IPG PHOTONICS CORP, S-1, 2000-12-08

IPG PHOTONICS CORP
S-1, 2000-12-08

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<PAGE>

As filed with the Securities and Exchange Commission on December , 2000
Registration No. 333-xxxx
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

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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)

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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)

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Please Send Copies of All Communications To:

Angelo P. Lopresti, Esq. Alan L. Jakimo, Esq.
Barry J. Hart, Esq. Howard M. Kleinman, 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

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

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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. [_]

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

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<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 December 8, 2000

PROSPECTUS
Shares
[IPG LOGO]
Common Stock

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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 $ and $ 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.

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<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.

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

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 6
Forward-Looking Statements................................................ 14
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 19
Selected Combined Consolidated Financial Data............................. 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 30
Management................................................................ 45
Transactions with Related Parties......................................... 52
Indemnification of Directors and Executive Officers and Limitation of
Liability................................................................ 56
Principal Stockholders.................................................... 57
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 62
Underwriting.............................................................. 63
Legal Matters............................................................. 67
Experts................................................................... 67
Where You Can Find More Information....................................... 67
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 4,300,000 shares of
our common stock upon the closing of this offering;

. reflects our acquisition of 51% of the ownership interest in NTO IRE-
POLUS;

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

. assumes no exercise of the underwriters' overallotment option.

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 produce cost-
effective, high and low power fiber amplifiers and lasers with substantial
power efficiency, improved signal to noise performance, reliability and quality
that operate over a wider range of the usable optical spectrum. Our
telecommunications products are used in the long-haul, metropolitan and access
segments of optical communications networks. Our telecommunications customers
include ADC, Agilent, Alcatel, Calient, Corning, Corvis, Hughes Space and
Communications, JDS Uniphase, Lucent, Marconi, MIT Lincoln Labs, Nortel,
Optical Crossing, Siemens. and TeraBeam Networks. Our industrial products are
used for marking, printing, materials processing, micro-machining, optical
sensing and measurement, and laboratory and medical equipment. Our industrial
customers include Antares Laser, Baasel Scheel Lasergraphics, DaimlerChrysler
Aerospace, GSI Lumonics, L.O.T. Oriel, Molecular OptoElectronics, 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 networks. Telecommunications service providers
first deployed optical communication technology in the long-haul segment, and
are now also deploying new fiber optic technologies in the metropolitan and
access segments. In each of these segments, 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 of the fiber amplifier, amplification of
optical signals could only be accomplished using relatively expensive and
inefficient opto-electronic regenerators. Because fiber amplifiers cost-
effectively address attenuation and insertion loss, they have contributed
significantly to the deployment of optical communications networks.

Fiber optic amplification is commonly achieved through the use of erbium-
doped fiber amplifiers, or EDFAs, and Raman pump lasers. EDFAs contain optical
fiber that is mixed, or doped, in the manufacturing process with traces of rare
earth elements to improve the amplification properties of the fiber. Ryan,
Hankin & Kent, or RHK, a leading market research and consulting firm, 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%.
Raman pump lasers are used to turn the transmission fiber itself into an
amplifier, a process known as Raman amplification. By amplifying throughout the
transmission fiber rather than boosting the signal at one point, Raman
amplification results in greater signal integrity. RHK 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. These
products enable the cost-effective deployment of optical communications
systems, reducing bottlenecks and increasing bandwidth within each segment of
communications networks. For example:

. In the long-haul segment, our fiber amplifiers provide the high power
needed for 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.

1
<PAGE>

. In the access segment, our high power, multiple output fiber amplifiers
enable fiber-to-the-curb applications and hybrid cable television
networks with many end users.

. In free-space (wireless) optical networks, a subsegment of the access
segment, our high power amplifiers automatically adjust power output
over a wide dynamic range to overcome atmospheric limitations, such as
fog and rain.

. In the metropolitan segment, our low and medium power fiber amplifiers
can be widely deployed 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. Most industrial lasers in
use today are gas or solid state. Our high power fiber lasers offer several
benefits compared to these traditional laser technologies, such as higher beam
quality and mobility, increased reliability and efficiency, reduced size,
maintenance-free operation and lower operating costs.

Our state-of-the-art products are based on our innovative proprietary
technology platform. This platform is supported by a team of more than 30
Ph.D.'s over a wide range of disciplines. We have developed a fiber
amplification 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.
Our expertise in materials science is the basis for our manufacturing expertise
of the specialty fibers we use in our fiber amplifiers and fiber lasers. We
believe these proprietary fibers allow us to create fiber amplifiers that can
operate over a broader range of the usable optical spectrum than those offered
by our competitors. In addition, our simplified product design decreases the
number of components used, allowing for a more flexible and cost-effective
manufacturing platform.

Our vertically integrated manufacturing operations allow us to better
meet the needs of our telecommunications and industrial customers. We design
and manufacture a significant majority of the critical specialty components
used in our products. We also test and qualify all of our components and
assemblies, as well as our finished products, to assure reliability and
performance. Our vertical integration enables us to quickly scale our
production and maintain high product quality and reliability. We perform our
manufacturing, assembly and testing at our facilities in the United States,
Germany and Italy, as well as at our affiliate in Russia, and are currently
expanding our manufacturing capacity significantly.

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 strategies.

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.......... shares

Common stock to be
outstanding after this
offering............... 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 September 30, 2000 and
excludes:

. 2,377,766 shares of common stock issuable upon exercise of options
outstanding at September 30, 2000 under our 2000 stock incentive plan,
with a weighted-average exercise price of $1.14 per share, 1,352,000
shares issuable upon exercise of options granted subsequent to
September 30, 2000 with a weighted-average exercise price of $4.14 per
share;

. 100,000 shares of common stock issuable upon exercise of non-plan
stock options outstanding at September 30, 2000 with a weighted-
average exercise price of $1.00;

. 500,000 shares of restricted common stock issued under our 2000 stock
incentive plan subsequent to September 30, 2000, at a price of $1.00
per share;

. 2,939,300 shares reserved for issuance under our 2000 stock incentive
plan as of November 30, 2000; and

. shares of common stock issuable upon exercise of warrants
outstanding at September 30, 2000 held by owners of our Series B
convertible redeemable preferred stock, assuming an exercise price of
$ .

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 herein. Our combined consolidated financial statements include the
accounts of NTO IRE-POLUS, 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. The data for pro forma net income per
share treats our outstanding preferred stock as though it were common stock
from the date of original issuance. 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, NTO IRE-POLUS, 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.......................... $3,124 $8,289 $18,637 $14,831 $32,512
Cost of sales (1).................. 2,065 5,327 9,307 6,795 11,055
------ ------ ------- ------- -------
Gross profit (1)................... 1,059 2,962 9,330 8,036 21,457
------ ------ ------- ------- -------
Operating expenses:
Sales and marketing (2)........... 219 374 677 619 1,049
Research and development (3)...... 312 840 1,695 1,190 1,610
General, administrative and other
(4).............................. 322 1,040 2,766 2,046 4,066
Equity-based compensation......... -- -- -- -- 8,719
------ ------ ------- ------- -------
Total operating expenses......... 853 2,254 5,138 3,855 15,444
------ ------ ------- ------- -------
Operating income................... 206 708 4,192 4,181 6,013
Interest income (expense), net..... (118) (208) (303) (231) (77)
Other income (expense), net........ (14) 38 126 (42) 401
------ ------ ------- ------- -------
Income before provision for income
taxes
and minority interests............ 74 538 4,015 3,908 6,337
Provision for income taxes......... 31 234 2,206 2,232 4,639
Minority interests in (income) loss
of less than 100% owned
companies......................... (19) (77) 69 113 (242)
------ ------ ------- ------- -------
Net income......................... 24 227 1,878 1,789 1,456
Accretion of preferred stock....... -- -- -- -- (169)
------ ------ ------- ------- -------
Net income available to common
shareholders...................... $ 24 $ 227 $ 1,878 $ 1,789 1,287
====== ====== ======= ======= =======
Net income per share: (5)
Basic ............................ -- -- $ 0.05 $ 0.05 $ 0.04
======= ======= =======
Diluted .......................... -- -- $ 0.05 $ 0.05 $ 0.04
======= ======= =======
Pro forma net income per share: (5)
Basic............................. -- -- -- -- $0.04
=======
Diluted........................... -- -- -- -- $0.04
=======
</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 $7,692 of equity-based compensation for the nine months ended
September 30, 2000.
(5) The calculation of net income per share and pro forma basic and diluted
net income 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............... $65,814 $ 85,814
Working capital......................... 71,779 91,779
Total assets............................ 103,446 123,446
Long-term debt, including current
portion................................ 7,299 7,299
Series B preferred stock................ 62,389 --
Series A preferred stock................ 4,954 --
Stockholders' equity.................... 20,171 102,514
</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 1,403,000 shares of our common
stock in connection with the acquisition of the remaining ownership of IPG
Laser in October 2000, (iii) the issuance subsequent to September 30, 2000
of 500,000 common shares for a note receivable for $500,000 and options to
purchase 1,000,000 common shares at a price of $3.00, reflecting a
compensation charge of $12.0 million and deferred compensation charge of
$22.0 million, (iv) the issuance of options to purchase 352,000 common
shares at a weighted-average exercise price of $7.39 per share to employees
and members of the Board of Directors, reflecting a deferred compensation
charge of $6.2 million, (v) conversion of all outstanding shares of Series
A preferred stock into 500,000 shares of common stock and (vi) conversion
of all outstanding shares of Series B preferred stock into 3,800,000 shares
of common stock.
(7) The pro forma as adjusted amounts reflect pro forma amounts, as adjusted to
reflect (i) the payment of a portion of outstanding indebtedness from the
proceeds of this offering, and (ii) to reflect the sale of shares of
our common stock in this offering, at an assumed initial public offering
price of $ 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. 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 business, results of operations and financial condition
will 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 assure you that these
systems will be completed or adopted. 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 business could be negatively affected 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

6
<PAGE>

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 and John Geagea, 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, John H.
Dalton, our President, joined us in September 2000 and John Geagea, our Chief
Operating Officer, joined us in June 2000.

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, our results of operations will suffer.

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. SDL is one of our competitors
and has recently announced its decision to merge with JDS Uniphase. 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.

If we are unable to expand our manufacturing capacity in a timely manner, we
will have insufficient capacity, which could adversely affect our business,
results of operations and financial condition.

We are currently establishing additional manufacturing and research
facilities in Oxford, Massachusetts and Burbach, Germany and plan to add
additional capacity in Milan, Italy and Friazino, Russia. 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

7
<PAGE>

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, Italy and Russia, 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 revenue.

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
results of operations 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 business, results of
operations and financial condition would be materially and adversely affected.
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 have a material
adverse effect on our business and results of operations.

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 result in lower revenues.

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.

If fiber optic technology is adopted at rates slower than we expect,
particularly in the metropolitan and access segments, then we may have to
significantly revise our strategy and our business, results of operations and
financial condition could be materially harmed.

