INFORMATION STATEMENT

[VIASYS LOGO]

DISTRIBUTION OF 26,000,000 SHARES OF COMMON STOCK
AND ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS

Thermo Electron Corporation is furnishing this information statement to its
stockholders in connection with the distribution by Thermo Electron to its
stockholders of all of the outstanding shares of common stock of Viasys
Healthcare Inc., together with associated preferred stock purchase rights. We
expect Thermo Electron to effect the distribution beginning on November 15, 2001
to holders of record of Thermo Electron common stock on November 7, 2001. Thermo
Electron will distribute approximately 0.1428 shares of our common stock for
each share of Thermo Electron common stock held on the record date. We expect
that at the time of the distribution, each share of our common stock will have
attached to it one of our preferred stock purchase rights, the principal terms
of which are described under "Description of Capital Stock -- Stockholder Rights
Plan." Where appropriate, references in this information statement to our common
stock include the associated preferred stock purchase rights.

You will not be required to pay for the shares of our common stock that you
receive in the distribution, nor will you be required to surrender or exchange
any of your shares of Thermo Electron common stock. In February 2001, Thermo
Electron received a ruling from the Internal Revenue Service to the effect that
you will not recognize income, gain or loss for federal income tax purposes in
connection with the distribution, except with respect to cash you receive in the
distribution in lieu of fractional shares of our common stock. See "The
Distribution -- Material U.S. Federal Income Tax Consequences of the
Distribution." Neither we nor Thermo Electron will receive any cash or other
proceeds from the distribution.

No public trading market for our common stock currently exists, although a
"when-issued" trading market may develop on or shortly before the record date
for the distribution. Our common stock has been approved for listing on the New
York Stock Exchange under the symbol "VAS." See "Listing and Trading of Our
Common Stock."
------------------------

IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 7.

THE DISTRIBUTION DOES NOT REQUIRE THE VOTE OF THERMO ELECTRON STOCKHOLDERS.
THERMO ELECTRON IS NOT ASKING YOU FOR A PROXY.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------

THE DATE OF THIS INFORMATION STATEMENT IS OCTOBER 26, 2001.

You should only rely on the information contained in this information
statement. Neither we nor Thermo Electron has authorized anyone to provide you
with information different from that contained in this information statement.
Neither we nor Thermo Electron is offering to sell or soliciting any offers to
buy any securities. This information statement presents information concerning
our company that we believe to be accurate as of the date of this information
statement. This information statement also presents information concerning
Thermo Electron that Thermo Electron believes to be accurate as of the date set
forth on the cover. Neither we nor Thermo Electron plans to update the
information set forth in this information statement except in the course of
fulfilling our respective normal public reporting and disclosure obligations.
------------------------

TABLE OF CONTENTS

<Table>
<Caption>
PAGE
----

SUMMARY..................................................... 1
OUR COMPANY................................................. 6
RISK FACTORS................................................ 7
Risks Related to Our Business............................. 7
Risks Related to the Distribution......................... 14
FORWARD-LOOKING STATEMENTS.................................. 15
OUR BUSINESS................................................ 16
Overview.................................................. 16
Our Strategy.............................................. 17
Our Products.............................................. 18
Respiratory Care Products.............................. 19
Neurocare Products..................................... 21
Medical and Surgical Products.......................... 22
Research and Development............................... 24
Our Services.............................................. 26
Sales and Marketing....................................... 26
Manufacturing and Raw Materials........................... 27
Intellectual Property..................................... 28
Competition............................................... 28
Government Regulation..................................... 29
United States.......................................... 29
International.......................................... 31
Third Party Reimbursement................................. 31
Product Liability and Insurance........................... 32
Legal Proceedings......................................... 32
Pulmonetic Systems Litigation.......................... 32
Other Litigation....................................... 33
Properties................................................ 33
Personnel................................................. 34
THE DISTRIBUTION............................................ 35
Background and Reasons for the Distribution............... 35
Thermo Electron Reorganization......................... 35
Purpose of the Distribution............................ 35
Determination of the Board of Directors of Thermo
Electron to Spin-Off Viasys........................... 36
Manner of Effecting the Distribution...................... 37
The Number of Shares You Will Receive.................. 37
</Table>

