Document:

Exhibit 10.1

 

COHERENT, INC.

(a Delaware Corporation)

 

2.75% Convertible Subordinated
Notes due 2011

 

PURCHASE AGREEMENT

 

 

Dated:  March 7, 2006

 

 

COHERENT, INC.

(a Delaware corporation)

 

$175,000,000

2.75% Convertible Subordinated Notes due 2011

 

PURCHASE AGREEMENT

 

March 7, 2006

 

MERRILL LYNCH & CO.

Merrill Lynch, Pierce, Fenner & Smith Incorporated

4 World Financial Center

New York, New York 10080

 

Ladies and Gentlemen:

 

Coherent, Inc., a
Delaware corporation (the “Company”), confirms its agreement with Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill
Lynch” or the “Initial Purchaser”) with respect to the issue and sale by the
Company and the purchase by the Initial Purchaser of $175,000,000 aggregate
principal amount of the Company’s 2.75% Convertible Subordinated Notes due 2011
(the “Initial Securities”), and with respect to the grant by the Company to the
Initial Purchaser of the option described in Section 2(b) hereof to
purchase all or any part of an additional $25,000,000 aggregate principal
amount of 2.75% Convertible Subordinated Notes due 2011 (the “Option Securities”
and together with the Initial Securities, the “Securities”).  The Securities are to be issued pursuant to
an indenture dated as of March 13, 2006 (the “Indenture”) between the
Company and U.S. Bank National Association, as trustee (the “Trustee”).

 

The Securities are
convertible, subject to certain conditions as described in the Final Offering
Memorandum (as defined below), into shares of common stock, par value $0.01 per
share, of the Company (the “Common Stock”) in accordance with the terms of the
Securities and the Indenture, as described in Schedule A hereto.  Securities issued in book-entry form will be
issued to Cede & Co. as nominee of The Depository Trust Company (“DTC”)
pursuant to a blanket issuer letter of representations, to be dated on or prior
to Closing Time (as defined in Section 2(c)) (the “DTC Agreement”), among
the Company and DTC.

 

The Securities are being
issued in connection with the potential acquisition (the “Acquisition”) by the
Company of all of the outstanding capital stock of Excel Technology, Inc.,
a Delaware corporation (“Excel Technology”). 
The Acquisition will be effected pursuant to and in accordance with the
Agreement and Plan of Reorganization (“Acquisition Agreement”), dated as of February 21,
2006, among the Company, Spider Merger Corporation, a Delaware corporation (“Merger
Sub”) and Excel Technology.  The
consummation of the Acquisition is not a condition to the closing of the
offering and sale of the Securities pursuant to this Agreement.

 

The Company understands
that the Initial Purchaser proposes to make an offering of the Securities on
the terms and in the manner set forth herein and agrees that the Initial Purchaser
may resell, subject to the conditions set forth herein, all or a portion of the
Securities to purchasers (“Subsequent Purchasers”) at any time after this
Agreement has been executed and delivered. 
The Securities are to be

 

 

offered and sold
through the Initial Purchaser without being registered under the Securities Act
of 1933, as amended (the “1933 Act”), in reliance upon exemptions
therefrom.  Pursuant to the terms of the
Securities and the Indenture, investors that acquire Securities may only resell
or otherwise transfer such Securities if such Securities are hereafter
registered under the 1933 Act or if an exemption from the registration
requirements of the 1933 Act is available (including the exemption
afforded by Rule 144A (“Rule 144A”) of the rules and regulations
promulgated under the 1933 Act by the Securities and Exchange Commission (the “Commission”)).

 

On or prior to Closing
Time, the Company will enter into a registration rights agreement with the
Initial Purchaser (the “Registration Rights Agreement”), pursuant to which,
subject to the conditions set forth therein, the Company will be required to
use its commercially reasonable efforts to file and use its commercially
reasonable efforts to have declared effective a registration statement (the “Registration
Statement”) under the 1933 Act to register resales of the Securities and the
shares of Common Stock issuable upon conversion thereof.

 

The Company (a) has
prepared and delivered to the Initial Purchaser copies of (i) a
preliminary offering memorandum dated March 6, 2006 (as supplemented or
amended prior to the date hereof, the “Preliminary Offering Memorandum”) and (ii) a
pricing term sheet attached hereto as Schedule B, which includes the
pricing terms and other information with respect to the Securities and other
matters not included in the Preliminary Offering Memorandum, as defined below
(the “Pricing Term Sheet”) and (b) will prepare and deliver to the Initial
Purchaser, on the date hereof or the second succeeding day, copies of a final
offering memorandum dated March 7, 2006 (the “Final Offering Memorandum”),
each for use by the Initial Purchaser in connection with its solicitation of
purchases of, or offering of, the Securities. 
“Offering Memorandum” means, with respect to any date or time referred
to in this Agreement, the most recent offering memorandum (whether the
Preliminary Offering Memorandum or the Final Offering Memorandum, or any
amendment or supplement to either such document), including exhibits thereto,
and any documents incorporated therein by reference, which has been prepared
and delivered by the Company to the Initial Purchaser in connection with its
solicitation of purchases of, or offering of, the Securities.

 

All references in this
Agreement to financial statements and schedules and other information which is “contained,”
“included,” or “stated” in the Offering Memorandum (or other references of like
import) shall be deemed to mean and include, unless modified or superseded by a
subsequently filed or provided report, document or disclosure, all such
financial statements and schedules and other information which are incorporated
by reference in the Offering Memorandum;
and all references in this Agreement to amendments or supplements to the
Offering Memorandum shall be deemed to mean and include the filing of any
document under the Securities Exchange Act of 1934 (the “1934 Act”) which
is incorporated by reference in the Offering Memorandum.

 

SECTION 1.           Representations and
Warranties by the Company.

 

(a) Representations and
Warranties.  The Company
represents and warrants to the Initial Purchaser as of the date hereof and as
of the Closing Time referred to in Section 2(c) hereof, and agrees
with the Initial Purchaser, as follows:

 

(i)            Disclosure
Package and Final Offering Memorandum. 
As of the Applicable Time (as defined below), neither (x) the Offering
Memorandum as of the Applicable Time as supplemented by the final pricing term
sheet, in the form attached hereto as Schedule B (the “Pricing Supplement”),
that has been prepared and delivered by the Company to the Initial Purchaser in
connection with their solicitation of offers to purchase Securities, all
considered

 

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together (collectively, the “Disclosure Package”), nor (y) any
individual Supplemental Offering Materials (as defined below), when considered
together with the Disclosure Package, included any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.  “Applicable Time”
means 7:00 am EST on March 8, 2006 or such other time as agreed by the
Company and Merrill Lynch. This representation does not apply to any Excel Technology
filings made with the Commission, except for those portions which are expressly
incorporated by reference in the Offering Memorandum.

 

“Supplemental Offering Materials” means any “written communication”
(within the meaning of the 1933 Act Regulations (as defined below)) prepared by
or on behalf of the Company, or used or referred to by the Company, that
constitutes an offer to sell or a solicitation of an offer to buy the
Securities other than the Offering Memorandum or amendments or supplements thereto
(including the Pricing Supplement), including, without limitation, any road
show relating to the Securities that constitutes such a written communication.

 

As of its
issue date and as of Closing Time, the Final Offering Memorandum will not
include an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

 

The
representation and warranties in this subsection shall not apply to
statements in or omissions from the Disclosure Package or the Final Offering
Memorandum made in reliance upon and in conformity with written information
furnished to the Company by the Initial Purchaser expressly for use therein.

 

(ii)           Incorporated
Documents.  The Offering Memorandum
as delivered from time to time shall incorporate by reference the most recent
Annual Report of the Company on Form 10-K filed with the Commission and
each Quarterly Report of the Company on Form 10-Q and each Current Report
of the Company on Form 8-K filed with the Commission since the end of the
fiscal year to which such Annual Report relates (except for information
contained therein which is furnished). 
The documents incorporated or deemed to be incorporated by reference in
the Offering Memorandum at the time they were or hereafter are filed with the
Commission complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the “1934 Act Regulations”), and, when read
together with the other information in the Offering Memorandum, at the time the
Offering Memorandum was issued and at Closing Time, did not and will not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided that the foregoing shall not apply to the Excel Technology
filings made with the Commission, except for those portions which are expressly
incorporated by reference in the Offering Memorandum.

 

(iii)          Independent
Accountants.

 

(a)           Deloitte &
Touche LLP who certified the financial statements and supporting schedules of
the Company and its subsidiaries as of September 30, 2005 and 2004 and for
each of the three fiscal years in the period ended September 30, 2005
included or incorporated by reference in the Disclosure Package and the Final
Offering Memorandum are independent public accountants with respect to the
Company and its

 

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subsidiaries within the meaning of the
1933 Act and the rules and regulations thereunder (the “1933 Act
Regulations”).

 

(b)           Ernst &
Young AG Wirtschaftspruefungsgesellschaft (“Ernst & Young AG”) were
previously the independent auditors of Lambda Physik AG (a subsidiary of the
Company) and its subsidiaries, and previously audited and reported on
Lambda Physik AG’s consolidated financial statements as of September 30,
2003 and for the periods from October 1, 2002 through July 26, 2003
and also from July 27, 2003 through September 30, 2003.  As
of the date of Ernst & Young AG’s most recent audit report on the
consolidated financial statements of Lambda Physik AG and during the period
covered by the consolidated financial statements on which Ernst &
Young AG reported, Ernst & Young AG were the independent accountants
of Lambda Physik AG within the meaning of Rule 101 of the AICPA’s Code of
Professional Conduct, and its interpretations and rulings.  However, Ernst &
Young AG are no longer the independent auditors of Lambda Physik AG, nor have
they ever been the independent registered public accounting firm of Coherent, Inc.

 

(iv)          Financial Statements.  The historical financial statements of the
Company, together with the related schedules and notes, included in the
Disclosure Package and the Final Offering Memorandum present fairly in all
material respects the financial position of the Company and its consolidated
subsidiaries at the dates indicated and the statement of operations,
stockholders’ equity and cash flows of the Company and its consolidated
subsidiaries for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles (“GAAP”)
applied on a consistent basis throughout the periods involved.  The supporting schedules, if any, included in
the Disclosure Package and the Final Offering Memorandum present fairly in all
material respects in accordance with GAAP the information required to be stated
therein.  The historical financial
statements of Excel Technology, together with the related schedules and notes,
included in the Disclosure Package and the Final Offering Memorandum, present
fairly in all material respects the financial position of Excel Technology and
its consolidated subsidiaries at the dates indicated, and the statement of
operations, stockholders’ equity and cash flows of Excel Technology and its
consolidated subsidiaries for the periods specified; said financial statements
have been prepared in conformity with GAAP in each case applied on a consistent
basis throughout the periods involved. 
The summary financial information included in the Disclosure Package and
the Final Offering Memorandum present fairly in all material respects the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements included in the Disclosure Package and
the Final Offering Memorandum.  Except to
the extent disclosed in the pro forma financial statements, the pro forma financial
statements of the Company and its subsidiaries and the related notes thereto
included in the Disclosure Package and the Final Offering Memorandum present
fairly in all material respects the information shown therein, and have been
prepared in accordance with the Commission’s rules and guidelines with
respect to pro forma financial statements, comply in all material respects as
to form with the applicable requirements of Rule 11-02 of Regulation S-X
under the 1933 Act and have been properly compiled in all material
respects on the bases described therein, and the assumptions used in the
preparation thereof are reasonable in all material respects and the adjustments
used therein are appropriate in all material respects to give effect to the
transactions and circumstances referred to therein and have been properly
applied in all material respects to the historical amounts in the compilation
of the pro forma financial statements (except in each case to the extent stated
in the pro forma financial statements or the footnotes thereto).  

 

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(v)           No
Material Adverse Change in Business. 
Except as disclosed in the Disclosure Package or the Final Offering
Memorandum, since December 31, 2005 (A) there has been no material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, in each case whether or not arising in the
ordinary course of business other than the termination of the Company’s credit
facility as contemplated by disclosure in the Offering Memorandum (a “Material
Adverse Effect”), (B) there has been no Material Adverse Effect (as
defined in the Acquisition Agreement), to the Company’s knowledge, on Excel
Technology and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.

 

(vi)          Good
Standing of the Company.  The Company
has been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Disclosure Package and the Final Offering Memorandum and to
enter into and perform its obligations under each of this Agreement, the
Registration Rights Agreement, the Securities, the Indenture and the
Acquisition Agreement, and to consummate all of the transactions in connection
therewith as contemplated in the Disclosure Package and the Final Offering
Memorandum; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect.

 

(vii)         Good
Standing of Subsidiaries.  Each
subsidiary of the Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Disclosure Package
and the Final Offering Memorandum and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction
in which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Disclosure Package and the Final
Offering Memorandum, all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of capital stock
of the subsidiaries of the Company was issued in violation of any preemptive or
similar rights of any securityholder of such subsidiary.  “Subsidiary” means any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of capital stock entitled to vote in the election
of directors, managers, general partners or trustees thereof is at the time owned
or controlled, directly or indirectly, by the Company.

 

(viii)        Capitalization.  The authorized, issued and outstanding
capital stock of the Company is as set forth in the Disclosure Package and the
Final Offering Memorandum in the column entitled “Actual” under the caption “Capitalization”
(except for subsequent issuances, if any, pursuant to this Agreement, pursuant
to reservations, agreements, employee benefit plans referred to in the
Disclosure Package and the Final Offering Memorandum or pursuant to the
exercise of convertible securities or options referred to in the Disclosure
Package and the Final Offering Memorandum). 
The shares of issued and outstanding capital stock of the Company

 

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have been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the Company
was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.

 

(ix)           Authorization
of Agreement.  This Agreement has
been duly authorized, executed and delivered by the Company.

 

(x)            Authorization
of the Indenture.  The Indenture has
been duly authorized by the Company and, when executed and delivered by the
Company and the Trustee, will constitute a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
as the enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors’ rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or
at law).

 

(xi)           Authorization
of the Securities.  The Securities
have been duly authorized and, at Closing Time, will have been duly executed by
the Company and, when authenticated, issued and delivered in the manner
provided for in the Indenture and delivered against payment of the purchase
price therefor as provided in this Agreement, will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting enforcement of
creditors’ rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law), and will be in the form contemplated by,
and entitled to the benefits of, the Indenture.

 

(xii)          Authorization
of the Registration Rights Agreement. 
The Registration Rights Agreement has been duly authorized by the
Company and, when executed and delivered by the Company and the Initial
Purchaser, will constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors’ rights generally
and except as enforcement thereof is subject to general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity
or at law).

 

(xiii)         Authorization
of the Acquisition Agreement.  The
Acquisition Agreement has been duly authorized, executed and delivered by the
Company and Merger Sub and constitutes a valid and binding agreement of each of
the parties thereto, enforceable against each of them in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting enforcement of
creditors’ rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered
in a proceeding in equity or at law).

 

(xiv)        Description
of the Securities, the Indenture, the Registration Rights Agreement and the
Acquisition Agreement.  The Securities,
the Indenture, the Registration Rights Agreement and the Acquisition Agreement
conform or will conform in all material respects to

 

6

 

the respective statements relating thereto contained in the Disclosure
Package and the Final Offering Memorandum and will be in substantially the
respective forms last delivered to the Initial Purchase prior to the date of
this Agreement.

 

(xv)         Authorization
and Description of Common Stock.  The
Common Stock conforms in all material respects to all descriptions relating
thereto set forth in the Disclosure Package and the Final Offering
Memorandum.  Upon issuance and delivery
of the Securities in accordance with this Agreement and the Indenture, the
Securities will be convertible at the option of the holder thereof into shares
of Common Stock in accordance with the terms of the Securities and the
Indenture; the shares of Common Stock issuable upon conversion of the
Securities have been duly authorized and reserved for issuance upon such
conversion by all necessary corporate action and such shares, when issued upon
such conversion in accordance with the terms of the Securities, will be validly
issued and will be fully paid and non-assessable; no holder of such shares will
be subject to personal liability by reason of being such a holder; and the
issuance of such shares upon such conversion will not be subject to the
preemptive or other similar rights of any securityholder of the Company.

 

(xvi)        Absence
of Defaults and Conflicts.  Neither
the Company nor any of its subsidiaries is in violation of its charter or
by-laws (or other similar constituent document) or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which any of them may be
bound, or to which any of the property or assets of the Company or any of its
subsidiaries is subject (collectively, “Agreements and Instruments”) except for
such defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement, the Indenture, the
Securities, the Registration Rights Agreement, 
the DTC Agreement, the Acquisition Agreement and any other agreement or
instrument entered into or issued or to be entered into or issued by the
Company in connection with the transactions contemplated hereby or thereby or
in the Disclosure Package and the Final Offering Memorandum and the
consummation of the transactions contemplated herein and in the Disclosure
Package and the Final Offering Memorandum (including the Acquisition, the
issuance and sale of the Securities, the use of the proceeds from the sale of
the Securities as described in the Disclosure Package and the Final Offering
Memorandum under the caption “Use of Proceeds” and the issuance of the shares
of Common Stock upon conversion of any Securities) and compliance by the
Company with its obligations hereunder have been duly authorized by all
necessary corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of its subsidiaries pursuant to, the Agreements
and Instruments except for such conflicts, breaches or defaults or Repayment
Events or liens, charges or encumbrances that, singly or in the aggregate,
would not result in a Material Adverse Effect, nor will such action result in
any violation of the provisions of the charter or by-laws (or other similar
constituent documents) of the Company or any of its subsidiaries or any
applicable law, statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or any of their
assets, properties or operations.  As
used herein, a “Repayment Event” means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any person
acting on such holder’s behalf) the right to require the repurchase, redemption
or repayment of all or a portion of such indebtedness by the Company or any of
its subsidiaries.

 

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(xvii)       Absence
of Labor Dispute.  No labor dispute
with the employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or any of
its subsidiaries’ principal suppliers, manufacturers, customers or contractors,
which, in either case, would result in a Material Adverse Effect.

 

(xviii)      Absence
of Proceedings.  There is no action,
suit, proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any
of its subsidiaries which might result in a Material Adverse Effect, or which
might materially and adversely affect the properties or assets of the Company
or any of its subsidiaries or the consummation of the transactions contemplated
by this Agreement (including the Acquisition) or the performance by the Company
of its obligations hereunder or under the Registration Rights Agreement, the
Indenture, the Securities, the DTC Agreement and the Acquisition
Agreement.  The aggregate of all pending
legal or governmental proceedings to which the Company or any of its subsidiaries
is a party or of which any of their respective property or assets is the
subject, which are not described in the Disclosure Package and the Final
Offering Memorandum, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.

 

(xix)         Absence
of Manipulation.  Neither the Company
nor any affiliate of the Company has taken, nor will the Company or any
affiliate take, directly or indirectly, any action which is designed to or
which has constituted or which would be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.

 

(xx)          Possession
of Intellectual Property.  Except as
described in the Offering Memorandum and except where such failure to own,
possess or acquire would not reasonably be expected to have a Material Adverse
Effect, the Company and its subsidiaries own or possess, or can acquire on
reasonable terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, “Intellectual Property”) necessary to carry on the business now
operated by them, and neither the Company nor any of its subsidiaries has
received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property invalid
or inadequate to protect the interest of the Company or any of its subsidiaries
therein, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in a Material Adverse Effect.

 

(xxi)         Absence
of Further Requirements.  No filing
with, or authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency is
necessary or required for the performance by the Company of its obligations
hereunder, in connection with the offering, issuance or sale of the Securities
hereunder or the consummation of the transactions contemplated by this
Agreement (including the Acquisition) or for the due execution, delivery or
performance of the Registration Rights Agreement, the Indenture, the Securities
or the DTC Agreement by the Company, except (A) such as have been already
obtained, (B) with respect to the obligations under the Registration

 

8

 

Rights Agreement, the filing of the registration statement with the Commission
under the 1933 Act and the Commission’s declaration of effectiveness of such
registration statement and the qualification of the Indenture under Trust
Indenture Act of 1939, as amended (the “1939 Act”), (C) as may be required
in jurisdictions outside the United States, (D) with respect to the
Acquisition, clearance under the Hart-Scott-Rodino Act of 1976, or (E) as
expressly set forth in this Agreement, the Registration Rights Agreement, the
Indenture or the DTC Agreement.

 

(xxii)        Consents
for the Acquisition.  Except as
disclosed in the Disclosure Package, the Acquisition Agreement (and schedules,
exhibits and attachments thereto) and the Final Offering Memorandum, the
Company has obtained all authorizations, approvals, consents, licenses, orders
or similar approvals necessary to consummate the Acquisition.

 

(xxiii)       Possession
of Licenses and Permits.  The Company
and its subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, “Governmental Licenses”) issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them, except where the
failure so to possess would not, singly or in the aggregate, result in a
Material Adverse Effect; the Company and its subsidiaries are in compliance
with the terms and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the aggregate, result in a
Material Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except where the invalidity of such Governmental Licenses or
the failure of such Governmental Licenses to be in full force and effect would
not, singly or in the aggregate, result in a Material Adverse Effect; and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.

 

(xxiv)       Title
to Property.  The Company and its
subsidiaries have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties owned by
them, in each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such as (a) are
described in the Disclosure Package and the Final Offering Memorandum or (b) would
not, singly or in the aggregate, reasonably be expected to cause a Material
Adverse Effect to the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company or any of its
subsidiaries; and all of the leases and subleases material to the business of
the Company and its subsidiaries, considered as one enterprise, and under which
the Company or any of its subsidiaries holds properties described in the
Disclosure Package and the Final Offering Memorandum, are in full force and
effect, and neither the Company nor any of its subsidiaries has any notice of
any material claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any of its subsidiaries under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the
Company or any subsidiary thereof to the continued possession of the leased or
subleased premises under any such lease or sublease.

 

(xxv)        Environmental
Laws.  Except as described in the Disclosure
Package and the Final Offering Memorandum and except such matters as would not,
singly or in the aggregate, result in a Material Adverse Effect, (A) neither
the Company nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment, relating to
pollution or

 

9

 

protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including, without limitation, laws and regulations
relating to the release or threatened release of chemicals, pollutants,
contaminants, wastes, residual materials, toxic substances, hazardous
substances, petroleum or petroleum products, asbestos-containing materials or
mold (collectively, “Hazardous Materials”) or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, “Environmental Laws”), (B) the Company
and its subsidiaries have all permits, certificates, licenses, authorizations
and approvals required under any applicable Environmental Laws and are each in
compliance with their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigation or
proceedings relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that would
reasonably be expected to form the basis of an order for clean-up, remediation
or other corrective or rehabilitation measures, or an action, suit or
proceeding by any private party or governmental body or agency, against or
affecting the Company or any of its subsidiaries relating to Hazardous Materials
or Environmental Laws.

 

(xxvi)       Accounting
Controls and Disclosure Controls. 
The Company and each of its subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (A) transactions
are executed in accordance with management’s general or specific authorization;
(B) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain accountability for
assets; (C) access to assets is permitted only in accordance with
management’s general or specific authorization; and (D) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.  Except as described in the Disclosure Package
and the Final Offering Memorandum, since the end of the Company’s most recent
audited fiscal year, there has been (1) no material weakness in the
Company’s internal control over financial reporting (whether or not remediated)
and (2) no change in the Company’s internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial reporting.  The Company and its
consolidated subsidiaries employ disclosure controls and procedures that are
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the 1934 Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s rules and
forms, and is accumulated and communicated to the Company’s management,
including its principal executive officer or officers and principal financial
officer or officers, as appropriate, to allow timely decisions regarding
disclosure.

 

(xxvii)      Compliance
with the Sarbanes-Oxley Act.  There
is and has been no failure on the part of the Company or any of the Company’s
directors or officers, in their capacities as such, to comply in all material
respects with any provision of the Sarbanes-Oxley Act of 2002 and the rules and
regulations promulgated in connection therewith (the “Sarbanes-Oxley Act”),
including Section 402 related to loans and Sections 302 and 906 related to
certifications, except to the extent stated in the Company’s SEC filings.

 

(xxviii)     Payment
of Taxes.  The Company and its
subsidiaries have filed all tax returns that are required to have been filed by
them pursuant to applicable federal, foreign, state, local or other law except
insofar as the failure to file such returns would not result in a Material
Adverse Effect, and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Company and its subsidiaries, except
for such taxes, if any, as are being

 

10

 

contested in good faith and as to which adequate reserves have been
provided. The charges, accruals and reserves on the books of the Company in
respect of any income and corporation tax liability for any years not finally
determined are adequate to meet any assessments or re-assessments for
additional income tax for any years not finally determined, except to the
extent of any inadequacy that would not result in a Material Adverse Effect.

 

(xxix)       Insurance.  The Company and its subsidiaries either (i) carry
or are entitled to the benefits of insurance, with financially sound and
reputable insurers, or (ii) self-insure, in either case in such amounts
and covering such risks as is generally maintained by companies of established
repute engaged in the same or similar business, and all such insurance is in
full force and effect.  The Company has
no reason to believe that it or any of its subsidiaries will not be able (A) to
renew their existing insurance coverage as and when such policies expire or (B) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct their business as now conducted and at a cost that would
not result in a Material Adverse Effect. 
None of the Company or any of its subsidiaries has been denied any
insurance coverage that it has sought or for which it has applied. 

 

(xxx)        Statistical
and Market-Related Data.  Nothing has
come to the attention of the Company that has caused the Company to believe
that the statistical and market-related data included in the Disclosure Package
and the Final Offering Memorandum is not based on or derived from sources that
are reliable and accurate in all material respects.

 

(xxxi)       Investment
Company Act.  The Company is not required,
and upon the issuance and sale of the offered Securities as herein contemplated
and the application of the net proceeds therefrom as described in the
Disclosure Package and the Final Offering Memorandum will not be required, to
register as an “investment company” under the Investment Company Act of 1940,
as amended (the “1940 Act”).

 

(xxxii)      Similar
Offerings.  Neither the Company nor
any of its affiliates, as such term is defined in Rule 501(b) under
the 1933 Act (each, an “Affiliate”), has, directly or indirectly, within the
preceding six months, solicited any offer to buy, sold or offered to sell or
otherwise negotiated in respect of, or will solicit any offer to buy, sell or
offer to sell or otherwise negotiate in respect of, in the United States or to
any United States citizen or resident, any security which is or would be
integrated with the sale of the Securities in a manner that would require the
offered Securities to be registered under the 1933 Act other than the
Securities sold to the Initial Purchasers.

 

(xxxiii)     Rule 144A
Eligibility.  The Securities are
eligible for resale pursuant to Rule 144A and will not be, at Closing
Time, of the same class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a U.S. automated
interdealer quotation system.

 

(xxxiv)     No
General Solicitation.  None of the
Company or any of its subsidiaries or Affiliates or any person acting on its or
any of their behalf (other than the Initial Purchaser, as to whom the Company
makes no representation) has engaged or will engage, in connection with the
offering of the offered Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the 1933
Act.