We have based a significant element of our strategy on expanded use of
fiber optic technology in the metropolitan and access segments 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.

8
<PAGE>

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

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, Italy and Russia 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.

If we cannot adequately protect our intellectual property rights, our business,
results of operations or financial condition could be materially affected.

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 rely upon trade secrets and
contractual restrictions, as opposed to patents, to protect our rights because
of our limited resources. To the extent that our technology is not adequately
protected by these laws and contractual restrictions, other companies could
develop and market similar products or services which could seriously harm us.
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.

9
<PAGE>

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 business could be adversely
affected.

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 harm our business, results of operations and financial
condition.

The long sales cycles for our products may cause revenue and results of
operations to vary from quarter to quarter causing our results of operations to
fluctuate.

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 efforts, 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.
Because of

10
<PAGE>

the evolving nature of the optical networking market, we cannot predict the
length of these sales and development cycles.

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

We have 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 and the laws and
regulations of the Russian Federation, such as those relating to taxation,
import and export tariffs, environmental regulations, land use rights, property
and other matters. If Russia's federal or local governments impose new
restrictions or 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 results of operations and financial
position could be harmed.

We may not be able to hire and retain the skilled personnel that we need to be
successful.

Our ability to continue to attract and retain highly skilled personnel
will be a critical factor in determining whether we will be successful. In
order to implement our business plan, we have hired a significant number of
additional employees and expect to hire significantly more in 2001, including
engineering, marketing, sales and manufacturing personnel. Competition for
these types of personnel is intense, especially in Germany where we have
experienced shortages of qualified manufacturing personnel. 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 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.

Our ability to grow may be limited if we need, but are unable to raise,
additional capital.

We have accelerated the expansion of our manufacturing capacity and our
capital expenditures, as well as increasing our inventory of materials, which
has increased our need for working capital. We believe that the anticipated net
proceeds of this offering, together with our existing cash balances, will be
sufficient to meet our capital requirements for the foreseeable future. If we
are required to raise additional funds, we may not be able to do so on
favorable terms, or at all. If we cannot raise funds on acceptable terms, we
may not be able to develop or enhance our products, take advantage of future
opportunities or respond to competitive pressures or unanticipated
requirements. Any such inability would seriously harm our business.

11
<PAGE>

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

A portion of our operating expenses and capital expenditures, and those
of our subsidiaries, are denominated in the German mark, the Russian rouble and
the Italian lira, and 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 income. 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.

Any acquisitions that we undertake could be difficult to integrate, disrupt our
business, dilute stockholder value and harm our results of operations 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. We have no current agreements or
negotiations under way except for our agreement in principle to acquire a 51%
interest in NTO IRE-POLUS.

If we do not comply with various government export, communications and other
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.

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 and unique design restrictions.
Failure of our products to comply with these regulations in any country could
result in our failure to complete sales of products for that country, the
seizure or return to us of any non-compliant products and damage to our
reputation, all of which would have an adverse effect on our business, results
of operations and financial condition. Our products are also 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

12
<PAGE>

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;

. changes in financial estimates by securities analysts;

. changes in market valuations of other optical component companies;
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 for the expansion of our
manufacturing facilities, marketing and distribution activities, research and
development activities, repayment of a portion of indebtedness and general
corporate purposes. We may use the balance of the proceeds to acquire or invest
in related businesses,

13
<PAGE>

products and technologies. Our management will have broad discretion in
deciding how we use the net proceeds from this offering. 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
principal stockholders who hold 5% or more of the outstanding common stock and
their affiliates will beneficially own, in the aggregate, approximately %
of our outstanding common stock based on shares outstanding as of September 30,
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 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.

As a new investor, you will incur substantial dilution as a result of this
offering and future equity issuances.

The initial public offering price will be substantially higher than the
pro forma net tangible book value per share of our outstanding common stock. As
a result, investors purchasing common stock in this offering will incur
immediate dilution of $ per share. The exercise of outstanding options and
warrants and future equity issuances will result in further dilution.

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
within the meaning of the federal securities laws that relate to future events
or our future financial performance. 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 shares of common
stock offered by us in this offering to be approximately $ , based on an
assumed initial public offering price of $ per share and after deducting the
estimated underwriting discount and offering expenses. The net proceeds will be
approximately $ if the underwriters' over-allotment option is exercised in
full.

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

. expansion of manufacturing facilities;

. sales and marketing activities;

. research and development activities;

. repayment of a portion of outstanding indebtedness; and

. working capital and other general corporate purposes.

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 our agreement in principle to acquire a
51% interest in 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 amount and 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. 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.

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

. the issuance of 1,403,000 shares of our common stock in connection
with the acquisition of the remaining ownership of IPG Laser in
October 2000;

. the issuance, subsequent to September 30, 2000, of 500,000 common
shares for a note receivable for $500,000 and options to purchase
1,000,000 common shares at a price of $3.00 per share, reflecting
a compensation charge of $12.0 million and deferred compensation
charge of $22.0 million;

. the issuance, subsequent to Sept. 30, 2000, of options to purchase
352,000 common shares at a weighted-average price of $7.39 per
share to employees and members of the Board of Directors,
reflecting a deferred compensation charge of $6.2 million.

. the conversion of all outstanding shares of Series A preferred
stock into 500,000 shares of common stock;

. the conversion of all outstanding shares of Series B preferred
stock into 3,800,000 shares of common stock; and

. on a pro forma as adjusted basis, giving effect to:

. the payment of a portion of outstanding indebtedness from the
proceeds of this offering; and

. to reflect the sale of shares of our common stock in this
offering, at an assumed initial public offering price of $ 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 along with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," 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............................................ $65,814 $ 85,814 $
======= ======== =====
Debt, including current portion................. $ 7,299 $ 7,299 $
------- -------- -----
Minority interests.............................. 421 421
------- -------- -----
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, $.0001 par value, 50,000,000
shares authorized, 33,980,934 shares issued and
outstanding at September 30, 2000 actual;
50,000,000 shares authorized, 40,183,934 shares
issued and outstanding at September 30, 2000 on
pro forma basis and shares issued and
outstanding at September 30, 2000 on a pro
forma as adjusted basis........................ 3 4
Additional paid-in capital...................... 23,412 148,143
Warrants to issue common stock.................. 12,400 15,707
Notes receivable from shareholders.............. (440) (940)
Deferred compensation........................... (13,242) (41,439)
Accumulated deficit............................. (6,227) (18,227)
Accumulated other comprehensive income.......... (689) (689)
------- -------- -----
Total shareholders' equity...................... 20,171 102,559
------- -------- -----
Total capitalization.......................... $90,280 $110,279 $
======= ======== =====
</TABLE>
--------
(1) Excludes:

. 2,377,766 shares of common stock issuable upon exercise of options
outstanding at September 30, 2000 under our 2000 stock incentive
plan, with a weighted-average exercise price of $1.14 per share,
1,352,000 shares issuable upon exercise of options granted subsequent
to September 30, 2000, with a weighted-average exercise price of
$4.14 per share;

. 100,000 shares of common stock issuable upon exercise of non-plan
stock options outstanding at September 30, 2000 with a weighted-
average exercise price of $1.00;

. 500,000 shares of restricted common stock issued under our 2000 stock
incentive plan subsequent to September 30, 2000, at a price of $1.00
per share;

. 2,939,300 shares reserved for issuance under our 2000 stock incentive
plan as of November 30, 2000; and

. shares of common stock issuable upon exercise of warrants
outstanding at September 30, 2000 held by owners of our Series B
convertible redeemable preferred stock, assuming an exercise price of
$ .

18
<PAGE>

DILUTION

The pro forma net tangible book value of our common stock as of September
30, 2000 was approximately $ million, or $ 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 conversion of all
outstanding shares of Series A and Series B preferred stock into an aggregate
of shares of common stock). 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 book value per share of our common stock
immediately after the offering, after the conversion of all outstanding shares
of our Series A and Series B preferred stock and the repayment of a portion of
outstanding indebtedness. After giving effect to our sale of shares of common
stock offered by this prospectus, at an assumed initial public offering price
of $ 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 $ , or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$ 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........................... $
Pro forma net tangible book value per share as of September 30,
2000............................................................. $
Increase per share attributable to new investors..................
----
Pro forma net tangible book value per share after this offering...
Dilution per share to new investors............................... $
</TABLE>

This table excludes all options and warrants that will remain outstanding
upon completion of this offering. The exercise of outstanding options and
warrants having an exercise price less than the offering price would increase
the dilutive effect to new investors.

The following table summarizes, on a pro forma basis, as of September 30,
2000:

. the number of shares of common stock purchased from 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>
Shares Total Average Price
Purchased Consideration Per Share
-------------- -------------- --------------
Number Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders.............. % $ % $ %
New investors...................... % $ % $ %
Total.............................. 100% $ 100% $ 100%
</TABLE>

The information in the above tables excludes 2,377,766 shares of common
stock issuable upon exercise of options outstanding at September 30, 2000 under
our 2000 stock incentive plan with a weighted average exercise price of $1.14
per share, 100,000 shares of common stock issuable upon exercise of non-plan
stock options at September 30, 2000 with a weighted-average exercise price of
$1.00, 500,000 shares of restricted common stock issued at a price of $1.00 per
share, warrants issued to purchase shares of common stock with an exercise
price of per share, 1,352,000 shares of common stock issuable upon exercise
of options granted subsequent to September 30, 2000 with a weighted average
exercise price of $4.14 per share and up to shares that may be issued by us
pursuant to the underwriters' over-allotment option. To the extent these
options and warrants are exercised, there will be further dilution to the new
investors. For more information, see "Management--Stock Option Plan" and the
notes to our combined consolidated financial statements.

19
<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, IPG Fibertech, and NTO
IRE-POLUS, 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. In addition to the August 2000
reorganization, the Company and NTO IRE-POLUS have an agreement in principle
for the Company to acquire a 51% interest in NTO IRE-POLUS. The NTO IRE-POLUS
transaction is expected to close by January 31, 2001. Because the Company, IPG
Laser, IPG Fibertech, the 80% owned subsidiary of IPG Laser, and NTO IRE-POLUS
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 NTO IRE-POLUS, 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, NTO IRE-POLUS, 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 therein. The calculation of pro forma net income per share is
calculated assuming our outstanding preferred stock were common stock from the
date of original issuance. 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.