<Table>
<Caption>
PAGE
----

Trading between the Record Date and Distribution
Date.................................................. 37
When and How You Will Receive the Dividend............. 38
Accounting Treatment of the Distribution.................. 38
Material U.S. Federal Income Tax Consequences of the
Distribution........................................... 38
Stock Plans and Restricted Stock and Stock Option
Grants................................................. 40
Treatment of Thermo Electron Options Held by Our
Employees.............................................. 40
Treatment of Thermo Electron Restricted Stock............. 40
OUR RELATIONSHIP WITH THERMO ELECTRON AFTER THE
DISTRIBUTION.............................................. 41
Distribution Agreement.................................... 41
Transition Services Agreement............................. 41
LISTING AND TRADING OF OUR COMMON STOCK..................... 42
CAPITALIZATION.............................................. 43
SELECTED CONSOLIDATED FINANCIAL DATA........................ 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 46
Overview.................................................. 46
Revenues............................................... 46
Costs and Operating Expenses........................... 47
Results of Operations..................................... 48
First Six Months Ended June 30, 2001 Compared with
First Six Months Ended July 1, 2000................... 48
Fiscal Year Ended December 30, 2000 Compared with
Fiscal Year Ended January 1, 2000..................... 50
Fiscal Year Ended January 1, 2000 Compared with Fiscal
Year Ended January 2, 1999............................ 51
Liquidity and Capital Resources........................... 52
Risk Management........................................... 54
Recent Accounting Pronouncements.......................... 54
MANAGEMENT.................................................. 55
Executive Officers and Directors....................... 55
Classified Board of Directors.......................... 57
Board Committees....................................... 57
COMPENSATION................................................ 57
Compensation of Directors................................. 57
Directors' Deferred Compensation Plan.................. 58
Director Option Grants................................. 58
Compensation of Executive Officers........................ 59
Executive Employment Agreements........................ 60
Executive Retention Agreements......................... 62
Treatment of Thermo Electron Options and Restricted
Stock................................................. 63
Stock Options Granted During Fiscal 2000............... 63
Option Exercises During Fiscal 2000 and Fiscal Year-End
Option Values......................................... 63
Restricted Stock Awards and Stock Options Granted During
Fiscal 2001............................................ 64
Equity Incentive Plan..................................... 64
Employee Stock Purchase Plan.............................. 66
Compensation Committee Interlocks and Insider
Participation.......................................... 66
PRINCIPAL STOCKHOLDERS...................................... 67
Five-Percent Stockholders................................. 67
Management................................................ 67
</Table>

<Table>
<Caption>
PAGE
----

RELATIONSHIP AND POTENTIAL CONFLICTS OF INTEREST WITH THERMO
ELECTRON AND RELATED PARTIES.............................. 70
General................................................... 70
Agreements Relating to the Distribution................... 70
Other Agreements.......................................... 70
DESCRIPTION OF CAPITAL STOCK................................ 73
Common Stock.............................................. 73
Preferred Stock........................................... 73
Delaware Law and Our Charter and By-Laws Provisions;
Anti-Takeover Effects.................................. 74
Stockholder Rights Plan................................... 75
Dividends................................................. 77
Transfer Agent and Registrar.............................. 77
INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 78
EXPERTS..................................................... 78
WHERE YOU CAN FIND MORE INFORMATION......................... 78
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
SCHEDULE II................................................. S-1
Annex A -- Sample Form of Information Statement to be
Provided to Internal Revenue Service by Stockholders...... A-1
</Table>