 

(xxxv)      No
Registration Required.  Subject to
compliance by the Initial Purchaser with the representations and warranties of
the Initial Purchaser and the procedures set forth in Section 6

 

11

 

hereof, it is not necessary in connection with the offer, sale and
delivery of the offered Securities to the Initial Purchaser and to each
Subsequent Purchaser in the manner contemplated by this Agreement, the
Registration Rights Agreement and the Disclosure Package and the Final Offering
Memorandum to register the Securities under the 1933 Act or to qualify the
Indenture under the 1939 Act.

 

(xxxvi)     Foreign
Corrupt Practices Act.  Neither the
Company nor, to the knowledge of the Company, any director, officer, agent,
employee, controlled Affiliate or other person acting on behalf of the Company
or any of its subsidiaries is aware of or has taken any action, directly or
indirectly, that would result in a violation by such persons of the Foreign
Corrupt Practices Act of 1977, as amended, and the rules and regulations
thereunder (the “FCPA”), including, without limitation, making use of the mails
or any means or instrumentality of interstate commerce corruptly in furtherance
of an offer, payment, promise to pay or authorization of the payment of any
money, or other property, gift, promise to give, or authorization of the giving
of anything of value to any “foreign official” as such term is defined in the
FCPA) or any foreign political party or official thereof or any candidate for
foreign political office, in contravention of the FCPA and the Company and, to
the knowledge of the Company, its controlled Affiliates have conducted their
businesses in compliance with the FCPA and have instituted and maintain
policies and procedures designed to ensure, and which are reasonably expected
to continue to ensure, continued compliance therewith.

 

(xxxvii)    Money
Laundering Laws.  The operations of
the Company are and have been conducted at all times in compliance with
applicable financial recordkeeping and reporting requirements of the Currency
and Foreign Transactions Reporting Act of 1970, as amended, the money
laundering statutes of all jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any governmental agency (collectively, the “Money
Laundering Laws”) and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving the Company
with respect to the Money Laundering Laws is pending or, to the knowledge of
the Company, threatened.

 

(xxxviii)   OFAC.  Neither the Company nor, to the knowledge of
the Company, any director, officer, agent, employee, affiliate or person acting
on behalf of the Company is currently subject to any U.S. sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“OFAC”); and the Company will not directly or indirectly use the
proceeds of the offering, or lend, contribute or otherwise make available such
proceeds to any subsidiary, joint venture partner or other person or entity,
for the purpose of financing the activities of any person currently subject to
any U.S. sanctions administered by OFAC.

 

(xxxix)      Reporting
Company.  The Company is subject to
the reporting requirements of Section 13 or Section 15(d) of the
1934 Act and is eligible to file a registration statement on Form S-3 for
resales of the Securities and shares of Common Stock issuable upon conversion
of the Securities.

 

(xl)           Listing
of Common Stock.  The Company’s
Common Stock is registered pursuant to Section 12(g) of the 1934 Act
and is listed on the Nasdaq National Market and the Company has taken no action
designed to, or, to the knowledge of the Company, likely to have the effect of,
terminating the registration of the Common Stock under the 1934 Act or
delisting the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the Nasdaq National Market is
contemplating terminating such registration or listing.

 

12

 

(xli)          Common
Stock Certificates.  The certificates
for the shares of Common Stock (including the shares of Common Stock issuable
upon conversion of the Securities) conform, in all material respects, to the
requirements of the Nasdaq National Market and the Delaware General Corporation
Law.

 

(xlii)         ERISA.  Except as would not, singly or in the
aggregate, reasonably be expected to result in a Material Adverse Effect, each
of the Company and, if applicable, its subsidiaries is in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder (“ERISA”); no “reportable event” (as
defined in ERISA) has occurred with respect to any “pension plan” (as defined
in ERISA) for which the Company or any of its subsidiaries would have any
liability; none of the Company or any of its subsidiaries has incurred or
expects to incur liability under (A) Title IV of ERISA with respect to the
termination of, or withdrawal from, any “pension plan” or (B) Section 412
or 4971 of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the “Code”); and each “pension
plan” for which the Company or any of its subsidiaries would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.

 

(xliii)        Accuracy
of Exhibits.  There are no contracts
or documents which are required under the 1933 Act or the 1934 Act or the rules and
regulations thereunder to be filed as exhibits to the documents incorporated by
reference in the Offering Memorandum which have not been so filed as required,
except where the failure to file such contract or document would not have a
Material Adverse Effect.

 

(xliv)       Acquisition Agreement.  Except as reflected in the Offering
Memorandum or the Disclosure Package, as of the date hereof nothing has come to
the attention of the Company that has caused the Company to believe that the
representations and warranties of Excel Technology set forth in the Acquisition
Agreement are not true and correct, except, in each case or in the aggregate,
as does not constitute a Material Adverse Effect (as defined in the Acquisition
Agreement) on Excel Technology.

 

(b)           Officer’s
Certificates.  Any certificate
signed by any officer of the Company or any of its subsidiaries delivered to
the Initial Purchaser or to counsel for the Initial Purchaser shall be deemed a
representation and warranty by the Company to the Initial Purchaser as to the
matters covered thereby.

 

SECTION 2.           Purchase, Sale and
Delivery to the Initial Purchaser; Closing.  

 

(a)           Initial
Securities.  On the basis of
the representations and warranties herein contained and subject to the terms
and conditions herein set forth, the Company agrees to sell to the Initial
Purchaser,  and the Initial Purchaser
agrees to purchase from the Company, at the price set forth in Schedule A,
$175,000,000 aggregate principal amount of Initial Securities.

 

(b)           Option Securities.  In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the Initial
Purchaser to purchase up to an additional $25,000,000 aggregate principal
amount of Option Securities at the same price per Security set forth in Schedule A
for the Initial Securities, plus accrued interest, if any, from Closing Time to
the Date of Delivery (as defined below) (the “Option”).  The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from

 

13

 

time to time
on one or more occasions only for the purpose of covering overallotments which
may be made in connection with the offering and distribution of the Initial
Securities upon written notice by Merrill Lynch to the Company setting forth
the number of Option Securities (which shall be an integral multiple of $1,000)
as to which the Initial Purchaser is then exercising the option and the time
and date of payment and delivery for such Option Securities; provided, however,
that the Option may not be exercised in more than two installments without the
prior written consent of the Company. 
Any such time and date of delivery (a “Date of Delivery”) shall be
determined by Merrill Lynch, but shall not be later than seven full business
days after the exercise of said option, nor in any event prior to Closing Time,
as hereinafter defined.  A “business day”
is any weekday that is not a day on which banking institutions in The City of
New York are authorized or obligated to close.

 

(c)           Payment.  Payment of the purchase price for, and
delivery of certificates for, the Initial Securities shall be made at the
office of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California 94304-1050, or at such other place as shall be agreed
upon by the Initial Purchaser and the Company, at 9:00 A.M. (Eastern time)
on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time)
on any given day) business day after the date hereof, or such other time not
later than ten business days after such date as shall be agreed upon by the
Initial Purchaser and the Company (such time and date of payment and delivery
being herein called the “Closing Time”).

 

In addition, in the event that any or all of
the Option Securities are purchased by the Initial Purchaser, payment of the
purchase price for, and delivery of certificates for, such Option Securities
shall be made at the above-mentioned offices, or at such other place as shall
be agreed upon by the Initial Purchaser and the Company, on each Date of
Delivery as specified in the notice from the Initial Purchaser to the Company.

 

Payment shall be made to
the Company by wire transfer of immediately available funds to a bank account
designated by the Company, against delivery to the Initial Purchaser of
certificates for the Initial Securities or the Option Securities, if any, to be
purchased by them.

 

(d)           Denominations;
Registration.  Certificates for the
Initial Securities and the Option Securities, if any, shall be in such
denominations ($1,000 or integral multiples of $1,000 in excess thereof) and
registered in such names as the Initial Purchaser may request in writing at
least one full business day before Closing Time or the relevant Date of
Delivery, as the case may be.  The
certificates for the Initial Securities and the Option Securities, if any, will
be made available for examination and packaging by the Initial Purchaser in The
City of New York not later than 10:00 A.M. (Eastern time) on the last
business day prior to Closing Time or the relevant Date of Delivery, as the
case may be.

 

SECTION 3.           Covenants of the
Company.  The Company covenants with
the Initial Purchaser as follows (and the Initial Purchaser covenants with the
Company as to Section 3(l)):

 

(a)           Offering
Memorandum.  Until the earlier to
occur of (A) the completion of the distribution of the Securities by the
Initial Purchaser (but no earlier than the date on which the overallotment
option set forth in Section 2(b) hereof is exercised in full or
expires) and (B) the one-year anniversary of the date hereof, the Company,
as promptly as possible, will furnish to the Initial Purchaser, without charge,
such number of copies of the Preliminary Offering Memorandum, the Final
Offering Memorandum and any amendments and supplements thereto and documents
incorporated by reference therein as the Initial Purchaser may reasonably
request.

