ii) in any capacity with respect to any employee benefit
plan of the Company, or (iii) as a director, partner, trustee, officer,
employee, or agent of any other Entity at the request of the Company. For
purposes of subsection (iii) of this Section 1(a), an officer or director of the
Company who is serving or has served as a director, partner, trustee, officer,
employee or agent of a Subsidiary (as defined below) shall be deemed to be
serving at the request of the Company.

    (b)  "Entity" shall mean any corporation, partnership, limited liability
company, joint venture, trust, foundation, association, organization or other
legal entity.

    (c)  "Expenses" shall mean all fees, costs and expenses incurred in
connection with any Proceeding (as defined below), including, without
limitation, reasonable attorneys' fees, disbursements and retainers (including,
without limitation, any such fees, disbursements and retainers incurred by
Indemnitee pursuant to Sections 8 and 10(c) of this Agreement), fees and
disbursements of expert witnesses, private investigators and professional
advisors (including, without limitation, accountants and investment bankers),
court costs, transcript costs, fees of experts, travel expenses, duplicating,
printing and binding costs, telephone and fax transmission charges, postage,
delivery services, secretarial services and other disbursements and expenses.
<PAGE>

    (d)  "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those terms in
Section 3(a) below.

    (e)  "Liabilities" shall mean judgments, damages, liabilities, losses,
penalties, excise taxes, fines and amounts paid in settlement.

    (f)  "Proceeding" shall mean any threatened, pending or completed claim,
action, suit, arbitration, alternate dispute resolution process, investigation,
administrative hearing, appeal, or any other proceeding, whether civil,
criminal, administrative, arbitrative or investigative, whether formal or
informal, including a proceeding initiated by Indemnitee pursuant to Section 10
of this Agreement to enforce Indemnitee's rights hereunder.

    (g)  Subsidiary" shall mean any corporation, partnership, limited liability
company, joint venture, trust or other Entity of which the Company owns (either
directly or through or together with another Subsidiary of the Company) either
(i) a general partner, managing member or other similar interest or (ii) (A) 50%
or more of the voting power of the voting capital equity interests of such
corporation, partnership, limited liability company, joint venture or other
Entity, or (B) 50% or more of the outstanding voting capital stock or other
voting equity interests of such corporation, partnership, limited liability
company, joint venture or other Entity.

2.  Services of Indemnitee.  In consideration of the Company's covenants and
commitments hereunder, Indemnitee agrees to serve or continue to serve as a
director of the Company.  However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.

3.  Agreement to Indemnify.  The Company agrees to indemnify Indemnitee as
follows:

    (a)  Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by reason of
Indemnitee's Corporate Status, Indemnitee shall be indemnified by the Company
against all Expenses and Liabilities incurred or paid by Indemnitee in
connection with such Proceeding (referred to herein as "Indemnifiable Expenses"
and "Indemnifiable Liabilities," respectively, and collectively as
"Indemnifiable Amounts").

    (b)  To the extent permitted by applicable law and subject to the exceptions
contained in Section 4(b) below, if Indemnitee was or is a party or is
threatened to be made a party to any Proceeding by or in the right of the
Company to procure a judgment in its favor by reason of Indemnitee's Corporate
Status, Indemnitee shall be indemnified by the Company against all Indemnifiable
Expenses.

4.  Exceptions to Indemnification.  Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:

    (a)  If indemnification is requested under Section 3(a) and it has been
adjudicated finally by a court of competent jurisdiction that, in connection
with the subject of the Proceeding out of which the claim for indemnification
has arisen, Indemnitee failed to act (i) in good faith and (ii) in a manner
Indemnitee reasonably believed to be in or not opposed to the best interests

                                       2
<PAGE>

of the Company and, with respect to any criminal action or proceeding,
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful, Indemnitee shall not be entitled to payment of Indemnifiable Amounts
hereunder.

    (b)  If indemnification is requested under Section 3(b) and

         (i)  it has been adjudicated finally by a court of competent
    jurisdiction that, in connection with the subject of the Proceeding out of
    which the claim for indemnification has arisen, Indemnitee failed to act (A)
    in good faith and (B) in a manner Indemnitee reasonably believed to be in or
    not opposed to the best interests of the Company, Indemnitee shall not be
    entitled to payment of Indemnifiable Expenses hereunder; or

         (ii) it has been adjudicated finally by a court of competent
    jurisdiction that Indemnitee is liable to the Company with respect to any
    claim, issue or matter involved in the Proceeding out of which the claim for
    indemnification has arisen, including, without limitation, a claim that
    Indemnitee received an improper personal benefit, no Indemnifiable Expenses
    shall be paid with respect to such claim, issue or matter unless the court
    of law or another court in which such Proceeding was brought shall determine
    upon application that, despite the adjudication of liability, but in view of
    all the circumstances of the case, Indemnitee is fairly and reasonably
    entitled to indemnity for such Indemnifiable Expenses which such court shall
    deem proper.

5.  Procedure for Payment of Indemnifiable Amounts.  Indemnitee shall submit to
the Company a written request specifying the Indemnifiable Amounts for which
Indemnitee seeks payment under Section 3 of this Agreement and the basis for the
claim.  The Company shall pay such Indemnifiable Amounts to Indemnitee within
ten (10) calendar days of receipt of the request.  At the request of the
Company, Indemnitee shall furnish such documentation and information as are
reasonably available to Indemnitee and necessary to establish that Indemnitee is
entitled to indemnification hereunder.

6.  Indemnification for Expenses of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, and without limiting any
such provision, to the extent that Indemnitee is, by reason of Indemnitee's
Corporate Status, a party to and is successful, on the merits or otherwise, in
any Proceeding, Indemnitee shall be indemnified against all Expenses reasonably
incurred by Indemnitee or on Indemnitee's behalf in connection therewith.  If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection with each successfully resolved claim, issue or matter.  For purposes
of this Agreement, the termination of any claim, issue or matter in such a
Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.

7.  Effect of Certain Resolutions.  Neither the settlement or termination of any
Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder.  In addition, the
termination of any proceeding by judgment, order, settlement,

                                       3
<PAGE>

conviction, or upon a plea of nolo contendere or its equivalent shall not create
a presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company or, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's action was unlawful.

8.  Agreement to Advance Expenses; Conditions.  The Company shall pay to
Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with
any Proceeding, including a Proceeding by or in the right of the Company, in
advance of the final disposition of such Proceeding, as the same are incurred.
To the extent required by Delaware law, Indemnitee hereby undertakes to repay
the amount of Indemnifiable Expenses paid to Indemnitee if it is finally
determined by a court of competent jurisdiction that Indemnitee is not entitled
under this Agreement to indemnification with respect to such Expenses.  This
undertaking is an unlimited general obligation of Indemnitee.

9.  Procedure for Advance Payment of Expenses.  Indemnitee shall submit to the
Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses.  Payment of Indemnifiable Expenses under Section 8 shall be made no
later than ten (10) calendar days after the Company's receipt of such request.

10.  Remedies of Indemnitee.

     (a)  Right to Petition Court.  In the event that Indemnitee makes a
          -----------------------
request for payment of Indemnifiable Amounts under Sections 3 and 5 above or a
request for an advancement of Indemnifiable Expenses under Sections 8 and 9
above and the Company fails to make such payment or advancement in a timely
manner pursuant to the terms of this Agreement, Indemnitee may petition a court
of law to enforce the Company's obligations under this Agreement.

     (b)  Burden of Proof.  In any judicial proceeding brought under
          ---------------
Section 10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts hereunder.

     (c)  Expenses.  The Company agrees to reimburse Indemnitee in full for any
          --------
Expenses incurred by Indemnitee in connection with investigating, preparing for,
litigating, defending or settling any action brought by Indemnitee under Section
10(a) above, or in connection with any claim or counterclaim brought by the
Company in connection therewith.

     (d)  Validity of Agreement.  The Company shall be precluded from asserting
          ---------------------
in any Proceeding, including, without limitation, an action under Section 10(a)
above, that the provisions of this Agreement are not valid, binding and
enforceable or that there is insufficient consideration for this Agreement and
shall stipulate in court that the Company is bound by all the provisions of this
Agreement.

     (e)  Failure to Act Not a Defense.  The failure of the Company (including
          ----------------------------
its Board of Directors or any committee thereof, independent legal counsel or
stockholders) to make a determination concerning the permissibility of the
payment of Indemnifiable Amounts or the advancement of Indemnifiable Expenses
under this Agreement shall not be a defense in any

                                       4
<PAGE>

action brought under Section 10(a) above, and shall not create a presumption
that such payment or advancement is not permissible.

11.  Representations and Warranties of the Company.  The Company hereby
represents and warrants to Indemnitee as follows:

     (a)  Authority.  The Company has all necessary power and authority to enter
          ---------
into, and be bound by the terms of, this Agreement, and the execution, delivery
and performance of the undertakings contemplated by this Agreement have been
duly authorized by the Company.

     (b)  Enforceability.  This Agreement, when executed and delivered by the
          --------------
Company in accordance with the provisions hereof, shall be a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally.

12.  Insurance.  The Company shall, as promptly as practicable following the
date hereof, obtain and maintain directors and officers' liability insurance
coverage on terms satisfactory to the Indemnitee of at least $1,000,000 per
occurrence, covering, among other things, violations of federal or state
securities laws.  The Company shall use its reasonable best efforts prior to any
initial public offering of the Company's capital stock to increase its
directors' and officers' liability insurance to at least $ 10,000,000 per
occurrence including coverage of claims under the Securities Act and the
Exchange Act, and shall use its reasonable best efforts to maintain such
coverage in effect thereafter.  In all policies of director and officer
liability insurance, Indemnitee shall be named as an insured in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's officers and directors.

13.  Fees and Expenses.  During the term of the Indemnitee's service as a
director, the Company shall promptly reimburse the Indemnitee for all expenses
incurred by him in connection with his service as a director or member of any
board committee or otherwise in connection with the Company's business and shall
pay or provide the Indemnitee with fees and other compensation, including stock
options or awards, in amounts and value which are at least equal to those
provided to any of the Company's other non-employee directors from time to time.

14.  Contract Rights Not Exclusive.  The rights to payment of Indemnifiable
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's by-laws or certificate
of incorporation, or any other agreement, vote of stockholders or directors (or
a committee of directors), or otherwise, both as to action in Indemnitee's
official capacity and as to action in any other capacity as a result of
Indemnitee's serving as a director of the Company.

15.  Successors.  This Agreement shall be (a) binding upon all successors and
assigns of the Company (including any transferee of all or a substantial portion
of the business, stock and/or assets of the Company and any direct or indirect
successor by merger or consolidation or otherwise by operation of law) and (b)
binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee.  This Agreement
shall

                                       5
<PAGE>

continue for the benefit of Indemnitee and such heirs, personal representatives,
executors and administrators after Indemnitee has ceased to have Corporate
Status.

16.  Subrogation.  In the event of any payment of Indemnifiable Amounts under
this Agreement, the Company shall be subrogated to the extent of such payment to
all of the rights of contribution or recovery of Indemnitee against other
persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.

17.  Change in Law.  To the extent that a change in Delaware law (whether by
statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the by-laws of the
Company and this Agreement, Indemnitee shall be entitled to such broader
indemnification and advancements, and this Agreement shall be deemed to be
amended to such extent.

18.  Severability.  Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement, or any clause thereof, shall be
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable, in whole or in part, such provision or clause shall be limited or
modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.

19.  Indemnitee as Plaintiff.  Except as provided in Section 10(c) of this
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless such
Company has consented to the initiation of such Proceeding.  This Section shall
not apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.

20.  Modifications and Waiver.  Except as provided in Section 17 above with
respect to changes in Delaware law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto.  No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.

21.  General Notices.  All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (a)
when delivered by hand, (b) when transmitted by facsimile and receipt is
acknowledged, or (c) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date on which it is so mailed:

                                       6
<PAGE>

If to Indemnitee, to:

  [ADDRESS]

If to the Company, to:

  IPG Photonics Corporation
  P.O. Box 519
  660 Main Street
  Sturbridge, MA 01566
  Attn: Dr. Valentin P. Gapontsev

or to such other address as may have been furnished in the same manner by any
party to the others.

22.  Governing Law.  This Agreement shall be governed by and construed and
enforced under the laws of the State of Delaware without giving effect to the
provisions thereof relating to conflicts of law.

                                 [END OF TEXT]

                                       7
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

                                 IPG PHOTONICS CORPORATION



                                 By:
                                     ------------------------------------
                                 Name:
                                 Title:

                                 INDEMNITEE



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

                                       8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>CONTRIBUTION AND EXCHANGE AGREEMENT
<TEXT>

<PAGE>

                                                                   Exhibit 10.11

                      CONTRIBUTION AND EXCHANGE AGREEMENT
                      -----------------------------------

     THIS AGREEMENT (this "Agreement") is by and between IPG PHOTONICS
CORPORATION, a corporation organized under the laws of the State of Delaware
("Purchaser") and Dr. Valentin P. Gapontsev ("Seller"), the owner of 46% of the
outstanding common stock of IPG Laser GmbH, a corporation organized under the
laws of the Republic of Germany (the "Company").

                                   RECITALS
                                   --------

     A.  Purchaser owns 54% of the issued and outstanding equity interests in
the Company and desires to purchase all of the issued and outstanding equity
interests owned by Seller in the Company.

     B.  Seller owns 46% of the issued and outstanding equity interests in the
Company.

     C.  Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, all of Seller's equity interests in and to the Company, all on the
terms and conditions, and subject to the limitations and exclusions, set forth
herein.

     NOW, THEREFORE, in consideration of the purchase price described below, the
representations, warranties, and mutual agreements contained in this Agreement
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:

                                   Section 1

                                  DEFINITIONS

     1.1  The following capitalized terms used in this Agreement shall have the
meanings (such definitions to be equally applicable to both the singular and
plural forms of the terms defined) set forth in this Section 1. Except as
                                                     ---------
otherwise indicated, all agreements or instruments herein defined shall mean
such agreements or instruments as from time to time assigned, supplemented or
amended or as the terms thereof may be waived or modified.

     "Company" shall have the meaning set forth in the introductory paragraph
      -------
to this Agreement.

     "Closing Date" shall mean any date before January 8, 2002 that Purchaser
      ------------
designates for the completion of the transactions contemplated herein or which
is otherwise designated as a Closing Date pursuant to Section 2.1 hereof.
<PAGE>

     "Laser Shares" shall mean all of Seller's capital stock of or other equity
      ------------
interests in the Company.

     "Lien" shall mean any liens, mortgages, security interests, encumbrances,
      ----
pledges, charges, adverse claims, options, buy-sell agreements, right of first
refusal agreements, rights or restrictions of any character whatsoever.

     "Material Adverse Effect" shall mean a material adverse effect on the
      -----------------------
business, assets, results of operations, financial condition or prospects of a
Person, taken as a whole.

     "Person" shall mean any individual, corporation, partnership, joint
      ------
venture, association, joint-stock company, trust, unincorporated organization or
other legal entity or any government or any agency or political subdivision
thereof.

     "Purchaser Shares" shall mean 1,403,000 shares of the common stock, par
      ----------------
value $.0001 per share, of Purchaser (as adjusted to reflect stock splits, stock
dividends and the like) which have an agreed value of $ US 20.00 per share.

     "Sale Event" shall mean the occurrence of any of the following events: (a)
      ----------
any merger or consolidation of the Purchaser into or with another corporation;
(b) any sale of all or substantially all of the assets of the Purchaser; or (c)
any other transaction by or as a result of which any Person acquires or holds
stock representing a majority of Purchaser's outstanding voting power.

     "Sale Price" shall mean the Purchaser Shares.
      ----------


                                   Section 2

                             ACQUISITION OF SHARES

     2.1  Acquisition. On the terms and subject to the conditions hereof, and in
          -----------
reliance on the representations and warranties of Seller (in the case of
Purchaser) and of Purchaser (in the case of Seller) on the Closing Date, Seller
shall sell, transfer, assign, convey and deliver to Purchaser, and Purchaser
shall purchase and accept from Seller, the Laser Shares, in consideration of the
delivery to Seller of the Sale Price. The Closing Date shall be a date
designated by Purchaser upon written notice to Seller (which notice shall be
given no less than five (5) days before the Closing Date). Seller shall sell the
Laser Shares to the Purchaser in accordance with this Section 2.1 if (a)
reasonably requested by any Person acting as underwriter of the Purchaser in
connection with any initial public soliciting of Purchaser's common stock or (b)
a Sale Event occurs. The Closing Date shall be the day of acceptance of the
Offer for Sale and Transfer.

     2.2  Approvals. Purchaser and Seller agree to use their best efforts to
          ---------
obtain expeditiously any and all governmental and other consents and approvals
required to be obtained in connection with this Agreement and the closing of the
transactions contemplated hereby.

                                      -2-
<PAGE>

     2.3  Withholding Taxes. The Sale Price to be paid on the Closing Date shall
          -----------------
be reduced by any applicable withholding taxes required under applicable law to
be withheld and paid by Purchaser to U.S. or other taxing authorities with
respect to the cash portion of the Sale Price. Such withholding shall be at the
applicable statutory rate unless Seller provides Purchaser with an opinion of
counsel (the "Tax Opinion") that no such withholding is required or that
withholding is required at a lower rate. On the Closing Date, Purchaser shall
withhold such amounts as calculated in the immediately preceding sentence and
confirmation to Purchaser's independent auditors of the amounts of taxes
required to be withheld and paid by Purchaser. Any balance of the amount so
withheld shall be remitted promptly to Seller.

                                   Section 3

                                    CLOSING

     3.1  Closing.  The closing of the transactions contemplated herein (the
          -------
"Closing") will take place at the offices of Schleifenbaum, Adler & Partner GbR,
Hindenburgstrasse 1, 57072 Siegen, Germany (or at such other location as the
parties hereto may agree) on the Closing Date.

     3.2  Seller is not limited to exercise all company rights which are related
with the Shareholdings offered for sale until acceptance is provided for the
offer. This shall also applied to the right to draw profits. The Purchaser is
not entitled to the profits from the operation in the period between the offer
and its acceptance.

                                   Section 4

                             CONDITIONS TO CLOSING

     4.1  Conditions Precedent to the Obligations of Purchaser. The obligations
          ----------------------------------------------------
of Purchaser hereunder are subject to the fulfillment (or waiver by Purchaser)
on or prior to the Closing Date of each of the following conditions precedent:

     (a)  Approvals.  The Company and Seller shall have taken all such actions
          ---------
required to be taken by either of them with respect to this Agreement.

     (b)  No Liens. The Laser Shares shall have been transferred to Purchaser
          --------
free and clear of all Liens.

     (c)  Representations and Warranties.  All of Seller's representations and
          ------------------------------
warranties in this Agreement must be accurate in all material respects as of the
date of this Agreement and as of the Closing Date.

     4.2  Conditions Precedent to the Obligations of Seller.  The obligations of
          -------------------------------------------------
Seller hereunder are subject to the fulfillment (or waiver by Seller) on or
prior to the Closing Date of the following condition precedent:

                                      -3-
<PAGE>

     (a)  Approvals.  Purchaser shall have taken all such actions required to be
          ---------
taken by it with respect to this Agreement.


                                   Section 5


                         REPRESENTATIONS AND WARRANTIES

     5.1  Representations and Warranties of Seller. Seller represents and
          ----------------------------------------
warrants to Purchaser that as of the date hereof and as of the Closing Date:

     (a)  Authorization; No Conflict.  Seller has the power to enter into this
          --------------------------
Agreement and all other agreements contemplated by this Agreement to which such
Seller is a party and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by Seller of this Agreement and
the transactions (and the consummation of the transactions) contemplated hereby
will not: (i) result in the breach of, or constitute a default (with or without
notice or lapse of time, or both) under, any provision or accelerate any
obligation or give rise to the termination of (A) any contract, agreement, debt
instrument, indenture, mortgage agreement or other instrument or arrangement to
which Seller is a party or (B) any judgment, order or decree by which Seller or
the Company is bound; (ii) result in the imposition of any Lien on any assets of
Seller or the Company; or (iii) violate, conflict with or constitute a default
of any law, statute, ordinance, rule or regulation.

     (b)  Due Organization, etc. of the Company.  The Company is a company duly
          -------------------------------------
organized, validly existing and in good standing under the laws of the Republic
of Germany and has the requisite power and authority to carry on its business as
now conducted. The Company has been duly qualified as a foreign corporation for
the conduct of business and is in good standing under the laws of the
jurisdiction in which it conducts any business so as to require such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.

     (c)  Enforceability. This Agreement has been duly executed and delivered by
          --------------
Seller and constitutes the legal, valid and binding obligation of Seller
enforceable against him in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, or similar laws affecting
enforcement of creditors' rights generally and by general equitable principles.

     (d)  Title to the Laser Shares. The Laser Shares are the only securities
          -------------------------
and the only equity, profit or capital interests in the Company issued and
outstanding and owned by Seller. Seller is the lawful record owner and
beneficial owner of the Laser Shares, which have been duly authorized by all
necessary action and which are validly issued, fully paid and nonassessable.
Seller is, and will be on the Closing Date, the record and beneficial owner and
holder of all of the Laser Shares, and on the Closing Date will convey to
Purchaser good and marketable title to the Laser Shares free and clear of all
Liens.

     (e)  Investment Status. Seller is purchasing the Purchaser Shares for its
          -----------------
own account, for investment only and not with a view to, or any present
intention of, effecting a distribution of

                                      -4-
<PAGE>

such securities or any part thereof except pursuant to a registration or an
available exemption under applicable law. Seller acknowledges that the Purchaser
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or the securities laws of any state or other
jurisdiction and cannot be disposed of unless they are subsequently registered
under the Securities Act and any applicable state laws or an exemption from such
registration is available.

     (f)  Accredited Investor. Seller is an "accredited investor," as such term
          -------------------
is defined in Rule 501 promulgated under the Securities Act.

     (g)  Rule 144. Seller understands that the exemption from registration
          --------
afforded by Rule 144 (the provisions of which are known to Seller) promulgated
under the Securities Act depends on the satisfaction of various conditions and
that, if applicable, Rule 144 may only afford the basis for sales under certain
circumstances and only in limited amounts.

     (h)  Exemption. Seller hereby acknowledges and agrees that the purchase and
          ---------
sale of the Purchaser Shares is intended to be exempt from registration under
the Securities Act by virtue of Section 4(2) and/or Section 3(b) of the
Securities Act, and, if applicable, in the sole judgment of the Purchaser, the
provisions of Regulation D thereunder, which exemption is dependent upon the
truth, completeness and accuracy of the statements made by Seller herein and in
any other documents furnished by Seller to Purchaser.

     5.2  Representations and Warranties of Purchaser. Purchaser hereby
          -------------------------------------------
represents and warrants that as of the date hereof and as of the Closing Date:

     (a)  Due Organization, etc. Purchaser a corporation duly organized and
          ---------------------
validly existing and in good standing under the laws of the State of Delaware.
Purchaser has the requisite corporate power and authority to enter into and
perform its obligations hereunder.

     (b)  Authorization; No Conflict. The execution, delivery and performance of
          --------------------------
this Agreement have been duly authorized by all necessary corporate action on
its part and neither the execution and delivery hereof, nor the consummation of
the transactions contemplated thereby, nor compliance by Purchaser with any of
the terms and provisions thereof requires or will require any approval or
consent, other than such consents and approvals as have been obtained. The
execution, delivery and performance by Purchaser of this Agreement and the
transactions (and the consummation of the transactions) contemplated hereby will
not: (i) result in the breach of, or constitute a default (with or without
notice or lapse of time, or both) under, any provision or accelerate any
obligation or give rise to the termination of (A) any contract, agreement, debt
instrument, indenture, mortgage agreement or other instrument or arrangement to
which Purchaser is a party or (B) any judgment, order or decree by which
Purchaser is bound; (ii) result in the imposition of any Lien on any assets of
Purchaser; or (iii) violate, conflict with or constitute a default of any law,
statute, ordinance, rule or regulation.

