GSI Group (GSIG)

PART II — OTHER INFORMATION

See the description of legal proceedings in note 9 to the Consolidated Financial Statements.

The Company faces a number of risks. The risks which were included in the Company’s Form 10-K for the year ended December 31, 2007 which was filed with the Securities and Exchange Commission (“SEC”) on March 10, 2008, may not include all of the risks that the Company faces. Other sections of this report include additional factors that could have an effect on its business and financial performance. The markets in which the Company competes are very competitive and change rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. One should not rely upon forward-looking statements as a prediction of future results.

Furthermore, on July 9, 2008, (i) we entered into the Merger Agreement (as defined in Part I, Item 1, Note 13 – “Subsequent Events – Acquisition of Excel Technology, Inc.”) providing, upon the terms and subject to the conditions set forth therein, for our acquisition of Excel Technology, Inc. (“Excel”) whereby Excel will become an indirect wholly owned subsidiary of the Company and (ii) in order to provide funds, which, together with our available cash, will be used to acquire all outstanding shares of Excel common stock as contemplated by the Merger Agreement, we and GSI Sub entered into the Securities Purchase Agreement providing, upon the terms and subject to the conditions set forth therein, for the issuance and sale (A) by GSI Sub to various investors of $210 million aggregate principal amount of 11.0% senior unsecured notes (the “Notes”) and (B) by the Company to such investors of warrants (the “Warrants”) to purchase common shares of the Company, no par value (“GSI Common Shares”). The following risk factors update the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Failure to complete our proposed acquisition of Excel could negatively affect us. To the extent our acquisition of Excel is not consummated for any reason, our business and our stock price may be adversely affected. Except for the payment by Excel to us of a $9 million termination fee, as applicable and if required by the terms of the Merger Agreement, and, if so required, the reimbursement to us by Excel of certain transaction expenses of Excel paid by us we do not have any ability to recover damages from Excel that we incur as a result of Excel’s breach of the agreement.

Whether or not our acquisition of Excel is consummated, we may still be responsible for significant fees and expenses related to the transaction. We are responsible for paying all of the fees and expenses that we have incurred in connection with the acquisition of Excel, including those of our financial and legal advisors. Also, the Merger Agreement provides that we will pay certain of Excel’s fees and expenses incurred in connection with proposed acquisition whether or not the acquisition is consummated. Under certain circumstances, if our acquisition of Excel is not consummated, we may be required to pay a $9 million termination fee to Excel and up to a $4.2 million termination fee to the investors with which we have entered into a Securities Purchase Agreement in order to provide financing for the acquisition of Excel. The termination of the Merger Agreement would result in the expensing of these and other potentially significant fees and charges in the period in which the acquisition agreements are terminated.

If the Excel acquisition is consummated, our failure to successfully integrate Excel into our business may cause us to fail to realize the expected synergies and other benefits of the acquisition, which could adversely affect our future results. The integration of Excel into our business presents significant challenges and risks to our businesses, including:

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. We may fail to grow and build revenues and profits in Excel’s business lines or achieve sufficient cost savings through the integration of customers or administrative and other operational activities. Furthermore, we must achieve these objectives without adversely affecting our revenues. If we are not able to successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all, or it may take longer to realize them than expected, and our results of operations could be materially adversely affected.

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Excel’s performance may not be in accordance with our expectations. Despite our due diligence efforts, our assessment of the prospects for Excel’s business are subject to the risks associated with those businesses as described in Excel’s filings with the Securities and Exchange Commission (“SEC”), many of which risks are similar to the risks we face in our businesses and which are described in our filings with the SEC.

Also, our ability to maintain and increase profitability of Excel’s business lines will depend on our ability to manage and control operating expenses and to generate and sustain increased levels of revenue. Our expectations to achieve more consistent and predictable levels of revenue and to increase Excel’s profitability may not be realized, and such revenues and profitability may decline as we integrate Excel’s operations into our business. If Excel’s revenues grow more slowly than we anticipate, or if its operating expenses are higher than we expect, we may not be able to sustain or increase its profitability, in which case our financial condition will suffer and our stock price could decline.