 

(b)           Notice and Effect of
Material Events.  The Company will
immediately notify the Initial Purchaser, and confirm such notice in writing,
of (x) any filing made by the Company of information relating to the
offering of the Securities with any securities exchange or any other regulatory
body in the

 

14

 

United States
or any other jurisdiction, and (y) prior to the completion of the
placement of the offered Securities by the Initial Purchaser, any material
changes in or affecting the condition, financial or otherwise, or the earnings,
business affairs or business prospects of the Company, Excel Technology and
their respective subsidiaries considered as one enterprise which (i) make
any statement in the Disclosure Package, any Offering Memorandum or any Supplemental
Offering Material false or misleading or (ii) are not disclosed in the
Disclosure Package or the Offering Memorandum. 
In such event or if during such time any event shall occur as a result
of which it is necessary, in the reasonable opinion of any of the Company, its
counsel, the Initial Purchaser or counsel for the Initial Purchaser, to amend
or supplement the Offering Memorandum in order that the Offering Memorandum not
include any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein not misleading in the
light of the circumstances then existing, the Company will forthwith amend or
supplement the Offering Memorandum by preparing and furnishing to the Initial
Purchaser an amendment or amendments of, or a supplement or supplements to, the
Offering Memorandum (in form and substance satisfactory in the reasonable
opinion of counsel for the Initial Purchaser) so that, as so amended or
supplemented, the Offering Memorandum will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time it
is delivered to a Subsequent Purchaser, not misleading.

 

(c)           Amendment and
Supplements to the Offering Memorandum;  Preparation of Pricing Supplement;  Supplemental Offering Materials.  Until the completion of the distribution of
the Securities by the Initial Purchaser (but no earlier than the date on which
the overallotment option set forth in Section 2(b) hereof is
exercised in full or expires) the Company will advise the Initial Purchaser
promptly of any proposal to amend or supplement the Offering Memorandum (other
than any filings with the Commission made pursuant to the 1934 Act or the 1934
Act Regulations, provided that the Company shall give notice of any such
filings to the Initial Purchaser prior to making any such filings, to the
extent practicable) and will not effect such amendment or supplement without
the consent of the Initial Purchaser; provided, however that for the avoidance
of doubt nothing herein shall limit the Company’s ability to file any required
reports with the Commission nor shall this covenant require the prior review or
consent of the Initial Purchaser for any such filings.  Neither the consent of the Initial Purchaser,
nor the Initial Purchaser’s delivery of any such amendment or supplement, shall
constitute a waiver of any of the conditions set forth in Section 5
hereof.  The Company will prepare the
Pricing Supplement, in form and substance satisfactory to the Initial
Purchaser, and shall furnish as soon as practicable but no later than prior to
the Applicable Time to the Initial Purchaser, without charge, as many copies of
the Pricing Supplement as the Initial Purchaser may reasonably request.  The Company represents and agrees that,
unless it obtains the prior consent of the Initial Purchaser, it has not made
and will not make any offer relating to the Securities by means of any
Supplemental Offering Materials; provided, however, for the avoidance of doubt
any Supplemental Offering Materials covered under this Section 3(c) shall
not include an “issuer free writing prospectus” or “free writing prospectus,”
the agreement as to the treatment of which is dealt with under Section 3(l)
hereunder. 

 

(d)           Qualification of
Securities for Offer and Sale.  The
Company will use its commercially reasonable efforts, in cooperation with the
Initial Purchaser, to qualify the offered Securities (and the shares of Common
Stock issuable upon conversion of the Securities) for offering and sale under
the applicable securities laws of states and other jurisdictions within the
United States as the Initial Purchaser may designate to the Company in writing
prior to the applicable Closing Time or relevant Date of Delivery and to
maintain such qualifications in effect as long as required for the sale of the
Securities; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is not
so qualified or to subject itself to taxation in respect of doing business in
any jurisdiction in which it is not otherwise so subject.

 

15

 

(e)           DTC.  The Company will cooperate with the Initial
Purchaser and use its commercially reasonable efforts to permit the offered
Securities to be eligible for clearance and settlement through the facilities
of DTC.

 

(f)            Use of Proceeds.  The
Company will use the net proceeds received by it from the sale of the
Securities in the manner specified in the Disclosure Package and the Final
Offering Memorandum under “Use of Proceeds.”

 

(g)           Reservation of Shares of Common Stock.  The Company will, at all times, reserve and
keep available, free of preemptive rights, enough shares of Common Stock for
the purpose of enabling the Company to satisfy any obligations to issue shares
of Common Stock upon conversion of the Securities.

 

(h)          Listing.  The Company will use its commercially
reasonable efforts to effect and maintain the quotation of the Common Stock
issuable upon conversion of the Securities on the Nasdaq National Market.

 

(i)           Restriction
on Sale of Securities and Common Stock. 
During a period of 90 days from the date of the Final Offering
Memorandum, the Company will not, without the prior written consent of Merrill
Lynch, (i) directly or indirectly, issue, sell, offer or agree to sell,
grant any option for the sale of, or otherwise dispose of, any securities of
the Company that are convertible into, or exchangeable for, the offered
Securities, (ii) offer, pledge, announce the intention to sell, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, lend
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
or repayable with Common Stock, or file any registration statement under the
1933 Act with respect to any of the foregoing or (iii) enter into any swap
or other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, or any securities convertible into or exchangeable or exercisable for or
repayable with Common Stock, whether any such swap or transaction described in
clause (ii) or (iii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise.  The foregoing sentence shall not apply to (A) the
Securities to be sold hereunder or the Common Stock to be delivered upon
conversion thereof, (B) the filing of any registration statement to be
filed by the Company pursuant to the Registration Rights Agreement relating to
the resale of the Securities and the shares of Common Stock, (C) shares of
Common Stock to be issued pursuant to existing employee benefit plans,
qualified stock option plans or other employee compensation benefit plans or
agreements or pursuant to currently outstanding options, warrants or rights
existing on the date hereof and referred to in the Disclosure Package and the
Final Offering Memorandum, (D) the grant by the Company of employee,
consultant or director stock options or restricted stock, (E) the filing
of any registration statements on Form S-8, and (F) up to 1,500,000
shares issued or to be issued by the Company pursuant to acquisitions,
including the issuance and assumption of options in connection therewith,
provided that any shares of Common Stock issued prior to the expiration of the
90th day period may not be sold by the recipient thereof during such 90 day
period.  Notwithstanding the foregoing,
if: (1) during the last 17 days of the 90-day lock-up period, the Company
issues an earnings release or material news or a material event relating to the
Company occurs; or (2) prior to the expiration of the 90-day lock-up
period, the Company announces that it will release earnings results or becomes
aware that material news or a material event will occur during the 16-day
period beginning on the last day of the 90-day lock-up period, the restrictions
imposed by this paragraph shall continue to apply until the expiration of the 18-day
period beginning upon the issuance of the earnings release or the occurrence of
the material news or material event, as applicable.

 

16

 

(j)            PORTAL Designation. 
The Company will use its commercially reasonable efforts to permit the
Securities to be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
(“NASD”) relating to trading in the PORTAL Market.

 

(k)           Reporting Requirements. 
Until the earlier to occur of (A) the completion of the
distribution of the Securities by the Initial Purchaser (but no earlier than
the date on which the overallotment option set forth in Section 2(b) hereof
is exercised in full or expires) and (B) the one-year anniversary of the
date hereof, the Company will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by the
1934 Act and the 1934 Act Regulations.

 

(l)            No Other Offering Documents.  Each of the Company and the Initial Purchaser
represents that (in the case of the Company, without the prior consent of the
Initial Purchaser)  it has not made any
offer relating to the Securities that, if the placement of the Securities
contemplated by this Agreement were conducted as a public offering pursuant to
a registration statement filed with the Commission, would constitute
an “issuer free writing prospectus,” as defined in Rule 433, or that would
otherwise constitute a “free writing prospectus,” as defined in Rule 405,
required to be filed with the Commission.  The Company agrees that until the earlier of (i) the
date upon which the Initial Purchaser exercises its overallotment option set
forth in Section 2(b) and (ii) the termination of the Option, it
will not, unless it obtains the prior consent of the Initial Purchaser, make
any offer expressly regarding the Securities that, if the placement of the
Securities contemplated by this Agreement were conducted as a public offering
pursuant to a registration statement filed with the Commission, would
constitute an “issuer free writing prospectus,” as defined in Rule 433,
that would be required to be filed with the Commission; provided, however,
that the foregoing sentence shall not limit any action by a third party which
may be regarded as a “free writing prospectus”. 
The Initial Purchaser agrees that, unless it obtains the prior consent
of the Company, it will not make any offer relating to the Securities that, if
the placement of the Securities contemplated by this Agreement were conducted
as a public offering pursuant to a registration statement filed with the
Commission, would constitute an “issuer free writing prospectus,” as defined in
Rule 433, or that would otherwise constitute a “free writing prospectus,”
as defined in Rule 405, that would be required to be filed with the
Commission.   

 

SECTION 4.           Payment of Expenses.  

 

(a)          Expenses.  The Company will pay all expenses incident to
the performance of its obligations under this Agreement, including (i) the
preparation, printing, delivery to the Initial Purchaser and any filing of the
Disclosure Package or any Offering Memorandum (including financial statements
and any schedules or exhibits and any document incorporated by reference) and
of each amendment or supplement thereto or of any Supplemental Offering
Material, (ii) the preparation, printing and delivery to the Initial
Purchaser of this Agreement, the Indenture, the Securities, the Registration
Rights Agreement and such other documents as may be required in connection with
the offer, purchase, sale, issuance or delivery of the Securities or the
issuance or delivery of the Common Stock issuable upon conversion thereof, (iii) the
preparation, issuance and delivery of the certificates for the Securities to
the Initial Purchaser and the certificates for the Common Stock issuable upon
conversion thereof, including any transfer taxes, any stamp or other duties
payable upon the sale, issuance and delivery of the Securities to the Initial
Purchaser, the issuance and delivery of the Common Stock issuable upon
conversion thereof and any charges of DTC in connection therewith, (iv) the
fees and disbursements of the Company’s counsel, accountants and other
advisors, (v) the qualification of the Securities and the shares of Common
Stock issuable upon conversion of the Securities under securities laws in
accordance

 

17

 

with the
provisions of Section 3(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Initial Purchaser in
connection therewith and in connection with the preparation of the blue sky
memorandum and any supplement thereto, (vi) any fees of the NASD in
connection with the Securities, (vii) the fees and expenses of the
Trustee, including the fees and disbursements of counsel for the Trustee in
connection with the Indenture and the Securities, (viii) the costs and
expenses of the Company relating to investor presentations on any “road show”
undertaken in connection with the marketing of the Securities including,
without limitation, expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged in connection with
the road show presentations, travel and lodging expenses of the representatives
and officers of the Company and any such consultants, excluding, however, the
cost of aircraft and other transportation chartered in connection with the road
show, which cost shall be borne by the Initial Purchaser, (ix) the fees
and expenses of any transfer agent or registrar for the Common Stock, (x) any
fees payable in connection with any rating of the Securities, (xi) the fees and
expenses incurred in connection with the listing of the Common Stock issuable
upon conversion of the Securities on the Nasdaq National Market, and (xii) any
fees and expenses payable in connection with the initial and continued
designation of the Securities as PORTAL securities under the PORTAL Market Rules pursuant
to NASD Rule 5322.

 

(b)           Termination of Agreement. 
If this Agreement is terminated by the Initial Purchaser in accordance
with the provisions of Section 5 or Section 10(a)(i) hereof, the
Company shall reimburse the Initial Purchaser for all of its out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
Initial Purchaser.

 

SECTION 5.           Conditions of
Initial Purchaser’s Obligations.  The
obligations of the Initial Purchaser hereunder are subject to the accuracy when
made of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:

 

(a)           Opinion of
Counsel for Company.  At
Closing Time, the Initial Purchaser shall have received the written opinion,
dated as of Closing Time, of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the Initial Purchaser, substantially to
the effect set forth in Exhibit A hereto.

 

(b)           Opinion of Counsel for Initial Purchaser.  At Closing Time, the Initial Purchaser shall
have received the favorable opinion, dated as of Closing Time, of Fried, Frank,
Harris, Shriver & Jacobson LLP, counsel for the Initial Purchaser,
with respect to certain matters set forth in Exhibit A hereto.  In giving such opinion such counsel may rely,
as to all matters governed by the laws of jurisdictions other than the law of
the State of New York and the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Initial Purchaser. 
Such counsel may also state that, insofar as such opinion involves
factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and certificates
of public officials.

 

(c)           Officers’ Certificate. 
At Closing Time, there shall not have been, since the date hereof or
since the date as of which information is given in the Disclosure Package or
the Final Offering Memorandum (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement), any material adverse change
in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one
enterprise, in each case whether or not arising in the ordinary course of
business, and the Initial Purchaser shall have

 

18

 

received a
certificate of the Chief Executive Officer of the Company and of the chief
financial or chief accounting officer of the Company, dated as of Closing Time,
on behalf of the Company, to the effect that (i) there has been no such
Material Adverse Effect, (ii) the representations and warranties in Section 1
hereof are true and correct with the same force and effect as though expressly
made at and as of Closing Time, and (iii) the Company has complied with
all agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time.

 

(d)           Accountants’ Comfort Letters.  At the time of the execution of this
Agreement, the Initial Purchaser shall have received from:  

 

(i) 
Deloitte & Touche LLP a letter dated such date, in form and substance
satisfactory to the Initial Purchaser, containing statements and information of
the type ordinarily included in accountants’ “comfort letters” to initial
purchasers with respect to the financial statements and certain financial
information of the Company contained or incorporated by reference in the
Disclosure Package and the Final Offering Memorandum;  

 

(ii) 
KPMG LLP a letter dated such date, in form and substance satisfactory to the
Initial Purchaser, containing statements and information of the type ordinarily
included in accountants’ “comfort letters” to initial purchasers with respect
to the financial statements and certain financial information of Excel
Technology contained or incorporated by reference in the Disclosure Package and
the Final Offering Memorandum; and

 

(iii) 
Ernst & Young AG a letter dated such date, in form and substance
satisfactory to the Initial Purchaser, containing statements and information of
the type ordinarily included in accountants’ “comfort letters” to initial
purchasers with respect to the financial statements and certain financial
information of Lambda Physik AG.

 

(e)           Bring-down
Comfort Letter.  At Closing Time, the
Initial Purchaser shall have received from each of Deloitte & Touche
LLP, KPMG LLP and Ernst & Young AG, respectively, a letter, dated as
of Closing Time, to the effect that they reaffirm the statements made in each
of the letters furnished by the respective firm pursuant to subsection (d) of
this Section, except that the specified date referred to shall be a date not
more than three business days prior to such Closing Time.

 

(f)            PORTAL.  At Closing Time, the Securities shall have
been designated for trading on PORTAL.

 

(g)           Lock-up Agreements.  On or prior to the date of this
Agreement, the Initial Purchaser shall have received an agreement substantially
in the form of Exhibit B hereto signed by the persons listed in Schedule D
hereto.

 

(h)           Indenture and Registration Rights
Agreement.  At or prior to Closing
Time, the Company and the Trustee shall have executed and delivered the
Indenture, and the Company and the Initial Purchaser shall have executed and delivered
the Registration Rights Agreement.

 

(i)            Listing. 
At Closing Time, the Company shall have submitted to the Nasdaq National
Market an application for the inclusion of the shares of Common Stock issuable
upon conversion of the Securities.

 

(j)            Conditions to Purchase of Option Securities.  In the event that the Initial Purchaser
exercises its option provided in Section 2(b) hereof to purchase all
or any portion of the Option

 

19

 

Securities,
the representations and warranties of the Company contained herein and the
statements in any certificates furnished hereunder by the Company or any of its
subsidiaries shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Initial Purchaser shall have received:

 

(i)  Officers’
Certificate.  A certificate, dated
such Date of Delivery, of the Chief Executive Officer of the Company and of the
chief financial or chief accounting officer of the Company confirming that the
certificate delivered at Closing Time pursuant to Section 5(c) hereof
remains true and correct as of such Date of Delivery.

 

(ii)  Opinion of
Counsel for Company. The opinion of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, counsel to the Company, dated such Date of
Delivery, relating to the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by Section 5(a) hereof.

 

(iii)  Opinion of
Counsel for Initial Purchaser.  The
opinion of Fried, Frank, Harris, Shriver & Jacobson LLP, counsel for
the Initial Purchaser, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b) hereof.

 

(iv)  Bring-down
Comfort Letter.  A letter from each
of Deloitte & Touche LLP, KPMG LLP and Ernst & Young AG,
respectively, in form and substance satisfactory to the Initial Purchaser and
dated such Date of Delivery, substantially in the same form and substance as
each of the letters furnished by the respective firm to the Initial Purchaser
pursuant to Section 5(d) hereof, except that the specified date in
the letters furnished pursuant to this paragraph shall be a date not more than
three business days prior to such Date of Delivery.

 

(k)           Additional
Documents.  At Closing Time
and at each Date of Delivery, counsel for the Initial Purchaser shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy of any
of the representations or warranties, or the fulfillment of any of the
conditions, herein contained.

 

(l)            Termination of Agreement. 
If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement, or, in the case
of any condition to the purchase of Option Securities, on a Date of Delivery
which is after Closing Time, the obligations of the Initial Purchaser to
purchase the relevant Option Securities, may be terminated by the Initial
Purchaser by notice to the Company at any time at or prior to Closing Time or
such Date of Delivery, as the case may be, and such termination shall be
without liability of any party to any other party except as provided in Section 4
and except that Sections 1, 7, 8 and 9 shall survive any such termination and
remain in full force and effect.

 

SECTION 6.           Subsequent Offers
and Resales of the Securities. 

 

(a)           Joint
Offer and Sale Procedures.  The
Initial Purchaser and the Company each hereby agree with respect to itself in
connection with the offer and sale of the Securities:

 

(i)            Offers
and Sales.  Offers and sales of the
Securities shall be made to such persons and in such manner as is contemplated
by the Offering Memorandum.

 

20

 

(ii)           No
General Solicitation.  No general
solicitation or general advertising (within the meaning of Rule 502(c) under
the 1933 Act) will be used in the United States in connection with the
offering or sale of the Securities.

 

(iii)          Restriction
on Transfer.  The transfer
restrictions and the other provisions set forth in the Preliminary Offering
Memorandum and the Final Offering Memorandum under the caption “Transfer
Restrictions,” including the legend required thereby, shall apply to the
Securities except as otherwise agreed by the Company and the Initial Purchaser.  

 

(iv)          Minimum
Principal Amount.  No sale of the
Securities to any one Subsequent Purchaser will be for less than U.S. $1,000
principal amount and no Security will be issued in a smaller principal
amount.  If the Subsequent Purchaser is a
non-bank fiduciary acting on behalf of others, each person for whom it is acting
must purchase at least U.S. $1,000 principal amount of the Securities.

 

(b)           Covenants
of the Company.  The Company
covenants with the Initial Purchaser as follows:

 

(i)            Integration.  The Company agrees that it will not and will
use commercially reasonable efforts to cause its Affiliates not to, directly or
indirectly, solicit any offer to buy, sell or make any offer or sale of, or
otherwise negotiate in respect of, securities of the Company of any class if,
as a result of the doctrine of “integration” referred to in Rule 502 under
the 1933 Act, such offer or sale would render invalid (for the purpose of (i) the
sale of the offered Securities by the Company to the Initial Purchaser, (ii) the
resale of the offered Securities by the Initial Purchaser to Subsequent
Purchasers or (iii) the resale of the offered Securities by such
Subsequent Purchasers to others) the exemption from the registration
requirements of the 1933 Act provided by Section 4(2) thereof or
by Rule 144A thereunder or otherwise.

 

(ii)           Restriction
on Repurchases.  Until the expiration
of two years after the original issuance of the offered Securities, the Company
will not, and will use commercially reasonable efforts to cause its controlled
Affiliates not to, resell any offered Securities which are “restricted
securities” (as such term is defined under Rule 144(a)(3) under the
1933 Act), whether as beneficial owner or otherwise (except as agent
acting as a securities broker on behalf of and for the account of customers in
the ordinary course of business in unsolicited broker’s transactions).

 

(c)           Covenants of the
Initial Purchaser.  The Initial
Purchaser covenants with the Company as follows:

 

(i)            Status
of Initial Purchaser.  The Initial
Purchaser represents and warrants to, and agrees with, the Company that it is a
Qualified Institutional Buyer and an “accredited investor” within the meaning
of Rule 501(a) under the 1933 Act (an “Accredited Investor”).

 

(ii)           Qualified
Institutional Buyers.  The Initial
Purchaser represents and warrants to, and agrees with, the Company that it will
only sell the Securities to a person whom the Initial Purchaser reasonably
believes is a Qualified Institutional Buyer within the meaning of Rule 144A
under the 1933 Act (a “Qualified Institutional Buyer”).

 

(iii)          Subsequent
Purchaser Notification.  The Initial
Purchaser will take reasonable steps to inform, and cause each of its U.S.
Affiliates to take reasonable steps to inform, persons acquiring Securities
from such Initial Purchaser or affiliate, as the case may be, in the United
States that the Securities (A) have not been and will not be registered
under the 1933 Act, (B) are

 

21

 

being sold to them without registration under the 1933 Act in
reliance on Rule 144A or in accordance with another exemption from
registration under the 1933 Act, as the case may be, and (C) may not
be offered, sold or otherwise transferred except (1) to the Company, (2) outside
the United States in accordance with Regulation S under the 1933 Act and
in compliance with the securities laws of such non-United States jurisdiction,
or (3) inside the United States in accordance with (x) Rule 144A
to a person whom the seller reasonably believes is a Qualified Institutional
Buyer that is purchasing such Securities for its own account or for the account
of a Qualified Institutional Buyer to whom notice is given that the offer, sale
or transfer is being made in reliance on Rule 144A or (y) pursuant to
another available exemption from registration under the 1933 Act.

 

SECTION 7.           Indemnification.  

 

(a)          Indemnification of
Initial Purchaser.  The Company
agrees to indemnify and hold harmless the Initial Purchaser, its Affiliates,
its selling agents and each person, if any, who controls the Initial Purchaser
within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act as follows:

 

(i)            against
any and all loss, liability, claim, damage and expense whatsoever, as incurred,
arising out of any untrue statement or alleged untrue statement of a material
fact contained in any preliminary offering memorandum, the Disclosure Package,
the Final Offering Memorandum (or any amendment or supplement thereto) or any
Supplemental Offering Materials, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;

 

(ii)           against
any and all loss, liability, claim, damage and expense whatsoever, as incurred,
to the extent of the aggregate amount paid in settlement of any litigation, or
any investigation or proceeding by any governmental agency or body, commenced
or threatened, or of any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission; provided that
(subject to Section 7(d) below) any such settlement is effected with
the prior written consent of the Company; and

 

(iii)          against
any and all expense whatsoever, as incurred (including the fees and
disbursements of counsel chosen by the Initial Purchaser), reasonably incurred
in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under (i) or (ii) above;

 

provided, however,
that this indemnity agreement shall not apply to any loss, liability, claim,
damage or expense to the extent arising out of any untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by the Initial Purchaser
expressly for use in any preliminary offering memorandum, the Disclosure
Package, the Final Offering Memorandum (or any amendment or supplement thereto)
or in any Supplemental Offering Materials.

 

(b)           Indemnification
of Company.  The Initial Purchaser
agrees to indemnify and hold harmless the Company, its Affiliates and each
person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act against any and
all loss, liability, claim, damage and expense described in the indemnity
contained in subsection (a) of this Section, as

 

22

 

incurred (including the fees and disbursements of counsel chosen by the
Company), but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in any preliminary offering memorandum,
the Disclosure Package, the Final Offering Memorandum or any Supplemental
Offering Materials in reliance upon and in conformity with written information
furnished to the Company by the Initial Purchaser expressly for use therein.

 

(c)                                  Actions
against Parties; Notification. Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party of any action
commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 7(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 7(b) above,
counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of
any such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel (in addition
to any local counsel) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent
of the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim whatsoever
in respect of which indemnification or contribution could be sought under this Section or
Section 8 hereof (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i) includes
an unconditional release of each indemnified party from all liability arising
out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any indemnified party.

 

(d)                                 Settlement without Consent if Failure to Reimburse. If at
any time an indemnified party shall have requested in writing an indemnifying
party to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 7(a)(ii) effected without its written
consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.

 

SECTION 8.                                Contribution.
If the indemnification provided for in Section 7 hereof is for any reason
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, liabilities, claims, damages or expenses referred to therein,
then each indemnifying party shall contribute to the aggregate amount of such
losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the Initial
Purchaser on the other hand from the offering of the Securities pursuant to
this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company on the one hand and of the Initial
Purchaser on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as
well as any other relevant equitable considerations.

 

23

 

The relative benefits received by the Company
on the one hand and the Initial Purchaser on the other hand in connection with
the offering of the Securities pursuant to this Agreement shall be deemed to be
in the same respective proportions as the total net proceeds from the offering
of the Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
Initial Purchaser, bear to the aggregate initial offering price of the
Securities.

 

The relative fault of the Company on the one
hand and the Initial Purchaser on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or by the Initial
Purchaser and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.

 

The Company and the Initial Purchaser agree
that it would not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in this
Section. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

 

Notwithstanding the provisions of this Section 8,
the Initial Purchaser shall not be required to contribute any amount in excess
of the amount by which the total price at which the Securities purchased and
sold by it hereunder exceeds the amount of any damages which the Initial
Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.

 

No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.

 

For purposes of this Section 8, each person, if
any, who controls the Initial Purchaser within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act and the Initial
Purchaser’s Affiliates and selling agents shall have the same rights to
contribution as the Initial Purchaser, and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as the Company.

 

SECTION 9.                                Representations,
Warranties and Agreements to Survive. All representations, warranties and
agreements contained in this Agreement or in certificates of officers of the
Company or any of its subsidiaries submitted pursuant hereto shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of the Initial Purchaser or its Affiliates
or selling agents, any person controlling the Initial Purchaser, its officers
or directors, any person controlling the Company and (ii) delivery of and
payment for the Securities.

 

SECTION 10.                          Termination
of Agreement.

 

(a)                                  Termination; General. The Initial Purchaser may terminate
this Agreement, by notice to the Company, at any time at or prior to Closing
Time (i) if there has been, since the time of execution of this Agreement
or since the date as of which information is given in the Preliminary Offering

 

24

 

Memorandum, the Disclosure Package or the Final Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, in each case whether
or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States or the international financial markets, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Initial Purchaser, impracticable or inadvisable to
market the Securities or to enforce contracts for the sale of the Securities,
or (iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc.
or any other governmental authority, or (iv) a material disruption has
occurred in commercial banking or securities settlement or clearance services
in the United States, or (v) if a banking moratorium has been declared by
either Federal or New York authorities.

 

(b)                                 Liabilities. If this Agreement is terminated pursuant to
this Section 10, such termination shall be without liability of any party
to any other party except as provided in Section 4 hereof, and provided
further that Sections 1, 7, 8 and 9 shall survive such termination and
remain in full force and effect.

 

SECTION 11.                          Tax
Disclosure. Notwithstanding any other provision of this Agreement,
immediately upon commencement of discussions with respect to the transactions
contemplated hereby, the Company (and each employee, representative or other
agent of the Company) may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the transactions
contemplated by this Agreement and all materials of any kind (including
opinions or other tax analyses) that are provided to the Company relating to
such tax treatment and tax structure. For purposes of the foregoing, the term “tax
treatment” is the purported or claimed federal income tax treatment of the
transactions contemplated hereby, and the term “tax structure” includes any
fact that may be relevant to understanding the purported or claimed
federal income tax treatment of the transactions contemplated hereby.

