Document:

<PAGE>

                                                                   Exhibit 10.16

                              Employment contract

                            between IPG Laser GmbH

                            and its General Manager

                            Dr. Eugene Shcherbakov

Between the company named

     IPG Laser GmbH
     Siemensstrasse 7
     57299 Burbach

     hereinafter Company

     its shareholders
     -       Dr. Valentin P. Gapontsev, Burbach/Germany
             and
     -       IPG Photonics Corporation, Sturbridge/USA
             represented by its President, Mr. John Dalton

and

     Dr. Eugene Shcherbakov
     Am Sudhang 12
     57299 Burbach

     hereinafter General Manager

there is entered into by agreement the following Employment Contract:
<PAGE>

                              Employment Contract

                   ' 1 Scope of duties and other obligations

(1)  Effective 18 September 2000 Dr. Eugene Shcherbakov shall be appointed
     General Manager of the Company. The Employment Contract shall be valid from
     18 September 2000 on.

(2)  The General Manager shall represent the Company alone as provided by the
     statutes and the articles of incorporation.

     He shall be obligated and authorized to conduct the affairs of the Company
     alone.

     The General Manager shall be exempt from the restrictions of the
     prohibition against self-contracting per 181 per the articles of
     incorporation and this Contract.

(3)  Directives of the Shareholders' Meeting shall be obeyed.

(4)  In connection with general management, the General Manager shall be
     obligated to fulfill the duties of the Company in accordance with the
     statutes and the articles of incorporation.

     Furthermore, he shall take care of the economic, financial and
     organizational concerns of the Company in the best possible manner. In all
     decisions the General Manager shall be guided by the good of the Company.

(5)  The General Manager shall be required to maintain the strictest silence on
     all commercial, operational or technical information and processes which
     concern the Company and have been entrusted or otherwise have become known
     to him.

     This obligation shall also survive termination of this Employment Contract.

(6)  Commercial and operational documents of all kinds shall be carefully
     retained and may be used only for the purpose of the Company. The documents
     may not be made accessible to third parties.

     No right to retain documents shall be granted to the General Manager.

(7)  The General Manager shall be liable to the Company and to the Shareholders
     only in the case of malicious damage to the Company.
<PAGE>

(8)  The General Manager shall have the right to furnish his service even
     outside the registered office of the Company.
<PAGE>

     The working time per week shall be 40 hours; the General Manager shall not
     be bound to working at fixed times of the day.

     The General Manager shall be obligated to make himself available to the
     Company at any time when and if the good of the Company so requires.

                           ' 2 Secondary occupation

(1)  The General Manager shall be permitted to continue his activity as General
     Manager of VPG Laser Components GmbH. Approval of the Shareholders' Meeting
     shall not be required either for taking on further activities or for
     continuing same.

                               ' 3 Contract term

(1)  This Employment Contract shall become effective on 18 September 2000 and
     shall be entered into for an indefinite time.

(2)  In the first 3 years of the term, the Contract may be canceled by either
     party only for cause.

     Examples of such cause shall be refusal by the Tax Administration to
     approve this Employment Contract or individual provisions thereof.

     Thereafter the Contract may be canceled by either party to the contract by
     notice of 6 months to the end of a calendar year.

(3)  The General Manager may be removed from office only for cause. Removal from
     office shall not simultaneously result in cancellation of the contract for
     services. Should layoff take place by mutual understanding, the obligation
     of the Company to continue paying earnings shall be unaffected thereby.

     Should removal from office be ruled legally valid, the contract for
     services shall be treated as terminated as soon as the judgment ruling
     removal from office to be legally valid becomes legally enforceable.

                                 ' 4 Earnings

(1)  As remuneration for his activity, the General Manager shall receive a
     monthly salary in the amount of DM 28,000.00.
<PAGE>

     The salary payment shall be due on the last working day of each calendar
     month.