20
<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 $3,124 $8,289 $18,637 $14,831 $32,512
Cost of sales (1).................................................... 575 939 2,065 5,327 9,307 6,795 11,055
------ ------ ------ ------ ------- ------- -------
Gross profit (1)..................................................... 821 547 1,059 2,962 9,330 8,036 21,457
------ ------ ------ ------ ------- ------- -------
Operating expenses:
Sales and marketing (2)............................................. 87 51 219 374 677 619 1,049
Research and development (3)........................................ 371 472 312 840 1,695 1,190 1,610
General, administrative and other (4)............................... 316 406 322 1,040 2,766 2,046 4,066
Equity-based compensation........................................... -- -- -- -- -- -- 8,719
------ ------ ------ ------ ------- ------- -------
Total operating expenses.......................................... 774 929 853 2,254 5,138 3,855 15,444
------ ------ ------ ------ ------- ------- -------
Operating income (loss).............................................. 47 (382) 206 708 4,192 4,181 6,013
Interest income (expense), net....................................... (35) (58) (118) (208) (303) (231) (77)
Other income (expense), net.......................................... 139 335 (14) 38 126 (42) 401
------ ------ ------ ------ ------- ------- -------
Income (loss) before provision (benefit) for income taxes
and minority interests.............................................. 151 (105) 74 538 4,015 3,908 6,337
Provision (benefit) for income taxes................................. 72 (96) 31 234 2,206 2,232 4,639
Minority interests in (income) loss of less than 100% owned
companies........................................................... 18 (40) (19) (77) 69 113 (242)
------ ------ ------ ------ ------- ------- -------
Net income (loss).................................................... 97 (49) 24 227 1,878 1,789 1,456
Accretion of preferred stock......................................... -- -- -- -- -- -- (169)
------ ------ ------ ------ ------- ------- -------
Net income (loss) available to common shareholders................... $ 97 $ (49) $ 24 $ 227 $ 1,878 $ 1,789 $ 1,287
====== ====== ====== ====== ======= ======= =======

Net income per share: (5)
Basic .............................................................. -- -- -- -- $ 0.05 $ 0.05 $ 0.04
======= ======= =======
Diluted ............................................................ -- -- -- -- $ 0.05 $ 0.05 $ 0.04
======= ======= =======
Pro forma net income per share: (5)
Basic............................................................... -- -- -- -- -- -- $ 0.04
=======
Diluted............................................................. -- -- -- -- -- -- $ 0.04
--------------------------------------------------
=======
</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 $7,692 of equity-based compensation for the nine months ended
September 30, 2000.
(5) The calculation of net income per share and pro forma basic and diluted net
income 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.. $ 252 $ 214 $ 224 $1,311 $ 740 $65,814
Working capital
(deficiency).............. 83 706 908 895 (577) 71,779
Total assets............... 1,447 2,546 3,737 9,135 13,143 103,446
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....... 185 295 424 676 2,385 20,171
</TABLE>

21
<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

Financial Statement Presentation

We were incorporated as a Delaware corporation in December 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 80% of IPG
Fibertech. For more detail regarding this restructuring, see "Transactions with
Related Parties--Restructuring." In addition, we expect to acquire a 51%
interest in our affiliate NTO IRE-POLUS by January 31, 2001. NTO IRE-POLUS
began its operations in 1991 in Russia as IRE-POLUS.

The combined consolidated financial statements and all financial data
included throughout this prospectus include IPG Laser, IPG Fibertech and NTO
IRE-POLUS. 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, IPG Fibertech and NTO IRE-POLUS
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, NTO IRE-POLUS, 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 and the proposed acquisition of NTO
IRE-POLUS 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.

Net Sales

We derive revenues from two product lines: fiber amplifiers and Raman
pump lasers for the telecommunications industry, and fiber lasers for
industrial applications. Telecommunications revenue represented 77.2% of our
revenue for the nine months ended September 30, 2000.

During 1999 and throughout 2000, we significantly expanded our sales and
customer relationships. However, we continued to derive a significant portion
of our recent sales from a limited number of companies. These customers include
ADC, Agilent, Alcatel, Calient, Corning, Corvis, Hughes Space and
Communications, JDS Uniphase, Lucent, Marconi, MIT Lincoln Labs, Molecular
OptoElectronics, Nortel, Siemens, T.E.M. and

22
<PAGE>

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. These customers
represent those who have purchased over $100,000 from us or our distributors
for the eleven months ended November 30, 2000. Our combined consolidated sales
to these customers comprised 86.4% of our net sales for the year ended December
31, 1999 and 87% of our net sales for the nine months ended September 30, 2000.
Our total revenue may decline significantly if these customers cancel, reduce
or delay purchases. As of September 30, 2000, we do not have any written
commitments from our customers for deliveries to be made in 2001. Our total
backlog of purchase orders as of September 30, 2000 was approximately $18
million, substantially all of which we expect to fulfill by December 31, 2000.
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. In addition, we have not experienced a trend
towards seasonality of our revenues. For the nine months ended September 30,
2000, 71.5% of our sales have been in North America and 16.2% of our sales have
been in Europe.

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 ensure an adequate supply and to be able to fill orders quickly for
our customers. This higher inventory may result in a greater risk of obsolete
inventory in the future.

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.

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.

23
<PAGE>

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 and the exercise price of those options at the date the options were
granted. These amounts are being amortized using the straight-line method over
the vesting period of the options, which is generally four years. In connection
with the grant of stock options to our employees, we recorded deferred
compensation of approximately $22.0 million through September 30, 2000.
Subsequent to September 30, 2000, we issued 500,000 shares of restricted common
stock at a price of $1.00 per share resulting in a compensation charge of $12.0
million and granted 1,352,000 options to purchase common stock to employees and
the members of the Board of Directors with an aggregate deferred compensation
expense of $28.2 million.

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)......................................................................... 66.1% 64.3% 49.9% 45.8% 34.0%
------ ------ ------ ------ ------
Gross profit(2).......................................................................... 33.9% 35.7% 50.1% 54.2% 66.0%
------ ------ ------ ------ ------
Operating Expenses:
Sales and marketing(3).................................................................. 7.0% 4.5% 3.6% 4.2% 3.2%
Research and development(4)............................................................. 10.0% 10.1% 9.1% 8.0% 5.0%
General, administrative and other(5).................................................... 10.3% 12.6% 14.9% 13.8% 12.5%
Equity-based compensation(6)............................................................ 0.0% 0.0% 0.0% 0.0% 26.8%
------ ------ ------ ------ ------
Total operating expenses................................................................. 27.3% 27.2% 27.6% 26.0% 47.5%
------ ------ ------ ------ ------
Operating income ........................................................................ 6.6% 8.5% 22.5% 28.2% 18.5%
Interest income (expense), net........................................................... (3.8%) (2.5%) (1.6%) (1.5%) (0.2%)
Other income (expense), net.............................................................. (0.4%) 0.5% 0.6% (0.3%) 1.2%
------ ------ ------ ------ ------
Income before provision for income taxes and minority interests.......................... 2.4% 6.5% 21.5% 26.4% 19.5%
Provision for income taxes............................................................... 1.0% 2.8% 11.8% 15.0% 14.3%
Minority interest in (income) loss of less than 100% owned companies..................... (0.6%) (1.0%) 0.4% 0.8% (0.7%)
------ ------ ------ ------ ------
Net income (loss)........................................................................ 0.8% 2.7% 10.1% 12.1% 4.5%
--------------------------------------------------
====== ====== ====== ====== ======
</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 $7,692 of equity-based compensation for the nine
months ended September 30, 2000, the percentage of net sales would
increase to 36.2%.
(6) Percentage of net sales would be 0% for the nine months ended September
30, 2000 after allocation of equity-based compensation.

24
<PAGE>

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

Net sales. Net sales increased $17.7 million, or 119.2%, to $32.5 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 77.2%, 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. 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.

Gross Profits. Gross profits increased $13.4 million, or 167.0%, to $21.5
million for the nine months ended September 30, 2000 from $8.0 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 and an increase in expenditures for public relations
and promotional materials.

Research and development expenses. Research and development expenses
increased $420,000, or 35.3%, to $1.6 million for the nine months ended
September 30, 2000 from $1.2 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 $2.0 million, or 98.7%, to $4.1 million for the nine
months ended September 30, 2000 from $2.0 million during the comparable period
in 1999. This increase resulted from the hiring of additional management and
administrative personnel, such as a president and a chief operating officer, as
well as significant professional fees relating to our restructuring.

Equity-based compensation expenses. During the nine months ended
September 30, 2000, we issued approximately 2.1 million options to purchase our
common stock at a weighted-average exercise price of 1.20 per share, resulting
in deferred compensation of $22.0 million. This deferred compensation will be
amortized over the options' vesting periods, generally four years, and resulted
in the recognition of $8.7 million of equity-based compensation expense during
the nine month period ended September 30, 2000. 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 $443,000 to $401,000
in the nine months ended September 30, 2000 from a net expense of $42,000
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, Italian and Russian subsidiaries and
affiliates.

25
<PAGE>

Provision for income taxes. Provision for income taxes has increased $2.4
million to $4.6 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
of 73.2% in 2000 and 57.1% 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, net income of $1.8
million for the nine months ended September 30, 1999 decreased to $1.5 million
in the comparable period in 2000. Excluding equity-based compensation, our net
income would have been $9.3 million in the nine months ended September 30, 2000
as compared with $1.8 million in the comparable period in 1999.

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

Net sales. Net sales increased $10.3 million, or 124.8%, 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 71.9% in 1998.

Gross Profits. Gross profits increased $6.4 million, or 215.0%, to $9.3
million for 1999 from $3.0 million for 1998. This increase is principally due
to increased sales during the period and an overall increase in the gross
profit percentage from 35.7% to 50.1%. 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, increased attendance at
trade shows and fairs.

Research and development expenses. Research and development expenses
increased $855,000, or 101.8%, to $1.7 million in 1999 from $840,000 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 166.0%, to $2.8 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, 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 $88,000, or 231.6%,
to $126,000 in 1999 from $38,000 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 $2.0
million to $2.2 million in 1999 from $234,000 in 1998 resulting in an effective
tax rate of 54.9% in 1999 and 43.5% in 1998. This increased tax rate reflects
the higher contribution to total net income before taxes from our German
operations during 1999 coupled with a high statutory tax rate in Germany.

Net income. As a result of the foregoing factors, net income increased
from $227,000 in 1998 to $1.9 million in 1999.

26
<PAGE>

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

Net sales. Net sales increased $5.2 million, or 165.3%, 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 71.9% of
our net sales in 1998 and 60.8% in 1997.

Gross Profits. Gross profits increased $1.9 million, or 179.7%, to $3.0
million for 1998 from $1.1 million for 1997. This increase resulted from
increased sales during the period and an overall increase in the gross profit
percentage from 33.9% to 35.7%. 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 $528,000, or 169.2%, to $840,000 in 1998 from $312,000 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 $718,000, or 223.0%, to $1.0 million in 1998 from $322,000
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 $90,000,
or 76.3%, to $208,000 in 1998 from $118,000 in 1997. This increase resulted
from an increase in overall borrowings.

Other income (expense), net. Other income increased $52,000 to $38,000 in
1998 from net other expense of $14,000 in 1997, reflecting foreign currency
effects.

Provision for income taxes. Provision for income taxes increased $203,000
to $234,000 in 1998 from $31,000 in 1997 resulting in an effective tax rate of
43.5% in 1998 and 41.9% in 1997.