     (c)  Enforceability, etc. This Agreement has been duly executed and
          -------------------
delivered by Purchaser and (assuming the due authorization, execution and
delivery by each other party hereto) constitutes its legal, valid and binding
obligation enforceable against Purchaser in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy,

                                      -5-
<PAGE>

insolvency, reorganization or similar laws affecting enforcement of creditors'
rights generally and by general equitable principles.

     (d)  Investment Status. Purchaser is purchasing the Laser Shares for its
          -----------------
own account, for investment only and not with a view to, or any present
intention of, effecting a distribution of such securities or any part thereof
except pursuant to a registration or an available exemption under applicable
law. Purchaser acknowledges that the Laser Shares have not been registered under
the Securities Act of 1933, as amended (the "Securities Act") or the securities
laws of any state or other jurisdiction and cannot be disposed of unless they
are subsequently registered under the Securities Act and any applicable state
laws or an exemption from such registration is available.

     (e)  Accredited Investor. Purchaser is an "accredited investor" as such
          -------------------
term is defined in Rule 501 promulgated under the Securities Act.

     (f)  Rule 144. Purchaser understands that the exemption from registration
          --------
afforded by Rule 144 (the provisions of which are known to Purchaser)
promulgated under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 may only afford the basis for sales
under certain circumstances and only in limited amounts.

     (g)  Exemption. Purchaser hereby acknowledges and agrees that the purchase
          ---------
and sale of the Laser Shares is intended to be exempt from registration under
the Securities Act by virtue of Section 4(2) and/or Section 3(b) of the
Securities Act, and, if applicable, in the sole judgment of Seller, the
provisions of Regulation D thereunder, which exemption is dependent upon the
truth, completeness and accuracy of the statements made by Purchaser herein and
in any other documents furnished by Purchaser to Seller.

                                   Section 6

                                INDEMNIFICATION

     6.1  General Indemnification. Each of the parties hereto shall indemnify
          -----------------------
the against any claim (including all costs, expenses, fees, damages, penalties,
fines, obligations, and liabilities, and costs of enforcement (including
attorneys' fees) under this Section 6 which shall result from (a) the
incorrectness of any representation or breach of any warranty of such party
contained herein or (b) the breach by such party of any of his or its covenants
or agreements contained herein. Any amount payable pursuant to this Section 6
shall be paid promptly upon receipt of a written demand therefor from the
indemnified party, accompanied by a written statement describing the basis for
such indemnity.

                                   Section 7

                                 MISCELLANEOUS

     7.1  Fees and Expenses.  Seller and the Purchaser shall bear their own
          -----------------
respective

                                      -6-
<PAGE>

expenses incurred in connection with this Agreement and consummation of the
transactions described therein.

     7.2  Notices.  Unless otherwise specifically provided herein, all notices,
          -------
consents, directions, approvals, instructions, requests, waivers, acceptances,
and other communications required or permitted by the terms hereof to be given
to any Person shall be given in writing by nationally recognized courier service
or by hand delivery, or by facsimile communication followed by such courier
service delivery, and any such notice shall become effective one business day
after delivery to a nationally recognized overnight courier service or if by
facsimile communication or by hand delivery, when received, and shall be
directed to the address as follows; provided that from time to time either party
may designate a new address for purposes of notice hereunder by notice to the
other party:

          If to Purchaser:

               IPG Photonics Corporation
               P.O. Box 519
               660 Main Street
               Sturbridge, MA 01566
               Telephone No.:  (508) 347-6800
               Telecopy No.:  (508) 347-6838

          with a copy to:

               Winston & Strawn
               200 Park Avenue
               New York, New York 10166
               Attention:  John W. Kaufmann
               Telephone No.:  (212) 294-4754
               Telecopy No.:  (212) 294-4700

          If to Seller:

               Dr. Valentin Gapontsev
               c/o IPG Laser GmbH
               Siemensstrasse 7
               D-57299 Burbach
               Telephone No.:  (2736) 4420-0
               Telecopy No.:  (2736) 4420-25

     7.3  Entire Agreement; Amendments. This Agreement contains the entire
          ----------------------------
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between the parties, whether
written or oral. This Agreement may not be amended except by written instrument
signed by all of the parties thereto.

     7.4  Successor and Assigns/Third Party Beneficiary. This Agreement shall be
          ---------------------------------------------
binding upon and inure to the benefit of each of the parties hereto and their
respective heirs, personal

                                      -7-
<PAGE>

representatives, successors and assigns. The Investors (the "Investors") listed
on Exhibit A to the Stock Purchase Agreement, dated as of August 2000, by and
between the Purchaser and such Investors relating to the purchase of Series B
Convertible Participating Preferred Stock, par value $.0001 per share, of
Purchaser, shall be third-party beneficiaries of this Agreement.

     7.5  Governing Law/Jurisdiction. This Agreement shall be construed and
          --------------------------
enforced in accordance with and governed by the laws of the State of New York
(without giving effect to principles of conflicts of law). All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in a Massachusetts state or Federal court sitting in the City of
Boston. The parties hereby irrevocably submit to the exclusive jurisdiction of
any Massachusetts state or federal court sitting in the City of Boston in any
action or proceeding arising out of or relating to this Agreement, and hereby
irrevocably agree that all claims in respect of such action or proceeding may be
heard and determined in such Massachusetts state or federal court. The parties
hereby irrevocably waive, to the fullest extent they may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding. The parties agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE.

     7.6  Counterparts. This Agreement may be executed in separate counterparts,
          ------------
each of which when so executed and delivered shall be an original for all
purposes, but all such counterparts shall constitute but one and the same
instrument.

     7.7  Severability.  Any provision of this Agreement that is prohibited or
          ------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

     7.8  Headings.  The section and article headings contained herein are for
          --------
convenience only and shall not be construed as part of this Agreement.

                                      -8-
<PAGE>

     7.9   Specific Performance. It is specifically understood and agreed that
           --------------------
any breach of the provisions of this Agreement by any party subject hereto will
result in irreparable injury to the other parties hereto, that the remedy at law
alone will be an inadequate remedy for such breach, and that, in addition to any
other legal or equitable remedies which they may have, such other parties may
enforce their respective rights by actions for specific performance (to the
extent permitted by law) and the Company may refuse to recognize any
unauthorized transferee as one of its stockholders for any purpose until the
relevant party or parties have complied with all applicable provisions of this
Agreement.

     7.10  Further Assurances. Each of the parties hereto agrees that it shall
           ------------------
do, execute, acknowledge and deliver all such further actions, conveyances,
assignments, transfers, documents and other assurances necessary to effectuate
the purpose and carry out the terms and intent of this Agreement.

     7.11  Tax Consequences.  Purchaser shall have no liability for the tax
           ----------------
consequences to Seller and Seller shall have no liability for the tax
consequences to Purchaser as a result of the transactions contemplated hereby.

     7.12  Survival.  The representations, warranties, indemnities and covenants
           --------
contained in this Agreement shall survive indefinitely.

                            [signature page follows]

                                      -9-
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be duly executed as of the day and year first written above.

PURCHASER:                         IPG PHOTONICS CORPORATION


                                   By: /s/ Verghese Mammen
                                       -----------------------------------
                                       Name:  VERGHESE MAMMEN
                                       Title: Treasurer

SELLER:

                                   /s/ Dr. Valentin P. Gapontsev
                                   ------------------------------------
                                   DR. VALENTIN P. GAPONTSEV

                                      -10-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>PURCHASE AGREEMENT
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.12

                              PURCHASE AGREEMENT

     THIS PURCHASE AGREEMENT (this "Agreement"), dated as of August 24th 2000,
is by and between IPG PHOTONICS CORPORATION, a corporation organized under the
laws of the State of Delaware ("Purchaser"), and IP FIBRE DEVICES U.K.
(LIMITED), a company organized under the laws of the United Kingdom ("Seller"),
the owner of 50% of the outstanding common stock of IPG Laser GmbH, a
corporation organized under the laws of the Republic of Germany (the "Company").

                                   RECITALS
                                   --------

     A.  Purchaser desires to purchase all of the issued and outstanding equity
interests owned by Seller in the Company.

     B.  Seller owns 50% of the total issued and outstanding equity interests in
the Company.

     C.  Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, all of Seller's equity interests in and to the Company, all on the
terms and conditions, and subject to the limitations and exclusions, set forth
herein.

     NOW, THEREFORE, in consideration of the purchase price described below, the
representations, warranties, and mutual agreements contained in this Agreement
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:


                                   Section 1

                                  DEFINITIONS

     1.1.  The following capitalized terms used in this Agreement shall have the
meanings (such definitions to be equally applicable to both the singular and
plural forms of the terms defined) set forth in this Section 1.  Except as
otherwise indicated, all, agreements or instruments herein defined shall mean
such agreements or instruments as from time to time assigned, supplemented or
amended or as the terms thereof may be waived or modified.

     "Company" shall have the meaning set forth in the introductory paragraph to
      -------
this Agreement.

     "Closing Date" shall mean the date of execution and delivery of this
      ------------
Agreement.

     "Laser Shares" shall mean all of Seller's capital stock of or other equity
      ------------
interests in the Company.
<PAGE>

     "Lien" shall mean any liens, mortgages, security interests, encumbrances,
      ----
pledges, charges, adverse claims, options, buy-sell agreements, right of first
refusal agreements, rights or restrictions of any character whatsoever.

     "Material Adverse Effect" shall mean a material adverse effect on the
      -----------------------
business, assets, results of operations, financial condition or prospects of a
Person, taken as a whole.

     "Person" shall mean any individual, corporation, partnership, joint
      ------
venture, association, joint-stock company, trust, unincorporated organization or
other legal entity or any government or any agency or political subdivision
thereof.

     "Purchaser Shares" shall mean 1,150,000 shares of the common stock, par
      ----------------
value $.0001 per share, of Purchaser.

     "Sale Price" shall mean $7,500,000, payable in cash, and the Purchaser
      ----------
Shares.

     "Tax Opinion" shall have the meaning set forth in Section 2.2 hereto.
      -----------


                                   Section 2

                           ACQUISITION OF INTERESTS

     2.1. Purchase and Sale.  On the terms and subject to the conditions hereof,
          -----------------
and in reliance on the representations and warranties of Seller (in the case of
Purchaser) and of Purchaser (in the case of Seller) contained herein, on the
Closing Date. Seller shall sell, transfer, assign, convey and deliver to
Purchaser, and Purchaser shall purchase and accept from Seller, the Laser
Shares, in consideration of the delivery to Seller of the Sale Price.

     2.2. Withholding Taxes.  The cash portion of the Sale Price to be paid on
          -----------------
the Closing Date shall be reduced by any applicable withholding taxes required
under applicable law to be withheld and paid by Purchaser to U.S. or other
taxing authorities with respect to the cash portion of the Sale Price. Such
withholding shall be at the applicable statutory rate unless Seller provides
Purchaser with an opinion of counsel (the "Tax Opinion") that no such
                                           -----------
withholding is required or that withholding is required at a lower rate. On the
Closing Date, Purchaser shall withhold such amounts as calculated in the
immediately preceding sentence and send confirmation to Purchaser's independent
auditors of the amounts of taxes required to be withheld and paid by Purchaser.
Any balance of the amount so withheld shall be remitted promptly to Seller.


                                   Section 3

                                    CLOSING

     3.1. Closing. The closing of the transactions contemplated herein (the
          -------
"Closing") will take place at the offices of Schleifenbaum, Adler & Partner GbR,
 -------
Hindenburgstrasse 1, 57072 Siegen, Germany (or at such other location as the
parties hereto may agree) on the Closing Date.

                                      -2-
<PAGE>

                                   Section 4

                             CONDITIONS TO CLOSING

     4.1. Conditions Precedent to the Obligations of Purchaser.  The obligations
          ----------------------------------------------------
of Purchaser hereunder are subject to the fulfillment (or waiver by Purchaser)
on or prior to the Closing Date of each of the following conditions precedent:

     (a)  Approvals. The Company and Seller shall have taken all such actions
          ---------
required to be taken by either of them with respect to this Agreement.

     (b)  No Liens.  The Laser Shares shall have been transferred to Purchaser
          --------
free and clear of all Liens.

     4.2. Conditions Precedent to the Obligations of Seller. The obligations of
          -------------------------------------------------
Seller hereunder are subject to the fulfillment (or waiver by Seller) on or
prior to the Closing Date of the following condition precedent:

     (a)  Approval.  Purchaser shall have taken all such actions required to be
          --------
taken by it with respect to this Agreement.


                                   Section 5

                        REPRESENTATIONS AND WARRANTIES

     5.1. Representations and Warranties of Seller.  Seller represents and
          ----------------------------------------
warrants to Purchaser as of the date hereof and as of the Closing Date that:

     (a)  Due Organization, etc.  Seller is a corporation duly organized,
          ----------------------
validly existing and in good standing under the laws of the United Kingdom.
Seller has the requisite corporate power and authority to enter into and perform
its obligations hereunder.

     (b)  Authorization; No Conflict.  The execution, delivery and performance
          --------------------------
of this Agreement have been duly authorized by all necessary corporate action on
its part and neither the execution and delivery hereof, nor the consummation of
the transactions contemplated thereby, nor compliance by Seller with any of the
terms and provisions thereof requires or will require any approval or consent,
other than such consents and approvals as have been obtained. The execution,
delivery and performance by Seller of this Agreement and the transactions (and
the consummation of the transactions) contemplated hereby will not: (i) result
in the breach of, constitute a default (with or without notice or lapse of time,
or both) under, any provision or accelerate any obligation or give rise to the
termination of (A) any contract, agreement, debt instrument, indenture, mortgage
agreement or other instrument or arrangement to which the Company or Seller is a
party or (B) any judgment, order or decree by which the Company or Seller is
bound; (ii) result in the imposition of any Lien on any assets of the Company or
Seller, or (iii) violate, conflict with or constitute a default of any law,
statute, ordinance, rule, regulation or any provision of the formation documents
of Seller.

                                      -3-
<PAGE>

     (c)  Due Organization, etc. of the Company.  The Company is a company duly
          -------------------------------------
organized, validly existing and in good standing under the laws of the Republic
of Germany and has the requisite power and authority to carry on its business as
now conducted. The Company has been duly qualified as a foreign corporation for
the conduct of business and is in good standing under the laws of the
jurisdiction in which it conducts any business so as to require such
qualification, except where the failure to be so qualified would not have a
Material Adverse Effect.

     (d)  Enforceability.  This Agreement has been duly executed and delivered
          --------------
by Seller and constitutes the legal, valid and binding obligation of Seller
enforceable against it in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, reorganization or similar
laws affecting enforcement of creditors' rights generally and by general
equitable principles.

     (e)  Title to the Laser Shares.  The Laser Shares are the only securities
          -------------------------
and the only equity, profit or capital interests in the Company issued and
outstanding and owned by Seller. Seller is the lawful record owner and
beneficial owner of the Laser Shares, which have been duly authorized by all
necessary action and which are validly issued, fully paid and nonassessable.
Seller is, and will be on the Closing Date, the record and beneficial owner and
holder of all of the Laser Shares, and on the Closing Date will convey to
Purchaser good and marketable title to the Laser Shares free and clear of all
Liens.

     (f)  Investment Status.  Seller is purchasing the Purchaser Shares for its
          -----------------
own account, for investment only and not with a view to, or any present
intention of, effecting a distribution of such securities or any part thereof
except pursuant to a registration or an available exemption under applicable
law. Seller acknowledges that the Purchaser Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or the
securities laws of any state or other jurisdiction and cannot be disposed of
unless they are subsequently registered under the Securities Act and any
applicable state laws or an exemption from such registration is available.

     (g)  Accredited Investor.  Seller is an "accredited investor," as such term
          -------------------
is defined in Rule 501 promulgated under the Securities Act.

     (h)  Rule 144.  Seller understands that the exemption from registration
          --------
afforded by Rule 144 (the provisions of which are known to Purchaser)
promulgated under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 may only afford the basis for sales
under certain circumstances and only in limited amounts.

     (i)  Exemption.  Seller hereby acknowledges and agrees that the purchase
          ---------
and sale of the Purchaser Shares are intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Section 3(b) of the
Securities Act, and, if applicable, in the sole judgment of the Purchaser, the
provisions of Regulation D thereunder, which exemption is dependent upon the
truth, completeness and accuracy of the statements made by Seller herein and in
any other documents furnished by the Seller to Purchaser.

                                      -4-
<PAGE>

     5.2. Representations and Warranties of Purchaser.  Purchaser hereby
          -------------------------------------------
represents and warrants as of the date hereof that:

     (a)  Due Organization, etc.  Purchaser is a corporation duly organized,
          ----------------------
validly existing and in good standing under the laws of the State of Delaware.
Purchaser has the requisite corporate power and authority to enter into and
perform its obligations hereunder.

     (b)  Authorization; No Conflict.  The execution, delivery and performance
          --------------------------
of this Agreement have been duly authorized by all necessary corporate action on
its part and neither the execution and delivery hereof, nor the consummation of
the transactions contemplated thereby, nor compliance by Purchaser with any of
the terms and provisions thereof requires or will require any approval or
consent, other than such consents and approvals as have been obtained. The
execution, delivery and performance by Purchaser of this Agreement and the
transactions (and the consummation of the transactions) contemplated hereby will
not: (i) result in the breach of, or constitute a default (with or without
notice or lapse of time, or both) under, any provision of (A) any debt
instrument, indenture, mortgage agreement or other instrument or arrangement to
which Purchaser is a party or (B) any judgment, order or decree by which
Purchaser is bound; or (ii) result in the imposition of any Lien on any assets
of Purchaser.

     (c)  Enforceability, etc.  This Agreement has been duly executed and
          --------------------
delivered by Purchaser and (assuming the due authorization, execution and
delivery by each other party hereto) constitutes its legal, valid and binding
obligation enforceable against Purchaser in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting enforcement of creditors' fights
generally and by general equitable principles.

     (d)  Investment Status.  Purchaser is purchasing the Laser Shares for its
          -----------------
own account, for investment only and not with a view to, or any present
intention of, effecting a distribution of such securities or any part thereof
except pursuant to a registration or an available exemption under applicable
law. Purchaser acknowledges that the Laser Shares have not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or the securities
laws of any state or other jurisdiction and cannot be disposed of unless they
are subsequently registered under the Securities Act and any applicable state
laws or an exemption from such registration is available.

     (e)  Accredited Investor.  Purchaser is an "accredited investor," as such
          -------------------
term is defined in Rule 501 promulgated under the Securities Act.

     (f)  Rule 144.  Purchaser understands that the exemption from registration
          --------
on afforded by Rule 144 (the provisions of which are known to Seller)
promulgated under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 may only afford the basis for sales
under certain circumstances and only in limited amounts.

     (g)  Exemption.  Purchaser hereby acknowledges and agrees that the purchase
          ---------
and sale of the Laser Shares are intended to be exempt from registration under
the Securities Act by virtue of Section 4(2) and/or Section 3(b) of the
Securities Act, and, if applicable, in the sole judgment

                                      -5-
<PAGE>

of the Seller, the provisions of Regulation D thereunder, which exemption is
dependent upon the truth, completeness and accuracy of the statements made by
Purchaser herein and in any other documents furnished by Purchaser to Seller.


                                   Section 6

                                INDEMNIFICATION

     6.1. General Indemnification.  Each of the parties hereto shall indemnify
          -----------------------
the other against any claim (including all costs, expenses, fees, damages,
penalties, fines, obligations, and liabilities, and costs of enforcement
(including attorneys' fees)) under this Section 6 which shall result from (a)
the incorrectness of any representation or breach of any warranty of such party
contained herein or (b) the breach by such party of any of his or its covenants
or agreements contained herein. Any amount payable pursuant to this Section 6
shall be paid promptly upon receipt of a written demand therefor from the
indemnified party, accompanied by a written statement describing the basis for
such indemnity.

     6.2. Indemnity by Fibre Devices.  In consideration of the investment in
          --------------------------
Purchaser by the Investors listed in the Stock Purchase Agreement by and between
Purchaser and such Investors (the "Investors") of August 2000 (the "Stock
Purchase Agreement") a portion of the proceeds of which have been distributed to
Seller, Seller agrees to defend, indemnify and hold harmless each Investor,
their affiliates and respective direct and indirect partners (including partners
of partners and stockholders and members of partners), and the members,
stockholders, directors, officers, employees and agents of each of the foregoing
and each person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (parties receiving the benefit of the indemnification
agreement herein shall be referred to collectively as "Indemnified Parties" and
individually as an Indemnified Party") from and against any and all losses,
claims, damages, obligations, liens, assessments, judgments, fines, liabilities,
and other costs and expenses (including, without limitation, interest, penalties
and any investigation, legal and other expenses) incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, as the same are incurred, of any kind or nature whatsoever which
may be sustained or suffered by any such Indemnified Party (a "Loss" or
"Losses"), without regard to any investigation by any of the Indemnified
Parties, based upon, arising out of, by reason of or otherwise in respect of or
in connection with any inaccuracy in or breach of any representation or warranty
made by the Purchaser in the Stock Purchase Agreement, or in any schedule or
certificate delivered by or on behalf of the Purchaser as part of or pursuant to
the Stock Purchase Agreement, or any claim, action or proceeding asserted or
instituted or arising out of any matter or thing covered by such representations
or warranties.

          Notwithstanding the foregoing, however, (a) Seller shall not be
obligated to provide indemnification for Losses in respect of claims made by any
Indemnified Party after 31st August 2002 and (b) the maximum amount payable by
Seller to all Indemnified Parties for Losses in respect of claims made by the
Indemnified Parties for indemnification of this Section 6.2 shall not exceed
$7,500,000.

                                      -6-
<PAGE>

     6.3. Withholding Tax Indemnification.  If Purchaser fails to withhold
          -------------------------------
applicable U.S. withholding taxes on the basis of the Tax Opinion, Seller shall
indemnify Purchaser for any adverse consequences resulting from such failure to
withhold, including, but not limited to, any taxes, interest or penalties.


                                   Section 7

                                 MISCELLANEOUS

     7.1. Fees and Expenses.  Seller and the Purchaser shall bear their own
          -----------------
respective expenses incurred in connection with this Agreement and consummation
of the transactions described therein.

     7.2. Notices.  Unless otherwise specifically provided herein, all notices,
          -------
consents, directions, approvals, instructions, requests, waivers, acceptances,
and other communications required or permitted by the terms hereof to be given
to any Person shall be given in writing by nationally recognized courier service
or by hand delivery, or by facsimile communication followed by such courier
service delivery, and any such notice shall become effective one business day
after delivery to a nationally recognized overnight courier service or if by
facsimile communication or by hand delivery, when received, and shall be
directed to the address as follows; provided_that from time to time either party
may designate a new address for purposes of notice hereunder by notice to the
other party:

                    If to Purchaser:

                         IPG Photonics Corporation
                         P.O. Box 519
                         660 Main Street
                         Sturbridge, MA 01566
                         Telephone No.:  (508) 347-6800
                         Telecopy No.:  (508) 347-6838


                    with a copy to:

                         Winston & Strawn
                         200 Park Avenue
                         New York, New York 10166
                         Attention: John W. Kaufmann
                         Telephone No.:  (212) 294-4754
                         Telecopy No.:  (212) 294-4700

                    If to Seller:

                         IP Fibre Devices U.K. (Limited)

                                      -7-
<PAGE>

                         22 Buckingham Gate
                         London SW I  E 6LB
                         Telephone No.:  (020) 7828-9929
                         Telecopy No.:  (020) 7834-1521

     7.3. Entire Agreement; Amendments.  This Agreement contains the entire
          ----------------------------
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between the parties, whether
written or oral. This Agreement may not be amended except by written instrument
signed by all of the parties thereto.

     7.4. Successor and Assigns/Third Party Beneficiary.  This Agreement shall
          ---------------------------------------------
be binding upon and inure to the benefit of each of the parties hereto and their
respective heirs, personal representatives, successors and assigns. The
Investors listed on Exhibit A to the Stock Purchase Agreement relating to the
purchase of Series B Convertible Participating Preferred Stock, par value $.0001
per share, of Purchaser shall be third-party beneficiaries of this Agreement.

     7.5. Governing Law/Jurisdiction.  This Agreement shall be construed and
          --------------------------
enforced in accordance with and governed by the laws of the State of New York
(without giving effect to principles of conflicts of law). All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in a Massachusetts state or federal court sitting in the City of
Boston.  The parties hereby irrevocably submit to the exclusive jurisdiction of
any Massachusetts state or federal court sitting in the City of Boston in any
action or proceeding arising out of or relating to this Agreement, and hereby
irrevocably agree that all claims in respect of such action or proceeding may be
heard and determined in such Massachusetts state or federal court. The parties
hereby irrevocably waive, to the fullest extent they may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding. The parties agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE.

     7.6. Counterparts.  This Agreement may be executed in separate
          ------------
counterparts, each of which when so executed and delivered shall be an original
for all purposes, but all such counterparts shall constitute but one and the
same instrument.

     7.7. Severability.  Any provision of this Agreement that is prohibited or
          ------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                      -8-
<PAGE>

     7.8.   Headings.  The section and article headings contained herein are for
            --------
convenience only and shall not be construed as part of this Agreement.

     7.9.   Further Assurances.  Each of the parties hereto agrees that it shall
            ------------------
do, execute, acknowledge and deliver all such further actions, conveyances,
assignments, transfers, documents and other assurances necessary to effectuate
the purpose and carry out the terms and intent of this Agreement.

     7.10.  Tax Consequences.  Purchaser shall have no liability for the tax
            ----------------
consequences to Seller and Seller shall have no liability for the tax
consequences to Purchaser as a result of the transactions contemplated hereby.

     7.11.  Survival. The representations, warranties, indemnities and covenants
            --------
contained in this Agreement shall survive indefinitely.

     IN WITNESS WHEREOF, the parties hereto have each caused this Purchase
Agreement to be duly executed as of the day and year first written above.



PURCHASER:                              IPG PHOTONICS CORPORATION


                                         By: /s/ Verghese Mammen
                                            ----------------------------
                                         Name:   VERGHESE MAMMEN
                                         Title:  Treasurer



SELLER:                                 IP FIBRE DEVICES U.K. (LIMITED)

                                         By: /s/ Timothy P.V. Mammen
                                             ----------------------------
                                         Name:  M. Timothy P.V. Mammen
                                         Title: Company Secretary

                                      -9-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>8
<FILENAME>0008.txt
<DESCRIPTION>PURCHASE AGREEMENT
<TEXT>

<PAGE>

                                                                   Exhibit 10.13

                              PURCHASE AGREEMENT
                              ------------------

     THIS PURCHASE AGREEMENT (this "Agreement"), dated as of August 24/th/,
2000, is by and between IPG PHOTONICS CORPORATION, a corporation organized under
the laws of the State of Delaware ("Purchaser"), and DR. VALENTIN P. GAPONTSEV
("Seller"), the owner of 50% of the issued and outstanding common stock of IPG
Laser GmbH, a corporation organized under the laws of the Republic of Germany
(the "Company").

                                   RECITALS
                                   --------

     A.   Purchaser desires to purchase shares of Seller's capital stock or
other equity interests in the Company representing 4% of the total issued and
outstanding shares of or other equity interests in the Company.

     B.   Seller owns shares of capital stock or other equity interests in the
Company representing 50% of the total issued and outstanding shares of or other
equity interests in the Company.

     C.   Seller desires to sell to Purchaser, and Purchaser desires to purchase
from Seller, shares of Seller's capital stock or other equity interests in the
Company representing 4% of the total issued and outstanding shares of the
Company, all on the terms and conditions, and subject to the limitations and
exclusions, set forth herein.

     NOW, THEREFORE, in consideration of the purchase price described below, the
representations, warranties, and mutual agreements contained in this Agreement
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:

                                   Section 2

                          ACQUISITION OF LASER SHARES

     2.1  Purchase and Sale.  On the terms and subject to the conditions hereof,
          -----------------
and in reliance on the representations and warranties of Seller (in the case of
Purchaser) and of Purchaser (in the case of Seller) contained herein, on the
Closing Date, Seller shall sell, transfer, assign, convey and deliver to
Purchaser, and Purchaser shall purchase and accept from Seller, the Laser
Shares, in consideration of the delivery to Seller of the Sale Price.

     2.2  Withholding Taxes.  The Sale Price to be paid on the Closing Date
          -----------------
shall be reduced by any applicable withholding taxes required under applicable
law to be withheld and paid by Purchaser to U.S. or other taxing authorities
with respect to the Sale Price. Such withholding shall be at the applicable
statutory rate unless Seller provides Purchaser with an opinion of counsel (the
"Tax Opinion") that no such withholding is required or that withholding is
required at a lower rate. On the Closing Date, Purchaser shall withhold such
amounts as calculated in the immediately preceding sentence and send
confirmation to Purchaser's
<PAGE>

independent auditors of the amounts of taxes required to be withheld and paid by
Purchaser. Any balance of the amount so withheld shall be remitted promptly to
Seller.

                                   Section 3

                                    CLOSING

     3.1  Closing.  The closing of the transactions contemplated herein (the
          -------
"Closing") will take place at the offices of Schleifenbaum, Adler & Partner GbR,
Hindenburgstrasse 1, 57072 Siegen, Germany (or at such other location as the
parties hereto may agree) on the Closing Date.

                                   Section 4

                             CONDITIONS TO CLOSING

     4.1  Conditions Precedent to the Obligations of Purchaser. The obligations
          ----------------------------------------------------
of Purchaser hereunder are subject to the fulfillment (or waiver by Purchaser)
on or prior to the Closing Date of each of the following conditions precedent:

          (a)  Approvals.  The Company and Seller shall have taken all such
               ---------
actions required to be taken by either of them with respect to this Agreement.

          (b)  No Liens.  The Laser Shares shall have been transferred to
               --------
Purchaser free and clear of all Liens.

     4.2  Conditions Precedent to the Obligations of Seller. The obligations of
          -------------------------------------------------
Seller hereunder are subject to the fulfillment (or waiver by Seller) on or
prior to the Closing Date of the following condition precedent:

          (a)  Approvals.  Purchaser shall have taken all such actions required
               ---------
to be taken by it with respect to this Agreement.

                                   Section 5

                                   COVENANTS

          Name Change. As soon as reasonably practicable after the Closing Date,
Seller shall change the corporate name of "IPG Laser Components" so that it does
not contain "IPG".

                                   Section 6

                        REPRESENTATIONS AND WARRANTIES

     6.1  Representations and Warranties of Seller. Seller represents and
          ----------------------------------------
warrants to Purchaser as of the date hereof that:

                                       2
<PAGE>

          (a)  Authorization; No Conflict.  Seller has the power to enter into
               ---------------------------
this Agreement and all other agreements contemplated by this Agreement to which
such Seller is a party and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance by Seller of this Agreement
and the transactions (and the consummation of the transactions) contemplated
hereby will not: (i) result in the breach of, or constitute a default (with or
without notice or lapse of time, or both) under, any provision or accelerate any
obligation or give rise to the termination of (A) any contract, agreement, debt
instrument, indenture, mortgage agreement or other instrument or arrangement to
which Seller or the Company is a party or (B) any judgment, order or decree by
which Seller or the Company is bound; (ii) result in the imposition of any Lien
on any assets of Seller or the Company; or (iii) violate, conflict with or
constitute a default of any applicable law, statute, ordinance, rule or
regulation.

          (b)  Enforceability. This Agreement has been duly executed and
               --------------
delivered by Seller and constitutes the legal, valid and binding obligation of
Seller enforceable against him in accordance with its terms, except as such
enforcement may limited by applicable bankruptcy, insolvency, reorganization or
similar laws affecting enforcement of creditors' rights generally and by general
equitable principles.

          (c)  Title to the Laser Shares. Seller is the lawful record owner and
               -------------------------
beneficial owner of the Laser Shares, which have been duly authorized by all
necessary action and which are validly issued, fully paid and nonassessable.
Seller is, and will be on the Closing Date, the record and beneficial owner and
holder of all of the Laser Shares, and on the Closing Date will convey to
Purchaser good and marketable title to the Laser Shares free and clear of all
Liens.

     6.2  Representations and Warranties of Purchaser.  Purchaser hereby
          -------------------------------------------
represents and warrants as of the date hereof that:

          (a)  Due Organization, etc.  Purchaser is a corporation duly organized
               ---------------------
and validly existing and in good standing under the laws of the State of
Delaware. Purchaser has the requisite corporate power and authority to enter
into and perform its obligations hereunder.

          (b)  Authorization; No Conflict. The execution, delivery and
               --------------------------
performance of this Agreement have been duly authorized by all necessary
corporate action on its part and neither the execution and delivery hereof, nor
the consummation of the transactions contemplated thereby, nor compliance by
Purchaser with any of the terms and provisions thereof requires or will require
any approval or consent, other than such consents and approvals as have been
obtained. The execution, delivery and performance by Purchaser of this Agreement
and the transactions (and the consummation of the transactions) contemplated
hereby will not: (i) result in the breach of, or constitute a default (with or
without notice or lapse of time, or both) under, any provision of (A) any debt
instrument, indenture, mortgage agreement or other instrument or arrangement to
which Purchaser is a party or (B) any judgment, order or decree by which
Purchaser is bound; or (ii) result in the imposition of any Lien on any assets
of Purchaser.

          (c)  Enforceability, etc.  This Agreement has been duly executed and
               --------------------
delivered by Purchaser and (assuming the due authorization, execution and
delivery by each other party

                                       3
<PAGE>

hereto) constitutes its legal, valid and binding obligation enforceable against
Purchaser in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization or similar laws
affecting enforcement of creditors' rights generally and by general equitable
principles.

          (d)  Investment Status.  Purchaser is purchasing the Laser Shares for
               -----------------
its own account, for investment only and not with a view to, or any present
intention of, effecting a distribution of such securities or any part thereof
except pursuant to a registration or an available exemption under applicable
law. Purchaser acknowledges that the Laser Shares have not been registered under
the Securities Act of 1933, as amended (the "Securities Act") or the securities
laws of any state or other jurisdiction and cannot be disposed of unless they
are subsequently registered under the Securities Act and any applicable state
laws or an exemption from such registration is available.

          (e)  Accredited Investor.  Purchaser is an "accredited investor" as
               -------------------
such term is defined in Rule 501 promulgated under the Securities Act.

          (f)  Rule 144.  Purchaser understands that the exemption from
               --------
registration afforded by Rule 144 (the provisions of which are known to
Purchaser) promulgated under the Securities Act depends on the satisfaction of
various conditions and that, if applicable, Rule 144 may only afford the basis
for sales under certain circumstances and only in limited amounts.

          (g)  Exemption.  Purchaser hereby acknowledges and agrees that the
               ---------
purchase and sale of the Laser Shares is intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) and/or Section 3(b) of the
Securities Act, and, if applicable, in the sole judgment of Seller, the
provisions of Regulation D thereunder, which exemption is dependent upon the
truth, completeness and accuracy of the statements made by Purchaser herein and
in any other documents furnished by Purchaser to Seller.

                                   Section 7

                                INDEMNIFICATION

     7.1  General Indemnification.  Each of the parties hereto shall indemnify
          -----------------------
the other against any claim (including all costs, expenses, fees, damages,
penalties, fines, obligations, and liabilities, and costs of enforcement
(including attorneys' fees) under this Section 7 which shall result from (a) the
incorrectness of any representation or breach of any warranty of such party
contained herein or, (b) the breach by such party of any of his or its covenants
or agreements contained herein. Any amount payable pursuant to this Section 7
shall be paid promptly upon receipt of a written demand therefor from the
indemnified party, accompanied by a written statement describing the basis for
such indemnity.

     7.2  Withholding Tax Indemnification.  If Purchaser fails to withhold
          -------------------------------
applicable U.S. withholding taxes on the basis of the Tax Opinion, Seller shall
indemnify Purchaser for any adverse consequences resulting from such failure to
withhold, including, but not limited to, any taxes, interest or penalties.

                                       4
<PAGE>

                                   Section 8

                                 MISCELLANEOUS

     8.1  Fees and Expenses.  Seller and the Purchaser shall bear their own
          -----------------
respective expenses incurred in connection with this Agreement and consummation
of the transactions described therein.

     8.2  Notices.  Unless otherwise specifically provided herein, all notices,
          -------
consents, directions, approvals, instructions, requests, waivers, acceptances,
and other communications required or permitted by the terms hereof to be given
to any Person shall be given in writing by nationally recognized courier service
or by hand delivery, or by facsimile communication followed by such courier
service delivery, and any such notice shall become effective one business day
after delivery to a nationally recognized overnight courier service or if by
facsimile communication or by hand delivery, when received, and shall be
directed to the address as follows; provided that from time to time either party
                                    -------- ----
may designate a new address for purposes of notice hereunder by notice to the
other party:

                          If to Purchaser:

                                   IPG Photonics Corporation
                                   P.O. Box 519
                                   660 Main Street
                                   Sturbridge, MA 01566
                                   Telephone No.: (508) 347-6800
                                   Telecopy No.: (508) 347-6838

                          with a copy to:

                                   Winston & Strawn
                                   200 Park Avenue
                                   New York, New York 10166
                                   Attention: John W. Kaufmann
                                   Telephone No.: (212) 294-4754
                                   Telecopy No.: (212) 294-4700

                          If to Seller:

                                   Dr. Valentin P. Gapontsev

                                   c/o IPG Laser GmbH

                                   Siemensstrasse 7

                                   D-57299 Burbach

                                       5
<PAGE>

                                   Telephone No.: (2736) 4420-0

                                   Telecopy No.: (2736) 4420-25

     8.3  Entire Agreement; Amendments.  This Agreement contains the entire
          ----------------------------
agreement of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between the parties, whether
written or oral. This Agreement may not be amended except by written instrument
signed by all of the parties thereto.

     8.4  Successors and Assigns/Third Party Beneficiary.  This Agreement shall
          ----------------------------------------------
be binding upon and inure to the benefit of each of the parties hereto and their
respective heirs, personal representatives, successors and assigns. The
Investors listed on Exhibit A to the Stock Purchase Agreement. Relating to the
purchase of Series B Convertible Participating Preferred Stock, par value $0001
per share, of Purchaser shall be third-party beneficiaries of this Agreement.

     8.5  Governing Law/Jurisdiction.  This Agreement shall be construed and
          --------------------------
enforced in accordance with and governed by the laws of the State of New York
(without giving effect to principles of conflicts of law). All actions and
proceedings arising out of or relative to this Agreement shall be heard and
determined a Massachusetts state or federal court sitting in the City of Boston.
The parties hereby irrevocably submit to the exclusive jurisdiction of any
Massachusetts state or federal court sitting in the City of Boston in any action
or proceeding arising out of or relating to this Agreement, and hereby
irrevocably agree that all claims in respect of such action or proceeding may be
heard and determined in such Massachusetts state or federal court. The parties
hereby irrevocably waive, to the fullest extent they may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding. The parties agree that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW THAT CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN TORT OR CONTRACT OR OTHERWISE.

     8.6  Counterparts.  This Agreement may be executed in separate
          ------------
counterparts, each of which when so executed and delivered shall be an original
for all purposes, but all such counterparts shall constitute but one and the
same instrument.

     8.7  Severability.  Any provision of this Agreement that is prohibited or
          ------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

                                       6
<PAGE>

     8.8  Headings.  The section and article headings contained herein are for
          --------
convenience only and shall not be construed as part of this Agreement.

     8.9  Further Assurances.  Each of the parties hereto agrees that it shall
          ------------------
do, execute, acknowledge and deliver all such further actions, conveyances,
assignments, transfers, documents and other assurances necessary to effectuate
the purpose and carry out the terms and intent of this Agreement.

     8.10 Tax Consequences.  Purchaser shall have no liability for the tax
          ----------------
consequences to Seller and Seller shall have no liability for the tax
consequences to Purchaser as a result of the transactions contemplated hereby.

     8.11 Survival.  The representations, warranties, indemnities and covenants
          ---------
contained in this Agreement shall survive indefinitely.

                                       7
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have each caused this Purchase
Agreement to be duly executed as of the day and year first written above.

     PURCHASER:                           IPG PHOTONICS CORPORATION

                                          By: /s/ Verghese Mammen
                                              ---------------------------------
                                          Name:  VERGHESE MAMMEN
                                          Title: Treasurer


     SELLER:                              /s/ Dr. Valentin P. Gapontsev
                                          ------------------------------------
                                          DR. VALENTIN P. GAPONTSEV

                                       8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>9
<FILENAME>0009.txt
<DESCRIPTION>LOAN AGREEMENT
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.14



                                LOAN AGREEMENT

                               No. LA-201003/01

This Agreement is made on this day 3rd October, 2000 by and between

                           IPG Photonics Corporation

A Delaware Corporation registered to do business in Massachusetts and whose
Registered Office is 560 Main Street, Sturbridge MA 01566 U.S.A. hereinafter
referred to as the "LENDER",

And

                                NTO "IRE-POLUS"

A Russian Society with a Limited Responsibility registered to do business in
Fryazino, Moscow Region and whose Registered Office is Vvedenskogo Sq. l,
Fryazino, 141120 Russia hereinafter referred to as the "BORROWER",

Whereas:

The BORROWER is a research & development and manufacturing company operating in
the field of fiber optics communications and laser technology incorporated under
Russian Law, and is willing to enter into long term co-operation with the LENDER
and its affiliates in accordance with but not limited to the Assignment and
Research and Development Agreement signed between the LENDER and the BORROWER on
the 30th August 2000 and any other agreements for the supply of products,
research and development, technical assistance, capital equipment and any other
services that the BORROWER and its affiliates might from time to time enter into
with the LENDER.

Whereas:

The LENDER is a laser and fiber-optic equipment manufacturing company
incorporated under the Laws of the State of Delaware, USA, and is willing to
enter into long term co-operation with the BORROWER in accordance with but not
limited to the Assignment and Research and Development Agreement signed between
the LENDER and the BORROWER on the 30th August 2000 and any other agreements for
the purchase of products, research and development, technical assistance,
capital equipment and other services that the BORROWER might from time to time
enter into with the LENDER and its affiliates.
<PAGE>

NOW THEREFORE IT IS MUTUALLY AGREED AS FOLLOWS:

1.  SUBJECT OF THIS AGREEMENT

    1.1.  The LENDER hereby agrees to advance to the BORROWER the sum of USD
          1,000,000 (one million USD). The sum will be advanced to the BORROWER
          in two equal installments each of USD 500,000 (USD five hundred
          thousand) payable.

2.  USE OF PROCEEDS

    2.1.  The proceeds of the loan are to be used to acquire machinery and
          capital equipment to be used in research and development and the
          supply of components, products and equipment to the IPG Group in
          accordance with but not limited to the Assignment and Research and
          Development Agreement signed between the IPG Group and the Borrower on
          the 24th August 2000 and any other agreements that the IPG Group and
          the Borrower might from time to time enter into.

3.  TERMS OF PAYMENT

    3.1.  The payment of USD 1,000,000,- shall be made by the LENDER to the
          BORROWER'S account as per the following telegraphic transfer
          instructions:

          Bankers Trust Company
          New York, USA
          SWIFT Code: BKTRUS33
          Account No.: 04-405-953
          Beneficiary: Federal Bank of Innovations and Development
          Moscow, Russia
          For final credit to Account No.: 4070284040000007007
          Beneficiary: NTO "IRE-Polus" Co

    3.2.  The loan shall be drawn down as follows:

          500,000 USD amounting to 50% of the Loan

          The LENDER shall transfer USD 500,000 (five hundred thousands USD) to
          the BORROWER as per the payment instructions given above with value
          date 5th October 2000.

          500,000 USD amounting to 50% of the Loan

          The LENDER shall transfer USD 500,000 (Five Hundreds Thousands USD) to
          the BORROWER as per the payment instructions given above and as
          mutually agreed but in any event not later than 15th January 2001. The
          transfer is to be executed within 10 days of the BORROWER'S request
          for funds.
<PAGE>

4.  TERMS AND CONDITIONS OF THE LOAN

    4.1.  The Loan is unsecured.
    4.2.  Interest shall accrue on the principal at 7.00% being the current
          Federal Funds Rate of 6.50% plus a spread of 0.50%. This rate shall be
          fixed for the term of the loan.
    4.3.  Interest shall be calculated on the date that the Loan falls due on
          the basis of the number of days that loan has been drawn down in
          proportion to 365.
    4.4.  Interest is payable in cash on the date that the Loan falls due.

5.  REPAYMENT

    5.1.  The term of the loan is for six months from the date that the LENDER
          transfers the funds to the BORROWER such period being determined from
          the date on which the BORROWER draws down the first portion of the
          loan.

    5.2.  BORROWER may repay any capital sum and interest accrued thereon up to
          the date of repayment at any time before the expiry of the Loan
          subject to informing the LENDER in writing such intention and any such
          repayment of amounts due shall constitute the fulfillment of the
          BORROWER'S obligations and the fulfillment of LENDER'S rights under
          the agreement.

    5.3.  At the mutual agreement of both parties the loan may be converted into
          authorized but Unissued Common Stock of the BORROWER at a rate to be
          determined and agreed by the parties at the time of such conversion on
          or before the due date of the loan.

    5.4.  The repayment of any capital or interest accrued thereon shall be made
          by the BORROWER to the LENDER'S account as per the following transfer
          instructions:

          FirstMass Bank N.A.
          370 Main Street
          Worcester, MA 01608
          United States of America
          ABU Number: 211370545
          Account No.: 8029308942
          Beneficiary: IPG Phonics Corporation

    5.5.  To the extent that the LENDER owes the BORROWER any monies due under
          any other agreement between the LENDER and the BORROWER, the BORROWER
          may offset such amounts as are mutually agreed between the parties
          against the principal of the Loan and accrued interest accrued thereon
          by written notice to the LENDER to that effect.
<PAGE>

6.  DEFAULT PROVISIONS

    6.1.  Upon the occurrence of any of the following events, the entire unpaid
          principal balance of this Loan, together with all accrued interest,
          shall become immediately due and payable, and the LENDER shall be
          entitled to pursue all remedies which it may have, at law or in
          equity, for the enforcement and collection of the principal and
          accrued interest:

          6.1.1  The failure of the BORROWER to make any payment of interest or
                 principal when due on this Loan; or

          6.1.2. Any other default by the BORROWER in the payment or performance
                 of its obligations under this Loan, if such default is not
                 fully remedied within ten days after notice of such default is
                 given to the BORROWER.

7.  NOTICES

    7.1.  All notices, requests, demands or other communications to be given by
          either party to the other pursuant to this Agreement shall be in
          writing and in the English language and sent by telex, electronic
          mail, cable or registered mail, postage prepaid to the addresses in
          the introduction to this agreement.

8.  VALIDITY OF THE CONTRACT

    8.1.  This Loan and all representations, warranties, covenants and
          agreements contained herein, shall be binding upon the Borrower and
          its successors and permitted assigns and shall inure to the benefit of
          the LENDER and its successors, endorsees and assigns. The BORROWER may
          not assign or delegate any of its duties and or obligations under this
          Loan.

    8.2.  This Contract is valid for a period of six (6) months, such period
          being determined from the date on which the first portion of the loan
          is drawn down by the BORROWER and shall expire on the earlier of the
          completion of the period detailed above or the date of repayment of
          the Loan by the Borrower to the LENDER.

    8.3.  At the mutual agreement of both the LENDER and the BORROWER the term
          of this agreement and the Loan governed hereunder may be extended from
          time to time as is deemed appropriate.

    8.4.  This Loan Agreement and the rights and obligations hereunder shall be
          governed by and construed in accordance with the laws of the State of
          New York applicable to contracts entered into and be performed within
          said State. This Contract has been drawn in two (2) English / Russian
          Copies and has been duly signed by Parties concerned under the date
          herein above stated.
<PAGE>

FOR IPG Photonics Corporation

/s/ Dr. Timothy P.V. Mammen
------------------------------------

FOR NTO IRE-Polus:

/s/ Dr. Valentin P. Gapontsev
------------------------------------
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>10
<FILENAME>0010.txt
<DESCRIPTION>NON-COMPETITION AND CONFIRMATORY ASSIGNMENT
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.15

                            FORM OF NON-COMPETITION
                            ------------------------
                     AND CONFIRMATORY ASSIGNMENT AGREEMENT
                     -------------------------------------


     This NON-COMPETITION, CONFIDENTIALITY AND CONFIRMATORY ASSIGNMENT AGREEMENT
(the "Agreement") is made and entered into as of August __, 2000 by and among
[IPG Photonics Corporation, a Delaware corporation] (the "Company") and
[insert name of executive  ], an individual residing at [  insert address of
---------------------------                             --------------------
executive  ] (the "Executive").  Reference is made to that certain Stock
-----------
Purchase Agreement of the date herewith (the "Purchase Agreement"), which
contemplates an investment in the Company by the investors named therein (the
"Investors").