     In addition, Dr. Shcherbakov shall receive a prorated 13th and 14th salary
     payment in the same amount. The additional salary payments shall be
     disbursed in July and November respectively.

     The statutory wage tax obligation as well as the obligation to provide
     insurance shall be taken into consideration for aliens.

(2)  In the event of incapacity for work due to illness or accident, the General
     Manager shall continue to receive payment of all earnings for a period of 8
     weeks.

(3)  In the event of death of the General Manager, his family shall continue to
     receive payment of all earnings for a period of 6 weeks.

                         ' 5 Vacation and vacation pay

(1)  The General Manager shall be granted 30 working days per year of paid
     relaxation vacation.

(2)  Should the General Manager be unable to take his annual vacation because
     Company interests dictate otherwise, he shall have the right to
     compensation for the vacation on the basis of the amount of the base
     salary.

                           ' 5 Extra considerations

(1)  For the duration of this Employment Contract the General Manager shall have
     the right to have the Company provide him with an official car of luxury
     class, which may also be used for personal travel.

     Payment of taxes due on the equivalent monetary value of the resulting
     benefit shall be made by the General Manager.

(2)  The General Manager shall have the right to all voluntary, collectively
     agreed or statutory special and social benefits that the Company also
     grants to its other employees.

(3)  The General Manager shall receive from the Company reimbursement for
     charges and expenses against documented proof up to the maximum amounts
     allowed for tax purposes or up to the lump-sum amounts allowed for tax
     purposes.
<PAGE>

(4)  The General Manager shall be entitled temporarily to waive (defer) payment
     of his salary amounts in their entirety or partly for the good of the
     Company. His rights to payment of the salary shall remain unaffected by
     such deferral.

     In such a case a written loan agreement shall be entered into immediately,
     in which the interest rate and the repayment terms shall be defined in
     advance.

     Declarations of waiver of earnings without written loan agreement shall be
     deemed null and void.

(5)  The Company shall take out for the benefit of the General Manager an
     accident insurance policy with the following base coverage sums:

     a) death                                              DM 200,000.00
     b) progressive invalidity (350% model)         DM 200,000.00

     The insurance policy shall cover industrial and personal accidents in
     accordance with the General Accident Insurance Terms. It shall lapse on the
     day of his resignation from the Company.

                             ' 6 Final provisions

(1)  This Employment Contract shall be reviewed each year on 31 December to
     determine whether its provisions are effective and up-to-date and whether
     the salary is appropriate.

     Should it prove on the basis of the review that individual provisions have
     become or are likely to become ineffective or that special economic changes
     must be taken into account, an updated form of the Employment Contract
     shall be drafted within 6 weeks and at the latest 2 weeks thereafter signed
     by the parties to the contract.

(2)  Should individual provisions of this Contract be or become ineffective, the
     validity of the other provisions shall not be affected thereby.

     Instead of the ineffective provisions there shall be adopted an appropriate
     adjustment which most closely approaches the economic content of the
     ineffective clause.

(3)  Oral subsidiary agreements to this Contract have not been made.

     As a rule, all amendments and additions to the Contract shall be made in
     writing.
<PAGE>

     Retroactive amendments and additions, however, shall not be permitted.

(4)  In cases of doubt, the Articles of Incorporation shall have priority over
     the provisions of this Employment Contract.

Burbach, 18 September 2000

Dr. Eugene Shcherbakov          /s/ Dr. Eugene Shcherbakov
                                ------------------------------------------------

For the Company:          IPG Laser GmbH
                          represented by the General Manager, Dr. Valentin P.
                          Gapontsev

                          /s/ Dr. Valentin P. Gapontsev
                          ----------------------------------------------------

For the Shareholders:     Dr. Valentin P. Gapontsev, Burbach/Germany

                                 /s/ Dr. Valentin P. Gapontsev
                                ----------------------------------------------

                                IPG Photonics Corporation, Sturbridge/USA,
                                represented by the President, John Dalton<PAGE>

                                                                  EXHIBIT 10.17

                               February 3, 2000

Valentin P. Gapontsev, Ph.D.
Chairman, President and CEO
IPG Photonics Corporation
P.O. Box 519
660 Main Street
Sturbridge, Massachusetts 01566

Dear Dr. Gapontsev

     1.   This letter confirms the agreement as of October 4, 1999 for the
provision of legal services and non-legal consulting services by Robert A. Blair
("Blair") for IPG Photonics Corporation ("IPG"), its affiliated companies and
Dr. Valentin P. Gapontsev ("Dr. Gapontsev") (collectively the "IPG Group") to
assist in connection with the following:

          (a)  obtaining the revalidation of the L1A non-immigrant visa to the
     United States for Dr. Gapontsev, expiring November 29, 1999, for the
     previously approved Petition period through July 13, 2000 to permit
     multiple entries to the United States;

          (b)  obtaining the issuance of an extension of the previously approved
     Petition for an LIA visa for the full 36 month period;

          (c)  obtaining the issuance of an immigrant visa to the United States
     for Dr. Gapontsev granting him lawful Permanent Resident status;

          (d)  establishing a National Advisory Board ("NAB") of 8 to 10 members
     to advise and report to Dr. Gapontsev, recruiting prominent members to the
     NAB, and chairing the NAB for and under the direction of Dr. Gapontsev;

          (e)  overseeing the proposed public relations campaign for IPG and Dr.
     Gapontsev to be conducted by Coupe Associates, and possibly others to be
     selected by Dr. Gapontsev;

          (f)  assisting Dr. Gapontsev with potential private or venture capital
     investors for IPG;

          (g)  assisting Dr. Gapontsev with the selection of investment bankers
     and law firms for an initial public offering of the securities of IPG;

          (h)  providing national and international strategic, business and
     other advice to IPG, the IPG Group and Dr. Gapontsev, as needed or
     requested;

          (i)  reviewing and approving statements for services provided by
     outside counsel and consultants to IPG to ensure that they are fair and
     reasonable.
<PAGE>

          Blair has provided critical assistance to IPG and Dr. Gapontsev on
some of the above-referenced matters in the last several months.

     2.   Blair agrees to forego the payment of cash consideration for fees
based upon the time involved, the billing rate of Blair in performing services,
and the value of the services rendered, in order to receive compensation in the
form of stock options and warrants (see below). Unless otherwise agreed to by
IPG, Blair's consultants, such as Coupe Associates, Danziger & Mak and diGenova
& Toensing, will be compensated for services performed based upon the time
involved and their billing rates, or on a fixed fee basis, and the value of
their services rendered.

     3.   In return for foregoing the payment of cash consideration for services
rendered, Blair is hereby granted:

          (a)  non-qualified stock options to purchase up to 200,000 shares of
     the common stock of IPG ("Stock Options") at an exercise price of $1.00 per
     share, which exercise price is based upon the valuation of the company by
     an independent expert; payment will be by non-recourse promissory note to
     IPG at an interest rate which is the lesser of the applicable federal rate
     or 8.5%, and secured by the stock purchased; the Stock Options are granted
     to Blair upon terms and conditions pursuant to the stock option plan
     prepared by legal counsel and adopted by !PG for its executives, employees
     and independent contractors (such as Blair), a separate plan prepared and
     adopted for the National Advisory Board of IPG, or a separate letter
     agreement; the plan or separate letter agreement will set forth how
     specific terms and conditions for the Options will be determined,
     including, for example, the vesting schedule, the conditions under which
     the Options will not vest, the acceleration of vesting and the right to
     exercise upon the occurrence of certain events (e.g., exercisable prior to
     the completion of an initial public offering (IPO) of securities of IPG),
     restrictions on alienability of shares purchased pursuant to the exercise
     of the Stock Options and anti-dilution provisions; the Stock Options
     granted hereunder are in addition to the stock options to purchase 50,000
     shares of the common stock of IPG granted to Blair by separate letter from
     Dr. Gapontsev to Blair confirming his appointment as Chairman of the
     National Advisory Board of IPG; and

          (b)  in the event of an IPO of IPG's securities, warrants to purchase
     250,000 shares of the common stock of IPG in an IPO of securities of IPG at
     50% of the IPO price, exercisable prior to the completion of the IPO with
     payment by non-recourse promissory note to IPG at an interest rate which is
     the lesser of the applicable federal rate or 8.5%, and secured by the stock
     purchased ("Warrants").

     The Stock Options and Warrants granted are commensurate with the time and
value of Blair's services and with the contingent and risk nature of his not
receiving cash consideration from IPG or the IPG Group.

     4.   IPG agrees, however, to pay all expenses incurred by The Blair Law
Firm PC ("Firm") or Blair on its behalf such as for long distance and wireless
telephone, photocopying, fax transmissions, messengers, travel, meals and
entertainment, and for equipment purchases approved by IPG.
<PAGE>

     5.   The Firm and Blair will provide IPG with monthly statements for
expenses incurred, and IPG will pay each such statement within ten (10) days of
its date.

     6.   Blair may retain consultants to assist it on certain matters, as
approved by IPG. Blair shall require such consultants to submit monthly
statements to him for their services for review before submission to IPG for
direct payment.

     7.   Blair's rights hereunder may be assigned in whole or in part to
members of his family or to any entity under his control, and shall, in the
event of his death, be transferred to his heirs and assigns.

     Please indicate your agreement by signing and returning the enclosed copy
of this letter to me.

                                   Sincerely yours,

                                   /s/ Robert A. Blair

                                   Robert A. Blair
                                   Individually and For The Blair Law Firm, P.C

AGREED AND ACCEPTED

/s/ Valentin P. Gapontsev

Valentin P. Gapontsev, Individually and for
IPG Photonics Corporation and the IPG Group
<PAGE>

                                   AMENDMENT

     This agreement dated as of March 17, 2000 amends the letter agreement dated
February 3, 2000, between IPG Photonics Corporation (IPO) and Robert A. Blair
and memorializes oral discussions and agreements at that time (Amendment).

          1. The stock options ("Stock Options") granted by that certain letter
agreement dated February 3, 2000 ("Letter Agreement") between IPG Photonics
Corporation ("IPG") and Robert A. Blair ("Optionee") vested and were exercisable
on the date of that Agreement. Pursuant to that Letter Agreement, Optionee was
permitted to transfer Options to certain persons. Optionee intends to give
Options to the persons set forth in the attachment hereto (Transferees), which
Transferees shall, after exercise of such Options, give their proxy to Optionee
to vote their Shares until IPO has an initial public offering under the
Securities Act of 1933, as amended, or In a transaction contemplated by Section
3.(c) hereof. The Stock Options granted and any Shares issued pursuant to the
exercise of such Stock Options by Optionee or Transferees are subject, however,
to substantial risks of expiration or redemption, respectively, as follows:

               (a) If, on or before December 31, 2000, the Optionee voluntarily
     terminates the Letter Agreement, or IPG terminates the Letter Agreement
     "For Cause," (i) then all unexercised Options shall expire and (ii) any
     Shares issued pursuant to the exercise of the Options shall be redeemable
     by IPG, at its election, at the original exercise price of $1.00 per share;

               (b) If, after December 31, 2000 but before January 1, 2002, the
     Optionee voluntarily terminates the Letter Agreement, or the IPG terminates
     the Letter Agreement "For Cause," (i) then all unexercised Options shall
     expire and (ii) thirty percent (30%) of any Shares issued pursuant to the
     exercise of the Options shall be redeemable by IPG, at its election, at the
     original exercise price of$ 1.00 per share.

               (c) For purpose of this Amendment and the February 3, 2000 Letter
     Agreement, "For Cause" shall include, but not be limited to, Optionee's (i)
     willful or reckless breach of duty in providing legal or non-legal
     consulting services to IPG, (ii) felony conviction, or (iii) violation of
     the Intellectual Property Agreement between IPG and Optionee.

               (d) On exercise the Optionee and IPG agree that the Shares
     acquired thereby are subject to a substantial risk of forfeiture within the
     meaning of Section 83(a) of the Internal Revenue Code ("Code"), and that
     Optionee in his sole discretion may make a Code Section 83(b) election to
     include in his gross income the difference, if any, between the fair market
     value of the Shares at the time of exercise and the exercise price. IPG
     agrees to provide in its good faith and reasonable judgment to each
     Optionee the fair market value of his Shares for this purpose, and to claim
     as a corporate tax deduction an amount not greater than the amount
     includible by the Optionee in his gross income.
<PAGE>

          2.   The Shares may not be transferred except after compliance with
the conditions specified herein. Any attempt by Optionee or any Transferee to
transfer any Shares in violation of any provision of this Amendment or the
Letter Agreements will be void. IPG will not be required (a) to transfer on its
books any Shares that have been transferred in violation of this Amendment, or
(b) to treat as owner of such Shares, or to accord the right to vote or pay
dividends to any purchaser, donee or other transferee to whom such Shares may
have been so transferred.

          3.   (a) Each certificate representing Shares shall (unless otherwise
     permitted by the provisions hereof) be stamped or otherwise imprinted with
     a legend in substantially the following form:

               "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
               ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
               SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
               THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
               SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND
               APPLICABLE STATE SECURITIES LAWS"

               (b)  Each certificate representing Shares shall (unless otherwise
     permitted by the provisions hereof) be stamped or otherwise imprinted with
     a legend in substantially the following form:

               "THE TRANSFER AND OTHER MATTERS PERTAINING TO THESE SECURITIES
               ARE SUBJECT TO THE CONDITIONS SPECIFIED IN THE LETTER AGREEMENT,
               DATED AS OF FEBRUARY 3, 2000, AND THE AMENDMENT DATED MARCH
               17, 2000 BETWEEN IPG PHOTONICS CORPORATION AND ROBERTA BLAIR, AS
               AMENDED FROM TIME TO TIME, AND NO TRANSFER OF THESE SECURITIES
               SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
               FULFILLED."

               (c)  Upon request by IPG, if Optionee or any Transferee desires
     to transfer Shares, he shall deliver a written opinion of counsel for
     Optionee or Transferee, addressed to IPG, stating that in the opinion of
     such counsel (which opinion and counsel must be satisfactory to IPG in its
     sole discretion), the proposed transfer does not involve a transaction
     requiring registration or qualification of such Shares under the Securities
     Act of 1933, as amended (the "Securities Act"), or the securities or "blue
     sky" laws of any state of the United States. Optionee or Transferee, as the
     case may be, shall be entitled to transfer such Shares if IPG does not
     reasonably object to such transfer and request such

<PAGE>

          opinion within fifteen days after delivery of such notice, or, if it
          requests such opinion, after it has received such opinion. Each
          certificate or other instrument evidencing the securities issued upon
          the transfer of any Shares (and each certificate or other instrument
          evidencing any untransferred balance of such Shares) shall bear the
          legends set forth in Sections 3. (a) and (b) hereof.

     4.   If(i) any Shares are transferred pursuant to an effective registration
statement under the Securities Act or in a transaction contemplated by Section
3.(c) hereof which does not require that the Shares so transferred bear the
legend set forth in Section 3.(a) hereof; or (ii) the holder of Shares has met
the requirements for transfer of such Registrable Shares under Rule 144(k) under
the Securities Act (subject to the delivery of opinions as set forth above),
then the holder of such Shares shall be entitled to receive from IPG, without
expense, a new certificate in the name of the Optionee or Transferee, as the
case may be, not bearing the restrictive legend set forth in Section 3.(a)
hereof.

     5.   Any Optionee, Transferee or holder of Shares desiring to transfer
Shares that are no longer subject to the restrictions of either Section l.(a) or
Section 1(b), shall be entitled to receive from IPG, without expense, a new
certificate in the name of the Optionee, Transferee or holder not bearing the
restrictive legend set forth in Section 3.(b) hereof. Each certificate or other
instrument evidencing the securities issued upon the transfer of such Shares
(and each certificate or other instrument evidencing any untransferred balance
of such Shares) shall bear the legend set forth in Sections 3. (a) hereof. In
the event, however, that the terms and conditions of Section 4.(a) have also
been satisfied, then the Optionee, Transferee or the holder of such Shares shall
be entitled to receive from IPG, without expense, new certificates in the name
of the Optionee, Transferee or holder not bearing the restrictive legend set
forth in Section 3.(a) hereof.

     6.   In the event of an initial public offering ("IPO") of securities of
IPG, the merger or consolidation of IPG, or any reorganization, transfer of
substantially all the assets, consolidation, merger, dissolution, issuance or
sale of a majority equity interest in the company, or similar transaction, then
Optionee's and Transferee's equity interests in IPG shall be recognized and/or
included in such transactions on no less favorable terms and conditions than
those applicable to the other holders of IPG common stock, including Dr.
Valentin Gapontsev and Mr. Verghese Mammen.

     7.   This Agreement may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.

     8.   This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to principles governing
conflicts of laws.
<PAGE>

AGREED AND ACCEPTED

/s/ Valentin P. Gapontsev
--------------------------------
Valentin P. Gapontsev
For IPG Phototonics Corporation

/s/ Robert A. Blair
--------------------------------
Robert A. Blair

<PAGE>

                                  Transferees

Name                   Number of Shares
----                   ----------------

David M. Blair                2,500

James M. Blair                2,500

Judith A. Blanchard           5,000
                             ------
                             10,000

<PAGE>

                         [LETTERHEAD OF IPG PHOTONICS]

                               November 29, 2000

Mr. Robert A. Blair
4936 Rodman Street, N.W.
Washington, D.C. 20016

Dear Bob:

     As you know, in a letter dated February 3, 2000 (copy enclosed) I agreed on
behalf of IPG Photonics Corporation ("IPG") to grant to you, in lieu of cash
consideration for legal and consulting services rendered by you commencing
October 4, 1999, (i) 200,000 non-qualified stock options ("Stock Options") at a
$1.00/share exercise price subject to a stock option plan contemplated to be
adopted by IPG and (ii) warrants to purchase 250,000 IPG shares of common stock
in the IPO at a 50% discount to the IPO offering price, payable by a non-
recourse note ("Warrants"). These grants are set forth in Paragraph 3(a) and
(b), respectively, of the February 3, 2000 letter.

     In our discussions leading to the February 3, 2000 letter we orally agreed
that, if the grant of the Warrants proved problematic for the lawyers and/or
underwriters, in lieu of the Warrants, IPG would provide you with 250,000 Stock
Options at a $1.00/share exercise price. As with the above February 3, 2000
grant of the 200,000 Stock Options, the grant of the 250,000 Stock Options would
be subject to a contemplated IPG stock option plan.

     By letter agreement dated March 17, 2000 ("Amendment," copy enclosed) we
amended the February 3, 2000 letter in relevant part to permit you (i) to
transfer 10,000 Stock Options to certain permissible transferees and (ii) to
enable you to exercise immediately the balance of the 190,000 Stock Options. On
March 17, 2000 you in fact exercised this Stock Option and acquired 190,000
shares of IPG common stock and exercised other stock options pursuant to which
you acquired 50,000 shares of IPG common stock for your service on the National
Advisory Board by payment of $50,000 in cash and $190,000 non-recourse note.

     The Amendment contemplated the 190,000 IPG shares you acquired upon
exercise would be subject to a "substantial risk" of forfeiture" within the
meaning of Section 83(a) of the Internal Revenue Code, as set forth in Paragraph
1(a) and (b) of the Amendment, and further contemplated you would make a Section
83(b) election, as to which IPG would take a consistent tax reporting position
that the $1.00/share exercise price was equal to the fair market value of an IPG
share of common stock. You in fact made the Section 83(b) election by a filing
with the IRS, and provided a copy of your election to IPG.

     On April 12, 2000 IPG adopted the 2000 Incentive Compensation Plan
("Plan"), effective March 1, 2000. The Plan expressly provides for the grant of
non-qualified stock options and restricted stock.

     I understand that IPG's outside counsel, Winston & Strawn, has raised some
legal concerns as to the structure of the Warrants and its affect upon IPG's
proposed initial public offering. For example, shares you acquire upon exercise
of the Warrants need to be locked up for 6 months after the IPO to satisfy the
underwriters, and in the absence of registration, would have to be held for one
year. IPG would also have to file and keep current a registration statement for
your 250,000 shares, thereby possibly interfering with IPG's future secondary
offerings.

     Accordingly, I propose that we give effect to our prior oral agreement
surrounding the February 3, 2000 letter (Paragraph 3(b)), by rescinding the
grant of the Warrants, and in lieu thereof granting you 250,000 IPG shares of
common stock constituting restricted stock ("Restricted Stock") under the Plan
at a $1.00/share purchase price, payable in cash or by a recourse note, or a
combination of cash and recourse note, as you choose.
<PAGE>

     The above grant of Restricted Stock is hereby deemed effective March 1,
2000, and is granted subject to the terms of the Plan and implementing
agreements. It is not intended that the Restricted Stock will be subject to a
substantial risk of forfeiture within the meaning of Section 83(a). IPG intends
to take a tax reporting position that the $1.00/share purchase equals the fair
market value of a share of IPG common stock as of March 1, 2000, unless
otherwise required by law or regulation.

     Please indicate your agreement by signing the duplicate originals of this
letter, and returning one original to me. With many thanks for your good counsel
and services to IPG, I am with kind regards,

                                             Sincerely yours,

                                             /s/ Valentin P. Gapontsev

                                             Valentin P. Gapontsev
                                       Chairman and Chief Executive Officer
                                            IPG Photonics Corporation

AGREED AND ACCEPTED:

/s/ Robert A. Blair
--------------------
Robert A. Blair
<PAGE>

                           RECOURSE PROMISSORY NOTE

$250,000                                                      November 29, 2000

FOR VALUE RECEIVED, Robert A. Blair promises to pay IPG Photonics Corporation,
a Delaware corporation (the "Company"), or order, the principal sum of Two
Hundred Fifty Thousand Dollars ($250,000), together with simple interest on the
unpaid principal hereof from the date hereof at the then applicable federal rate
within the meaning of Section 1274 of the Internal Revenue Code of 1986, as
amended ("Code").

Interest only shall be payable in arrears on each anniversary date hereof.

All unpaid principal and accrued and unpaid interest shall become due and
payable on the fifth anniversary of the date of this Note. Should the
undersigned fail to make full payment of interest for a period of thirty (30)
days or more after the due date thereof, the entire unpaid principal balance of
this Note and all accrued and unpaid interest thereon shall become immediately
due at the option of the holder of this Note. Payments of principal and interest
shall be made in lawful money of the United States of America.

The holder of this Note shall have full recourse against the undersigned.

Should any action be instituted for the collection of this Note, the reasonable
costs and attorneys' fees of the holder shall be paid by the undersigned.

This Note is non-negotiable. The rights and benefits of this Note shall be non-
assignable and non-transferable by either the Company or Robert A. Blair.

/s/ Robert A. Blair
-------------------
Robert A. Blair

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