1076930--3/10/2008--GSI_GROUP

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{customer, product, revenue}

{product, market, service}

{operation, international, foreign}

{regulation, change, law}

{property, intellectual, protect}

{condition, economic, financial}

{acquisition, growth, future}

{system, service, information}

{control, financial, internal}

{competitive, industry, competition}

{tax, income, asset}

{cost, regulation, environmental}

{cost, operation, labor}

{personnel, key, retain}

{provision, law, control}

Our business depends significantly upon capital expenditures which are subject to cyclical market fluctuations. Cyclical variations may have the most pronounced effect on our Semiconductor Systems Segment which has a concentration in the semiconductor and electronics industries. Our business success depends upon our ability to respond to fluctuations in product demand. During a period of increasing demand and rapid growth, we must be able to increase manufacturing capacity quickly. The success of our business requires that we continually innovate. Delays in delivery of new products could have a negative impact on our business. There may be a failure to properly identify when revenue should be recognized, leading to a material adverse effect on financial results Failure of internal controls or inability to identify or manage a key internal control could have a material adverse effect on our operating results. Our 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 Customer order timing and other factors beyond our control may lead to an inability to meet our financial forecasts. GSI maintains large cash balances and foreign exchange contracts where significant changes in interest rates, credit ratings or foreign currency rates could result in materially adverse effects to income. 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. Economic, political or trade problems with foreign countries 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 be found during a foreign government customs audit that may produce a substantial penalty. A halt in economic growth or a slowdown will put pressure on our ability to meet anticipated revenue levels. If the Company is not able to grow, the business will be at greater risk to operate independently. GSI has a history of operating losses. The Company may not be able to sustain or grow the current level of profitability. We will lose the benefit of our significant recorded deferred tax assets if our future profitability comes into question. Our reliance upon third party distribution channels subjects us to credit, inventory, business concentration and business failure risks beyond our control. We are exposed to the risks that 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 includes finding and making strategic acquisitions. There can be no assurance that we will be able to continue to make acquisitions that provide business benefit. Integrating an acquisition could have significant disruptive consequences on our existing operations. GSI is undergoing a leadership transition 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. Changes in accounting for equity compensation could adversely affect earnings. Our reputation and our ability to do business may be impaired by improper conduct by any of our employees, agents or business partners. We expect to be consolidating some of our operations for greater efficiency. There is execution risk in these plans. We have recently undergone a significant restructuring and we will continue to change our management structure. 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. We also depend on suppliers that provide high precision parts. Production difficulties and product delivery delays could materially adversely affect our business. Certain provisions of our articles of incorporation may delay or prevent a change in control of our company. Increased governmental regulation of our business could materially adversely affect our business. Changes in governmental regulations may reduce demand for our products or increase our expenses.

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1076930--3/10/2008--GSI_GROUP_INC