                                  WITNESSETH
                                  ----------

     WHEREAS, the Executive holds a direct equity interest in the Company;

     WHEREAS, the Company is a manufacturer of fiber amplifiers, fiber lasers
and associated products.  The Company's business is conducted throughout the
world and the reputation and goodwill of the Company are an integral part of its
business success;

     WHEREAS, as a material inducement to the Investors to enter into the
Purchase Agreement and in consideration of the covenants and agreements set
forth therein, and in order to provide the Investors with the full benefits of
their investment, the Executive has agreed to execute and deliver this
Agreement; and

     WHEREAS, the execution and delivery by the Executive of this Agreement is a
condition precedent to the Company's willingness to consummate the transactions
described in the Purchase Agreement.

     NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:

     Section 1.  Non-Competition; Non-Solicitation.  In view of the fact that
     ---------   ---------------------------------
any activity of the Executive in violation of the terms hereof would adversely
affect the Company and its subsidiaries (as defined below) and would deprive the
Investors under the Purchase Agreement of the benefits of their bargains
thereunder, and to preserve the goodwill associated with the Company's business,
the Executive hereby agrees to the following restrictions on his activities:

          (a)  Non-Competition.  The Executive hereby agrees that during the
               ---------------
period commencing on the date hereof and ending on the date which is the later
of (i) two (2) years after the date hereof and (ii) one (1) year after the date
on which the Executive's employment with the Company and its subsidiaries
terminates for any reason (the "Non-Competition Period") , he will not, without
the express written consent of the Company, directly or indirectly (including
without limitation through his involvement with IPG Laser Components, a German

                                       1
<PAGE>

corporation, NEO-IPG Co., a Russian corporation or [IP Canada, Inc.], a Canadian
corporation) anywhere in the world, engage in any activity which is, or
participate or invest in, or provide or facilitate the provision of financing
to, or assist (whether as owner, part-owner, shareholder, member, partner,
director, officer, trustee, employee, agent or consultant, or in any other
capacity), any business, organization or person other than the Company (or any
subsidiary of the Company), and including any such business, organization or
person involving, or which is, a family member of the Executive, whose business,
activities, products or services are competitive with any of the business,
activities, products or services conducted or offered by the Company and its
subsidiaries during any period in which the Executive serves as an officer or
employee of the Company or any of its subsidiaries, which business, activities,
products and services shall include in any event and without limitation the
business of manufacturing and testing of fiber amplifiers and fiber lasers and
related products[provided, however, [Russian carve out]. The Executive hereby
acknowledges that, because of the global-based nature of the Company's business,
the geographic scope as set forth above is reasonable.

     (b)  Non-Solicitation.  The Executive hereby agrees that during the period
          ----------------
commencing on the date hereof and ending on the date which is the later of (i)
two (2) years after the date hereof and (ii) eighteen (18) months after the date
on which the Executive's employment with the Company and its subsidiaries
terminates for any reason, he will not, without the express written consent of
the Company, (a) hire or engage or attempt to hire or engage for or on behalf of
himself or any such competitor any officer or employee of the Company or any of
its subsidiaries, or any former employee of the Company and any of its
subsidiaries who was employed during the one (1) year period immediately
preceding the date on which the Executive's employment or service relationship
with the Company was terminated for any reason, (b) encourage for or on behalf
of himself or any such competitor any such officer or employee to terminate his
or her relationship or employment with the Company or any of its subsidiaries,
(c) solicit for or on behalf of himself or any such competitor any client of the
Company or any of its subsidiaries or (d) divert to any person (as hereinafter
defined) any client or business opportunity of the Company or any of any of its
subsidiaries.

     The Board of Directors, with prior notice and adequate disclosure of any
opportunity or proposed activity, shall be entitled to interpret the provisions
of this Agreement and exempt any opportunity or activity of the Executive which
the Board of Directors, in its reasonable judgment, believes is in the interests
of, or not opposed to the interests of, the Company.

     Notwithstanding anything herein to the contrary, the Executive may make
passive investments in any enterprise the shares of which are publicly traded if
such investment constitutes less than three percent (3%) of the equity of such
enterprise.

     Neither the Executive nor any business entity controlled by him is a party
to any contract, commitment, arrangement or agreement which could, following the
date hereof, restrain or restrict the Company or any subsidiary of the Company
from carrying on its business or restrain or restrict the Executive from
performing his employment obligations, and as of the date of this Agreement the
Executive has no business interests whatsoever in or relating to the industries
in which the Company and its subsidiaries currently engage other than his
interest in the Company and other than interests in public companies of less
than one percent (1%).

                                       2
<PAGE>

     For purposes of this Agreement, any reference to the subsidiaries of the
Company shall be deemed to include all entities directly or indirectly
controlled by it through an ownership of more than fifty percent (50%) of the
voting interests.  As used in this Agreement, the term "person" shall mean an
individual, a corporation, an association, a partnership, a limited liability
company, an estate, a trust, and any other entity or organization.

     The Executive agrees that the Company may, at its option, enforce the non-
competition and non-solicitation provisions of this Section 1 by making any
compensation payments required to be made to the Executive as required by
applicable laws.


     Section 2.  Scope of Agreement.  The parties acknowledge that the time,
     ---------   ------------------
scope, geographic area and other provisions of this Agreement have been
specifically negotiated by sophisticated commercial parties and agree that (a)
all such provisions are reasonable under the circumstances of the transactions
contemplated hereby, (b) are given as an integral and essential part of the
transactions contemplated hereby and (c) but for the covenants of the Executive
contained in this Agreement, the Company and the Investors would not have
entered into or consummated the transactions contemplated hereby.  The Executive
has independently consulted with his counsel and has been advised in all
respects concerning the reasonableness and propriety of the covenants contained
herein, with specific regard to the business to be conducted by Company and its
subsidiaries, and represents that the Agreement is intended to be, and shall be,
fully enforceable and effective in accordance with its terms.

     Section 3.  Acknowledgement Regarding Inventions/Receipt of Fair
     ---------   ----------------------------------------------------
Compensation.  Executive hereby confirms, acknowledges and agrees that all
------------
inventions, modifications, discoveries, designs, developments, improvements,
processes, know-how, or intellectual property rights whatsoever (collectively,
"Developments") that he (either along or with others) has conceived, made or
reduced to practice at any time or times while employed by the Company or any of
its subsidiaries that:

     (a)  related to fixtures for and methods of manufacture of fiber amplifiers
          and certain aspects of fiber amplifiers,
     (b)  related from tasks assigned to the Executive by the Company or any of
          its subsidiaries to the business, or
     (c)  resulted from the use of premises or personal property (whether
          tangible or intangible owned, leased or contracted for or by the
          Company or any of its subsidiaries

are the sole and absolute property of the Company, its successors and assigns.
The employee acknowledges that all Developments were made as a "work for hire"
and all proprietary rights which the Executive may have acquired in such
Developments were assigned to the Company.  The Executive hereby acknowledges he
has not created any Developments that do not satisfy the provisions of Section
3(a), (b) or (c).  Executive hereby confirms, acknowledges and agrees that he
has received mutually-agreed upon compensation from the Company in consideration
for the

                                       3
<PAGE>

Company's ownership rights to the Developments set forth in this Section 3 and
that such consideration is fair and reasonable.

     Section 4.  Certain Remedies; Severability.  It is specifically understood
     ---------   ------------------------------
and agreed that any breach of the provisions of this Agreement by the Executive
or any of his affiliates will result in irreparable injury to the Company and
its subsidiaries, that the remedy at law alone will be an inadequate remedy for
such breach and that, in addition to any other remedy it may have, the Company
and upon authorization by the Board of Directors of the Company its subsidiaries
shall be entitled to enforce the specific performance of this Agreement by the
Executive through both temporary and permanent injunctive relief without the
necessity of proving actual damages, but without limitation of their right to
damages and any and all other remedies available to them, it being understood
that injunctive relief is in addition to, and not in lieu of, such other
remedies.  In the event that any covenant contained in this Agreement shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its extending for too great a period of time or over too great a geographical
area or by reason of its being too extensive in any other respect, it shall be
interpreted to extend only over the maximum period of time for which it may be
enforceable and/or over the maximum geographical area as to which it may be
enforceable and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.  The
existence of any claim or cause of action which the Executive may have against
the Company or any of its subsidiaries shall not constitute a defense or bar to
the enforcement of any of the provisions of this Agreement.  Executive agrees
that he will not assert, and it should not be considered, that any provision
contained in this Agreement prevents him from earning a living or is otherwise
void, voidable, or unenforceable or should be voided or held to be
unenforceable.

     Section 5.  Jurisdiction.  The parties hereby irrevocably submit to the
     ---------   ------------
non-exclusive jurisdiction of the courts of The Commonwealth of Massachusetts to
construe and enforce the covenants contained in this Agreement.  In the event
that the courts of any state shall hold such covenants unenforceable (in whole
or in part) by reason of the breadth of such scope or otherwise, it is the
intention of the parties hereto that such determination shall not bar or in any
way affect the right of the Company or upon authorization by the Board of
Directors of the Company any its subsidiaries to the relief provided for herein
in the courts of any other state within the geographic scope of such covenants,
as to breaches of such covenants in such other respective states, the above
covenants as they relate to each state being, for this purpose, severable into
diverse and independent covenants.

     Section 6.  Notices.  Any notice or demand which is required or provided to
     ---------   -------
be given under this Agreement shall be deemed to have been sufficiently given
and received for all purposes when delivered by hand, telecopy, telex or other
method of facsimile, or five days after being sent by certified or registered
mail, postage and charges prepaid, return receipt requested, or two days after
being sent by overnight delivery providing receipt of delivery, to the following
addresses:  if to the Company, P.O. Box 519, 660 Main Street, Sturbridge, MA
01566, Facsimile:  508-347-6838, Attn: [  insert name or title of officer  ],
                                          ---------------------------------
or at any other address designated by the Company to each Investor and the
Executive in writing; if to the Executive, [  insert address and facsimile
                                            ------------------------------
number  ], or at any other address designated by the Executive to the Company
--------
and the Investors in writing; if to the Investors, c/o TA Associates,

                                       4
<PAGE>

Inc., 20 Willow Road, Suite 100, Menlo Park, CA 94025, Facsimile: (650) 326-
4933, Attn: Michael C. Child, or at any other address designated by the
Investors to the Company and the Executive in writing.

     Section 7.  Miscellaneous.  This Agreement shall be governed by and
     ---------   --------------
construed under the laws of The Commonwealth of Massachusetts and shall not be
modified or discharged in whole or in part except by an agreement in writing
signed by the Company and the Executive.  The failure of any of the parties to
require the performance of a term or obligation or to exercise any right under
this Agreement or the waiver of any breach hereunder shall not prevent
subsequent enforcement of such term or obligation or exercise of such right or
the enforcement at any time of any other right hereunder or be deemed a waiver
of any subsequent breach of the provision so breached, or of any other breach
hereunder.  This Agreement shall inure to the benefit of, and be binding upon,
successors of the Company by way of merger, consolidation or transfer of
substantially all the assets of the Company, and may not be assigned by the
Executive.  This Agreement supersedes all prior understandings and agreements
between the parties relating to the subject matter hereof.

     Section 8.  Third Party Beneficiaries. The parties hereto acknowledge and
                 -------------------------
agree that the Investors are third party beneficiaries of this Agreement.



                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       5
<PAGE>

     IN WITNESS WHEREOF, the parties have executed this Non-Competition
Agreement under seal as of the date first set forth above.

                              COMPANY:

                              IPG PHOTONICS CORPORATION.



                              By:______________________________________
                                 Name:
                                 Title:



                              EXECUTIVE:




                              _________________________________________
                              Name:

                                       6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>11
<FILENAME>0011.txt
<DESCRIPTION>EMPLOYMENT CONTRACT/IPG LASER & DR. SHCHERBAKOV
<TEXT>

<PAGE>

                                                                   Exhibit 10.16


                              Employment contract

                            between IPG Laser GmbH

                            and its General Manager

                            Dr. Eugene Shcherbakov



Between the company named


     IPG Laser GmbH
     Siemensstrasse 7
     57299 Burbach

     hereinafter Company

     its shareholders
     -       Dr. Valentin P. Gapontsev, Burbach/Germany
             and
     -       IPG Photonics Corporation, Sturbridge/USA
             represented by its President, Mr. John Dalton

and


     Dr. Eugene Shcherbakov
     Am Sudhang 12
     57299 Burbach

     hereinafter General Manager


there is entered into by agreement the following Employment Contract:
<PAGE>

                              Employment Contract


                   ' 1 Scope of duties and other obligations


(1)  Effective 18 September 2000 Dr. Eugene Shcherbakov shall be appointed
     General Manager of the Company. The Employment Contract shall be valid from
     18 September 2000 on.


(2)  The General Manager shall represent the Company alone as provided by the
     statutes and the articles of incorporation.

     He shall be obligated and authorized to conduct the affairs of the Company
     alone.

     The General Manager shall be exempt from the restrictions of the
     prohibition against self-contracting per 181 per the articles of
     incorporation and this Contract.


(3)  Directives of the Shareholders' Meeting shall be obeyed.


(4)  In connection with general management, the General Manager shall be
     obligated to fulfill the duties of the Company in accordance with the
     statutes and the articles of incorporation.

     Furthermore, he shall take care of the economic, financial and
     organizational concerns of the Company in the best possible manner. In all
     decisions the General Manager shall be guided by the good of the Company.


(5)  The General Manager shall be required to maintain the strictest silence on
     all commercial, operational or technical information and processes which
     concern the Company and have been entrusted or otherwise have become known
     to him.

     This obligation shall also survive termination of this Employment Contract.


(6)  Commercial and operational documents of all kinds shall be carefully
     retained and may be used only for the purpose of the Company. The documents
     may not be made accessible to third parties.

     No right to retain documents shall be granted to the General Manager.


(7)  The General Manager shall be liable to the Company and to the Shareholders
     only in the case of malicious damage to the Company.
<PAGE>

(8)  The General Manager shall have the right to furnish his service even
     outside the registered office of the Company.
<PAGE>

     The working time per week shall be 40 hours; the General Manager shall not
     be bound to working at fixed times of the day.

     The General Manager shall be obligated to make himself available to the
     Company at any time when and if the good of the Company so requires.



                           ' 2 Secondary occupation


(1)  The General Manager shall be permitted to continue his activity as General
     Manager of VPG Laser Components GmbH. Approval of the Shareholders' Meeting
     shall not be required either for taking on further activities or for
     continuing same.


                               ' 3 Contract term


(1)  This Employment Contract shall become effective on 18 September 2000 and
     shall be entered into for an indefinite time.


(2)  In the first 3 years of the term, the Contract may be canceled by either
     party only for cause.

     Examples of such cause shall be refusal by the Tax Administration to
     approve this Employment Contract or individual provisions thereof.

     Thereafter the Contract may be canceled by either party to the contract by
     notice of 6 months to the end of a calendar year.


(3)  The General Manager may be removed from office only for cause. Removal from
     office shall not simultaneously result in cancellation of the contract for
     services. Should layoff take place by mutual understanding, the obligation
     of the Company to continue paying earnings shall be unaffected thereby.

     Should removal from office be ruled legally valid, the contract for
     services shall be treated as terminated as soon as the judgment ruling
     removal from office to be legally valid becomes legally enforceable.



                                 ' 4 Earnings


(1)  As remuneration for his activity, the General Manager shall receive a
     monthly salary in the amount of DM 28,000.00.
<PAGE>

     The salary payment shall be due on the last working day of each calendar
     month.

     In addition, Dr. Shcherbakov shall receive a prorated 13th and 14th salary
     payment in the same amount. The additional salary payments shall be
     disbursed in July and November respectively.

     The statutory wage tax obligation as well as the obligation to provide
     insurance shall be taken into consideration for aliens.


(2)  In the event of incapacity for work due to illness or accident, the General
     Manager shall continue to receive payment of all earnings for a period of 8
     weeks.


(3)  In the event of death of the General Manager, his family shall continue to
     receive payment of all earnings for a period of 6 weeks.



                         ' 5 Vacation and vacation pay


(1)  The General Manager shall be granted 30 working days per year of paid
     relaxation vacation.


(2)  Should the General Manager be unable to take his annual vacation because
     Company interests dictate otherwise, he shall have the right to
     compensation for the vacation on the basis of the amount of the base
     salary.



                           ' 5 Extra considerations


(1)  For the duration of this Employment Contract the General Manager shall have
     the right to have the Company provide him with an official car of luxury
     class, which may also be used for personal travel.

     Payment of taxes due on the equivalent monetary value of the resulting
     benefit shall be made by the General Manager.


(2)  The General Manager shall have the right to all voluntary, collectively
     agreed or statutory special and social benefits that the Company also
     grants to its other employees.


(3)  The General Manager shall receive from the Company reimbursement for
     charges and expenses against documented proof up to the maximum amounts
     allowed for tax purposes or up to the lump-sum amounts allowed for tax
     purposes.
<PAGE>

(4)  The General Manager shall be entitled temporarily to waive (defer) payment
     of his salary amounts in their entirety or partly for the good of the
     Company. His rights to payment of the salary shall remain unaffected by
     such deferral.

     In such a case a written loan agreement shall be entered into immediately,
     in which the interest rate and the repayment terms shall be defined in
     advance.

     Declarations of waiver of earnings without written loan agreement shall be
     deemed null and void.


(5)  The Company shall take out for the benefit of the General Manager an
     accident insurance policy with the following base coverage sums:

     a) death                                              DM 200,000.00
     b) progressive invalidity (350% model)         DM 200,000.00

     The insurance policy shall cover industrial and personal accidents in
     accordance with the General Accident Insurance Terms. It shall lapse on the
     day of his resignation from the Company.



                             ' 6 Final provisions


(1)  This Employment Contract shall be reviewed each year on 31 December to
     determine whether its provisions are effective and up-to-date and whether
     the salary is appropriate.

     Should it prove on the basis of the review that individual provisions have
     become or are likely to become ineffective or that special economic changes
     must be taken into account, an updated form of the Employment Contract
     shall be drafted within 6 weeks and at the latest 2 weeks thereafter signed
     by the parties to the contract.


(2)  Should individual provisions of this Contract be or become ineffective, the
     validity of the other provisions shall not be affected thereby.

     Instead of the ineffective provisions there shall be adopted an appropriate
     adjustment which most closely approaches the economic content of the
     ineffective clause.


(3)  Oral subsidiary agreements to this Contract have not been made.

     As a rule, all amendments and additions to the Contract shall be made in
     writing.
<PAGE>

     Retroactive amendments and additions, however, shall not be permitted.


(4)  In cases of doubt, the Articles of Incorporation shall have priority over
     the provisions of this Employment Contract.



Burbach, 18 September 2000



Dr. Eugene Shcherbakov          /s/ Dr. Eugene Shcherbakov
                                ------------------------------------------------



For the Company:          IPG Laser GmbH
                          represented by the General Manager, Dr. Valentin P.
                          Gapontsev



                          /s/ Dr. Valentin P. Gapontsev
                          ----------------------------------------------------



For the Shareholders:     Dr. Valentin P. Gapontsev, Burbach/Germany



                                 /s/ Dr. Valentin P. Gapontsev
                                ----------------------------------------------



                                IPG Photonics Corporation, Sturbridge/USA,
                                represented by the President, John Dalton
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>12
<FILENAME>0012.txt
<DESCRIPTION>AGREEMENT BETWEEN REGISTRANT AND ROBERT A. BLAIR
<TEXT>

<PAGE>

                                                                  EXHIBIT 10.17

                               February 3, 2000

Valentin P. Gapontsev, Ph.D.
Chairman, President and CEO
IPG Photonics Corporation
P.O. Box 519
660 Main Street
Sturbridge, Massachusetts 01566

Dear Dr. Gapontsev


     1.   This letter confirms the agreement as of October 4, 1999 for the
provision of legal services and non-legal consulting services by Robert A. Blair
("Blair") for IPG Photonics Corporation ("IPG"), its affiliated companies and
Dr. Valentin P. Gapontsev ("Dr. Gapontsev") (collectively the "IPG Group") to
assist in connection with the following:

          (a)  obtaining the revalidation of the L1A non-immigrant visa to the
     United States for Dr. Gapontsev, expiring November 29, 1999, for the
     previously approved Petition period through July 13, 2000 to permit
     multiple entries to the United States;

          (b)  obtaining the issuance of an extension of the previously approved
     Petition for an LIA visa for the full 36 month period;

          (c)  obtaining the issuance of an immigrant visa to the United States
     for Dr. Gapontsev granting him lawful Permanent Resident status;

          (d)  establishing a National Advisory Board ("NAB") of 8 to 10 members
     to advise and report to Dr. Gapontsev, recruiting prominent members to the
     NAB, and chairing the NAB for and under the direction of Dr. Gapontsev;

          (e)  overseeing the proposed public relations campaign for IPG and Dr.
     Gapontsev to be conducted by Coupe Associates, and possibly others to be
     selected by Dr. Gapontsev;

          (f)  assisting Dr. Gapontsev with potential private or venture capital
     investors for IPG;

          (g)  assisting Dr. Gapontsev with the selection of investment bankers
     and law firms for an initial public offering of the securities of IPG;

          (h)  providing national and international strategic, business and
     other advice to IPG, the IPG Group and Dr. Gapontsev, as needed or
     requested;

          (i)  reviewing and approving statements for services provided by
     outside counsel and consultants to IPG to ensure that they are fair and
     reasonable.
<PAGE>

          Blair has provided critical assistance to IPG and Dr. Gapontsev on
some of the above-referenced matters in the last several months.

     2.   Blair agrees to forego the payment of cash consideration for fees
based upon the time involved, the billing rate of Blair in performing services,
and the value of the services rendered, in order to receive compensation in the
form of stock options and warrants (see below). Unless otherwise agreed to by
IPG, Blair's consultants, such as Coupe Associates, Danziger & Mak and diGenova
& Toensing, will be compensated for services performed based upon the time
involved and their billing rates, or on a fixed fee basis, and the value of
their services rendered.

     3.   In return for foregoing the payment of cash consideration for services
rendered, Blair is hereby granted:

          (a)  non-qualified stock options to purchase up to 200,000 shares of
     the common stock of IPG ("Stock Options") at an exercise price of $1.00 per
     share, which exercise price is based upon the valuation of the company by
     an independent expert; payment will be by non-recourse promissory note to
     IPG at an interest rate which is the lesser of the applicable federal rate
     or 8.5%, and secured by the stock purchased; the Stock Options are granted
     to Blair upon terms and conditions pursuant to the stock option plan
     prepared by legal counsel and adopted by !PG for its executives, employees
     and independent contractors (such as Blair), a separate plan prepared and
     adopted for the National Advisory Board of IPG, or a separate letter
     agreement; the plan or separate letter agreement will set forth how
     specific terms and conditions for the Options will be determined,
     including, for example, the vesting schedule, the conditions under which
     the Options will not vest, the acceleration of vesting and the right to
     exercise upon the occurrence of certain events (e.g., exercisable prior to
     the completion of an initial public offering (IPO) of securities of IPG),
     restrictions on alienability of shares purchased pursuant to the exercise
     of the Stock Options and anti-dilution provisions; the Stock Options
     granted hereunder are in addition to the stock options to purchase 50,000
     shares of the common stock of IPG granted to Blair by separate letter from
     Dr. Gapontsev to Blair confirming his appointment as Chairman of the
     National Advisory Board of IPG; and

          (b)  in the event of an IPO of IPG's securities, warrants to purchase
     250,000 shares of the common stock of IPG in an IPO of securities of IPG at
     50% of the IPO price, exercisable prior to the completion of the IPO with
     payment by non-recourse promissory note to IPG at an interest rate which is
     the lesser of the applicable federal rate or 8.5%, and secured by the stock
     purchased ("Warrants").