------------------------

Our registered trademarks include AVIAN, BEAR, BEAR CUB, BIRD, CORFLO,
CORPAK, GRASON-STADLER, IMEX, NICOLET, NYSTAR, SENSORMEDICS, SOMNOSTAR,
STACKHOUSE, TBIRD, TECOFLEX, ULTRASOM, V.I.P. BIRD and VMAX. Our trademarks
include ALLIANCEWORKS, BRAVO ENDEAVOR, ESCORT, ESCORT VISION, FREEDOM, FREEDOM
MARK IV, GSI, INTELLIVAC, LEGACY, MASTERSCREEN, NEO LINK, NICOLET, NICOLET
VASCULAR, NIC VUE, PULMONEX, TECOFLEX, TECOMET, VERSA VAC, VIASYS, VIASYS
HEALTHCARE and VIKING IOM. This information statement also contains trademarks
and trade names of other companies.

iii

SUMMARY

This summary highlights selected information from this information
statement and may not contain all of the information that is important to you.
To better understand the distribution of our common stock to Thermo Electron
stockholders and the business and financial position of our company, you should
review this entire document carefully. All share and per share data in this
information statement have been adjusted to reflect a stock split in August 2001
and a reverse stock split in October 2001, as a result of which we now have
26,000,000 shares of common stock outstanding. This information statement
assumes that the New York Stock Exchange has approved the listing of our common
stock and associated preferred stock purchase rights.

Distributing company.......... Thermo Electron Corporation, a Delaware
corporation. As used in this information
statement, the term "Thermo Electron" includes
Thermo Electron Corporation and its wholly
owned and majority-owned subsidiaries, other
than our company and our subsidiaries, as of
the relevant date, unless the context otherwise
requires.

Distributed company........... Viasys Healthcare Inc., a Delaware corporation.
As used in this information statement, the
terms "Viasys," "we," "our," "us" and similar
terms include Viasys Healthcare Inc. and its
subsidiaries, as of the relevant date, unless
the context otherwise requires.

Distributed shares............ A total of 26,000,000 shares of our common
stock, which constituted all of our common
stock outstanding on the record date for the
distribution. This number of shares will be
reduced to the extent that cash payments are
made in lieu of the issuance of fractional
shares of our common stock.

Record date................... November 7, 2001.

Distribution date............. November 15, 2001.

Distribution.................. On the distribution date, the distribution
agent identified below will begin distributing
certificates representing our common stock to
Thermo Electron stockholders. Each certificate
representing shares of our common stock will
also represent an equal number of our preferred
stock purchase rights, which initially will be
attached to the common stock. You will not be
required to make any payment or take any other
action to receive your shares of our common
stock and associated preferred stock purchase
rights. The distributed shares of our common
stock will be freely transferable unless you
are one of our affiliates.

Distribution ratio............ Approximately 0.1428 shares of our common stock
for each share of Thermo Electron common stock.
The final ratio will be based on the actual
number of Thermo Electron shares outstanding on
the record date.

Distribution agent............ American Stock Transfer & Trust Company.

Fractional shares of our
common stock.................. Thermo Electron will not distribute any
fractional shares of our common stock. In lieu
of distributing a fraction of a share of our
common stock to any Thermo Electron
stockholder, the distribution agent will sell
the aggregate number of fractional shares
within five days after the distribution date
and will distribute the

proceeds pro rata to each stockholder who
otherwise would be entitled to receive a
fractional share. You will not be entitled to
interest on the amount of any payment made in
lieu of a fractional share.

Trading market................ Our common stock has been approved for listing
on the New York Stock Exchange under the symbol
"VAS." No public trading market for our common
stock currently exists. However, a trading
market for the entitlement to receive shares of
our common stock in the distribution, referred
to as a "when-issued" market, may develop on or
shortly before the record date for the
distribution.

Dividend policy............... We currently do not intend to pay cash
dividends on our common stock.

Risk factors.................. The distribution and ownership of our common
stock involve various risks. You should read
carefully the factors discussed under "Risk
Factors."

Reasons for the
distribution.................. The Thermo Electron board of directors believes
that the distribution is in the best interests
of Thermo Electron, our company and the Thermo
Electron stockholders. The Thermo Electron
board expects that, as a result of the
distribution, each company will have improved
access to capital, a more focused team of
management and employees, and management
incentives linked more directly to the
objective performance of that company's stock
in the public markets.

Federal income tax
consequences.................. Thermo Electron has received a favorable
private letter ruling from the Internal Revenue
Service, or IRS, to the effect that the
distribution will qualify as a tax-free
distribution under Section 355 of the Internal
Revenue Code of 1986. As a result, Thermo
Electron, our company and the Thermo Electron
stockholders will not recognize gain or loss
upon the distribution of our common stock,
except that the Thermo Electron stockholders
will recognize gain or loss as result of
receiving cash in lieu of fractional shares of
our common stock. The favorable tax treatment
is subject to our compliance with various facts
and representations, including a representation
that we will conduct a public offering of 10%
to 20% of our common stock within one year
after the distribution date.

Our relationship with Thermo
Electron after the
distribution................ After the distribution, Thermo Electron and our
company will be separate, independent, publicly
owned companies. We have entered into several
agreements with Thermo Electron to define our
companies' ongoing relationship after the
distribution. These agreements allocate
responsibility for obligations both before and
after the distribution date.

Treatment of Thermo Electron
options..................... On the distribution date, all options for
Thermo Electron common stock, whether vested or
unvested, held by our employees will be
converted into options to purchase shares of
Viasys common stock. We will determine the
number of shares

and the exercise price of these options using a
conversion formula based on the opening per
share price of our common stock on the New York
Stock Exchange on the first trading day after
the distribution date relative to the closing
per share price of Thermo Electron common stock
on the New York Stock Exchange on the
distribution date. The resulting options to
purchase our common stock will maintain the
original vesting provisions and option periods.
Thermo Electron will adjust all options for
Thermo Electron common stock held by its
employees on the distribution date to reflect
the distribution.

Stock plans and related option
and restricted stock grants... We have adopted an equity incentive plan under
which we have reserved 4,680,000 shares of
common stock for issuance to our employees,
officers, directors, consultants and advisors.
Under this plan, we have granted options to
purchase an aggregate of 3,254,550 shares of
our common stock. We expect to grant, on or
shortly before the distribution, options to
purchase up to an aggregate of 35,750 shares of
our common stock under this plan. In addition,
on or shortly before the distribution, we
expect to grant restricted shares of common
stock to one of our officers in an amount equal
to $225,000 divided by the fair market value of
our common stock at the time of the
distribution. We also have adopted a directors'
deferred compensation plan, under which we have
reserved 25,000 shares of common stock for
issuance to our directors, and an employee
stock purchase plan, under which we have
reserved 650,000 shares of common stock for
issuance to our employees.

Stockholder inquiries......... Thermo Electron stockholders with inquiries
relating to the distribution should contact the
distribution agent by telephone at
(877)777-0800 or Thermo Electron in writing at
Thermo Electron Corporation, 81 Wyman Street,
P.O. Box 9046, Waltham, Massachusetts
02454-9046, Attention: Investor Relations.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table summarizes the consolidated financial data of our
business. You should read this information in conjunction with the consolidated
financial statements and related notes included elsewhere in this information
statement and the discussion contained under "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

<Table>
<Caption>
FISCAL YEAR ENDED SIX MONTHS ENDED
---------------------------------------------------- -------------------
DEC. 28, JAN. 3, JAN. 2, JAN. 1, DEC. 30, JULY 1, JUNE 30,
1996 1998 1999 2000 2000 2000 2001
-------- -------- -------- -------- -------- ------- ---------

STATEMENT OF INCOME DATA:
Revenues................. $222,675 $267,464 $306,363 $358,553 $345,428 17$6,482 $177,290
Cost of revenues......... 112,869 134,542 158,572 186,444 180,494 90,755 94,112
Selling, general and
administrative
expenses............... 76,299 83,261 89,628 102,780 102,052 50,317 53,036
Research and development
expenses............... 12,018 11,869 14,188 18,519 24,791 11,509 13,758
Operating income
(loss)................. (3,275) 39,051 43,187 50,810 36,127 22,885 15,260
Net income............... 85 21,203 24,334 28,850 18,893 12,986 8,239
Basic and diluted
earnings per share..... -- .82 .94 1.11 .73 .50 .32
Basic and diluted
weighted average
shares................. 26,000 26,000 26,000 26,000 26,000 26,000 26,000
OTHER FINANCIAL DATA:
Adjusted EBITDA.......... $ 31,501 $ 49,566 $ 55,732 $ 64,163 $ 52,451 31$,663 $ 23,300
</Table>

<Table>
<Caption>
DEC. 28, JAN. 3, JAN. 2, JAN. 1, DEC. 30, JUNE 30,
1996 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- --------

BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 332 $ 1,814 $ 2,398 $ 3,012 $ 12,611 $ 4,916
Working capital.......... 50,075 64,616 67,216 49,964 68,229 72,189
Total assets............. 249,805 312,268 320,344 380,109 390,351 382,286
Short-term obligations... 9,516 9,845 11,212 38,916 42,368 33,306
Long-term obligations.... 21,290 8,651 -- -- -- --
Minority interest........ 6,995 7,887 8,646 9,222 -- --
Shareholder's
investment............. 168,322 226,892 249,271 255,431 285,490 285,332
</Table>

In the above table, adjusted EBITDA represents earnings before interest,
taxes, depreciation, amortization, and restructuring and other unusual costs.
For a description of these restructuring and other unusual costs, see Note 8 to
our consolidated financial statements. Adjusted EBITDA is calculated as follows:

<Table>
<Caption>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------------ ------------------
DEC. 28 JAN. 3, JAN. 2, JAN. 1, DEC. 30, JULY 1, JUNE 30,
1996 1998 1999 2000 2000 2000 2001
------- ------- ------- ------- -------- ------- --------
(IN THOUSANDS)

Operating income (loss)......... $(3,275) $39,051 $43,187 $50,810 $36,127 $22,885 $15,260
Depreciation and amortization... 10,012 11,774 11,757 13,353 14,360 7,762 6,916
Restructuring and other unusual
costs, net.................... 24,764 (1,259) 788 -- 1,964 1,016 1,124
------- ------- ------- ------- ------- ------- -------
$31,501 $49,566 $55,732 $64,163 $52,451 $31,663 $23,300
======= ======= ======= ======= ======= ======= =======
</Table>

Although adjusted EBITDA should not be construed as a substitute for
operating income or as a better indicator of liquidity than cash flows from
operating activities, which are determined in accordance with generally accepted
accounting principles, it is included because we believe that some stockholders
may find it useful in evaluating our ability to meet future debt service,
capital expenditure and working capital requirements. We believe a presentation
of earnings before these items may enhance a stockholder's comparison of
competitor companies that have historically used different methods of accounting
for business combinations. Adjusted EBITDA is not necessarily a measure of our
ability to fund our cash needs. See the consolidated statements of cash flows
and related notes included elsewhere in this information statement.

OUR COMPANY

We were incorporated in Delaware in August 1995 as a wholly owned
subsidiary of Thermo Electron. Our business was formed from several enterprises
that had been acquired by Thermo Electron, including Bird Medical Technologies,
Bear Medical Systems and Nicolet Biomedical. In connection with the Thermo
Electron reorganization described under "The Distribution -- Background and
Reasons for the Distribution -- Thermo Electron Reorganization," in the third
quarter of 2000 Thermo Electron reallocated a number of subsidiaries and
operating divisions among Thermo Electron and some of its subsidiaries,
including our company. These transactions included Thermo Electron's transfer to
us of its Corpak, Erich Jaeger and Tecomet subsidiaries and substantially all of
the assets and related liabilities of its Thermedics Polymer Products division.
The effect of these transactions was to transfer to us all of the assets and
subsidiaries of Thermo Electron, other than those previously owned by us, that
comprise our respiratory care, neurocare and medical and surgical products
businesses. In March 2001, we changed our corporate name from Thermo Biomedical
Inc. to Viasys Healthcare Inc.

Our principal executive offices are located at 700 South Henderson Road,
Suite 202, King of Prussia, Pennsylvania 19406, and our telephone number is
(610) 992-5881. Following the distribution, our principal executive offices will
be relocated to Millennium III, Suite 200, Millennium Corporate Center,
Conshohocken, Pennsylvania 19428.

RISK FACTORS

The distribution and ownership of our common stock involve a number of
risks and uncertainties, including those described below. These risks and
uncertainties could negatively affect our business, financial condition and
operating results as well as the market value of our common stock. Neither we
nor Thermo Electron is making any representation as to the future market value
of our common stock.

RISKS RELATED TO OUR BUSINESS

PRIOR TO THE DISTRIBUTION, WE HAVE NOT OPERATED AS A SEPARATE, STAND-ALONE
ENTITY, AND WE MAY HAVE DIFFICULTY INTEGRATING OUR BUSINESS ORGANIZATION.

We operate our business through a number of subsidiaries and operating
divisions. Some of our subsidiaries and operating divisions were only recently
combined with our existing operations as a result of the reorganization of
Thermo Electron described under the caption "The Distribution -- Background and
Reasons for the Distribution -- Thermo Electron Reorganization." We and Thermo
Electron have conducted these operations largely as autonomous, unaffiliated
businesses. As part of our spin-off from Thermo Electron, we plan to manage
these operations in a more coordinated manner. The following factors may make it
difficult for us to integrate and consolidate our operations:

- Our success in integrating these businesses will depend on our ability to
coordinate geographically separate organizations and integrate personnel
with different business backgrounds and corporate cultures.

- Our ability to combine these businesses will require coordination of
administrative, sales and marketing, distribution and accounting and
finance functions, and expansion of information and management systems.

- The integration process could disrupt our businesses.

- Retaining key employees of these businesses may be difficult, due to
changes in our management, compensation, culture and operations resulting
from our spin-off from Thermo Electron.

DEMAND FOR SOME OF OUR PRODUCTS DEPENDS ON THE CAPITAL SPENDING POLICIES OF OUR
CUSTOMERS AND ON GOVERNMENT FUNDING POLICIES. CHANGES IN THESE POLICIES COULD
NEGATIVELY AFFECT OUR BUSINESS.

A majority of our customers are hospitals. We also sell to laboratories,
universities, healthcare providers and public and private research institutions.
Many factors, including public policy spending provisions, available resources
and economic cycles have a significant effect on the capital spending policies
of these entities. These policies in turn can have a significant effect on the
demand for our products. For example, a reduction in funding to major government
research support agencies, such as the National Institutes of Health and the
National Science Foundation, could adversely affect sales of our sleep
diagnostic testing equipment.

WE DEPEND ON THIRD PARTY REIMBURSEMENT TO OUR CUSTOMERS FOR MARKET ACCEPTANCE OF
OUR PRODUCTS. OUR PROFITABILITY WOULD SUFFER IF THIRD PARTY PAYORS FAILED TO
PROVIDE APPROPRIATE LEVELS OF REIMBURSEMENT FOR THE PURCHASE OR USE OF OUR
PRODUCTS.