 

SECTION 12.                          Notices.
All notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by facsimile. Notices
to the Initial Purchaser shall be directed to Merrill Lynch at 4 World
Financial Center, New York, New York 10080, attention of Gopal Garuda,
facsimile (650) 849 2240;  notices to the
Company shall be directed to it at  5100
Patrick Henry Drive, Santa Clara, California 
95054, attention of Helene Simonet, facsimile (408) 764 4161. Any such
notice shall take effect at the time of receipt thereof.

 

SECTION 13.                          No
Advisory or Fiduciary Relationship. The Company acknowledges and agrees
that (a) the purchase and sale of the Securities pursuant to this
Agreement, including the determination of the offering price of the Securities
and any related discounts and commissions, is an arm’s-length commercial
transaction between the Company, on the one hand, and the Initial Purchaser, on
the other hand, (b) in connection with the offering contemplated hereby
and the process leading to such transaction 
the Initial Purchaser is and has been acting solely as a principal and
is not the agent or fiduciary of the Company, or its stockholders, creditors,
employees or any other party, (c) the Initial Purchaser has not  assumed and will not assume an advisory or
fiduciary responsibility in favor of the Company with

 

25

 

respect to the offering contemplated hereby or the process leading
thereto (irrespective of whether the Initial Purchaser has advised or is currently
advising the Company on other matters) and the Initial Purchaser has no
obligation to the Company with respect to the offering contemplated hereby
except the obligations expressly set forth in this Agreement, (d) the
Initial Purchaser and its affiliates may be engaged in a broad range of
transactions that involve interests that differ from those of the Company, and (e) the
Initial Purchaser has not provided any legal, accounting, regulatory or tax
advice with respect to the offering contemplated hereby and the Company has
consulted its own legal, accounting, regulatory and tax advisors to the extent
it deemed appropriate.

 

SECTION 14.                          Integration.
This Agreement supersedes all prior agreements and understandings (whether
written or oral) between the Company and the Initial Purchaser with respect to
the subject matter hereof.

 

SECTION 15.                          Parties.
This Agreement shall inure to the benefit of and be binding upon the Initial
Purchaser, the Company and their respective successors. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Initial Purchaser, the Company and their respective
successors and the controlling persons and officers and directors referred to
in Sections 7 and 8 and their heirs and legal representatives, any legal
or equitable right, remedy or claim under or in respect of this Agreement or
any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
Initial Purchaser, the Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
No purchaser of Securities from the Initial Purchaser shall be deemed to be a
successor by reason merely of such purchase.

 

SECTION 16.                          GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 17.                          TIME.
TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH
HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

 

SECTION 18.                          Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same Agreement.

 

SECTION 19.                          Effect
of Headings. The Section headings herein are for convenience only and
shall not affect the construction hereof.

 

26

 

If the foregoing is in
accordance with your understanding of our agreement, please sign and return to
the Company a counterpart hereof, whereupon this instrument, along with
all counterparts, will become a binding agreement between the Initial Purchaser
and the Company in accordance with its terms.

 

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COHERENT, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Helene
  Simonet

  
	
   

  	
   

  	
  Name: Helene
  Simonet

  
	
   

  	
   

  	
  Title: Executive
  Vice President and Chief Financial Officer

  

 

27

 

CONFIRMED AND ACCEPTED,

as of the date first above written:

 

MERRILL LYNCH & CO.

MERRILL LYNCH, PIERCE, FENNER & SMITH

INCORPORATED

 

 

	
  By:

  	
  /s/ Stephen Miller

  	
   

  
	
  Authorized
  SignatoryExhibit 10.2

 

FORM OF LOCK-UP LETTER AGREEMENT

 

MERRILL LYNCH & CO.

Merrill Lynch, Pierce, Fenner & Smith

Incorporated,

4 World Financial Center

New York, New York 
10080

 

Re: Proposed Offering by Coherent, Inc.

 

Dear Ladies and Gentlemen:

 

The
undersigned, an executive officer and/or director of Coherent, Inc., a
Delaware corporation (the “Company”), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill
Lynch” or the “Initial Purchaser”), proposes to enter into a Purchase Agreement
(the “Purchase Agreement”) with the Company providing for the offering,
pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities
Act”) of Convertible Subordinated Notes due 2011 of the Company (the “Initial Securities”)
and the grant by the Company to the Initial Purchaser of the option to purchase
additional Convertible Subordinated Notes due 2011 (the “Option Securities”). The
Initial Securities, together with the Option Securities, are collectively
referred to as the “Securities.”  In
recognition of the benefit that such an offering will confer upon the
undersigned as an executive officer and/or director of the Company, as the case
may be, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with the
Initial Purchaser that, during a period of 90 days from the date of the
Purchase Agreement, the undersigned will not, without the prior written consent
of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of the Company’s common stock $0.01
par value (the “Common Stock”) or any securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, or file, or cause to be filed, any
registration statement under the Securities Act, with respect to any of the
foregoing (collectively, the “Lock-Up Securities”) or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Lock-Up Securities, whether any such swap or transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise.

 

Notwithstanding the
foregoing, and subject to the conditions below, the undersigned may transfer
all or any portion of the Lock-Up Securities without the prior written consent
of Merrill Lynch, provided that (1) Merrill Lynch receives a signed lock-up agreement for the balance of the lockup period
from each donee, trustee, distributee, or transferee, as the case may be, (2) any
such transfer shall not involve a disposition for value (for purposes of this lock-up agreement, a
contribution of all or any portion of the Lock-Up Securities to a partnership
or limited liability company that is in exchange for an interest in said
partnership or limited liability company shall be deemed not to involve a
disposition for value), (3) such transfers are not required to
be reported in

 

 

any public report or filing with the Securities and
Exchange Commission, or otherwise, except for a filing on a Form 5 or as
included in a Form 4 for another mandatory reported transaction and (4) the
undersigned does not otherwise voluntarily effect any public filing or report regarding
such transfers:

 

(i)                                     as a bona fide gift or gifts or by way of bequest
or inheritance on death; or

 

(ii)                                  to any trust for the direct or indirect benefit
of the undersigned or the immediate family of the undersigned (for purposes of
this lock-up agreement, “immediate family” shall mean any relationship by
blood, marriage or adoption, not more remote than first cousin); or

 

(iii)                               to a partnership or limited liability company the
sole constituent partners/members of which are any combination of (x) the
undersigned, (y) the immediate family of the undersigned or (z) any trust for
the direct or indirect benefit of the undersigned or the immediate family of
the undersigned.

 

Notwithstanding
the restrictions set forth herein, the undersigned may enter into any
written trading plan or agreement (“Rule 10b5-1 Plan”) with a broker
designed to comply with Rule 10b5-1(c)(1) promulgated pursuant to the
1934 Act, as amended, provided that any such Rule 10b5-1 Plan shall specify
that any sales of Securities sold for the undersigned’s benefit pursuant to the
Rule 10b5-1 Plan shall not occur prior to the expiration of the Lock-Up
Period.

 

Notwithstanding
the restrictions set forth herein, Ms Helene Simonet and Mr John R. Ambroseo may sell
all or a portion of the Lock-Up Securities during the Lock-Up Period pursuant
to the terms of their respective Rule 10b5-1 Plan in existence as of the
date hereof.

 

In addition,
during the Lock-Up Period, but no earlier than 45 days after the date of this
Agreement, the collective signatories of this form of Lock-Up Agreement may collectively
sell up to 250,000 shares (exclusive of any transfers made in accordance with
the preceding paragraphs).

 

Notwithstanding the foregoing, if:

 

(1)                                  during
the last 17 days of the 90-day lock-up period, the Company issues an earnings
release or material news or a material event relating to the Company occurs; or

 

(2)                                  prior
to the expiration of the 90-day lock-up period, the Company announces that it
will release earnings results or becomes aware that material news or a material
event will occur during the 16-day period beginning on the last day of the
90-day lock-up period,

 

the restrictions imposed by this lock-up
agreement shall continue to apply until the expiration of the 18-day period
beginning upon the issuance of the earnings release or the occurrence of the
material news or material event, as applicable, unless Merrill Lynch waives, in
writing, such extension.

 

The undersigned hereby
acknowledges and agrees that written notice of any extension of the 90-day
lock-up period pursuant to the previous paragraph will be delivered by Merrill
Lynch to the Company and that any such notice properly delivered will be deemed
to have been given to, and received by, the undersigned. The undersigned
further agrees that, prior to engaging in any transaction or taking any other
action that is subject to the terms of this lock-up agreement during the period
from the date of this

 

 

lock-up agreement to and including the 34th day
following the expiration of the initial 90-day lock-up period, it will give
notice thereof to the Company and will not consummate such transaction or take
any such action unless it has received written confirmation from the Company
that the 90-day lock-up period (as may have been extended pursuant to the
previous paragraph) has expired.

 

The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company’s transfer agent and registrar against the transfer of the
Lock-Up Securities except in compliance with the foregoing restrictions.

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

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