     The Stock Options and Warrants granted are commensurate with the time and
value of Blair's services and with the contingent and risk nature of his not
receiving cash consideration from IPG or the IPG Group.

     4.   IPG agrees, however, to pay all expenses incurred by The Blair Law
Firm PC ("Firm") or Blair on its behalf such as for long distance and wireless
telephone, photocopying, fax transmissions, messengers, travel, meals and
entertainment, and for equipment purchases approved by IPG.
<PAGE>

     5.   The Firm and Blair will provide IPG with monthly statements for
expenses incurred, and IPG will pay each such statement within ten (10) days of
its date.

     6.   Blair may retain consultants to assist it on certain matters, as
approved by IPG. Blair shall require such consultants to submit monthly
statements to him for their services for review before submission to IPG for
direct payment.

     7.   Blair's rights hereunder may be assigned in whole or in part to
members of his family or to any entity under his control, and shall, in the
event of his death, be transferred to his heirs and assigns.

     Please indicate your agreement by signing and returning the enclosed copy
of this letter to me.

                                   Sincerely yours,

                                   /s/ Robert A. Blair

                                   Robert A. Blair
                                   Individually and For The Blair Law Firm, P.C


AGREED AND ACCEPTED

/s/ Valentin P. Gapontsev

Valentin P. Gapontsev, Individually and for
IPG Photonics Corporation and the IPG Group
<PAGE>


                                   AMENDMENT



     This agreement dated as of March 17, 2000 amends the letter agreement dated
February 3, 2000, between IPG Photonics Corporation (IPO) and Robert A. Blair
and memorializes oral discussions and agreements at that time (Amendment).

          1. The stock options ("Stock Options") granted by that certain letter
agreement dated February 3, 2000 ("Letter Agreement") between IPG Photonics
Corporation ("IPG") and Robert A. Blair ("Optionee") vested and were exercisable
on the date of that Agreement. Pursuant to that Letter Agreement, Optionee was
permitted to transfer Options to certain persons. Optionee intends to give
Options to the persons set forth in the attachment hereto (Transferees), which
Transferees shall, after exercise of such Options, give their proxy to Optionee
to vote their Shares until IPO has an initial public offering under the
Securities Act of 1933, as amended, or In a transaction contemplated by Section
3.(c) hereof. The Stock Options granted and any Shares issued pursuant to the
exercise of such Stock Options by Optionee or Transferees are subject, however,
to substantial risks of expiration or redemption, respectively, as follows:

               (a) If, on or before December 31, 2000, the Optionee voluntarily
     terminates the Letter Agreement, or IPG terminates the Letter Agreement
     "For Cause," (i) then all unexercised Options shall expire and (ii) any
     Shares issued pursuant to the exercise of the Options shall be redeemable
     by IPG, at its election, at the original exercise price of $1.00 per share;

               (b) If, after December 31, 2000 but before January 1, 2002, the
     Optionee voluntarily terminates the Letter Agreement, or the IPG terminates
     the Letter Agreement "For Cause," (i) then all unexercised Options shall
     expire and (ii) thirty percent (30%) of any Shares issued pursuant to the
     exercise of the Options shall be redeemable by IPG, at its election, at the
     original exercise price of$ 1.00 per share.

               (c) For purpose of this Amendment and the February 3, 2000 Letter
     Agreement, "For Cause" shall include, but not be limited to, Optionee's (i)
     willful or reckless breach of duty in providing legal or non-legal
     consulting services to IPG, (ii) felony conviction, or (iii) violation of
     the Intellectual Property Agreement between IPG and Optionee.

               (d) On exercise the Optionee and IPG agree that the Shares
     acquired thereby are subject to a substantial risk of forfeiture within the
     meaning of Section 83(a) of the Internal Revenue Code ("Code"), and that
     Optionee in his sole discretion may make a Code Section 83(b) election to
     include in his gross income the difference, if any, between the fair market
     value of the Shares at the time of exercise and the exercise price. IPG
     agrees to provide in its good faith and reasonable judgment to each
     Optionee the fair market value of his Shares for this purpose, and to claim
     as a corporate tax deduction an amount not greater than the amount
     includible by the Optionee in his gross income.
<PAGE>


          2.   The Shares may not be transferred except after compliance with
the conditions specified herein. Any attempt by Optionee or any Transferee to
transfer any Shares in violation of any provision of this Amendment or the
Letter Agreements will be void. IPG will not be required (a) to transfer on its
books any Shares that have been transferred in violation of this Amendment, or
(b) to treat as owner of such Shares, or to accord the right to vote or pay
dividends to any purchaser, donee or other transferee to whom such Shares may
have been so transferred.

          3.   (a) Each certificate representing Shares shall (unless otherwise
     permitted by the provisions hereof) be stamped or otherwise imprinted with
     a legend in substantially the following form:

               "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
               ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
               SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
               THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
               SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND
               APPLICABLE STATE SECURITIES LAWS"

               (b)  Each certificate representing Shares shall (unless otherwise
     permitted by the provisions hereof) be stamped or otherwise imprinted with
     a legend in substantially the following form:

               "THE TRANSFER AND OTHER MATTERS PERTAINING TO THESE SECURITIES
               ARE SUBJECT TO THE CONDITIONS SPECIFIED IN THE LETTER AGREEMENT,
               DATED AS OF FEBRUARY 3, 2000, AND THE AMENDMENT DATED MARCH
               17, 2000 BETWEEN IPG PHOTONICS CORPORATION AND ROBERTA BLAIR, AS
               AMENDED FROM TIME TO TIME, AND NO TRANSFER OF THESE SECURITIES
               SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
               FULFILLED."

               (c)  Upon request by IPG, if Optionee or any Transferee desires
     to transfer Shares, he shall deliver a written opinion of counsel for
     Optionee or Transferee, addressed to IPG, stating that in the opinion of
     such counsel (which opinion and counsel must be satisfactory to IPG in its
     sole discretion), the proposed transfer does not involve a transaction
     requiring registration or qualification of such Shares under the Securities
     Act of 1933, as amended (the "Securities Act"), or the securities or "blue
     sky" laws of any state of the United States. Optionee or Transferee, as the
     case may be, shall be entitled to transfer such Shares if IPG does not
     reasonably object to such transfer and request such


<PAGE>

          opinion within fifteen days after delivery of such notice, or, if it
          requests such opinion, after it has received such opinion. Each
          certificate or other instrument evidencing the securities issued upon
          the transfer of any Shares (and each certificate or other instrument
          evidencing any untransferred balance of such Shares) shall bear the
          legends set forth in Sections 3. (a) and (b) hereof.

     4.   If(i) any Shares are transferred pursuant to an effective registration
statement under the Securities Act or in a transaction contemplated by Section
3.(c) hereof which does not require that the Shares so transferred bear the
legend set forth in Section 3.(a) hereof; or (ii) the holder of Shares has met
the requirements for transfer of such Registrable Shares under Rule 144(k) under
the Securities Act (subject to the delivery of opinions as set forth above),
then the holder of such Shares shall be entitled to receive from IPG, without
expense, a new certificate in the name of the Optionee or Transferee, as the
case may be, not bearing the restrictive legend set forth in Section 3.(a)
hereof.

     5.   Any Optionee, Transferee or holder of Shares desiring to transfer
Shares that are no longer subject to the restrictions of either Section l.(a) or
Section 1(b), shall be entitled to receive from IPG, without expense, a new
certificate in the name of the Optionee, Transferee or holder not bearing the
restrictive legend set forth in Section 3.(b) hereof. Each certificate or other
instrument evidencing the securities issued upon the transfer of such Shares
(and each certificate or other instrument evidencing any untransferred balance
of such Shares) shall bear the legend set forth in Sections 3. (a) hereof. In
the event, however, that the terms and conditions of Section 4.(a) have also
been satisfied, then the Optionee, Transferee or the holder of such Shares shall
be entitled to receive from IPG, without expense, new certificates in the name
of the Optionee, Transferee or holder not bearing the restrictive legend set
forth in Section 3.(a) hereof.

     6.   In the event of an initial public offering ("IPO") of securities of
IPG, the merger or consolidation of IPG, or any reorganization, transfer of
substantially all the assets, consolidation, merger, dissolution, issuance or
sale of a majority equity interest in the company, or similar transaction, then
Optionee's and Transferee's equity interests in IPG shall be recognized and/or
included in such transactions on no less favorable terms and conditions than
those applicable to the other holders of IPG common stock, including Dr.
Valentin Gapontsev and Mr. Verghese Mammen.

     7.   This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.

     8.   This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to principles governing
conflicts of laws.
<PAGE>

AGREED AND ACCEPTED


/s/ Valentin P. Gapontsev
--------------------------------
Valentin P. Gapontsev
For IPG Phototonics Corporation


/s/ Robert A. Blair
--------------------------------
Robert A. Blair

<PAGE>

                                  Transferees

Name                   Number of Shares
----                   ----------------

David M. Blair                2,500

James M. Blair                2,500

Judith A. Blanchard           5,000
                             ------
                             10,000


<PAGE>


                         [LETTERHEAD OF IPG PHOTONICS]

                               November 29, 2000


Mr. Robert A. Blair
4936 Rodman Street, N.W.
Washington, D.C. 20016

Dear Bob:

     As you know, in a letter dated February 3, 2000 (copy enclosed) I agreed on
behalf of IPG Photonics Corporation ("IPG") to grant to you, in lieu of cash
consideration for legal and consulting services rendered by you commencing
October 4, 1999, (i) 200,000 non-qualified stock options ("Stock Options") at a
$1.00/share exercise price subject to a stock option plan contemplated to be
adopted by IPG and (ii) warrants to purchase 250,000 IPG shares of common stock
in the IPO at a 50% discount to the IPO offering price, payable by a non-
recourse note ("Warrants"). These grants are set forth in Paragraph 3(a) and
(b), respectively, of the February 3, 2000 letter.

     In our discussions leading to the February 3, 2000 letter we orally agreed
that, if the grant of the Warrants proved problematic for the lawyers and/or
underwriters, in lieu of the Warrants, IPG would provide you with 250,000 Stock
Options at a $1.00/share exercise price. As with the above February 3, 2000
grant of the 200,000 Stock Options, the grant of the 250,000 Stock Options would
be subject to a contemplated IPG stock option plan.

     By letter agreement dated March 17, 2000 ("Amendment," copy enclosed) we
amended the February 3, 2000 letter in relevant part to permit you (i) to
transfer 10,000 Stock Options to certain permissible transferees and (ii) to
enable you to exercise immediately the balance of the 190,000 Stock Options. On
March 17, 2000 you in fact exercised this Stock Option and acquired 190,000
shares of IPG common stock and exercised other stock options pursuant to which
you acquired 50,000 shares of IPG common stock for your service on the National
Advisory Board by payment of $50,000 in cash and $190,000 non-recourse note.

     The Amendment contemplated the 190,000 IPG shares you acquired upon
exercise would be subject to a "substantial risk" of forfeiture" within the
meaning of Section 83(a) of the Internal Revenue Code, as set forth in Paragraph
1(a) and (b) of the Amendment, and further contemplated you would make a Section
83(b) election, as to which IPG would take a consistent tax reporting position
that the $1.00/share exercise price was equal to the fair market value of an IPG
share of common stock. You in fact made the Section 83(b) election by a filing
with the IRS, and provided a copy of your election to IPG.

     On April 12, 2000 IPG adopted the 2000 Incentive Compensation Plan
("Plan"), effective March 1, 2000. The Plan expressly provides for the grant of
non-qualified stock options and restricted stock.

     I understand that IPG's outside counsel, Winston & Strawn, has raised some
legal concerns as to the structure of the Warrants and its affect upon IPG's
proposed initial public offering. For example, shares you acquire upon exercise
of the Warrants need to be locked up for 6 months after the IPO to satisfy the
underwriters, and in the absence of registration, would have to be held for one
year. IPG would also have to file and keep current a registration statement for
your 250,000 shares, thereby possibly interfering with IPG's future secondary
offerings.

     Accordingly, I propose that we give effect to our prior oral agreement
surrounding the February 3, 2000 letter (Paragraph 3(b)), by rescinding the
grant of the Warrants, and in lieu thereof granting you 250,000 IPG shares of
common stock constituting restricted stock ("Restricted Stock") under the Plan
at a $1.00/share purchase price, payable in cash or by a recourse note, or a
combination of cash and recourse note, as you choose.
<PAGE>

     The above grant of Restricted Stock is hereby deemed effective March 1,
2000, and is granted subject to the terms of the Plan and implementing
agreements. It is not intended that the Restricted Stock will be subject to a
substantial risk of forfeiture within the meaning of Section 83(a). IPG intends
to take a tax reporting position that the $1.00/share purchase equals the fair
market value of a share of IPG common stock as of March 1, 2000, unless
otherwise required by law or regulation.

     Please indicate your agreement by signing the duplicate originals of this
letter, and returning one original to me. With many thanks for your good counsel
and services to IPG, I am with kind regards,


                                             Sincerely yours,

                                             /s/ Valentin P. Gapontsev

                                             Valentin P. Gapontsev
                                       Chairman and Chief Executive Officer
                                            IPG Photonics Corporation

AGREED AND ACCEPTED:


/s/ Robert A. Blair
--------------------
Robert A. Blair
<PAGE>


                           RECOURSE PROMISSORY NOTE

$250,000                                                      November 29, 2000


FOR VALUE RECEIVED, Robert A. Blair promises to pay IPG Photonics Corporation,
a Delaware corporation (the "Company"), or order, the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000), together with simple interest on the
unpaid principal hereof from the date hereof at the then applicable federal rate
within the meaning of Section 1274 of the Internal Revenue Code of 1986, as
amended ("Code").

Interest only shall be payable in arrears on each anniversary date hereof.

All unpaid principal and accrued and unpaid interest shall become due and
payable on the fifth anniversary of the date of this Note. Should the
undersigned fail to make full payment of interest for a period of thirty (30)
days or more after the due date thereof, the entire unpaid principal balance of
this Note and all accrued and unpaid interest thereon shall become immediately
due at the option of the holder of this Note. Payments of principal and interest
shall be made in lawful money of the United States of America.

The holder of this Note shall have full recourse against the undersigned.

Should any action be instituted for the collection of this Note, the reasonable
costs and attorneys' fees of the holder shall be paid by the undersigned.

This Note is non-negotiable. The rights and benefits of this Note shall be non-
assignable and non-transferable by either the Company or Robert A. Blair.


/s/ Robert A. Blair
-------------------
Robert A. Blair
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>13
<FILENAME>0013.txt
<DESCRIPTION>PURCHASE AND SALES AGREEMENT DATED MAY 14, 1999
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.18



IPG PHOTONICS CORPORATION PURCHASE AND SALE AGREEMENT No. 1/99
--------------------------------------------------------------

This Purchase Agreement ("Agreement") is entered into by IPG Photonics
Corporation ("IPG"), representing the IPG Group of companies, and SDL
Incorporated ("SDL") in respect of a firm order for                     of
products as specified hereunder, on the following terms and conditions.

1.  PURCHASE OF MATERIALS.

    1.1 This Agreement constitutes a firm purchase and sale obligation between
        the parties hereto. IPG shall purchase and SDL shall sell the products
        specified as per the attached Exhibit B ("Products") in the numbers and
        of the specifications therein, and at the prices specified in Exhibit C.
        The initial delivery schedule in Exhibit A may be revised by IPG in
        accordance with the Release Order procedures described in Article 4
        ("Release Orders") if IPG's requirements change.


        If the numbers of units agreed by IPG for delivery, in accordance with
        the release procedure, falls short by    in any three (3) month period,
        in comparison with the delivery schedule specified in Exhibit A, or if
        the committed    for delivery during the 18 months term of this
        Agreement are no longer a reasonable estimate, SDL reserves the right to
        adjust the prices in negotiation with IPG, provided that the shortfall
        is not the result of SDL's inability to deliver the Products as per the
        Release
        Orders.


        Such price adjustment will be based upon, but not limited to, an
        analysis of the number of units of Products released to date, the
        remaining Term of this Agreement and the rolling horizon forecast for
        the remaining Term of this Agreement.


        IPG acknowledges that SDL's prices contained in Exhibit C are based on
        IPG's commitment to purchase    within the eighteen (18) months' Term of
        this Agreement.

2.  PRICES AND INVOICES.

    2.1 The prices for the Products are listed in Exhibit C in U.S. currency,
        unless otherwise stated, and shall remain in effect during the Term of
        this Agreement as defined in Article 19.1 of the Agreement ("Term of
        this Agreement"). If during the Term price changes are put into effect
        by mutual agreement of IPG and SDL, such prices shall apply to all
        Release Orders issued by IPG after the effective date(s) of such price
        change(s).
<PAGE>

    2.2 All invoices in respect of supplies to IPG from SDL are due for payment
        thirty (30) days from the date of invoices, provided that:

        (a) the goods ("Products") are received by IPG in sound condition;

        (b) the goods ("Products") conform to the Release Orders and the agreed
            specification.

    2.3 Freight charges and all applicable taxes and duties in respect of
        supplies shall be paid directly by IPG. Notwithstanding the foregoing,
        if appropriate SDL reserves the right to collect all applicable taxes if
        valid tax exemption certificates are not furnished by IPG to SDL.

    2.4 IPG may deduct from SDL's outstanding invoices any monies owed to IPG by
        SDL as a result of transactions under this Agreement.

3.  SHIPMENT AND DELIVERY.

    3.1 Each delivery of Products shall be initiated by a written or electronic
        Release Order issued to SDL by IPG. Each Release Order shall specify:
        (i) the quantity of Products in numbers, (ii) the unit price, (iii) the
        required shipment dates, and (iv) the preferred common carrier or
        freight forwarder. SDL shall confirm receipt and commit to the shipment
        dates ("Commitment Date") of the Release Order within ten (10) working
        days from the date thereof. If there is an error, inconsistency with the
        terms of this Agreement or a problem in committing to the required
        shipment dates, SDL and IPG agree to negotiate in good faith a mutually
        acceptable solution for the Release Order in question.

    3.2 A Release Order shall be deemed to have been placed as of the issue date
        thereof. IPG shall not be liable for any costs related to or payments
        for:

        (a) Products not subject to a Release Order from IPG;

        (b) Products received by IPG but not conforming to the Release Order or
            to the agreed specification.

    3.3 All deliveries shall be made complete as per the Release Orders. SDL
        shall, within twenty-four (24) hours of SDL's discovery of any potential
        failure to ship the specified quantity of Products by the Commitment
        Date, give IPG both an oral notification, followed by either a written
        or electronic communication of any such potential failure. Should only a
        portion of the Products be available for shipment by the Commitment
        Date, SDL shall ship the available Products unless directed in writing
        by IPG to rechedule shipment.

    3.4 If SDL ships any Product by a method other than as specified in the
        corresponding Release Order, SDL shall pay any resulting increase in the
        cost of freight incurred over the cost of freight which would have been
        incurred had SDL complied with IPG's shipping instructions.

                                      -2-
<PAGE>

    3.5 If SDL fails to make a timely shipment by the Commitment Date, the
        Products affected shall be shipped by air transportation or other
        expedient means. SDL shall pay for any resulting increase in the freight
        cost over that which IPG would have been required to pay by the
        specified method of transportation.

    3.6 If SDL ships more Products than as per the Release Order, the numbers
        over-shipped may, at IPG's discretion, either be kept by IPG for credit
        against future Release Orders or returned to SDL pursuant to Article 6.
        If IPG elects to retain the Products for credit against future Release
        Orders, SDL shall be authorized to issue an invoice to IPG for such
        Products, for which payment shall be due thirty (30) days from the
        agreed delivery date of the subsequent Release Order and in accordance
        with Article 2.2. However, in no case shall payment be delayed for
        greater than sixty (60) days from the date of invoice.

    3.7 SDL shall obtain IPG's approval before making any shipment more than
        five (5) working days prior to the Commitment Date specified in the
        Release Order. If SDL ships more than five (5) working days in advance
        of such Commitment Date without IPG's approval, IPG may at its option
        either return the Products pursuant to Article 6 or make payment in
        accordance with the delivery date as per the Release Order and in
        accordance with Article 2.2. However, in no case shall payment be
        delayed for greater than sixty (60) days from the date of invoice.

    3.8 Failure to deliver at least      of the specified quantities in a
              month period according to the Release Order (a "Shortfall") shall
        constitute a breach of this Agreement. In such an event, IPG will advise
        SDL in writing providing details of the Shortfall in delivery and will
        allow SDL thirty (30) days to make good the Shortfall. Failure by SDL to
        make good the Shortfall within such thirty (30) day cure period shall
        constitute a material breach of the Agreement. In such an event, the
        parties agree to meet and negotiate in good faith a recovery plan for
        the delivery schedule.

    3.9 Shipment shall be F.O.B. SDL's plant or warehouse in the United States.
        Upon shipment by SDL i.e. upon delivery of the Products to the common
        carrier of freight forwarder specified by IPG in the Release Order,
        title to the Products and the risk of loss or damage shall pass from SDL
        to IPG, subject to the provisions of Article 3.10.

    3.10 SDL shall preserve, package, handle and pack the Products adequately to
        protect the Products from loss or damage, in conformity with sound
        commercial practice. SDL shall be responsible for any loss or damage due
        to its failure to adequately preserve, package, handle or pack the
        Products. In such an event, IPG shall not be required to pursue any
        claims for such loss or damage against the common carrier involved.

    3.11 Each delivery of Products to IPG shall include a packing list, which
        shall contain at least the following information:

        (a) The Release Order number;

                                      -3-
<PAGE>

        (b) the SDL part numbers;

        (c) The quantity of Products shipped; and

        (d) The date of shipment.

4.  RELEASE PROCEDURE.

    4.1 IPG shall issue Release Orders for Product deliveries in accordance with
        an 18-month rolling horizon forecast consisting of three time zones:
        Fixed, Firm and Planning. The Fixed zone shall comprise at all times the
        first three months of the current balance of this Agreement's Term,
        initially months 1 through 3. The Firm zone shall be the three month
        period following the Fixed zone, initially months 4-6. The Planning zone
        shall be the remaining months in the Term, initially months 7-18. IPG
        shall provide SDL a written update of the rolling horizon forecast
        during the first week of each month of the Agreement Term, showing by
        month the quantities forecast for each of the zones. The initial rolling
        horizon forecast shall be the delivery schedule contained in Exhibit A
        attached hereto.

        (a) Product quantities for delivery in the Fixed zone are
            and IPG shall issue Release Orders for such quantities of the
            Product when a particular month first enters the Fixed zone, which
            is          prior to shipment.

        (b) Product quantities for delivery in the Firm zone may be varied by up
            to + or -     prior to a particular month entering the Fixed zone.
            Such percentage variance shall be calculated by comparing the
            quantity specified for that month upon entering the Firm zone with
            that same month's quantity upon entering the Fixed zone.

        (c) Product quantities for delivery in the Planning zone are
            and may be       subject to the total    order commitment
            described in Article 1.1.

    4.2 Changes to Product deliveries within the Fixed zone or in excess of the
        allowable variance within the Firm zone as specified in Article 4.1 are
        not permitted except by mutual agreement.


5.  QUALITY PROGRAM, INSPECTION AND WARRANTY.

    5.1 SDL shall maintain an objective quality program for all Products
        supplied pursuant to this Agreement. SDL's program shall be in
        accordance with the current and updated version of SDL's Quality Policy
        during the Term of this Agreement. SDL shall, upon IPG's request,
        provide to IPG copies of SDL's policy

                                      -4-
<PAGE>

        and procedures and SDL agrees to consider IPG's requests for amendments
        to such policy and procedures.

    5.2 IPG shall have the right to inspect, at a mutually agreed time, at SDL's
        plant, both Products and nonproprietary testing areas for the Products,
        Any such inspection of Products shall be prior to shipment; testing
        areas may be inspected at any time during the Term of this Agreement.
        IPG has the right to such inspection provided such inspection is
        reasonable and relevant to this Agreement, including without limitation
        to ensure SDL's compliance with the specified and applicable quality
        requirements. SDL shall provide access for IPG to SDL's facilities and
        services as may be reasonably required by IPG in performing any such
        inspection. Acceptance by IPG of any Products inspected pursuant to this
        Article 5.2 shall be final only after inspection, pursuant to Article 7,
        of the Products by IPG at its own works after delivery.