The substantial indebtedness we will incur upon issuance of the Notes could adversely affect our business and limit our ability to plan for or respond to changes in our business or in the competitive landscape. As described above, we intend to finance a portion of the cash consideration payable in the acquisition of shares of Excel common stock as contemplated by the Merger Agreement with the proceeds of the Notes and Warrants to be issued and sold pursuant to the Securities Purchase Agreement. The $210 million in principal amount of indebtedness which GSI Sub will incur upon issuance of the Notes represents substantial indebtedness for us, and could have important and potentially materially adverse consequences, including the following:

Our existing shareholders may suffer significant dilution in connection with the consummation of the acquisition of Excel. Pursuant to the terms of the Securities Purchase Agreement, the number of GSI Common Shares for which the Warrants will be exercisable may, depending on the trading price of GSI Common Shares over a specified measuring period, be equal to up to 19.9% of the number of GSI Common Shares outstanding on the date of the consummation of our tender offer for Excel shares. The exercise price of the Warrants is $0.01 per GSI Common Share. Accordingly, if the Warrants are issued and exercised, the ownership interest in the Company of our existing shareholders may be significantly diluted.

The following table provides information about purchases by the Company during the six month period ended June 27, 2008 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

PART II — OTHER INFORMATION

See the description of legal proceedings in note 9 to the Consolidated Financial Statements.

There is no change in the risks included in Item 1A, Risk Factors, of the Company’s Form 10-K, for the year ended December 31, 2007. We face a number of risks. The risks included in our Form 10-K may not be all of the risks that we face. Other sections of this report include additional factors that could have an effect on our business and financial performance. The markets in which we compete are very competitive and change rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. You should not rely upon forward-looking statements as a prediction of future results.

The following table provides information about purchases by the Company during the quarter ended March 28, 2008 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

PART II — OTHER INFORMATION

See the description of legal proceedings in note 9 to the Consolidated Financial Statements.

There is no change in the risks included in Item 1A, Risk Factors, of the Company’s Form 10-K, for the year ended December 31, 2006. We face a number of risks. The risks included in our Form 10-K, may not be all of the risks that we face. Other sections of this report include additional factors that could have an effect on our business and financial performance. The markets in which we compete are very competitive and change rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. You should not rely upon forward-looking statements as a prediction of future results.

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PART II — OTHER INFORMATION

See the description of legal proceedings in note 9 to the Consolidated Financial Statements.

There is no change in the risks included in Item 1A, Risk Factors, of the Company’s Form 10-K, for the year ended December 31, 2006. We face a number of risks. The risks included in our Form 10-K, may not be all of the risks that we face. Other sections of this report include additional factors that could have an effect on our business and financial performance. The markets in which we compete are very competitive and change rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. You should not rely upon forward-looking statements as a prediction of future results.

On May 15, 2007, the Company held its annual and special meeting of shareholders. For more information on the following proposals, see the Company’s definitive management proxy circular filed with the Securities and Exchange Commission on April 17, 2007.

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PART II — OTHER INFORMATION

See the description of legal proceedings in note 9 to the Consolidated Financial Statements.

There is no change in the risks included in Item 1A, Risk Factors, of the Company’s Form 10-K, for the year ended December 31, 2006. We face a number of risks. The risks included in our Form 10-K, may not be all of the risks that we face. Other sections of this report include additional factors that could have an effect on our business and financial performance. The markets in which we compete are very competitive and change rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. You should not rely upon forward-looking statements as a prediction of future results.

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The following table provides information about purchases by the Company during the quarter ended March 30, 2007 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

PART II — OTHER INFORMATION

See the description of legal proceedings in note 10 to the Consolidated Financial Statements.

Except as noted below, there is no change in the risks included in Item 1A, Risk Factors, of the Company’s Form 10-K, for the year ended December 31, 2005. We face a number of risks. The risks presented below and those included in our Form 10-K, may not be all of the risks that we face. Other sections of this report include additional factors that could have an effect on our business and financial performance. The markets in which we compete are very competitive and change rapidly. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. You should not rely upon forward-looking statements as a prediction of future results.

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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. Our business and future operating results depend in part upon our ability to attract, groom and retain qualified management, technical, sales and support personnel for our operations on a worldwide basis. The loss of key personnel could negatively impact our operations. Competition for qualified personnel is intense and we cannot guarantee that we will be able to continue to attract, train and retain qualified personnel. In addition, subsequent to quarter end, the Company transitioned to a new CEO in July, 2006. There is no assurance that the transition will not have an adverse impact in the Company’s operations or financial performance.

The following table provides information about purchases by the Company during the quarter ended June 30, 2006 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act: