1076930--10/1/2010--GSI_GROUP

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Risks Relating to our Review of Historical Transactions, Restatement of Historical Consolidated Financial Statements and Control Procedures The recent restatement of our historical consolidated financial statements could continue to divert management s attention and has exposed us to litigation. The SEC s formal investigation relating to our historical accounting practices and the restatement of our historical consolidated financial statements could continue to divert management s attention and could result in adversarial proceedings, damages or penalties. Our management and independent auditors have identified material weaknesses in our internal controls, and we may be unable to develop, implement and maintain appropriate controls in future periods, which may lead to errors or omissions in our financial statements. Risks Relating to Noncompliance with NASDAQ and SEC Requirements We may continue to be unable to timely file certain periodic reports with the SEC. Our common shares were delisted from NASDAQ on April 15, 2010. We are not listed on any other national securities exchange. Because our common shares are not traded on a national securities exchange, it may be more difficult for shareholders to sell our common shares or to obtain accurate quotations of the share price of our common shares and it may adversely affect our ability to issue new equity securities. We failed to file with the SEC a registration statement relating to securities issued under our 2006 Equity Inventive Plan. As a result, we may have engaged in multiple issuances of duly authorized but unregistered securities and we may be subject to enforcement proceedings, fines, sanctions and/or penalties. We may continue to be unable to timely file certain periodic reports with the Canadian Securities Administrators ( CSA ). Risks Relating to our Business Our recent bankruptcy and reorganization, our ongoing inability to provide current financial reports and recent and ongoing changes in our management could have a negative impact on our relationship with key employees, suppliers and customers. Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our customers businesses and level of business activity. Our business depends significantly upon our customers capital expenditures, which are subject to cyclical market fluctuations. Our business success depends upon our ability to respond to fluctuations in product demand, but doing so may require us to incur costs despite limited visibility toward future business declines. The success of our business requires that we continually innovate. Delays in delivery of new products could have a negative impact on our business. Our reliance upon third party distribution channels subjects us to credit, inventory, business concentration and business failure risks beyond our control. Our quarterly results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of securities analysts or investors, which could cause our stock price to decline. Customer order timing and other factors beyond our control may cause our operating results to fluctuate from period to period. Our director and officer liability insurance may not cover the Company s exposure in the securities class action litigation. We transact a significant portion of our sales, and maintain significant cash balances, in foreign currencies and in the past we have maintained and may in the future maintain foreign currency exchange contracts. As a result, changes in interest rates, credit ratings or foreign currency rates could have a material effect on our operations, finance position, results of operations and cash flows. International operations are an expanding part of our business and our operations in foreign countries subject us to risks not faced by companies operating exclusively in the United States. There are inherent risks as we increase our focus on overseas operations. The increased use of outsourcing in foreign countries exposes us to additional risks which could negatively impact our business. Customs rules are complex and vary within legal jurisdictions in which we operate. Failure to comply with local customs regulations could result in substantial penalties. We have a history of operating losses and we may not be able to sustain or grow the Company s profitability. We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could result in material losses. Others may violate our intellectual property rights. Our intellectual property rights may not be protected in foreign countries. Our success depends upon our ability to protect our intellectual property and to successfully defend against claims of infringement by third parties. We operate in highly competitive industries and, if we lose competitive advantages, our business would suffer adverse consequences. Our business strategy may include finding and making strategic acquisitions and divestitures. There can be no assurance that we will be able to continue to make acquisitions or divestitures that provide business benefit. We may fail to successfully complete the integration of Excel into our business and, as a result, may fail to realize the synergies, cost savings and other benefits expected from the acquisition. Further, Excel s performance has not been in accordance with our expectations, which has had, and could continue to have, a material adverse effect on our financial condition. We continue our leadership transition and expansion of our financial and accounting team. Until we are able to successfully complete such transition and expansion, if at all, our business could be materially adversely affected. Our operations could be negatively affected if we lose key executives or employees or are unable to attract and retain skilled executives and employees as needed. The Company conducted an internal review of potential issues related to the Foreign Corrupt Practices Act and voluntarily shared information relating to that review with the SEC in the third quarter of 2009. These matters could have a material adverse effect on us. Further, our reputation and our ability to do business may be impaired by improper conduct by any of our employees, agents or business partners. We have undertaken restructuring activities, and we will continue to assess our operating structure. We expect to be consolidating some of our operations for greater efficiency, which may disrupt our operations or result in write-offs or other charges. Product defects or problems with integrating our products with other vendors products may seriously harm our business and reputation. We depend on limited source suppliers that could cause substantial manufacturing delays if supply disruption occurs. Certain of our businesses compete against our suppliers and customers, which may adversely impact their willingness to provide components to us or purchase products from us. We depend on suppliers that provide high precision parts, which subjects us to an increased risk of defects. Production difficulties and product delivery delays could materially adversely affect our business. Changes in governmental regulation of our business or our products could reduce demand for our products or increase our expenses. We may be required to make additional tax payments and/or recalculate certain of our tax attributes depending on the resolution of the complaint we filed against the United States of America pursuant to Bankruptcy Code Section 505. Our ability to utilize our net operating loss carryforwards and other tax attributes may be limited as a result of the effectiveness of the Final Chapter 11 Plan and is dependent on our ability to generate sufficient future taxable income. Our effective tax rates are subject to fluctuation, which could impact our financial position, and our estimates of tax liabilities may be subject to audit, which could result in additional tax assessments. We may be subject to U.S. federal income taxation even though GSIG is a non-U.S. corporation. We may be subject to the Alternative Minimum Tax ( AMT ) for U.S. federal income tax purposes. We have a limited ability to carry back certain losses for U.S. federal income tax purposes. Risks Relating to Our Common Shares and Our Capital Structure We may require additional capital to reduce our vulnerability to economic downturns and position us to adequately respond to business challenges or opportunities, and this capital may not be available on acceptable terms or at all. The market for our common shares may be volatile. To service our indebtedness and fund our operations, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. We may not have access to the cash flow and other assets of our subsidiaries that may be needed to service our indebtedness and fund our operations. Future sales of a substantial number of our common shares, or the perception that such sales may occur, could adversely affect the trading price of our shares and impair our ability to raise funds in future stock offerings. We have several significant shareholders. Each of our significant shareholders and their respective affiliates could have substantial control over our outstanding common shares, which could limit your ability to influence the outcome of key transactions, including a change of control. Certain provisions of our articles of incorporation may delay or prevent a change in control of our company. We have a significant amount of debt as a result of our New Notes, which could adversely affect our future business, financial condition, results of operations and our ability to meet our payment obligations under our outstanding liabilities. We do not intend to pay dividends in the near future.

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1076930--10/1/2010--GSI_GROUP_INC