Net income. As a result of the foregoing factors, net income increased to
$227,000 in 1998 from $24,000 in 1997.

Liquidity and Capital Resources

From January 1, 1997 through September 30, 2000, our principal sources of
funds were $8.6 million from operations, $6.4 million from net borrowings and
$79.4 million from the sale in 2000 of our Series A and Series B preferred
stock. Our working capital excluding cash was $6.0 million and our cash on hand
was $65.8 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 an additional sale 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;

. increase our research and development activities;

. repay a portion of our outstanding indebtedness; and

. fund our working capital.

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Cash Flow from Operating Activities

Net cash provided by operating activities totaled $3.1 million for the
nine months ended September 30, 1999 and $2.2 for the nine months ended
September 30, 2000. Net cash provided by operating activities totaled $51,000,
$2.1 million and $4.1 million for the years ended December 31, 1997, 1998 and
1999, respectively. The decrease in operating cash flows in 2000 reflects an
increase in accounts receivable and inventory partially offset by growth in net
income before equity-based compensation and increases in current liabilities.
In December 2000, the Company entered into a purchase agreement with our laser
diode chip supplier requiring minimum purchases by the Company of approximately
$66.7 million through December 31, 2002.

Cash Flow from Investing Activities

Cash used in investing activities totaled $3.4 million and $10.2 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. We expect to acquire a 51% interest in NTO IRE-POLUS
for $5.0 million. 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 to do so. We expect that our capital
expenditures through the end of 2002 will consist primarily of:

. approximately $20.0 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 $45.0 million for the acquisition of property, plant
and equipment to furnish and fit the new facilities in the United
States, Germany and Italy.

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
$72.8 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
Series A preferred stock of $5.0 million and the gross proceeds from the 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 1,150,000 shares of our common stock to one stockholder.
The completion of this restructuring in October 2000 resulted in the issuance
of an additional 1,403,000 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 facilities and we had total available credit of $26.9
million. These loans have been used principally to finance our new facilities,
purchase related equipment and for working capital purposes. These loans are
secured by all of our assets and outstanding borrowings bear interest at a
weighted average rate of 4.56%. These loans are cross-defaulted and contain
restrictive covenants, including maintenance of specific financial ratios,
including the ratio of total debt to tangible capital and the debt service
coverage ratio. 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.

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

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our credit facilities will provide us with sufficient liquidity to meet our
current and anticipated financial obligations, committed capital expenditures
and other 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.

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.

Exchange Rate Sensitivity

We currently have operations in the United States, Italy, Germany and
Russia. Our non-U.S. subsidiaries record transactions in the local currency of
the country in which they are located. A significant portion of sales and cost
of sales of our non-U.S. subsidiaries are U.S. dollar denominated. To comply
with local reporting requirements, these amounts are converted for book
purposes into local currency at the time of sale. We reconvert these amounts to
U.S. dollars for financial reporting purposes. Consequently, we are subject to
foreign currency exchange rate fluctuations for financial reporting purposes.
In addition, a majority of the expenses of non-U.S. subsidiaries are paid in
local currencies which subject us to exchange rate risk.

We have historically not utilized any derivative instruments or other
measures to protect us against foreign currency fluctuations. We will continue
to analyze our exposure to currency 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.

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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 produce cost-
effective, high and low power fiber amplifiers and lasers with high power
efficiency, and improved signal to noise performance, reliability and quality
that operate over a wider range of the usable optical spectrum. Our
telecommunications products are used in the long-haul, metropolitan and access
segments of optical communications networks. Our telecommunications customers
include ADC, Agilent, Alcatel, Calient, Corning, Corvis, Hughes Space and
Communications, JDS Uniphase, Lucent, MIT Lincoln Labs, Nortel, Optical
Crossing, Siemens and TeraBeam Networks. Our industrial products are used for
marking, printing, materials processing, micro-machining, optical sensing and
measurement, and laboratory and medical equipment. Our industrial customers
include Antares Laser Baasel Scheel Lasergraphics, DaimlerChrysler Aerospace,
GSI Lumonics, L.O.T. Oriel, Molecular OptoElectronics, 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 RHK, 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, which have limited capacity to handle ever increasing data
streams at high speeds. By contrast, optical signals traveling at the speed of
light through thin glass fibers can carry a significantly higher rate of data
over far greater distances in comparison to electronic signals over copper
wires.

The fiber optic communication market can be divided into three segments,
each of which requires customized 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 transmit light waves from building to building over relatively short
distances, such as 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.]

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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 access segment. 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. However, these
amplifiers are now being offered by a number of manufacturers. According to
RHK, the market for fiber amplifiers used in the metropolitan segment is
expected to grow from $637 million in 2000 to $1.5 billion in 2004 representing
a compound annual growth rate of 23.9%. The market for amplifiers used in the
access segment is expected to grow from $114 million in 2000 to $761 million in
2004, representing a compound annual growth rate of 60.7%

In fiber optic networks, optical signals are transmitted at specified
wavelengths within specified ranges, or bands. Most fiber optic networks use
the C band and the L band. Companies in the optical communications industry are
seeking to expand the number of bands for fiber optic communications, such as
the S band and other bands within the useable optical spectrum as illustrated
in the chart below.

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

In early systems, optical signals were transmitted over each fiber using
only one wavelength. 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 the 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, rather than spacing channels more narrowly. 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, measured by signal to
noise ratio, allow transmission of optical signals over longer distances
without conversion. 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. RHK 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%.

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There are 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. There are also two types of fiber 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 making it significantly more
efficient for long distance transmission of signals and high data transmission
rates. We believe that a majority of all 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 energy
into the transmission fiber itself to amplify the optical signal, a process
called Raman amplification. Currently, Raman technology has been deployed on a
limited basis in the long-haul and ultra long-haul systems. RHK 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%. By achieving amplification throughout the transmission fiber
rather than boosting the signal at one point, Raman amplification results in
greater signal integrity. The use of Raman amplification coupled with 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, or CW, 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 lasers are Nd doped crystal 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

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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 the qualities mentioned above, their
flexible fiber delivery and portability allow for use in new applications, such
as underwater welding and industrial cleaning for which conventional lasers
cannot be used.

Challenges Faced by our Customers

Many telecommunications system integrators 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 DWDM
channel counts require higher power. In the access segment, our
customers require high power multiple output fiber amplifiers to
power fiber-to-the-curb applications and hybrid analog and digital
cable television systems 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
operate without maintenance for a decade or longer under various
climactic conditions and resist technological obsolescence.

. Superior Performance. Telecommunications networks must maintain high
signal to noise ratios as signals pass through amplifiers. Some
telecommunications systems integrators also require polarization-
maintaining amplifiers.

. 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 WDM and 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 with wide
modulation bandwidths and that allow for precise control of numerous
operating specifications, including 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.

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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. We have based the design of our
product lines on our innovative proprietary technology platform, key
characteristics of which are simplified design and the high reliability of the
common components that the different products share.

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
multi-clad 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 pre-form doping,
specialty fiber drawing, laser diode module production and gain block
assembly. 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.

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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
extensive, multi-disciplinary technical expertise has enabled us to
develop proprietary pumping techniques and multi-clad 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 sold our first Raman pump laser over
three years ago, which we believe was the first commercial Raman pump
laser sold in the industry. 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, Italy and Russia 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
will 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, other than our proposed 51%

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investment in NTO IRE-POLUS, an affiliated company located in Russia.
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.

Products

Our products are classified in two major groups: high-performance fiber
amplifiers, Raman pump lasers and fiber lasers for telecommunications 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 current and next generation 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 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. We offer a broad range of products as
illustrated by the following table:

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

<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)
Pre Amplifiers
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.

36
<PAGE>

Long-Haul Networks

Our high power 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. Our Raman pump lasers comply with Telcordia,
formerly Bellcore, standards and 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 low to high power digital single channel WDM EDFAs, analog
multi-port EDFAs and multi-fiber/multi-channel EDFAs 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, multiport EDFAs 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
dynamic range, automatically adjusting power output 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.

37
<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.
We sell a broad range of products for various industrial applications as
illustrated by the following table:

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

<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 CW 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.

38
<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; Burbach, Germany; and Friazino, 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

39
<PAGE>

new products that maintain technological competitiveness. We work closely with
our telecommunications and 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.

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, 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.

We exclusively provide to TeraBeam our EDFA products for point-to-
multipoint free-space optical communication systems. This exclusivity expires
on the earlier of September 15, 2002 or upon TeraBeam's failure to meet certain
minimum purchase requirements.

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 Russian affiliate. 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.

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. This facility 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.

40
<PAGE>

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.

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. In Russia, NTO IRE-POLUS rents a 25,000 square
foot facility used for manufacturing and research. They are currently
negotiating the renewal of this lease, which expired in November 2000. NTO IRE-
POLUS, plans to build an expanded facility over the next two years with the
proceeds of our proposed investment. 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.

Pursuant to a non-exclusive purchase agreement with SDL that terminates
on December 31, 2002, we have agreed to purchase a fixed amount 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. In addition, SDL has agreed to pay
us a specified amount in the event they willfully breach their supply
obligations to us. 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. To coordinate our sales and marketing
efforts, we are seeking marketing executives with significant experience in the
fiber optic industry.

41
<PAGE>

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 6 to 9 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.

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;

. 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

42
<PAGE>

Depending upon the country and the relevant product, the applicable regulations
may require product testing, approval, registration, marking, operating
specifications and safety features.

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. Moreover, 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.

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
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 the Company is 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. 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.
Furthermore, the laws of certain foreign countries may not protect our
technologies or intellectual property rights to the same extent as do the laws
of the United States. 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

43
<PAGE>

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 September 30, 2000, we had 160 full-time employees, 32 of whom were
engaged in product development, 100 in manufacturing, and 28 in sales,
marketing, customer service, general and administration. A total of 53
employees were in the U.S. and the remainder are employed in Europe. NTO IRE-
POLUS had a total of 242 full- and part-time employees. 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.

44
<PAGE>

MANAGEMENT

Directors, Executive Officers and Key Employees

Our directors, executive officers and key employees are:

<TABLE>
<CAPTION>
Name Age Positions with the Company
---- --- --------------------------
<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

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

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 Secretary and 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.

45
<PAGE>

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 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.

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.

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 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.

46
<PAGE>

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.

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.

47
<PAGE>

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 The 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.

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 50,000 shares of common stock to Dr. Krupke and Mr. Child under our
2000 stock incentive plan at an exercise price of $7.50 per share. The options
vest equally over a period of four years. For more information, see "--Stock
Option Plan." In addition, Dr. Krupke also received options to purchase 50,000
shares of common stock pursuant to his membership in our National Advisory
Board. These options vest equally over a four year period and have an exercise
price of $1.00 per share.

48
<PAGE>

Executive Compensation

Summary Compensation Table

The following table sets forth information regarding compensation
received during the fiscal year ended December 31, 1999 by our Chief Executive
Officer and each of our other executive officers whose total salary and bonus
earned during the fiscal year ended December 31, 1999 exceeded $100,000:

<TABLE>
<CAPTION>
Annual
Compensation
----------------
Name and Principal Position Salary Bonus
--------------------------- -------- -------
<S> <C> <C>
Valentin P. Gapontsev
Chairman of the Board of Directors and Chief Executive
Officer...................................................... $223,408 $88,023

Eugene Shcherbakov
Managing Director of IPG Laser............................... $124,993 --
</TABLE>

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 $214,000 at September 30, 2000, as well as use of a company car
and company housing. In 2000, Dr. Gapontsev will receive 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 300,000 shares of our
common stock, at an exercise price of $2.00 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. In addition, we granted to
Mr. Dalton in November 2000 options to purchase 50,000 shares of our common
stock at an exercise price of $2.50 per share, vesting over a four-year period.
We also entered into an agreement with Mr. Dalton as of February 3, 2000 for
him to serve on our National Advisory Board. Pursuant to this agreement, he
received options to purchase 50,000 shares of our common stock at a price of
$1.00 per share and subsequently exercised all of those options in March 2000.

Under the current terms of our agreement with Dr. Shcherbakov, he
receives an annual salary of DM 336,000, or approximately $151,080 at September
30, 2000. Either party may terminate the agreement upon three month's 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 400,000
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. 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.

49
<PAGE>

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 7,500,000 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 2,000,000 shares of
common stock may be awarded under the 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 September 30, 2000, nonstatutory stock options had been granted and
restricted stock issued to employees of IPG Photonics and affiliated entities
under the plan. As of September 30, 2000 under the plan, (i) 330,934 shares of
common stock had been issued upon exercise of outstanding nonstatutory stock
options, (ii) 250,000 shares of restricted common stock had been issued and
(iii) nonstatutory stock options to purchase 2,377,766 shares of common stock,
with a weighted average exercise price of $1.14, were outstanding. In November
2000, we increased the size of the plan from 3,750,000 shares to 7,500,000
shares and as of November 30, 2000 2,939,300 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

50
<PAGE>

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.

51
<PAGE>

TRANSACTIONS WITH RELATED PARTIES

Other than the compensation agreements and other arrangements described
in "Management," and the transactions described below, for the last two 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.

Restructuring

We were incorporated as a Delaware corporation in December 1998 and began
operations in the United States in 1999. In November 1994, our founding
shareholder, Dr. Valentin Gapontsev formed a new company in Germany, IPG Laser
GmbH. Prior to August 24, 2000, Dr. Gapontsev operated several companies under
his control and management. We entered into three agreements as of August 24,
2000 in connection with the restructuring of several of these entities: IPG
Photonics, IPG Laser and IPG Fibertech. The restructuring was a condition
precedent to an investment by the purchasers of our Series B preferred stock.
The first agreement was between IPG Photonics and IP Fibre Devices, in which IP
Fibre Devices sold 50% of the total issued and outstanding interests of IPG
Laser to IPG Photonics in exchange for $7.5 million in cash and 1,150,000
shares of IPG Photonics common stock. The second agreement was between IPG
Photonics and Dr. Valentin Gapontsev, in which Dr. Gapontsev sold 4% of the
total issued and outstanding interests 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 interests of IPG Laser from
Dr. Gapontsev in exchange for 1,403,000 shares of common stock of IPG
Photonics. On October 4, 2000, IPG Photonics exercised this option and now owns
100% of the issued and outstanding shares of IPG Laser. IPG Photonics also
indirectly controls IPG Laser's 80%-held subsidiary, IPG Fibertech. The
remaining 20% of IPG Fibertech is owned by Stefano Cecchi, its Managing
Director.

We have agreed in principle to acquire a 51% interest in NTO IRE-POLUS, a
Russian company 54.5% of which is owned by Dr. Valentin Gapontsev and his
family members. For more information, see "--Transaction with NTO IRE-POLUS."

52
<PAGE>

As of November 30, 2000, Dr. Valentin Gapontsev is our Chairman of the
Board and Chief Executive Officer and owns 47.6% of our common stock. IP Fibre
Devices owns 28.1% of our common stock and Dr. Valentin Gapontsev beneficially
owns 53.0% of IP Fibre Devices' ordinary shares. Based on these shareholdings,
Dr. Gapontsev owns in the aggregate 75.7% of our common stock directly through
his ownership of IPG Photonics and indirectly through his control of IP Fibre
Devices, excluding shares held directly by his son, Dr. Denis Gapontsev in IPG
Photonics. The following chart presents the overlap in ownership of IPG
Photonics, its subsidiaries and affiliated parties by common members of
management without giving effect to the offering and giving effect to the
closing of our proposed investment in NTO IRE-POLUS:

[FLOW CHART]

--------------------------------- ----------------------------------
Dr. Valentin Gapontsev 46% Dr. Valentin Gapontsev 53%
Dr. Denis Gapontsev 6% Dr. Denis Gapontsev 15%
Dr. Eugene Shcherbakov 1% Dr. Eugene Shcherbakov 8%
Dr. Igor Samartsev 1% Dr. Igor Samartsev 8%
Dr. Nikolai Platonov 1% Dr. Nikolai Platonov 8%
Others 8%
--------------------------------- ----------------------------------

------------------------- ----------
IP Fibre Devices Ltd. Others
29% 16%
------------------------- ----------

-------------------------------
----------------------------- Dr. Valentin Gapontsev 27%
IPG Photonics Corporation Dr. Igor Samartsev 5%
----------------------------- Dr. Nikolai Platonov 10%
Others 7%
-------------------------------

100%
51%
-------------------------
IPG Laser GmbH -------------------
------------------------- NTO IRE-PLOUS
-------------------
80%

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

Dr. Valentin Gapontsev

On August 13, 2000, Dr. Valentin Gapontsev borrowed DM 200,000 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.

Dr. Denis Gapontsev

On May 30, 2000, IPG Laser entered into an agreement 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, and paid him DM
184,000. Prior to the sale, IPG Laser had been leasing the land and house from
Dr. Gapontsev since December 28, 1998 for DM 9,000 per month.

Transactions with NTO IRE-POLUS

In connection with our restructuring, we entered into an agreement
regarding intellectual property in August 2000 with IPG Laser, IPG Fibertech
and other companies under the common ownership of Dr. Gapontsev, including NTO
IRE-POLUS. Under this agreement, NTO IRE-POLUS provides research and
development exclusively for us, IPG Laser and IPG Fibertech, all of whom pay
NTO IRE-POLUS's direct and overhead costs plus a fee of 10% for the research
and development work.

53
<PAGE>

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.

We have 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. We anticipate that this transaction will close by January 31, 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.

During fiscal year 1999 and the nine-month period ended September 30,
2000, we purchased components and capital equipment from NTO IRE-POLUS in the
aggregate amounts of $1,832,000 and $3,108,000, respectively. For the nine-
month period ended September 30, 2000, we sold equipment to NTO IRE-POLUS in
the aggregate amount of $186,794. These transactions are eliminated in the
combined consolidated financial statements included elsewhere in this
Prospectus. We expect this relationship to continue.

Transactions with IP Fibre Devices

We sell products to IP Fibre Devices which resells those products to its
customers in the United Kingdom. During 1999 and the nine month period ended
September 30, 2000, we sold an aggregate of $422,200 and $76,000, respectively,
to IP Fibre Devices. Effective January 1, 2001, we plan to terminate our
distribution relationship with IP Fibre Devices and we intend to sell our
products directly to customers in the United Kingdom through a wholly-owned
subsidiary to be formed. Consequently, we plan to sublease office space from,
and share general and administrative expenses of, IP Fibre Devices at an
aggregate estimated annual amount of approximately $250,000.

During 1999 and the nine month period ended September 30, 2000, we paid
$88,000 and $67,500, respectively to IP Fibre Devices for general management
and consulting services. Under a management agreement with IP Fibre Devices, we
have agreed to pay IP Fibre Devices a monthly fee of $7,500 plus expenses for
management services until December 31, 2000.

TeraBeam Agreements

We sell a significant amount of our products to TeraBeam. In April 1998,
IP Fibre Devices entered into an agreement with TeraBeam granting TeraBeam 36
months worldwide exclusivity for the purchase and use of free-space optical
point-to-multipoint fiber amplifiers with one or more Watt output power. Under
this agreement, TeraBeam is entitled to receive certain agreed upon amounts
from IP Fibre Devices in the event of a breach of exclusivity. 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. From
November 1999 to February 2000, we sold an aggregate of $2.0 million of our
products to TeraBeam. TeraBeam paid IPG Photonics $1.6 million in cash and
issued 865,924 common shares of TeraBeam to IP Fibre Devices. In connection
with this transaction, IP Fibre Devices issued a note to IPG Photonics in the
amount of $396,656. This note was repaid with accrued interest in October 2000.
In connection with the 1998 agreement with TeraBeam, TeraBeam granted 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.

54
<PAGE>

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
200,000 shares of our common stock at an exercise price of $1.00 per share and
the right to purchase, as of March 2000, 250,000 shares of our common stock at
a price of $1.00 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 50,000
shares of our common stock at a price of $1.00 per share. In March 2000, he
transferred options to purchase 10,000 shares to family members, exercised the
remainder of his 240,000 options. He subsequently also acquired the 250,000
shares of our common stock at a purchase price of $1.00 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 are payable in March 2005
and November 2005, respectively.

Intercompany Loans

In January 1999, IP Fibre Devices issued the Company a note in the
principal amount of $175,000 which accrued interest at 5% per annum. In
November 1999, IP Fibre Devices and the Company entered into an agreement in
which IP Fibre Devices agreed to pay an additional $18,000 to the Company and
convert the note and accrued interest of $182,000 into 10,000,000 shares of our
common stock, the total consideration paid by IP Fibre Devices was $200,000.
The common stock was issued to IP Fibre Devices in January 2000.

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

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."

55
<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.

56
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of November 30, 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)............ 30,053,000 76%
Hon. John H. Dalton...................... 135,000 *
Dr. Eugene Shcherbakov (3)............... 300,000 *
Timothy P. V. Mammen (4)................. 62,500 *
John Geagea.............................. 0 *
Dr. Denis Gapontsev (5).................. 2,500,000 6
Dr. William F. Krupke (6)................ 12,500 *
Robert A. Blair.......................... 490,000 1
Michael C. Child (7)..................... 3,704 *
IP Fibre Devices Ltd..................... 11,150,000 28
Entities affiliated with TA Associates,
Inc (8)................................. 2,000,000 5
All directors and executive officers as a
group (9 persons)....................... 35,494,204 89
</TABLE>
--------
* represents less than 1%
(1) The number of shares beneficially owned and the percentage of share
outstanding are based on (a) 39,683,934 shares outstanding as of November
30, 2000 and assuming the conversion of 4,300,000 shares of our Series A
and Series B preferred stock (b) 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 exercisable
within 60 days following September 30, 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.
(4) Includes 62,500 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.