    5.3 SDL warrants that all Products shall be free from defects in workmanship
        and materials. This warranty does not apply to Products which have
        failed, become defective or unworkable due to abuse, mishandling,
        misuse, alteration, negligence, improper installation, use which is not
        in accordance with the information and precautions described in the
        applicable operating manual, or other causes beyond SDL's control. This
        warranty does not apply to (i) any Products or components not
        manufactured by SDL or (ii) any aspect of the Products based on IPG's
        specification, if applicable, unless SDL has reviewed and approved such
        specification in writing.

    5.4 The warranty specified in Article 5.3 shall:

        (a) Survive any inspection, delivery, acceptance, or payment by IPG; and

        (b) Be in effect for        following the date of shipment of
            the Products to IPG; or

        (c) In the case of Products under warranty that are replaced or
            reworked, be in effect for the remaining unexpired portion of the
            original warranty period applicable to the replaced or reworked
            Product, excluding the time period between SDL's receipt of said
            Product and its return to IPG.

    5.5 THE FOREGOING WARRANTY IS EXCLUSIVE AND IS IN LIEU OF ALL OTHER
        WARRANTIES, WHETHER EXPRESSED OR IMPLIED, AS TO THE PRODUCTS, INCLUDING
        ANY IMPLIED WARRANTY OF MARKETABILITY OR FITNESS FOR A PARTICULAR
        PURPOSE. IPG'S SOLE AND EXCLUSIVE REMEDY SHALL BE SDL'S OBLIGATION TO
        REPLACE THE PRODUCT OR GIVE A CREDIT OR REFUND AS SET FORTH IN ARTICLES
        6 and 7. IN NO CASE WILL SDL'S AGGREGATE LIABILITY TO IPG UNDER THIS
        ARTICLE 5.5 BE GREATER THAN THE PURCHASE PRICE ACTUALLY PAID BY IPG TO
        SDL FOR THE PRODUCTS WHICH ARE THE SUBJECT OF IPG'S CLAIM.

                                      -5-
<PAGE>

6.  RETURN OF PRODUCTS.

    6.1 All Products returned by IPG to SDL, including Noncomplying Products
        defined in Article 7.1 below, shall be accompanied by a Return Materials
        Authorization ("RMA"). Unless further verification is reasonably
        required by SDL, SDL shall supply an RMA within three (3) working days
        of IPG's request for the return of suspected Noncomplying Products and
        for all other Product returns. If further verification is so required,
        the RMA shall be supplied by SDL within five (5) working days of receipt
        of the appropriate verification from IPG. With the return of any
        suspected Noncomplying Product under this Article, IPG will specify, in
        writing, the reasons for non-compliance with the return.

    6.2 All suspected Noncomplying Products shall be returned by IPG freight
        prepaid to SDL's facility. All overshipments, and early shipments
        returned by IPG to SDL, and all replacement or reworked Products shipped
        by SDL to IPG to replace Noncomplying Products, shall be at SDL's risk
        and expense, including transportation charges to IPG.

7.  INSPECTION, ACCEPTANCE AND NONCOMPLYING PRODUCTS.

    7.1 All Products shall be subject to acceptance inspection and testing by
        IPG upon delivery. Unless IPG notifies SDL in writing of rejection by
        IPG within fifteen (15) working days of receipt of the Product, such
        received Product shall be deemed to be provisionally accepted. However,
        IPG reserves the right to conduct lifetime tests of the Products as
        described in the agreed specification to ensure compliance and unless
        IPG notifies SDL in writing within sixty (60) working days of receipt of
        the Product of any such lifetime test failures, such received Product
        shall be deemed to be accepted.

        If any Product is deemed to be defective or otherwise not in conformity
        with the specification of this Agreement by IPG, IPG shall return the
        suspected Noncomplying Product in accordance with Article 6. If SDL,
        after SDL's inspection of the suspect Noncomplying Product, concurs that
        such Product is not in conformity with the specification and, therefore,
        deemed a "Noncomplying Product", SDL may elect in its sole discretion,
        to:

        (a) Replace or rework at SDL's expense the Noncomplying Product; or

        (b) Refund any payment made to SDL for the Noncomplying Product within
            thirty (30) days from the date of return of the Noncomplying
            Product.

    7.2 SDL shall, if SDL selects the alternative in Article 7.1(a), return the
        replacement or reworked Product as soon as possible but in any event
        prior to any further shipment of new units.

    7.3 If SDL fails to return the replacement or reworked Product to IPG in a
        timely manner as specified in Article 7.2, IPG may reject the
        Noncomplying Product and refuse acceptance of replacement or reworked
        Product and accept a full refund of

                                      -6-
<PAGE>

        the original purchase price of the replacement or reworked Product
        without any deductions by SDL. Any Product refunds pursuant to this
        Article 7.3 or 7.1(b) shall be counted toward IPG's total purchase
        obligation set forth in Article 1.1.

    7.4 SDL shall provide IPG with SDL's elected disposition of any suspect
        Noncomplying Products within thirty (30) working days of receipt of the
        Product at SDL's facility. In the event SDL does not find the suspect
        Noncomplying Product to be in non-compliance with the specification, SDL
        shall return the Product to IPG "as is" with a written report of SDL's
        findings.

    7.5 Upon IPG's request, SDL shall promptly furnish a Corrective Action
        Report on any Noncomplying Product.

8.  PROCESS OR DESIGN CHANGES.

    8.1 Unless otherwise covered in an applicable general specification referred
        to in this Agreement:

        (a) With respect to process changes that do not affect the form, fit or
            function of the Products, no significant process changes shall be
            made or incorporated in Products without the prior written
            notification of IPG;

        (b) With respect to process changes that do affect the form, fit or
            function of the Products, or in the event of the withdrawal of a
            product line, SDL shall provide six (6) months' prior written notice
            to IPG. The form, fit, or function of the Products includes all
            characteristics that affect compliance to the specification
            including all external dimensions. SDL shall discuss changes with
            IPG and as far as practicable changes shall accommodate IPG's
            requirements.

    8.2 In the event that changes to the Products affect its form, fit or
        function, or SDL plans to withdraw a Product from its product line, IPG
        shall have the right to make a last buy of the Product prior to the
        effective date of the change or withdrawal. This last buy option shall
        be a firm non-cancelable order. Shipment dates and quantities under this
        last buy provision will be mutually agreed upon by the parties. IPG will
        be relieved of any further purchase obligation for the specified
        Product.

9.  PATENT INDEMNIFICATION.

    9.1 SDL shall defend, indemnify, and hold harmless IPG and its affiliates,
        and subsidiaries, from and against all legal proceedings in respect of
        any alleged infringement of any Products furnished hereunder of any
        United States patents and against all claims, losses, demands, fees,
        damages, liabilities, costs, expenses, and obligations, which may be
        assessed against IPG on account of such infringement; provided that SDL:

                                      -7-
<PAGE>

        (a) shall have reasonable written notice of all claims and/or legal
            proceedings alleging such infringement;

        (b) shall have full opportunity and authority to assume the sole defense
            and settlement of such claims and/or legal proceedings; and

        (c) shall be furnished, upon SDL's request and at SDL's expense, all
            reasonable information and assistance from IPG for such defense.

    9.2 In addition to providing information requested by SDL in Article 9.1(c),
        IPG, at its option, shall have the right to participate fully in any
        such defense at IPG's own expense.

    9.3 If any Product in any such legal proceedings or claim is held to
        constitute an infringement ("Infringing Product"), SDL shall at its
        option and expense:

        (a) Procure for IPG the right to continue using the Infringing Product;

        (b) Replace the Infringing Product with a non-infringing Product of like
            form, fit or function;

        (c) Modify the Infringing Product to be non-infringing; or

        (d) If unable to replace or modify the Infringing Product, remove the
            Infringing Product and refund in full the purchase price paid by IPG
            for the Infringing Product without any deductions by SDL.

    9.4 IPG agrees to indemnify, defend and hold harmless SDL from and against
        all legal proceedings and from all claims, losses, demands, fees,
        damages, liabilities, costs, expenses, and obligations, which may be
        assessed in any legal proceedings alleging that the Product infringes
        any United States patent, and only:

        (a) to the extent any such infringement by the Product is found to arise
            from the adherence to specifications or drawings relating to the
            Product which IPG directs SDL to follow; or

        (b) to the extent any such infringement by the Product is caused by the
            incorporation of the Product into devices.

    9.5 IPG's duty to indemnify is contingent upon SDL:

        (a) providing reasonable written notice of all claims and legal
            proceedings alleging such infringement;

        (b) providing IPG the full opportunity and authority to assume the sole
            defense and settlement of such claims and/or legal proceedings; and

        (c) furnishing upon IPG's request and at IPG's expense, all reasonable
            information and assistance from SDL for such defense. In addition to
            providing information requested by IPG, SDL, at its option, shall
            have the right to participate fully in any such defense at SDL's own
            expense.

                                      -8-
<PAGE>

10.    LIMITATION OF LIABILITY.

       10.1   IN NO EVENT WILL SDL BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
              SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO
              LOSS OF ANTICIPATED PROFITS OR BENEFITS, EVEN IF SDL HAS BEEN
              INFORMED OF THE POSSIBILITY IN ADVANCE, ARISING OUT OF THE SALE OF
              PRODUCTS OR IN ANY WAY ARISING OUT OF THIS AGREEMENT. EXCEPT FOR
              WARRANTY OBLIGATIONS UNDER ARTICLE 5.5, IN NO CASE WILL SDL'S
              AGGREGATE LIABILITY TO IPG BE GREATER THAN EITHER THE LESSER OF I)
              THE PURCHASE PRICE ACTUALLY PAID BY IPG TO SDL FOR THE PRODUCTS,
              WHICH ARE THE SUBJECT OF IPG'S CLAIM OR II) ONE MILLION DOLLARS.

11.    GOVERNMENTAL COMPLIANCE.

       11.1   SDL shall comply with all federal, state, local, and foreign laws,
              rules, and regulations applicable to its obligations under this
              Agreement or to Products supplied hereunder.

       11.2   SDL shall furnish to IPG any information reasonably required
              during the Term of this Agreement and a reasonable period
              thereafter to enable IPG to comply with the requirements of any
              federal, state, local, or foreign government agency in its use of
              the Products.

       11.3   Without limiting the obligations under Article 11.1, SDL warrants
              that:

              (a)    SDL shall comply with the requirements of Executive Order
                     11246, the Vocational Rehabilitation Act, and the Vietnam
                     Era Veterans Readjustment Assistance Act;

              (b)    Each chemical substance contained in the Products is on the
                     inventory of chemical substances compiled and published by
                     the Environmental Protection Agency pursuant to the Toxic
                     Substances Control Act;

              (c)    All Products shall be shipped in conformity with government
                     or freight regulations and requirements applicable to
                     chemicals; and

              (d)    All Material Safety Data Sheets required to be provided by
                     SDL for any Product shall be provided to IPG prior to
                     shipment of the corresponding Products and shall be
                     complete and accurate.

12.    FORCE MAJEURE.

       12.1   SDL shall not, subject to the provisions of this Article 12, be
              liable for any delay in performance under this Agreement caused by
              fire, flood, earthquake, explosion, war, strike, embargo,
              governmental regulations, civil or military authority, an act of
              God or any other cause beyond SDL's control excluding SDL's fault
              or

                                      -9-
<PAGE>

              negligence (collectively "Delaying Cause"). SDL shall, in the
              event of a Delaying Cause, immediately give notice to IPG of the
              Delaying Cause.

       12.2   In the event of a Delaying Cause, IPG may elect in its sole
              discretion, and as its exclusive remedy hereto, to:

              (a)    Terminate this Agreement if such Delaying Cause is not
                     cured within 120 days of said notice to IPG or any part
                     hereof as to Products not shipped; or

              (b)    Suspend this Agreement in whole or in part for the duration
                     of Delaying Cause, buy similar products elsewhere, and
                     deduct from any quantities specified under this Agreement
                     the quantity so purchased.

       12.3   If IPG selects the alternative specified in Article 12.2(b) for
              any Delaying Cause, IPG may resume performance under this
              Agreement once the Delaying Cause ceases to exist and extend the
              Term up to the length of time the Delaying Cause endured.

       12.4   Unless IPG gives notice of termination pursuant to Article 12.2(a)
              120 days after notice from SDL of the Delaying Cause, IPG shall be
              deemed to have selected alternative 12.2(b).

13.    TERMINATION.

       13.1   If either party commits a material breach of any provision or
              obligations of this Agreement, the injured party may by sixty (60)
              days prior written notice to the other party terminate the whole
              or any part of this Agreement unless:

              (a)    during such notice period the defaulting party shall have
                     remedied any such failure; or

              (b)    if the breach is one which by its nature cannot be fully
                     remedied in the sixty (60) day notice period, the parties
                     shall have negotiated in good faith an additional cure
                     period and the defaulting party shall have remedied any
                     such failure within this extended cure period.

              A "Material Breach" herein is a failure of either party to perform
              any substantive promise or performance under this Agreement when
              due without reasonable cause.

       13.2   This Agreement may be terminated forthwith, at the option of
              either party, upon written notice to the other party upon the
              occurrence of any of the following events with respect to the
              other party:

              (a)    Proceedings under state or federal law, whether voluntary
                     or involuntary, in bankruptcy, insolvency or debtor's
                     relief law by or against such party, which proceedings are
                     not dismissed within sixty (60) days;

              (b)    Appointment, with or without such party's consent, of a
                     receiver or an assignee for the benefit of creditors;

                                      -10-
<PAGE>

              (c)    Such party ceases to carry on its business;

              (d)    Such party is liquidated or dissolved.

       13.3   The rights and remedies granted to the parties pursuant to this
              Article 13 are in addition to, and shall not limit or affect, any
              other rights or remedies available to the parties in law or in
              equity.

14.    NOTICES.

       14.1   Any notice given pursuant to this Agreement shall be in writing
              and shall be deemed received as of five (5) working days after
              posting by registered or certified mail, return receipt requested,
              postage prepaid (or upon actual receipt thereof, whichever occurs
              first) to the addresses specified on the signature page of this
              Agreement.

       14.2   Either party may change address for purposes of notice in writing
              to the other party.

15.    COUNTRY OF MANUFACTURE AND DUTY DRAWBACK RIGHTS.

       15.1   Upon IPG's request, SDL shall provide IPG with appropriate
              certification stating the country of origin for the Products,
              sufficient to satisfy the requirements of:

              (a)    The customs authorities of the country of receipt; and

              (b)    Any applicable export licensing regulations, including
                     those of the United States.

       15.2   SDL shall mark each Product (or the Product's container if there
              is no room on the Product) with the country of origin. SDL shall,
              in marking Products, comply with the requirements of the customs
              authorities of the country of receipt.

16.    CONFIDENTIAL INFORMATION.

       16.1   IPG and SDL agree that in pursuance of transactions under this
              Agreement, the parties are likely to become both disclosing
              parties of their own Confidential Information and receiving
              parties of Confidential Information. Any such Confidential
              Information shall be used only for performance under this
              Agreement. As used in this Article 16, the term "Confidential
              Information" shall include, without limitation:

              (a)    All information or data concerning or related to either
                     party's products (including discovery, invention, research,
                     improvement, development, manufacture, or sale of products)
                     or business operations (including sales costs, profits,
                     pricing methods, organizations, employee or customer lists,
                     and processes);

                                      -11-
<PAGE>

              (b)    All forecasts for production, support, or service
                     requirements submitted by IPG pursuant to this Agreement.

       16.2   All Confidential Information divulged pursuant to this Agreement
              shall be disclosed in writing marked with a "confidential" or
              "proprietary" or similar legend. If Confidential Information is
              divulged other than in writing, it shall be identified as
              proprietary at the time and shall, within 30 days thereof, be
              confirmed in writing, so marked and transmitted to the receiving
              party.

       16.3   All information so identified or marked shall remain the
              disclosing party's property and will be used by the receiving
              party only for performance under this Agreement unless first
              authorized in writing by the disclosing party. The receiving party
              shall not disclose to any person or entity, other than those
              employees of the receiving party who have a need to know, any
              Confidential Information of the disclosing party, which the
              receiving party may obtain from the disclosing party. The
              receiving party shall maintain all Confidential Information in
              strict confidence. The receiving party shall take all reasonable
              steps to ensure that no unauthorized person or entity has access
              to Confidential Information, and that all authorized persons
              having access to Confidential Information refrain from any
              unauthorized disclosure. Any Confidential Information furnished
              hereunder shall be returned or destroyed when the receiving party
              no longer needs the information for the stated purpose or upon the
              disclosing party's request.

       16.4   The obligation imposed by this Article 16 shall continue in full
              force and effect for a period of five (5) years from the date of
              the disclosure, regardless of whether this Agreement is terminated
              earlier.

       16.5   The provisions of this Article 16 shall not apply to any
              information that:

              (a)    is rightfully known to the receiving party prior to
                     disclosure;

              (b)    is rightfully obtained by the receiving party from any
                     third party without any obligation of confidentiality;

              (c)    is or is made available to the public without restrictions;

              (d)    is disclosed by the receiving party with the prior written
                     approval of the disclosing party;

              (e)    is developed independently by the receiving party without
                     benefit of the information received pursuant to this
                     Agreement; or

              (f)    is disclosed in response to a valid order of the court or
                     authorizing agency of government provided however that
                     notice first be given to the disclosing party so that, if
                     appropriate, the disclosing party may seek protection.

                                      -12-
<PAGE>

17.    ASSIGNMENT.

       17.1   Except as provided in this Article, neither IPG nor SDL shall
              assign this Agreement or any right or interest under this
              Agreement, nor delegate any duties or assign any rights or claims
              under this Agreement to any third party without the other party's
              prior written consent. Any such attempted delegation or assignment
              shall be void and ineffective. Either party has the right to
              assign this Agreement in whole or in part at any time and without
              the other party's consent to any corporate parent, or to any
              present or future affiliate or subsidiary of the party.

18.    PRECEDENCE.

       18.1   This Agreement takes precedence over either party's additional or
              different terms and conditions, to which objection is hereby made
              by the parties hereto. Acceptance by the parties of a contract to
              purchase and supply the Products is limited to the terms and
              conditions of this Agreement.

       18.2   This Agreement comprises the entire understanding between the
              parties and supersedes any previous communications,
              representations, or agreements, whether oral or written. No
              modification of this Agreement shall be binding on either party
              unless in writing and signed by an authorized representative of
              each party.

       18.3   In the event of any conflict between the provisions of this
              Agreement and any Release Order or Exhibit, the order of
              precedence is as follows:

              (a)    This Agreement;

              (b)    The Exhibits to this Agreement; and

              (c)    Any instructions in a written or electronic Release Order.

19.    TERM.

       19.1   This Agreement shall be effective for the period of eighteen (18)
              months (the "Term of this Agreement") commencing on the date
              specified by the parties as under (the "Commencement Date") unless
              terminated earlier by mutual agreement of the parties or in
              accordance with the provisions of Articles 12 and 13.

              The Commencement Date shall be 01 April 1999, retrospectively.

       19.2   Upon the expiry or termination of this Agreement, the parties may
              mutually agree to extend the terms and conditions contained herein
              to apply to any or all outstanding Release Orders previously
              accepted by SDL and to all Products shipped under such Release
              Orders.

                                      -13-
<PAGE>

       19.3   The provisions of Articles 5.3, 5.4, 5.5, 9, 10, 16, and 19 shall
              survive any expiry or termination of this Agreement.

20.    MISCELLANEOUS.

       20.1   The waiver of any term, condition, or provision of this Agreement
              by IPG or SDL must be in writing and signed by an authorized
              representative of the party providing the waiver. No such waiver
              or delay in enforcement of any right hereunder shall be construed
              as a waiver of any other term, condition, or provision except as
              provided in writing, nor as a waiver of any subsequent breach of
              the same term, condition, or provision.

       20.2   This Agreement shall be interpreted and governed in all respects
              by the laws of the State of California. SDL and IPG hereby consent
              to the jurisdiction and venue of such courts.

       20.3   All references in this Agreement to "days" shall, unless otherwise
              specified herein, mean calendar days.

       20.4   The Article headings used in this Agreement are for convenience of
              reference only. They shall not limit or extend the meaning of any
              provision of this Agreement, and shall not be relevant in
              interpreting any provision of this Agreement.

       20.5   Stenographic, typographical, or clerical errors contained in this
              Agreement are subject to correction by IPG or SDL or contained in
              any Release Order issued thereunder are subject to correction by
              IPG.

       20.6   The parties hereto are independent contractors; under this
              Agreement and no other relationship is intended, including
              partnership, franchise, joint venture, agency, or other business
              organization of any kind or nature whatsoever.

       20.7   If any term or provision of this Agreement is found to be invalid
              under any applicable statute or rule of law, the individual term
              or provision notwithstanding, then the remainder of the Agreement
              shall remain in full force and effect and such term or provision
              shall be deemed omitted.

21.    ARBITRATION.

       21.1   In the event of breach of this Agreement or disputes arising out
              of this, both parties shall make reasonable efforts to reach an
              amicable settlement thereof. If the parties cannot reach an
              amicable settlement within 90 (ninety) days, all disputes arising
              in connection with this Agreement shall be settled under the rules
              of conciliation and arbitration of the American Institution of
              Arbitration by three arbitrators appointed in accordance with the
              said rules. Arbitration shall be held in the United States. The
              findings of the arbitrators shall be final and binding on both
              parties. The language of the proceedings shall be English.

                                      -14-
<PAGE>

22.    EXHIBITS.

       22.1   All Exhibits attached to this Agreement shall be deemed a part of
              this Agreement and incorporated herein by reference. Subject to
              Article 18.3, the term "Agreement" includes the Exhibits listed in
              this Article 22.

       22.2   Terms which are defined in this Agreement and used in any Exhibit
              shall have the same meaning in the Exhibit as in this Agreement.

       22.3   The following Exhibit(s) are hereby made a part of this Agreement:

              EXHIBIT A:  Delivery Schedule
              EXHIBIT B:  Product Specification
              EXHIBIT C:  Product Pricing

APPROVED AND AGREED TO:



--------------------------------------     -------------------------------------
               (SDL)                                       (IPG)



By: /s/ Richard Craig                      By: /s/ Valentin Gapontsev
   -----------------------------------        -----------------------------

Typed Name:  Richard Craig                 Typed Name:  Valentin Gapontsev

Title:  Vice President                     Title:  President & Chief Executive
                                                   Officer

Date Signed:  May 11, 1999                 Date Signed: May 14, 1999
            --------------------------                 --------------------

Address:  80 Rose Orchard Way, San Jose,   Address:  IPG Photonics Corporation,
                                           Galileo

CA 95134-1365                              Park, 660 Main Street, Sturbridge, MA
                                           01566

Attention:   Stephen Eglash                Attention:   David Hardwick


                                      -15-
<PAGE>

                                   Exhibit A


Delivery Schedule


---------------------------------------------------------------
Month                    Quantity                 Cum
---------------------------------------------------------------
Apr 99
---------------------------------------------------------------
May 99
---------------------------------------------------------------
Jun 99
---------------------------------------------------------------
Jul 99
---------------------------------------------------------------
Aug 99
---------------------------------------------------------------
Sept 99
---------------------------------------------------------------
Oct 99
---------------------------------------------------------------
Nov 99
---------------------------------------------------------------
Dec 99
---------------------------------------------------------------
Jan 00
---------------------------------------------------------------
Feb 00
---------------------------------------------------------------
Mar 00
---------------------------------------------------------------
Apr 00
---------------------------------------------------------------
May 00
---------------------------------------------------------------
Jun 00
---------------------------------------------------------------
Jul 00
---------------------------------------------------------------
Aug 00
---------------------------------------------------------------
Sept 00
---------------------------------------------------------------
<PAGE>

 Exhibit B:  PRODUCT SPECIFICATION
<PAGE>

PRODUCT SPECIFICATION
<PAGE>

PRODUCT SPECIFICATION
<PAGE>

Exhibit C               Product Pricing
<PAGE>

                                  AMENDMENT 01
        IPG Photonics Corporation Purchase and Sales Agreement No. 1/99

WHEREAS, IPG and SDL desire to continue the relationship established under this
agreement for the Product(s) by entering into a new purchase period, and;

WHEREAS, IPG is desirous of obtaining substantially increased quantities of
Product(s) over this new purchase period, and;

WHEREAS, SDL is willing to supply IPG the increased demand for Product(s) under
certain terms and conditions;

NOW, THEREFORE, in consideration of the covenants herein, the parties hereto
agree as follows:

I.   Purpose of Amendment:

          This Amendment to IPG Photonics Corporation Purchase and Sales
Agreement No. 1/99 is to extend the period of performance of the Agreement and
establish additional terms and conditions to govern the sale and purchase of
Product(s) for a new commitment by IPG to purchase and take delivery of an
additional                   /1/within a twenty-four month period beginning 01
October 2000 through 30 September 2002 ("Extended Purchase Period").

II.  Article I Purchase of Materials is hereby amended to include the following:

1.2  IPG shall purchase and SDL shall sell the Products for the Extended
     Purchase Period at the prices set forth in Exhibit C and pursuant to the
     delivery schedule in Exhibit A.  The initial delivery schedule in Exhibit A
     may be revised by IPG in accordance with the Release Order procedure
     described in Article 4 if IPG's requirements change.  However IPG
     acknowledges that the unit prices provided for the Product(s) in Exhibit C
     are based on an agreed minimum run rate for total ordered Product.  In the
     event IPG does not place Release Orders for Products to meet the minimum
     total quantities stated below for the specified time periods, IPG shall be
     subject to the following        for the units ordered in such
     time period.  Any incurred       will be invoiced to GP, within
     any such quarter that such a        of Product quantities occurs:


/1/ This total quantity may be adjusted due to product mix allowances
for         quantities as described in Exhibit A.

                                      21
<PAGE>

<TABLE>
<CAPTION>
Period                            Minimum Qty
--------------------------------------------------------------------------------
<S>                             <C>

Any given Quarter               Exhibit A Total
Q4 '00 thru Q3 '01              Quarterly Demand

Any given Quarter               Exhibit A Total
Q4 '00 thru Q3 '02              Quarterly Demand

Where  ATQD = Actual Total Quarterly,
       EATQD = Exhibit A Total Quarterly Demand.
</TABLE>

     If IPG does not place orders to take delivery of at least     of the total
     quantity in any given quarter shown in Exhibit A, IPG shall be deemed in
     material breach of this Agreement in accordance with Article 13 and shall
     be subject to the        and
     below, based upon the sum total of parts up to and including the quarter in
     question.

1.3  Subject always to SDL conforming in all material respects with its
     obligations as set out in this Agreement, then IPG undertakes to purchase
     from SDL a quantity of             units/2/ of Products during the Extended
     Purchase Period.  If upon expiry or termination of the Extended Purchase
     Period of this Agreement the total quantity of Product for which IPG has
     taken delivery is less than             of the total units,/2/ then IPG
     shall in addition to any obligations it may have pursuant to Article 13
     "Termination" pay to SDL a sum calculated as follows:

 a)  For a requested total two-year demand up to              of the two year
     cumulative total in Exhibit A:



 b)  For a requested total two-year demand greater than              units:



     The payment of any such sum shall be in full and final settlement of any
     claim by SDL in respect of its infrastructure investment resulting from
     IPG's failure to take delivery of a quantity of                    of the
     total units/2/ of Product within the Extended Purchase Period.

III.   Article 4 Release Procedure is hereby amended to include the following:

4.1 (d)IPG shall issue Release Orders for Product deliveries in the Extended
     Purchase Period in accordance with a 24-month rolling horizon forecast.
     All time zones shall remain as defined in this Article 4.1.  For purposes
     of the Extended Purchase Period, the Planning zone shall initially be
     months 7-24.  Product quantities forecasted for delivery in the


--------------------------------------
/2/ This total quantity may be adjusted due to prodcut mix allowances
for         quantities as described in Exhibit A.

                                      22
<PAGE>

     various zones of the Extended Purchase Period may be varied as described,
     subject always to the terms of Article I . However, in no event shall IPG's
     forecasted quantity for Product in any given quarter be increased by
     greater than   over that same quarter's initial forecasted demand contained
     in Exhibit A. Additionally, any forecasted demand for total Product may not
     be increased by greater than   over the initial total quantity for Product
     in Exhibit A. In the event IPG requests such increases, SDL reserves the
     right to equitably adjust the                  and
     accordingly.

IV.   Article 13 Termination is hereby amended to include the following:
13.4  In the event of a material breach by IPG, IPG shall remain responsible for
      all penalties. liabilities and other obligations to SDL as of the date of
      termination.

13.5  In the event of a material breach of this Agreement by SDL, SDL shall be
      liable to IPG for a            of                    .
           by SDL to IPG shall constitute full and final settlement between the
      parties for such material breach by SDL.

13.5  In the event IPG cancels a Release Order at any time prior to delivery and
      SDL is not in material breach of this Agreement, IPG shall be liable for:





      IPG shall take delivery of the Fixed zone Product quantities in the event
      of any such cancellation.

V.    Article 16 Confidential Information is hereby amended to include the
      following:

16.6  IPG and SDL agree that this Agreement is considered Confidential
      Information and subject to the provisions of this Article 16. Neither
      party shall without the prior written consent of the other party,
      publicize the fact or contents of this Agreement. In the event that SDL is
      required to release information related to this Agreement, timely consent
      shall be provided by IPG for such release of information.

VI.   Article 19 Term is hereby amended to include the following:
19.1  The term of this Agreement is hereby extended for an additional twenty-
      four (24) month period for a total of forty-two (42) months from the
      Commencement Date.

19.3  The provisions of this Amendment Articles 1.2, 1.3 and 13 shall also
      survive any expiry or termination of this Agreement.

                                      23
<PAGE>

VII.  Exhibits, A - Delivery Schedule, B - Product Specification, and C -Product
      Pricing, are modified as set forth in this Amendment 01 and attached
      hereto.
VIII. The above specified modifications constitute a formal Amendment to the
      Agreement.  Except as herein modified, all other specifications, terms and
      conditions currently applicable to the Agreement remain unchanged.

                                      24
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Amendment 01 by their
respective duly authorized representatives as of the last date set forth below:

Signed for and on behalf of IPG Corp.
<TABLE>
<CAPTION>

<S>                    <C>                                                   <C>
Authorized Signatory:  /s/David Hardwick /s/Valentin P. Gapontsev   Date:     19/05/2000
                       ------------------------------------------             ----------
Name:             David Hardwick/Valentin Gapontsev, Ph.D.                     5/19/2000
Title:            VP & GM/President & GM

Signed for and on behalf of SDL, Inc.

Authorized Signatory:___________________________________________    Date:________________
Name:     Gordon Mitchard
Title:    General Manager
          Industrial Laser Group, SDLI

</TABLE>

                                      25
<PAGE>

                                   Exhibit A

Exhibit A is hereby amended to include the following initial delivery schedule
for the Extended Purchase Period:

                                      26
<PAGE>

                                   Exhibit C

Exhibit C is hereby amended to include the following pricing for the Extended
Purchase Period.

Product Pricing:

                                      27
<PAGE>

                                 AMENDMENT 02
        IPG Photonics Corporation Purchase and Sales Agreement No. 1/99

WHEREAS, IPG and SDL desire to continue the relationship established under this
agreement for the Product(s) by entering into a new purchase period, and;

WHEREAS, IPG  is desirous of obtaining substantially increased quantities of
Product(s) by entering into a new purchase period and;

WHEREAS, SDL is willing to supply IPG the increased demand for Product(s) under
certain terms and conditions;

NOW, THEREFORE in consideration of the covenants herein, the parties hereto
agree as follow:

I.  Purpose of Amendment:

   This Amendment to IPG Photonics Corporation Purchase and Sales Agreement No.
1/99 is to extend the period of performance of the Agreement and establish
additional terms and conditions to govern the sale and purchase of Product(s)
for a new commitment by IPG to purchase and take delivery of an additional
         /1/ within a twenty-four month period beginning January 01, 2001
through December 31, 2002 ("Extended Purchase Period"). The parties shall
continue to perform their respective obligations under and remain subject to the
provisions of Amendment 01 until December 31, 2000, after which the provisions
of this Amendment 02 will apply to the Extended Purchase Period (January 01,
2001, through December 31, 2002).

II. Article 1 Purchase of Materials is hereby amended to include the following:

1.2 IPG shall purchase and SDL shall sell the Products for the Extended Purchase
    Period at the prices set forth in Exhibit C and pursuant to the delivery
    schedule in Exhibit A. The initial delivery schedule in Exhibit A may be
    revised by IPG in accordance with the Release Order procedure described in
    Article 4 if IPG's requirements change. However IPG acknowledges that the
    unit prices provided for the Product(s) in the Exhibit C are based on an
    agreed minimum run rate for total ordered Product. In the event IPG does not
    place Release Orders for Products to meet the minimum total quantities
    stated below for the specified time periods. IPG shall be subject to the
    following         for the units ordered in such time period. Any
    incurred         will be invoiced to IPG within any such quarter
    that such a       of Product quantities occurs:


    Period                  Minimum Qty
    ----------------------------------------------------------------------------
    Any given Quarter       Exhibit A Total
    Q1 '01 thru Q4'01       Quarterly Demand

    Any given Quarter       Exhibit A Total


/1/ This total quantity may be adjusted due to product mix allowances
for          quantities as described in Exhibit A.

                                      28
<PAGE>


        Q1 '02 thru Q4'02     Quarterly Demand


        Where ATQD=Actual Total Quarterly Demand,
              EATQD=Exhibit A Total Quarterly Demand.

        If IPG does not place orders to take delivery of at least   of the total
        quantity in any given quarter shown in Exhibit A, IPG shall be deemed in
        material breach of this Agreement in accordance with Article 13 and
        shall be subject to the           and
                 below, based upon the sum total of parts up to and including
        the quarter in question.


1.3     Subject always to SDL conforming in all material respects with its
        obligations as set out in this Agreement, then IPG undertakes to
        purchase from SDL a quantity of     /2/  of Products during the Extended
        Purchase Period. If upon expiry or termination of the Extended Purchase
        Period of this Agreement the total quantity of Product for which IPG has
        taken delivery is less than        of the total    /2/ then IPG shall in
        addition to any obligations it may have pursuant to Article 13
        "Termination" pay to SDL a sum calculated as follows:

        a)     For a requested total two-year demand up to         of the two
               year cumulative total in Exhibit A:



        b)     For a requested total two-year demand greater than        units:




        The payment of any such sum shall be in full and final settlement of any
        claim by SDL in respect of its infrastructure investment resulting from
        IPG's failure to take delivery of a quantity of          of the total
        units/2/ of Product within the Extended Purchase Period.


III.    Article 4 Release Procedure is hereby amended to include the following:

4.1 (d) IPG shall issue Release Orders for Product deliveries in the Extended
Purchase Period in accordance with a 24-month rolling horizon forecast. All time
zones shall remain as defined in this Article 4.1. For purposes of the Extended
Purchase Period, the Planning zone shall initially be months 7-24. Product
quantities forecasted for delivery in the various zones of the Extended
Purchase Period may be varied as described, subject always to the terms of
Article 1. However, in no event, shall IPG's forecasted quantity for Product in
any given quarter be increased by greater than     over that same quarter's
initial forecasted demand contained in Exhibit A. Additionally, any forecasted
demand for total Product may not be increased by greater than   over the initial
total quantity for Product in Exhibit A. In the event IPG requests such
increases, SDL reserves the right to equitably adjust the                and
        accordingly.

-------------------------------
/2/ This total quantity may be adjusted due to product mix allowances
for          quantities as described in Exhibit A.

                                      29
<PAGE>


SDL reserves the right to equitably adjust the                     and
               accordingly.


IV.     Article 13 Termination is hereby amended to include the following:

13.4    In the event of a material breach by IPG, IPG shall remain responsible
        for all penalties, liabilities and other obligations to SDL as of the
        date of termination.

13.5    In the event of a material breach of this Agreement by SDL, SDL shall be
        liable to IPG for a         of      .                      by SDL to
        IPG shall constitute full and final settlement between the parties for
        such material breach by SDL.


13.6    In the event IPG cancels a Release Order at any time prior to delivery
        and SDL is not in material breach of this Agreement, IPG shall be liable
        for:







V.      Article 16 Confidential Information is hereby amended to include the
        following:

16.6    IPG and SDL agree that this Agreement is considered Confidential
        Information and subject to the provisions of this Article 16. Neither
        party shall without the prior written consent of the other party,
        publicize the fact or contents of this Agreement, except as the company
        is required to be disclosed under applicable law, or as the company
        discloses to it's accountants, lawyers, commercial and investment
        bankers or other advisors, notwithstanding anything herein to the
        contrary. In the event that SDL or IPG is required to release
        information related to this Agreement (other than to the party's
        accountants, lawyers, commercial and investment bankers or other
        advisors), timely consent notice to the other party shall be provided by
        IPG for prior to such release of information to the extent possible.

VI.     Article 19 Term is hereby amended to include the following:

19.1    The term of this Agreement is hereby extended for an additional twenty-
        four (24) month period for a total of forty-five (45) months from the
        Commencement Date.

                                      30
<PAGE>

VII. Exhibits. A - Delivery Schedule, B - Product Specification, and C - Product
Pricing, are modified as set forth in this Amendment 02 and attached hereto.

VIII. The above specified modifications constitute a formal Amendment to the
Agreement.  Except as herein modified, all other specifications, terms and
conditions currently applicable to the Agreement remain unchanged.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment 02 by their
respective duly authorized representatives as of the last date set forth below:

Signed for and on behalf of IPG Corporation,

Authorized Signatory: /s/ Valentin Gaponstev, Ph.D.               Date: 11/14/00
                      -----------------------------------------         --------
Name:                 Valentin Gaponstev, Ph.D./John Dalton
Title:                CEO/President, IPG Corporation

Signed for and on behalf of SDL, Inc.

Authorized Signatory: /s/ Gordon Mitchard, Ph.D.                  Date: 11/15/00
                      -----------------------------------------         --------
Name:                 Gordon Mitchard, Ph.D.
Title:                General Manager
                      Industrial Laser Group, SDLI

                                      31
<PAGE>

                                   Exhibit A

Exhibit A is hereby amended to include the following initial delivery schedule
for the Extended Purchase Period:

                                      32
<PAGE>


Exhibit B: PRODUCT SPECIFICATION

                                      33
<PAGE>

Exhibit B: PRODUCT SPECIFICATION

                                      34
<PAGE>

                                      35
<PAGE>

                          Exhibit B - Specifications
                          --------------------------

Device Characteristics*            Symbol       Min.    Typ.    Max.    Units
-----------------------------------------------------------------------------
        Power
        Peak Wavelength
        Spectral Width
        Slope Efficiency
        Conversion Efficiency
        Emitting Dimension
        Beam Divergence
                Parallel
                Perpendicular
        Threshold Current
        Operating Current
        Operating Voltage
        Series Resistance
        Thermal Resistance
        Recommended Case Temp.

Absolute Maximum Ratings
        Reverse Voltage
        Case Operating Temp.
        Storage Temp. Range
        Lead Soldering Temp.


Accepted By: /s/ Ben Li
            -----------

Date:   Nov. 13, 2000

                                      36
<PAGE>

                                                             80 Rose Orchard Way
                                                              San Jose, CA 95134
                                                                 408-943-4505(P)
                                                                 408-943-4260(F)

Exhibit B: Product Specification







Device Performance Rating:
-------------------------
No other device rating performance testing is included or implied.

Note: All specifications to be reviewed subsequent to completion of evaluation
----
order and prior to placement of high volume qty. order.


Accepted By: /s/ Ben Li
             ----------------------
Date: Nov. 13, 2000
      -----------------------------

                                      37
<PAGE>

Exhibit B: PRODUCT SPECIFICATION

                                  Accepted By Ben Li
                                    Date Nov. 13, 2000

                                      38
<PAGE>

Exhibit B: PRODUCT SPECIFICATION

                                                          Accepted By /s/ Ben Li
                                                                      ----------

                                                              Date Nov. 13, 2000
                                                                   -------------

                                      39
<PAGE>

                                   Exhibit C

Exhibit C is hereby amended to include the following pricing for the Extended
Purchase Period:

                                      40
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>14
<FILENAME>0014.txt
<DESCRIPTION>STOCK ISSUANCE AGREEMENT
<TEXT>

<PAGE>

                                                                   EXHIBIT 10.19

                            STOCK ISSUANCE AGREEMENT
                         FOR AWARDS OF RESTRICTED STOCK

                                Pursuant to the
                                 IPG PHOTONICS
                        2000 INCENTIVE COMPENSATION PLAN

     THIS STOCK ISSUANCE AGREEMENT ("Agreement") is made effective as of the
22nd day of January, 2001, and is entered into by and between IPG Photonics
Corporation, (hereinafter called the "Company") and Vincent Au-Yeung
(hereinafter called the "Awardee").

     WHEREAS, the Awardee has become employed by the Company, an Affiliate or
Group Company in an important capacity, commencing January 22, 2001 as set forth
in Awardee's Employment Agreement dated November 29, 2000 ("Employment
Agreement");

     WHEREAS, the Company desires to provide an incentive to the Awardee so that
he will exert his utmost efforts on the Company's behalf and thus enhance its
chances of success;

     WHEREAS, the Company believes that this may be accomplished by encouraging
the Awardee to acquire a proprietary or an increased proprietary interest in the
Company; and

     WHEREAS, in furtherance thereof, the Company wishes to grant certain of its
shares of voting common stock ("Shares") to the Awardee under the IPG Photonics
2000 Incentive Compensation Plan (the "Plan") subject, however, to certain
restrictions under the Plan, and consistent with the terms and conditions of
Awardee's Employment Agreement.

     NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:

1.   Definitions.  All terms used herein that are not otherwise defined shall
     -----------
     have the meanings ascribed to them in the Plan, unless otherwise expressly
     provided herein as being defined in the Employment Agreement.

2.   Grant of Stock Subject to Restrictions.  The Awardee hereby acknowledges
     --------------------------------------
     that the Company has on this date granted to the Awardee 500,000 Shares.
     The Company and Awardee acknowledge that such Shares have been granted
     pursuant to the restrictions contained herein and shall hereinafter
     sometimes be referred to as the "Restricted Stock."

3.   Purchase Price; Other Deliveries.  The aggregate purchase price for the
     --------------------------------
     Restricted Stock shall be Five Hundred Thousand Dollars ($500,000), and
     shall be paid by certified check or wire transfer.  Awardee shall also
     deliver a duly-executed blank Assignment Separate from Certificate (in the
     form attached hereto as Exhibit A) with respect to the Restricted Stock.
     The Company shall deliver to Awardee a certificate representing 250,000 of
     such shares
<PAGE>

     of Restricted Stock, and a separate certificate representing 250,000 of
     such shares of Restricted Stock shall be held by the Company, subject to
     the terms and conditions of the Pledge Agreement, dated of even date
     herewith. Awardee hereby agrees that if he shall sell any shares of
     Restricted Stock, that he shall use the proceeds of such sale to repay the
     Promissory Note of Awardee to the Company dated of even date herewith,
     regardless of whether such shares are subject to the Pledge Agreement.

4.   Restrictions; Risk of Forfeiture.  Awardee hereby agrees that until such
     --------------------------------
     restrictions lapse as herein provided, he will not sell, assign, transfer,
     pledge or encumber or otherwise dispose of any of the Restricted Stock,
     except as provided herein, without the prior written consent of the Company
     as authorized by the Committee.  If and only if the Awardee's employment is
     terminated by the Company for Cause, or Awardee terminates his employment
     for any reason other than Good Reason, both terms being defined in the
     Employment Agreement, in either case on or before July 19, 2001, the
     Restricted Stock shall be immediately subject to a right of repurchase by
     the Company for the purchase price set forth in Section 3, and the Company
     shall have the right to defer payment pursuant to the terms and conditions
     set forth in the Plan and Section 10 herein.

5.   Lapse of Restrictions.  The risk of forfeiture set forth in Section 4 shall
     ---------------------
     lapse effective July 20, 2001, subject to the further restrictions set
     forth in Section 7.

6.   Incorporation by Reference.  The terms and conditions of the Plan, as it
     --------------------------
     now exists and as it may be amended from time to time, are hereby
     incorporated by reference into this Agreement.  The Restricted Stock is
     granted herein pursuant to and subject to the Plan.  In the event of any
     conflict between the terms of this Agreement and the terms of the Plan, the
     terms of the Plan shall control, except as expressly provided in Section 4
     above and Section 8 below.

7.   Further Transfer Restrictions.
     -----------------------------

     a.   Restriction on Transfer. Subject to the other provisions of this
          -----------------------
          Agreement for the first 6 months following the date of grant of the
          Restricted Stock, but in no event prior to July 20, 2001, Awardee may
          not sell, exchange, or transfer the Restricted Stock to anyone,
          without the prior written consent of the Company, which consent may be
          withheld in its sole and absolute discretion, except for Permitted
          Transfers (as defined below).

     b.   Transferee Obligations.  Each person (other than the Company) to whom
          ----------------------
          the Restricted Stock is transferred by means of a transfer expressly
          permitted under this Agreement must, as a condition precedent to the
          validity of such transfer, acknowledge in writing to the Company that
          such person is bound by the provisions of this Agreement and that the
          transferred Shares are subject to (i) the Call Right (as defined
          below), (ii) the First Refusal Right (as defined below) and (iii) the
          Lock-Up (as defined below), to the same extent such Shares would be so
          subject if retained by Awardee.

     c.  Lock-Up.
         -------

                                      -2-
<PAGE>

          (i)  In connection with any underwritten public offering by the
               Company of its equity securities pursuant to an effective
               registration statement filed under the Securities Act, including
               the Company's initial public offering, Awardee shall not sell,
               make any short sale of, loan, hypothecate, pledge, grant any
               option for the purchase of, or otherwise dispose or transfer for
               value or otherwise agree to engage in any of the foregoing
               transactions with respect to any Restricted Stock without the
               prior written consent of the Company or its underwriters.  Such
               restriction (the "Lock-Up") shall be in effect for a period of up
               to 180 days from and after the effective date of the final
               prospectus for the offering or otherwise as may be required by
               such underwriters.  Such Lock-Up may be subject to such other
               restrictions, conditions and limitations as the underwriters
               impose.

          (ii) Awardee shall be subject to the Lock-Up only if and to the extent
               that the officers and directors of the Company are also subject
               to similar restrictions, including restrictions on Permitted
               Transfers (as defined below).

8.  Call Right.
    ----------

     a.   Grant.  If the Awardee's employment is terminated by the Company for
          -----
          Cause as defined in the Employment Agreement, effective on such date
          and prior to the completion of an IPO, the Company shall have the
          right to purchase, and the Awardee shall have the corresponding
          obligation to sell, upon delivery of written notice to Awardee, all
          and not less than all of the Shares then owned by Awardee, ownership
          of which Shares was acquired hereunder (such repurchase rights of the
          Company, being referred to hereinafter as the "Call Rights").  The
          purchase price of the Shares subject to the Company's Call Rights
          shall be the Fair Market Value of such Shares as of the date the
          Company mails or otherwise delivers such written notice to the
          Awardee, provided, however, the purchase price shall be the price set
                   --------  -------
          forth in Section 3 of the Agreement for terminations occurring during
          the period and for the reasons set forth in Section 4 herein.

          b.   The Company shall have the right to defer payment of the purchase
               price under Section 8.a pursuant to the terms and conditions set
               forth in the Plan and Section 10 herein.

9.  Right of First Refusal.
    ----------------------

     a.   Grant.  Prior to an IPO, the Company shall have a right of first
          -----
          refusal (the "First Refusal Right"), exercisable in connection with
          any proposed transfer of the Shares, except with respect to any
          Permitted Transfer (as defined below).

     b.   Notice of Intended Disposition.  In the event Awardee desires to
          ------------------------------
          accept a bona fide third-party offer for the transfer of any or all of
          the Restricted Stock (the Restricted Stock subject to such offer to be
          hereinafter referred to as the "Target Shares"), Awardee shall
          promptly (i) deliver to the Company written notice (the

                                      -3-
<PAGE>

          "Disposition Notice") of the terms of the offer, including the
          purchase price and the identity of the third-party offeror, and (ii)
          provide satisfactory proof that the disposition of the Target Shares
          to such third-party offeror would not be in contravention of the
          provisions set forth in Sections 4, 7 and 11.

     c.   Exercise of the First Refusal Right.  The Company shall, for a period
          -----------------------------------
          of ten (10) days following receipt of the Disposition Notice, have the
          right to repurchase all and not less than all of the Target Shares
          subject to the Disposition Notice upon the same terms as those
          specified therein or upon such other terms (not materially different
          from those specified in the Disposition Notice) to which Awardee
          consents.  Such right shall be exercised by delivery of written notice
          (the "Exercise Notice") to Awardee prior to the ten (10) day exercise
          period.  The Company shall effect the repurchase of such shares,
          including payment of the purchase price, not more than five (5)
          business days after delivery of the Exercise Notice; and at such time
          the certificates representing the Target Shares shall be delivered to
          the Company.

          Should the purchase price specified in the Disposition Notice be
          payable in property other than cash or evidences of indebtedness, the
          Company shall have the right to pay the purchase price in the form of
          cash equal in amount to the value of such property.  If Awardee and
          the Company cannot agree on such cash value within ten (10) days after
          the Company's receipt of the Disposition Notice, the valuation shall
          be made by an appraiser of recognized standing selected by Awardee and
          the Company or, if they cannot agree on an appraiser within twenty
          (20) days after the Company's receipt of the Disposition Notice, each
          shall select an appraiser of recognized standing and the two (2)
          appraisers shall designate a third appraiser of recognized standing,
          whose appraisal shall be determinative of such value.  The cost of
          such appraisal shall be shared equally by Awardee and the Company.
          The closing shall then be held on the later of (i) the fifth (5th)
                                                -----
          business day following delivery of the Exercise Notice or (ii) the
          fifth (5th) business day after such valuation shall have been made.

     d.   Non-Exercise of the First Refusal Right.  In the event the Exercise
          ---------------------------------------
          Notice is not given to Awardee prior to the expiration of the ten (10)
          day exercise period, Awardee shall have a period of ninety (90) days
          thereafter in which to sell or otherwise dispose of the Target Shares
          to the third-party offeror identified in the Disposition Notice upon
          terms (including the purchase price) no more favorable to such third-
          party offeror than those specified in the Disposition Notice;
          provided, however, that any such sale or disposition must not be
          --------  -------
          effected in contravention of the provisions of Sections 4, 7 and 11.
          The third-party offeror shall acquire the Target Shares subject to the
          provisions of this Agreement as set forth in 7.b.  In the event
          Awardee does not effect such sale or disposition of the Target Shares
          within the specified (90)-day period, the First Refusal Right shall
          continue to be applicable to any subsequent disposition of the Target
          Shares by Awardee until such right lapses.

                                      -4-
<PAGE>

     e.   Recapitalization/Reorganization.
          -------------------------------

          (i)  Any new, substituted or additional securities or other property
               which is by reason of any Recapitalization distributed with
               respect to the Restricted Stock shall be immediately subject to
               the First Refusal Right, but only to the extent the Restricted
               Stock is at the time covered by such right.

          (ii) In the event of a Reorganization, the First Refusal Right shall
               remain in full force and effect and shall apply to the new
               capital stock or other property received in exchange for the
               Restricted Stock in consummation of the Reorganization, but only
               to the extent the Restricted Stock are at the time covered by
               such right.

     f.   Lapse.  The First Refusal Right shall lapse on the date the Shares
          -----
          become readily tradable on an established securities market.  However,
          the Lock-Up shall continue to remain in full force and effect
          following the lapse of the First Refusal Right.

     g.   Permitted Transfer.  For the purpose of Section 9(a), the term
          ------------------
          "Permitted Transfer" shall mean, with respect to the Shares, any sale,
          conveyance, exchange, assignment, pledge, encumbrance, gift, bequest,
          hypothecation or other transfer or disposition by any other means,
          whether for value or no value and whether voluntary or involuntary
          (including, without limitation, by merger or operation of law), or any
          agreement to do any of the foregoing, by Awardee to his Immediate
          Family.  The term "Immediate Family" means, and is limited to,
          Awardee's current spouse, parents, parents-in-law, grandparents,
          children, siblings (and their lineal descendents), grandchildren, and
          Awardee's beneficiaries and heirs.  A trust, estate, family
          partnership, limited liability company or corporation entitled to
          federal income tax treatment pursuant to subchapter S of the Internal
          Revenue Code, all of the beneficiaries, partners, members or
          shareholders of which consist of Awardee or members of his Immediate
          Family, shall be considered his Immediate Family for the purposes of
          this Agreement.

10.  Right to Defer Payment.  At the discretion of the Committee, payments to
     ----------------------
     Awardee may be made by the Company in the form of a single lump sum or
     installments, provided in the case of installment payments the Company has
     represented in writing to Awardee that its corporate cash flow needs do not
     permit a lump sum payment, as determined in good faith by the Board of
     Directors of the Company.  Installment payments shall be made in full no
     later than six (6) months from the date of disposition and will, be
     credited monthly with interest using an interest rate equal to the annual
     rate of interest on 30-year Treasury securities as of the beginning of each
     such monthly crediting period (as determined by the Committee).

                                      -5-
<PAGE>

11.  Restrictive Legend; Restrictions on Disposition; Securities Matters.
     -------------------------------------------------------------------

     (a)  Awardee hereby agrees that the certificates for the Restricted Stock
          shall be inscribed with the following legend:

               "The shares of stock evidenced by this certificate are subject to
               the terms and restrictions of the IPG Photonics 2000 Incentive
               Compensation Plan and the terms of the Stock Issuance Agreement
               ("Agreement") between the Company and Vincent Au-Yeung dated as
               of January 22, 2001.  Such shares are subject to repurchase and
               cancellation under the terms of such Plan and Agreement, and such
               shares shall not be sold, transferred, assigned, pledged,
               encumbered or otherwise alienated or hypothecated except pursuant
               to the provisions of such Plan and Agreement.  A copy of the Plan
               is available from the Company upon request."

          In addition, if shares are awarded prior to a completed public
          offering, the certificates shall also be inscribed with the following:

               "The shares of stock evidenced by this certificate have not been
               registered under the Securities Act of 1933 (the "Securities
               Act") or the securities laws of any state.  These shares may not
               be sold or transferred unless the transaction is registered under
               the Securities Act and applicable state law or exempt from
               registration thereunder."

     (b)  Awardee shall make no disposition of the Restricted Stock unless and
          until there is compliance with all of the following requirements:

          (i)   Awardee shall have provided the Company with written summary of
                the terms and conditions of the proposed disposition.

          (ii)  Awardee shall have complied with all requirements of this
                Agreement applicable to the disposition of the Restricted Stock.

          (iii) Awardee shall have provided the Company with written assurances,
                including an opinion of counsel, in form and substance
                satisfactory to the Company, that (a) the proposed disposition
                does not require registration of the Restricted Stock under the
                Securities Act or applicable state securities laws, or (b) all
                appropriate action necessary for compliance with the
                registration requirements of the Securities Act and applicable
                state securities laws or any exemption from registration
                available under the Securities Act (including Rule 144) and
                applicable state securities laws has been taken.

                                      -6-
<PAGE>

     (c)  The Company shall not be required (i) to transfer on its books
          Restricted Stock which has been sold or transferred in violation of
          the provisions of this Agreement or (ii) to treat as the Awardee,
          owner or holder of the Restricted Stock, or otherwise to accord
          voting, dividend or liquidation rights to, any transferee to whom the
          Restricted Stock has been transferred in contravention of this
          Agreement.

     (d)  The Restricted Stock has not been registered under the Securities Act
          and is being issued to Awardee in reliance upon the exemption from
          such registration provided by SEC Rule 701 for stock issuances under
          compensatory benefit plans such as the Plan.  Awardee hereby confirms
          that Awardee has been informed that the Restricted Stock constitutes
          restricted securities under the Securities Act and may not be resold
          or transferred unless the Restricted Stock is first registered under
          the Federal securities laws and applicable state securities laws or
          unless an exemption from such registration is available.  Accordingly,
          Awardee hereby acknowledges and agrees that Awardee is prepared to
          hold the Restricted Stock for an indefinite period and that Awardee is
          aware that SEC Rule 144 issued under the Securities Act which exempts
          certain resales of securities is not presently available to exempt the
          resale of the Restricted Stock from the registration requirements of
          the Securities Act.

     (e)  Awardee hereby represents and warrants to the Company that Awardee is
          acquiring the Restricted Stock for Awardee's own account, for
          investment purposes, and not with a view to, or for resale in
          connection with, the distribution  of such Restricted Stock.

12. Additional Restricted Stock.  Awardee agrees that the term "Restricted
    ---------------------------
    Stock" shall include any shares or other securities which he may receive or
    be entitled to receive as a result of the ownership of the original
    Restricted Stock whether the same are issued as a result of a
    Recapitalization or Reorganization.

13. Severability.  In the event that any one or more of the provisions or
    ------------
    portion thereof contained in this Agreement shall for any reason be held to
    be invalid, illegal, or unenforceable in any respect, the same shall not
    invalidate or otherwise affect any other provisions of this Agreement and
    this Agreement shall be construed as if the invalid, illegal, or
    unenforceable provision or portion thereof had never been contained herein.

14. Entire Agreement.  Except as set forth in the  Employment Agreement, this
    ----------------
    Agreement constitutes and contains the entire Agreement and understanding
    between the parties with respect to the subject matter hereof and supersedes
    any and all prior agreements, if any, understandings and negotiations
    relating thereto.  No promise, understanding, representation, inducement,
    condition or warranty not set forth herein has been made or relied upon by
    any party hereto.

15. Notice.   Any notice which either party hereto may be required or permitted
    -------
    to give to the other shall be in writing, and may be delivered personally or
    by mail, postage prepaid, if to the Company, addressed to the Company at the
    following address:

                                      -7-
<PAGE>

                                 IPG Photonics Corporation
                                 P.O. Box 519
                                 660 Main Street
                                 Sturbridge, MA    01566
                                 Attention:  Angelo Lopresti, Esq.

   or at any other address as the Company, by notice to the Awardee, may
   designate in writing from time to time; and, if to the Awardee, addressed to
   the Awardee at the Awardee's address as set forth next to the Awardee's
   signature below, or at any other address as the Awardee by notice to the
   Company, may designate in writing from time to time.

16. Binding Effect.  Subject to the other terms hereof, this Agreement shall be
    --------------
    binding upon and inure to the benefit of the heirs, beneficiaries, legal
    representatives and successors of the parties.

17. Governing Law.  This Agreement shall be construed by, enforced in accordance
    -------------
    with and governed by the substantive laws of the State of Delaware without
    giving effect to the conflicts of laws provisions thereof.

18. Waiver.  No waiver by either party of the application of any term, provision
    ------
    or condition of this Agreement, or a breach thereof by the other party,
    shall constitute a waiver of any succeeding breach of the same or any other
    provision hereof.  No such waiver shall be valid unless executed in writing
    by the party making the waiver.

19. Transferability.  The Awardee shall not transfer, sell, pledge, assign or
    ---------------
    otherwise dispose of or encumber the Shares awarded hereunder other than as
    set forth in this Agreement and the Plan.  Any attempted transfer, sale,
    pledge, assignment or other disposition or encumbrance of such Shares, or of
    Awardee's rights and obligations under this Agreement, contrary to the
    provisions of this Agreement shall be null and void.

20. Cancellation of Shares.  If the Company shall make available, at the time
    ----------------------
    and place and in the amount and form provided in this Agreement, the
    consideration for the Restricted Stock to be repurchased in accordance with
    the provisions of this Agreement, then from and after such time, the person
    from whom such shares are to be repurchased shall no longer have any rights
    as a holder of such shares (other than the right to receive payment of such
    consideration in accordance with this Agreement).  Such shares shall be
    deemed purchased in accordance with the applicable provisions hereof, and
    the Company shall be deemed the Awardee and holder of such shares, whether
    or not the certificates therefor have been delivered as required by this
    Agreement.

21. Awardee Undertaking.  Awardee hereby agrees to take whatever additional
    -------------------
    action and execute whatever additional documents the Company may deem
    necessary or advisable in order to carry out or effect one or more of the
    obligations or restrictions imposed on either Awardee or the Restricted
    Stock pursuant to the this Agreement.

                                      -8-
<PAGE>

22. Counterparts.  This Agreement may be executed in one or more counterparts,
    ------------
    each of which shall be deemed to be an original, but all of which together
    shall constitute one and the same instrument.

    IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
    the day and date first set forth above.

                              IPG PHOTONICS CORPORATION

                              By: /s/ Dr. Valentin P. Gapontsev
                                  -------------------------------------------

                              Title: Dr. Valentin P. Gapontsev
                                     ----------------------------------------

                              AWARDEE

                              By: /s/ Vincent Au-Yeung
                                  -------------------------------------------

                              Name: Vincent Au-Yeung
                                    -----------------------------------------

                              Address:
                                       --------------------------------------

                                      -9-
<PAGE>

                             SPOUSAL ACKNOWLEDGMENT

     The undersigned spouse of Awardee has read and hereby approves the
foregoing Stock Issuance Agreement.  In consideration of the Company's granting
Awardee the right to acquire the Restricted Stock in accordance with the terms
of such Agreement, the undersigned hereby agrees to be irrevocably bound by all
the terms of such Agreement.


                              AWARDEE'S SPOUSE

                              By:
                                  ---------------------------------------

                              Name:
                                    -------------------------------------

                              Address:
                                       ----------------------------------

                                      -10-
<PAGE>

                                   EXHIBIT A

                      ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED ________________ hereby sell(s), assign(s) and
transfer(s) to IPG Photonics Corporation (the "Company"), ____________ (______)
shares of the voting common stock, par value $0.0001 per share, of the Company
standing in his or her name on the books of the Company represented by
Certificate No._______ herewith and do(es) hereby irrevocably constitute and
appoint _______________ Attorney to transfer such stock on the books of the
Company with full power of substitution in the premises.

Dated: _________________________

                              Signature   ___________________________________
                                          Vincent Au-Yeung



Instruction:  Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate.  The purpose of this assignment is to enable the Company to
exercise the Call Rights without requiring additional signatures on the part of
Awardee.

                                      -11-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.20
<SEQUENCE>15
<FILENAME>0015.txt
<DESCRIPTION>SERVICE AGREEMENT
<TEXT>

<PAGE>

                                                                   Exhibit 10.20


     THIS SERVICES AGREEMENT (this "Agreement"), is made as of January 1, 2001,
by and between IPG Photonics (UK) Ltd., a company organized under the laws of
the United Kingdom ("IPG"), and IP Fibre Devices Ltd., a company organized under
the laws of the United Kingdom ("Fibre Devices").

                                  WITNESSETH:
                                  ----------

     WHEREAS, Fibre Devices rents certain parcels of real estate and employs
certain personnel; and

     WHEREAS, IPG plans to commence operations in the United Kingdom and would
like to share an allocated portion of certain real estate and other costs of
Fibre Devices and offer employment to certain employees of Fibre Devices.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties, intending to be legally bound, hereby agree as
follows:

                                   ARTICLE I
                                 COST SHARING

1.1  Costs.
     -----

     a.  Fibre Devices shall provide use of its offices, including electricity,
heating, furniture and office equipment (collectively, "Office Expenses"), to
IPG.

     b.  IPG shall pay directly for its telecommunications charges.

     c.  For the year beginning January 1, 2001, IPG shall pay the amount of
$[250,000] for its portion of Office Expenses.  In subsequent years, the amount
that IPG will pay shall be agreed to by the parties and shall reflect actual
directly related costs of such Office Expenses used by IPG.

1.2  Employment.  IPG agrees to offer employment to Dr. Sergei Popov and Alice
Ordabaeva substantially the same as their terms of employment by Fibre Devices,
provided that such terms are reasonably acceptable to IPG.

1.3  Salary.  During the first year of the term of this Agreement, IPG agrees to
     ------
pay 75% of the current salary of Caesar Vishowaty for as long as he is employed
by Fibre Devices.  Mr. Vishowaty shall dedicate not less than 75% of his
business time and attention to IPG.  After the first year, the parties hereto
shall agree on the appropriate allocation for the following year.

1.4  Term.  The term of this Agreement shall be two years, commencing on the
     ----
date of this Agreement.  Provided that neither party has given written notice of
termination to the other at least ninety days prior to the expiration of the
term of this Agreement, or any renewal term, this
<PAGE>

Agreement shall be deemed to be renewed for successive one year terms at the
expiration of the original or any renewal term.

                                  ARTICLE II
                                INDEMNIFICATION

Each party (the "Indemnifying Party") shall defend, indemnify and hold harmless
the other party, including its directors, officers and employees (collectively,
the "Indemnified Party"), from and against any and all demands, claims, actions
or causes of action, losses, damages, liabilities, costs and expenses,
including, without limitation, judgments, interest, penalties, settlement
amounts, court costs and reasonable attorneys' fees and expenses, asserted
against, imposed upon or incurred by the Indemnified Party arising out of or
relating to any actual or alleged act or omission of the Indemnifying Party
related to its performance of its obligations hereunder.  The foregoing
indemnification obligation shall survive the expiration or earlier termination
of this Agreement.


                                  ARTICLE III
                                 MISCELLANEOUS

3.1  Assignment.  This Agreement shall not be assigned by IPG without the prior
     ----------
written consent of Fibre Devices.  Any attempted assignment or transfer of any
rights, or attempted delegation of any duties or obligations, under this
Agreement by IPG without such prior written consent shall be void and of no
effect.  Fibre Devices reserves the right to assign any rights and delegate any
duties or obligations hereunder to another affiliate of Fibre Devices upon
written notice to IPG.

3.2  Notices.  Any notice required or permitted by this Agreement to be given
     -------
shall be in writing and shall be addressed to either party at its principal
place of business, or at such other address as it may notify to the other party.
Each such notice shall be sent by registered or certified mail or delivered by
hand, or by facsimile or a private delivery service and shall be deemed to have
been given on the date of its receipt at the address to which such notice is so
directed, regardless of any other date that may appear thereon.

3.3  Waiver.  The failure of either party to insist upon a strict performance of
     ------
any of the terms or provisions of this Agreement or to exercise any option,
right or remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect throughout the
term of this Agreement.  No waiver by either party of any term or provision
hereof shall be deemed to have been made unless expressed in writing and signed
by an authorized representative of such party.

3.4  Severability.  In the event that any one or more of the provisions
     ------------
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never
<PAGE>

been contained herein and, in lieu of each such illegal, invalid or
unenforceable provision, there shall be added as a part of this Agreement, a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.

3.5  Entire Agreement; Amendment.  This Agreement, together with all other
     ---------------------------
writings signed by the parties expressly stated to be supplementary hereto and
together with any instruments to be executed and delivered pursuant hereto
constitutes the entire agreement between the parties, and supersedes all prior
understandings and writings concerning the subject matter hereof.  This
Agreement may be amended only by a writing signed by authorized representatives
of both parties.

3.6  Further Assurances.  Each of the parties shall from time to time, at the
     ------------------
request of the other party, execute and deliver such other agreements and
instruments and take such other action as may reasonably be requested in order
to more effectively consummate the transactions contemplated hereby.

3.7  Successors and Assigns.  All of the terms and provisions of this Agreement
     ----------------------
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns becoming such in accordance
with the terms of this Agreement.  Nothing contained in this Agreement shall be
deemed to create any third party beneficiary or other rights hereunder in favor
of any person, firm, corporation or other entity not a party to this Agreement.

3.8  Governing Law.  This Agreement, and the rights and obligations of the
     -------------
parties hereto, shall be governed by and construed in accordance with the laws
of the United Kingdom without reference to its conflict of laws rules.

3.9  Headings.  The headings of the articles and sections herein are for
     --------
convenience only and shall not affect the construction hereof.

3.10  Counterparts.  This Agreement may be executed in one or more counterparts,
      ------------
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in their respective corporate names by their duly authorized
officers as of the date first written above.


                                IPG PHOTONICS (UK) LTD.


                                By: /s/ Angelo P. Lopresti
                                   --------------------------------------
                                   Name:  Angelo P. Lopresti
                                   Title: Secretary


                                IP FIBRE DEVICES LTD.


                                By: /s/ Timothy P.V. Mammen
                                   --------------------------------------
                                Name:  Timothy P.V. Mammen
                                Title: General Manager and Secretary
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>16
<FILENAME>0016.txt
<DESCRIPTION>CONSENT OF DELOITTE & TOUCHE, GERMANY
<TEXT>

<PAGE>

                                                                    Exhibit 23.2

                         Independent Auditors' Consent


The consolidated financial statements give effect to the completion of a 2-for-1
stock split described in Note 7 which will take place prior to the effective
date of the offering. The following consent is in the form which will be
provided by Deloitte & Touche GmbH upon completion of the stock split and
assuming that no other material events have occurred that would affect the
consolidated financial statements or require disclosure therein.

"To the Board of Directors and Shareholders of IPG Laser GmbH:

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-51560 of IPG Photonics Corporation of our report dated December 6, 2000,
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.


Duesseldorf, Germany,
       ,2001"

----------------------------
/s/ Deloitte & Touche GmbH


Duesseldorf, Germany
February 2, 2001

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.3
<SEQUENCE>17
<FILENAME>0017.txt
<DESCRIPTION>CONSENT OF DELOITTE & TOUCHE, U.S.
<TEXT>

<PAGE>

                                                                    Exhibit 23.3

                         Independent Auditors' Consent

The combined consolidated financial statements give effect to the completion of
a 2-for-1 stock split described in Note 7 which will take place prior to the
effective date of the offering. The following consent is in the form which will
be provided by Deloitte & Touche LLP upon completion of the stock split and
assuming that no other material events have occurred that would affect the
combined consolidated financial statements or require disclosure therein.

"To the Board of Directors and Shareholders of IPG Photonics Corporation:

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-51560 of IPG Photonics Corporation of our report dated December 6, 2000,
appearing in the Prospectus, which is a part of such Registration Statement, and
to the reference to us under the heading "Experts" in such Prospectus.


Boston, Massachusetts
       ,2001"

/s/ Deloitte & Touche LLP


Boston, Massachusetts
February 2, 2001


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27.1
<SEQUENCE>18
<FILENAME>0018.txt
<DESCRIPTION>FINANCIAL DATA SCHEDULE
<TEXT>

<TABLE> <S> <C>

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1999
<PERIOD-START>                             DEC-31-1997
<PERIOD-END>                               SEP-30-2000
<CASH>                                          52,999
<SECURITIES>                                         0
<RECEIVABLES>                                   11,590
<ALLOWANCES>                                       117
<INVENTORY>                                      7,184
<CURRENT-ASSETS>                                73,901
<PP&E>                                          15,177
<DEPRECIATION>                                   3,363
<TOTAL-ASSETS>                                 102,977
<CURRENT-LIABILITIES>                           16,907
<BONDS>                                              0
<PREFERRED-MANDATORY>                           62,389
<PREFERRED>                                      4,954
<COMMON>                                             7
<OTHER-SE>                                      18,347
<TOTAL-LIABILITY-AND-EQUITY>                   102,977
<SALES>                                         32,689
<TOTAL-REVENUES>                                32,689
<CGS>                                           12,610
<TOTAL-COSTS>                                   12,610
<OTHER-EXPENSES>                                18,157
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                  77
<INCOME-PRETAX>                                  2,320
<INCOME-TAX>                                     5,828
<INCOME-CONTINUING>                             (3,508)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    (3,508)
<EPS-BASIC>                                      (0.06)
<EPS-DILUTED>                                    (0.06)


</TABLE>
</TEXT>
</DOCUMENT>
</SUBMISSION>