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<PAGE>

(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 12,500 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 3,704 shares of common stock in which he has an ownership
interest through TA Investors LLC.
(8) Includes 1,028,000 shares held by TA IX, L.P., 480,000 shares held by
TA/Advent VIII L.P., 444,480 shares held by TA/Atlantic and Pacific IV
L.P., 17,360 shares held by TA Executives Fund LLC and 30,160 shares held
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.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Presently we are authorized to issue 50,000,000 shares of common stock
and 5,000,000 shares of preferred stock. Upon the completion 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, and by the
provisions of applicable Delaware law.

Common Stock

As of November 30, 2000, and assuming the conversion of all outstanding
shares of preferred stock into common stock, there were 39,683,934 shares of
common stock outstanding which were held of record by approximately 80
stockholders. There will be 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
7,500,000 shares of stock under our 2000 stock incentive plan of which there
were 2,377,766 shares of common stock issuable upon exercise of options as of
September 30, 2000. There were also 100,000 shares of common stock issuable
upon exercise of non-plan options. 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 shares of our Series B preferred
stock will convert into common stock on a one-to-one basis if the proceeds of
this offering meet or exceed $100.0 million and the initial public offering
price is at least $40.00 per share, if the offering closes on or prior to
December 31, 2000, or $43.75 per share, if the offering closes between January
1, 2001 to March 31, 2001. All shares of our Series A preferred stock
outstanding will be converted into an aggregate of 500,000 shares of common
stock. 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;

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<PAGE>

. 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 shares of
common stock assuming an offering price of $ . 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. 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 (4,300,000 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 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

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<PAGE>

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.

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<PAGE>

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 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 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.

The remaining 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
7,500,000 shares of common stock for issuance pursuant to our 2000 stock
incentive plan. As of September 30, 2000, options to purchase an aggregate of
2,377,766 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.

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<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

63
<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 % 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.

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<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.

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.

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<PAGE>

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 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.

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<PAGE>

Other Relationships

Merrill Lynch KECALP L.P. 1999, KECALP Inc., KECALP Inc., as Nominee for
Merrill Lynch KECALP International L.P. 1999 and ML IBK Positions, Inc.,
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.

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.

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. As of the
date of this prospectus, a partner of Winston & Strawn owned 2,000 shares of
Series A preferred stock. 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 herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.

The combined consolidated financial statements of IPG Laser and NTO IRE-
POLUS 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 herein,
and have been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

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.

67
<PAGE>

INDEX TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................ F-1
Report of Independent Auditors............................................ F-2
Combined Consolidated Balance Sheets as of December 31, 1998 and 1999 and
September 2000 (unaudited)............................................... F-3
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-4
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-5
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-6
Notes to Combined Consolidated Financial Statements....................... F-7
</TABLE>
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The accompanying combined consolidated financial statements give effect
to the completion of the Company's investment in NTO IRE-POLUS described in
Note 1 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 investment in NTO IRE-POLUS and assuming that no
other material events have occurred that would affect the accompanying combined
consolidated financial statements or require disclosure therein.

"Report of Independent Auditors

To the 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
three related companies, NTO IRE-POLUS, 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 (January 2001 as to Note 1)"

Deloitte & Touche LLP
Boston, Massachusetts
December 8, 2000

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The accompanying combined consolidated financial statements give effect
to the completion of the Company's investment in NTO IRE-POLUS described in
Note 1 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 investment in NTO IRE-POLUS and assuming that
no other material events have occurred that would affect the accompanying
combined consolidated financial statements or require disclosure therein.

"Report of Independent Auditors

To the Shareholders of IPG Laser GmbH and NTO IRE-POLUS:

We have audited the accompanying combined consolidated balance sheet of
IPG Laser GmbH and subsidiary (a German corporation) and NTO IRE-POLUS (a
Russian limited liability company), both of which are under common ownership
and common management, as of December 31, 1998, and the related combined
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 companies' 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 combined consolidated financial position
of IPG Laser GmbH and NTO IRE-POLUS as of December 31, 1998, and the results of
their combined consolidated operations and their combined 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 (January , 2001 as to Note 1)"

Deloitte & Touche GmbH
Duesseldorf, Germany
December 8, 2000

F-2
<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...................................................... $1,311 $ 740 $ 65,814
Accounts receivable, net of allowances of $32, $5 and $335..................... 1,816 1,785 11,761
Due from affiliates............................................................ 415 221 560
Inventories.................................................................... 514 2,364 7,417
Deferred tax assets............................................................ -- 86 163
Prepaid expenses and other assets.............................................. 355 335 1,212
------ ------- --------
Total current assets......................................................... 4,411 5,531 86,927
Non-marketable investment securities............................................ 50 43 38
Deferred tax assets............................................................. 52 -- 738
Property, plant and equipment, net.............................................. 4,606 7,333 15,547
Other assets.................................................................... 16 236 196
------ ------- --------
Total assets............................................................... $9,135 $13,143 $103,446
====== ======= ========
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.............................................................. 735 354 --
Accrued expenses and other liabilities......................................... 360 475 2,443
Income taxes payable........................................................... 145 1,788 6,513
Deferred tax liabilities....................................................... 45 -- --
------ ------- --------
Total current liabilities.................................................... 3,516 6,108 15,148
------ ------- --------
Long-term debt.................................................................. 4,695 4,421 5,317
------ ------- --------
Deferred income taxes........................................................... -- 50 --
------ ------- --------
Commitments and contingencies (See Note 8)...................................... -- -- --
Minority interests.............................................................. 248 179 421
------ ------- --------
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, 50,000,000 shares authorized, 21,800,000 issued
and outstanding at December 31, 1999; 33,980,934 shares issued and outstanding
at September 30, 2000 actual; 50,000,000 shares authorized, 37,480,934 shares
issued and outstanding at September 30, 2000 pro forma........................ -- 2 3 4
Additional paid-in capital..................................................... 309 309 23,412 90,754
Warrants to issue common stock................................................. -- -- 12,400 12,400
Notes receivable from shareholders............................................. -- -- (440) (440)
Deferred compensation.......................................................... -- -- (13,242) (13,242)
Retained earnings (accumulated deficit)........................................ 379 2,257 (6,227) (6,227)
Accumulated other comprehensive (loss)......................................... (12) (183) (689) (689)
------ ------- -------- --------
Total shareholders' equity................................................... 676 2,385 20,171 $ 82,560
------ ------- -------- ========
Total liabilities and shareholders' equity................................. $9,135 $13,143 $103,446
--------------------------------------------------
====== ======= ========
</TABLE>

See notes to combined consolidated financial statements.

F-3
<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.......................... $3,124 $8,289 $18,637 $14,831 $32,512
Cost of sales(1)................... 2,065 5,327 9,307 6,795 11,055
------ ------ ------- ------- -------
Gross profit(1).................... 1,059 2,962 9,330 8,036 21,457
------ ------ ------- ------- -------
Operating expenses:
Sales and marketing(2)........... 219 374 677 619 1,049
Research and development(3)...... 312 840 1,695 1,190 1,610
General, administrative and
other(4)........................ 322 1,040 2,766 2,046 4,066
Equity-based compensation........ -- -- -- -- 8,719
------ ------ ------- ------- -------
Total operating expenses....... 853 2,254 5,138 3,855 15,444
------ ------ ------- ------- -------
Operating income................... 206 708 4,192 4,181 6,013
Interest income (expense), net..... (118) (208) (303) (231) (77)
Other income (expense), net........ (14) 38 126 (42) 401
------ ------ ------- ------- -------
Income before provision for income
taxes and minority interests...... 74 538 4,015 3,908 6,337
Provision for income taxes......... 31 234 2,206 2,232 4,639
Minority interests in (income) loss
of less than 100% owned
companies......................... (19) (77) 69 113 (242)
------ ------ ------- ------- -------
Net income......................... 24 227 1,878 1,789 1,456
Accretion of preferred stock....... -- -- -- -- (169)
------ ------ ------- ------- -------
Net income available to common
shareholders...................... $ 24 $ 227 $ 1,878 $ 1,789 $ 1,287
====== ====== ======= ======= =======
Net income per share:
Basic............................ -- -- $ 0.05 $ 0.05 $ 0.04
======= ======= =======
Diluted.......................... -- -- $ 0.05 $ 0.05 $ 0.04
======= ======= =======
Pro forma net income per share:
Basic............................ -- -- -- -- $ 0.04
=======
Diluted.......................... -- -- -- -- $ 0.04
=======
</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 $7,692 of equity-based compensation for the nine months ended
September 30, 2000.

See notes to Combined Consolidated Financial Statements.

F-4
<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)... -- $ -- -- $-- $ 180 $ -- $ -- $ -- $ 128 $ (13)
Contributions
from
shareholders.... -- -- -- -- 129 -- -- -- -- --
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 24 --
Translation
adjustments..... -- -- -- -- -- -- -- -- -- (24)
Total
comprehensive
income.......... -- -- -- -- -- -- -- -- -- --
------- ------ ---------- ---- ------- ------- ----- -------- ------- -----
Balance at
December 31,
1997
(Predecessor)... -- -- -- -- 309 -- -- -- 152 (37)
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 227 --
Translation
adjustments..... -- -- -- -- -- -- -- -- -- 25
Total
comprehensive
income.......... -- -- -- -- -- -- -- -- -- --
------- ------ ---------- ---- ------- ------- ----- -------- ------- -----
Balance at
December 31,
1998
(Predecessor)... -- -- -- -- 309 -- -- -- 379 (12)
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 1,878 --
Translation
adjustments..... -- -- -- -- -- -- -- -- -- (171)
Total
comprehensive
income.......... -- -- -- -- -- -- -- -- -- --
Common stock
issued.......... -- -- 21,800,000 2 -- -- -- -- -- --
------- ------ ---------- ---- ------- ------- ----- -------- ------- -----
Balance at
December 31,
1999............ -- -- 21,800,000 2 309 -- -- -- 2,257 (183)
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 1,456 --
Translation
adjustments..... -- -- -- -- -- -- -- -- -- (506)
Total
comprehensive
income.......... -- -- -- -- -- -- -- -- -- --
Common stock
issued to IP
Fibre Devices
Ltd. In
satisfaction of
$200,000 note
payable and
accrued
interest........ -- -- 10,000,000 1 199 -- -- -- -- --
Common stock
issued for notes
receivable from
stockholders at
$1.00 per
share........... -- -- 440,000 -- 440 -- (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.... -- -- 1,150,000 -- -- -- -- -- (9,940) --
Equity-based
compensation
awarded......... -- -- -- -- 21,961 -- -- (21,961) -- --
Amortization of
equity-based
compensation.... -- -- -- -- -- -- -- 8,719 -- --
Cash proceeds
from exercise of
stock options... -- -- 590,934 -- 672 -- -- -- -- --
------- ------ ---------- ---- ------- ------- ----- -------- ------- -----
Balance at
September 30,
2000
(unaudited)..... 500,000 $4,954 33,980,934 $ 3 $23,412 $12,400 $(440) $(13,242) $(6,227) $(689)
======= ====== ========== ==== ======= ======= ===== ======== ======= =====
<CAPTION>
Other
Comprehensive
Total Income (Loss)
-------- -------------
<S> <C> <C>
Balance at
January 1, 1997
(Predecessor)... $ 295
Contributions
from
shareholders.... 129
Comprehensive
income:
Net income...... 24 $ 24
Translation
adjustments..... (24) (24)
-------------
Total
comprehensive
income.......... -- $ --
-------- =============
Balance at
December 31,
1997
(Predecessor)... 424
Comprehensive
income:
Net income...... 227 $ 227
Translation
adjustments..... 25 25
-------------
Total
comprehensive
income.......... -- $ 252
-------- =============
Balance at
December 31,
1998
(Predecessor)... 676
Comprehensive
income:
Net income...... 1,878 $ 1,878
Translation
adjustments..... (171) (171)
-------------
Total
comprehensive
income.......... -- $ 1,707
=============
Common stock
issued.......... 2
--------
Balance at
December 31,
1999............ 2,385
Comprehensive
income:
Net income...... 1,456 $ 1,456
Translation
adjustments..... (506) (506)
-------------
Total
comprehensive
income.......... -- $ 950
=============
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
$1.00 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.... 8,719
Cash proceeds
from exercise of
stock options... 672
--------
Balance at
September 30,
2000
(unaudited)..... $20,171
========
</TABLE>

See notes to combined consolidated financial statements.

F-5
<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).......... $ 24 $ 227 $ 1,878 $ 1,789 $ 1,456
Adjustment to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization.............. 277 738 1,543 1,032 1,542
Deferred income taxes...... (4) 43 (31) (27) (860)
Equity-based compensation.. -- -- -- -- 8,719
Income (loss) related to
minority interests........ 19 77 (69) (113) 242
Changes in assets and
liabilities that provided
(used) cash:
Accounts receivable........ (809) (837) (145) (1,059) (10,596)
Due to (from) affiliates,
net....................... 371 182 (434) (216) (515)
Inventories................ (49) (286) (1,958) (1,666) (5,637)
Prepaid expense and other
assets.................... 83 (218) 52 (75) (1,085)
Accounts payable........... 143 1,848 1,401 677 1,592
Accrued expenses and other
liabilities............... (7) 257 226 602 1,698
Income taxes payable....... 3 109 1,677 2,123 5,682
------- ------- ------- --------- ----------
Net cash provided by
operating activities....... 51 2,140 4,140 3,067 2,238
------- ------- ------- --------- ----------
Cash flows from investing
activities:
Purchase of property, plant
and equipment............. (1,292) (3,082) (5,167) (3,418) (10,161)
Other...................... -- 2 -- -- --
------- ------- ------- --------- ----------
Net cash used in investing
activities................. (1,292) (3,080) (5,167) (3,418) (10,161)
------- ------- ------- --------- ----------
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)
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............. -- -- -- -- 672
------- ------- ------- --------- ----------
Net cash provided by (used
in) financing activities... 1,267 1,968 585 (11) 72,844
------- ------- ------- --------- ----------
Effect of changes in
exchange rates on cash..... (16) 59 (129) (97) 153
------- ------- ------- --------- ----------
Net increase (decrease) in
cash and cash equivalents.. 10 1,087 (571) (459) 65,074
Cash and cash equivalents,
beginning of the year...... 214 224 1,311 1,311 740
------- ------- ------- --------- ----------
Cash and cash equivalents,
end of the year............ $ 224 $ 1,311 $ 740 $ 852 $ 65,814
------- ------- ------- --------- ----------
Supplemental disclosures of
cash flow information:
Cash paid for interest, net
of amounts capitalized.... $ 106 $ 125 $ 298 $ 177 $ 125
Cash paid for taxes........ $ 3 $ 69 $ 491 $ 134 $ 372
Noncash transactions:
Conversion of payable to
Fibre for 10,000,000
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,
1,150,000 shares at par
value..................... -- -- -- -- --
</TABLE>

See notes to combined consolidated financial statements.

F-6
<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 on December 2, 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, Italy ("Fibertech");
and IP Fibre Devices Ltd. ("Fibre"), United Kingdom. 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, NTO IRE-POLUS, Laser and Fibertech
(collectively, "IPG"). For purposes of presentation of the accompanying
combined financial statements for the years ended December 31, 1997 and 1998,
NTO IRE-POLUS, Laser and Laser's 80% owned subsidiary, Fibertech, are referred
to as the "Predecessor." All intercompany transactions and balances have been
eliminated.

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 1,150,000
common shares. 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 1,403,000 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. In
addition to the 2000 Reorganization, the Company and NTO IRE-POLUS have entered
into an agreement in principle that will result in the Company acquiring a 51%
interest in NTO IRE-POLUS. The NTO IRE-POLUS transaction is expected to close
in January 2001. Because the transaction with NTO IRE-POLUS has received
approval from the shareholders and no other significant impediments exist which
would preclude the transaction from closing, management has included NTO IRE-
POLUS, with a 49% minority interest, in the combined consolidated financial
statements for all periods presented. 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 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 also conducted in Friazino, 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-7
<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 income. Due to the highly inflationary economy in Russia, the financial
statements of NTO IRE-POLUS are translated at either current or historical
exchange rates as appropriate, with all currency adjustments included in the
combined 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. Cash and cash equivalents include 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. While IPG
considers obsolescence 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
Computer equipment.................. 3 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 the point of
shipment. IPG has no obligation to provide upgrades, enhancements or customer
support

F-8
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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
shareholders. Included in other comprehensive income for IPG is the cumulative
translation adjustments related

F-9
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 the 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 Per Share and Pro Forma Financial Data

Net income per share--Basic net income 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 available to common shareholders by
the weighted-average common shares of the Company outstanding during those
periods. For purposes of computing net income 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. 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.

F-10
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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...... 32,950,000 32,950,000 33,635,858
Weighted-average common
equivalent shares.............. 808,500 735,000 2,611,902
---------- ---------- ----------
Diluted weighted-average common
shares outstanding............. 33,758,500 33,685,000 36,247,760
========== ========== ==========
</TABLE>

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, all of the outstanding
shares of the Company's Series A and Series B preferred stock will
automatically convert into shares 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. Pro forma basic and
diluted net loss per share data assuming conversion of the Series A and Series
B preferred stock into shares of common stock had occurred 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 income per share aggregated
34,311,682 and 36,247,760, respectively, 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..................... $471 $2,139 $6,756
Work in process.................................. 43 225 661
---- ------ ------
Total.......................................... $514 $2,364 $7,417
==== ====== ======
</TABLE>

F-11
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.................................. 2,642 2,514 2,476
Machinery and equipment.................... 2,642 5,398 7,373
Office furniture and fixtures.............. 248 523 714
Construction in progress................... 295 420 7,324
------- ------- -------
5,899 9,885 19,071
Accumulated depreciation................... (1,293) (2,552) (3,524)
------- ------- -------
Total.................................... $ 4,606 $ 7,333 $15,547
======= ======= =======
</TABLE>

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.................. $ -- $ -- $ 1,750
U.S. construction loan...................... -- -- 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 --
------ ------ -------
Long-term debt.............................. 4,716 4,646 7,299
Less current portion........................ (21) (225) (1,982)
------ ------ -------
Total..................................... $4,695 $4,421 $ 5,317
====== ====== =======
</TABLE>

F-12
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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, at which time the 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 restrictive covenants, including maintenance of specific
financial ratios. 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%.

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.

7. Shareholders' Equity

Predecessor equity

Laser has authorized capital totaling DM500,000, all of which was
outstanding at December 31, 1998, 1999 and September 30, 2000. NTO IRE-POLUS
has issued capital totaling 20.0 million Russian rubles, 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.

F-13
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Common stock

The Company was incorporated on December 5, 1998 at which time 10,000
common shares (par value $0.01) were authorized. On December 28, 1999, total
authorized shares were increased to 50 million and the par value was changed to
$0.0001 per share. The founding shareholders then subscribed for 21,800,000
shares for total consideration of $2,000.

In January 2000, Fibre paid $18,000 in cash to the Company and converted
an intercompany note payable and related accrued interest totaling $182,000
into 10,000,000 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.

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 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 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

F-14
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 $25.00 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 $100.00 per share, the
preference amount declines linearly from $25.00 per share to $0 as the
participation amount payout increases from $100.00 to $125.00. If the assets
are not sufficient to generate cash sufficient to pay in full the Series A and
Series B 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 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.

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 $25.00 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 $10.00
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 an IPO 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.

The Series B Preferred Stock has a conversion 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 qualifying public offering. A qualifying public offering is
defined as an offer of the Company's common stock (i) registered under the
Securities Act of 1933, (ii) with gross proceeds in excess of $100.0 million,
and (iii) at a specified offering price which graduates from $40.00 per share
at December 31, 2000 to $62.50 per share at August 31, 2002.

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

F-15
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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 a Company director in connection with
the director's exercise of nonqualified stock options in March 2000 as well as
the issuance of common stock under a professional services contract with the
director. 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 the
director. 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 21,800,000 shares of common stock to the
founding shareholders in January 1999 in exchange for notes. 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 interests

Minority interests reported in the accompanying combined consolidated
financial statements are comprised of 20% of Fibertech held by the management
of Fibertech and 49% of NTO IRE-POLUS held by certain shareholders of the
Company, IPG employees and other unrelated parties.

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 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 and costs of sales with the Non-Group Affiliates.
Additionally, effective January 1, 2000, the Company entered into a management
agreement with Fibre, under which Fibre provides accounting advice and
consulting services for a monthly fee of $8,000 plus expenses. The initial term
of the agreement is for one year.

F-16
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The transactions with Non-Group Affiliates are included in the combined
consolidated statements of income 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 $ 639 $ 524 $ 602
Purchases included in cost of
sales....................... 528 798 263 236 --
Operating expenses........... -- 32 47 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 -- --
---- ---- ----
Total.......................................... $415 $221 $560
==== ==== ====

Amounts due to Non-Group Affiliates:
IP Fibre Devices Ltd. ........................... $-- $309 $--
IPC Inc. ........................................ 665 12 --
VPG Laser Components GmbH........................ 70 33 --
---- ---- ----
Total............................................ $735 $354 $--
==== ==== ====
</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.

In March 2000, the Company entered into a professional services contract
for advisory services with a member of the National Advisory Board. The
compensation for these services was the right to purchase 250,000 shares of the
Company's common stock at $1.00 per share. The Company has recognized $750,000
in equity-based compensation in respect of this contract.

9. Commitments and Contingencies

Operating leases

The Company 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 years 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, the Company entered into a purchase agreement with a
component supplier requiring minimum purchases by the Company of approximately
$66.7 million through December 31, 2002.

F-17
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company has a variety of commitments with suppliers for the purchase
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

The Company is not currently subject to any material legal proceedings,
nor does the Company 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, the Company's majority shareholder and sole member of
the Board of Directors, at that time, granted stock options to certain
employees, officers and advisors. In April 2000, the shareholders approved the
IPG 2000 Incentive Compensation Plan (the "Plan"). At September 30, 2000,
3,750,000 common 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 7,500,000. At November 30, 2000, after giving effect
to the increase in the number of reserved shares, an additional 4,541,300
shares were issued under the Plan. Options are subject to the vesting
provisions associated with each grant, generally vesting over a three or four
year period. All options expire ten years from the date of grant.

In addition to the Plan, the Company issued 550,000 options to purchase
the Company's common stock to the members of its National Advisory Board and
other consultants during 2000 of which 450,000 have been exercised. These
options have similar terms to those options issued under the terms of the Plan;
however, these options which have been issued outside of the Plan generally
vested immediately. These grants have been recorded using the fair value
methodologies required by SFAS No. 123.

F-18
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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...................................... 1,100,000 $1.00
Exercised.................................... --
Forfeited.................................... --
---------
Outstanding, December 31, 1999................. 1,100,000 1.00
Granted...................................... 2,159,300 1.20
Exercised.................................... (780,934) 1.19
Forfeited.................................... (600) 1.00
---------
Outstanding, September 30, 2000................ 2,477,766 $1.14
=========
</TABLE>

The weighted-average minimum fair value of the options granted was $0.16
in 1999 and $5.53 in 2000. The fair value of the options issued outside of the
Plan during 2000 was estimated at $10.00.

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>
$1.00 2,181,816 9.02 -- 179,050
$2.00 250,250 9.84 -- --
$3.00 45,700 9.86 -- 5,000
--------- --- -------
2,477,766 -- 184,050
========= === =======
</TABLE>

Compensation related to options awarded during 2000 (approximately $22.0
million) has been deferred for financial reporting purposes and is being
amortized over the vesting period of the related options.

The Company 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 the
Company'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.

The Company has utilized the Black-Scholes option-pricing model in
determining the fair value of the options granted outside of the Plan. In
addition to the aforementioned assumptions, the Company used a volatility
factor of 120% in the Black-Scholes option-pricing model.

F-19
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

If the computed minimum values of the stock awards had been amortized to
expense over the vesting period of the awards, net income and related pro forma
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 available to common
shareholders (in thousands):
As reported..................... $1,878 $1,287
Pro forma....................... 1,833 790
Diluted net income per share:
As reported..................... $ 0.05 $ 0.04
Pro forma....................... 0.05 0.02
</TABLE>

Subsequent to September 30, 2000, the Company entered into an employment
agreement which granted this employee the right to purchase 500,000 shares of
common stock at the price of $1.00 per share, subject to certain repurchase
rights by the Company. The Company also granted this employee an option to
purchase (i) 250,000 shares of common stock at $3.00 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, and (ii) 750,000 shares, 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,
the Company issued options to purchase 352,000 shares of common stock to
employees and members of the Board of Directors at a weighted-average exercise
price of $7.39 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................................................... 74 538 3,640
---- ---- ------
Total................................................... $ 74 $538 $4,015
==== ==== ======
</TABLE>

The Company'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............................................... 35 191 2,040
Deferred:
Federal............................................... -- -- (31)
State................................................. -- -- (9)
Foreign............................................... (4) 43 9
---- ---- ------
Total............................................... $ 31 $234 $2,206
==== ==== ======
</TABLE>

F-20
<PAGE>

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 (benefit) at
statutory rate............... $ 25 $ 183 $ 1,365 $1,346 $2,156
State and local taxes......... -- -- 23 (3) 253
Differences in federal and
foreign tax rates............ 1 79 689 777 1,352
Nondeductible equity-based
compensation................. -- -- -- -- 768
Tax credits................... -- (50) (32) -- (79)
Nondeductible items and
other........................ 5 22 161 112 189
------- ------- --------- ------ ------
Total....................... $ 31 $ 234 $ 2,206 $2,232 $4,639
======= ======= ========= ====== ======
</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>
Years ended
December 31,
------------- September 30,
1998 1999 2000
------ ------ ---------------
<S> <C> <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.................... 841
----- ------ -------
Net long-term deferred tax assets
(liabilities)............................. $ 52 $ (50) $ 738
===== ====== =======
</TABLE>

F-21
<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. The Company 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 three segments: U.S.A., Germany, and Russia. 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's in its market segments (in thousands):

<TABLE>
<CAPTION>
Intercompany
U.S.A. Germany Russia Eliminations Total
------- ------- ------ ------------ --------
<S> <C> <C> <C> <C> <C>
September 30, 2000:
Net revenues.................... $29,756 $21,149 $3,118 $(21,511) $ 32,512
Operating expenses.............. 11,947 2,824 673 -- 15,444
Net income (loss)............... (1,536) 3,245 172 (425) 1,456
Assets.......................... 86,848 18,683 1,512 (3,597) 103,446
Current liabilities............. 8,754 8,721 690 (3,017) 15,148
Capital expenditures............ 4,974 4,927 260 -- 10,161

December 31:
1999:
Net revenues.................... $ 9,763 $16,535 $1,845 $ (9,506) $ 18,637
Operating expenses.............. 1,498 3,368 272 -- 5,138
Net income (loss)............... 215 1,897 (72) (162) 1,878
Assets.......................... 6,001 10,103 452 (3,413) 13,143
Current liabilities............. 5,136 4,110 114 (3,252) 6,108
Capital expenditures............ 2,863 2,272 32 -- 5,167

1998:
Net revenues.................... $ -- $ 8,263 $1,361 $ (1,335) $ 8,289
Operating expenses.............. -- 2,056 198 -- 2,254
Net income...................... -- 154 73 -- 227
Assets.......................... -- 8,819 575 (259) 9,135
Current liabilities............. -- 3,682 93 (259) 3,516
Capital expenditures............ -- 3,080 2 -- 3,082

1997:
Net revenues.................... $ -- $ 3,097 $1,032 $ (1,005) $ 3,124
Operating expenses.............. -- 622 231 -- 853
Net income...................... -- 6 18 -- 24
Assets.......................... -- 3,456 393 (112) 3,737
Current liabilities............. 801 56 (112) 745
Capital expenditures............ -- 1,292 -- 1,292
</TABLE>

F-22
<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>
North America............................. $1,581 $5,369 $11,729 $ 9,219 $23,261
Europe.................................... 1,287 2,028 5,051 3,835 5,270
Asia and other............................ 256 892 1,857 1,777 3,981
------ ------ ------- ------- -------
Total................................... $3,124 $8,289 $18,637 $14,831 $32,512
====== ====== ======= ======= =======
</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.............. 1,226 2,332 4,254 3,437 7,406
------ ------ ------- ------- -------
Total.............................. $3,124 $8,289 $18,637 $14,831 $32,512
====== ====== ======= ======= =======
</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.

In September 1999, Fibre entered into an agreement with Customer A in
which Fibre granted Customer A 36 months of worldwide exclusivity for the
purchase and use of free space optical point-to-multipoint terrestrial laser
communication systems limited to one or more Watt amplifiers. Fibre, Laser and
certain shareholders maintain an insignificant ownership interest in Customer
A.

F-23
<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.

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...... 95,000
Blue Sky Fees and Expenses....................................... 10,000
Printing and Engraving Expenses.................................. *
Legal Fees and Expenses.......................................... *
Accounting Fees and Expenses..................................... *
Transfer Agent and Registrar Fees................................ *
Miscellaneous.................................................... *
-------
Total.......................................................... $
=======
</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. From inception until December 28, 1999, the Registrant issued
and sold in aggregate of 21,800,000 shares of common stock to
individuals who founded the Registrant.

2. On March 31, 2000, the Registrant issued and sold an aggregate
of 500,000 shares of its Series A preferred stock to a group of
private investors for an aggregate purchase price of
$5,000,000.

3. Between August 30, 2000 and December 8, 2000, the Registrant
issued and sold an aggregate of 3,800,000 shares of its Series
B preferred stock to a group of private investors for an
aggregate purchase price of $95,000,000.

4. On August 24, 2000, the Registrant issued 1,150,000 shares of
its common stock and paid $7,500,000 to IP Fibre Devices Ltd.
to purchase 51% of IPG Laser GmbH.

5. 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 1,403,000 shares of our common
stock.

(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 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 .

1. From incorporation through November 30, 2000, the Registrant
granted stock options to purchase 4,061,300 shares of common
stock at exercise prices ranging from $1.00 to $7.50 per share
to employees, consultants and directors pursuant to its 2000
stock incentive plan. 330,934 of such options have been
exercised through November 30, 2000.

2. On February 3, 2000, the Registrant granted stock options to
purchase 350,000 shares of common stock outside of its 2000
stock incentive plan at an exercise price of $1.00 per share to
members of its National Advisory Board, and 250,000 of such
options were exercised on March 17, 2000. In November 2000, the
Registrant granted stock options to purchase 25,000 shares
outside of its 2000 stock incentive plan at an exercise price
of $7.50 per share to a new member of the National Advisory
Board.

II-2
<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* 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 Form of Indemnification Agreement by and between the Registrant and
its Directors
10.9 Design and Building Agreement, dated March 10, 2000, by and between
the Registrant and AHO Construction, Inc.
10.10* IPG Photonics Corporation Purchase and Sale Agreement No. 1/99 dated
May 14, 1999, by the Registrant and SDL Incorporated, as amended
21.1 List of Subsidiaries
23.1* Consent of Winston & Strawn (See Exhibit 5.1)
27.1 Financial Data Schedule
</TABLE>
--------
* To be filed by amendment.

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.

II-3
<PAGE>

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-4
<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
December 8, 2000.

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

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 December 8, 2000
______________________________________ Directors and Chief
Dr. Valentin P. Gapontsev Executive Officer

/s/ Hon. John H. Dalton President and Director December 8, 2000
______________________________________
Hon. John H. Dalton

/s/ Dr. Eugene Shcherbakov Director December 8, 2000
______________________________________
Dr. Eugene Shcherbakov

/s/ Timothy P.V. Mammen Chief Financial December 8, 2000
______________________________________ Officer and
Timothy P.V. Mammen Vice President

/s/ Dr. Denis Gapontsev Vice President of Research December 8, 2000
______________________________________ and Development and
Dr. Denis Gapontsev Director

/s/ Robert A. Blair Vice Chairman of the Board December 8, 2000
______________________________________ of Directors
Robert A. Blair

/s/ Michael C. Child Director December 8, 2000
______________________________________
Michael C. Child

/s/ Dr. William F. Krupke Director December 8, 2000
______________________________________
Dr. William F. Krupke
</TABLE>

II-5
<PAGE>

Index to Exhibits