Sales of medical products largely depend on the reimbursement of patients'
medical expenses by government health care programs and private health insurers.
The cost of some of our products, particularly our SensorMedics VMAX and Erich
Jaeger MasterScreen pulmonary function and metabolic diagnostic systems, our
epilepsy monitoring systems and our intra-operative monitoring systems, is
substantial. Without the financial support of government or third party
insurers, the market for some of our products will be limited.

Governments and private insurers in many countries closely examine medical
products and devices incorporating new technologies to determine whether to
reimburse for the purchase or use of such products and devices and, if so, the
appropriate level of reimbursement. We cannot be sure that third party payors

will reimburse sales of our products now under development or enable us to sell
these products at profitable prices. We also cannot be sure that third party
payors will maintain the current level of reimbursement to physicians and
medical centers for use of our current products. Any reduction in the amount of
this reimbursement could harm our business.

During the past several years, major third party payors have substantially
revised their reimbursement methodologies in an attempt to contain their
healthcare reimbursement costs. Third party payors have recently increased their
emphasis on managed care, which has led to an increased emphasis on the use of
cost-effective medical devices by healthcare providers. In addition, through
their purchasing power, these payors often seek discounts, price reductions or
other incentives from medical products suppliers.

The federal government and private insurers have considered ways to change,
and have changed, the manner in which health care services are provided and paid
for in the United States. In the future, it is possible that the government may
institute price controls and further limits on Medicare and Medicaid spending.
These controls and limits could affect the payments we receive from sales of our
products. Internationally, medical reimbursement systems vary significantly,
with some medical centers having fixed budgets, regardless of the level of
patient treatment, and other countries requiring application for, and approval
of, government or third party reimbursement. Even if we succeed in bringing new
products to market, uncertainties regarding future health care policy,
legislation and regulation, as well as private market practices, could affect
our ability to sell our products in commercially acceptable quantities at
profitable prices.

OUR FAILURE TO CONDUCT A PUBLIC OFFERING OF OUR COMMON STOCK WITHIN ONE YEAR
AFTER THE DISTRIBUTION COULD IMPAIR OUR ABILITY TO GROW OUR BUSINESS AND MAY
CAUSE THE DISTRIBUTION TO BE TAXABLE TO US, THERMO ELECTRON AND STOCKHOLDERS OF
THERMO ELECTRON WHO RECEIVE SHARES OF OUR COMMON STOCK IN THE DISTRIBUTION.

The IRS ruling that no gain or loss will be recognized by us, Thermo
Electron or its stockholders upon the distribution of our common stock as of the
date of the distribution is based, in part, on our representation that we will
conduct a public offering of 10% to 20% of our common stock within one year
after the distribution. If we do not conduct a public offering within one year
after the distribution, the distribution could become taxable to us, Thermo
Electron and the stockholders of Thermo Electron who receive shares of our
common stock in the distribution.

As we represented to the IRS, we may need to sell shares of our common
stock in a public offering in order to grow our business. We may be unable to
complete a public offering for a number of reasons, including adverse market
conditions or adverse developments in our business following the distribution.
If we are unable to complete a public offering of shares of our common stock on
acceptable terms or at all, we may be required to revise our business plan to
reduce expenditures, including curtailing our growth strategies, foregoing
acquisitions or reducing our product development efforts.

WE WILL NEED TO OBTAIN ADDITIONAL FUNDING WITHIN ONE YEAR AFTER THE DISTRIBUTION
IN ORDER TO PAY OUR PROMISSORY NOTE TO THERMO ELECTRON.

As of June 30, 2001, we owed an affiliate of Thermo Electron an aggregate
of $33.3 million. The amount of our outstanding indebtedness to Thermo Electron
and its affiliates as of the distribution date will be evidenced by an unsecured
promissory note that will mature one year after the distribution. We do not
expect that our cash resources following the distribution and our net operating
cash flow will provide us with sufficient funds to pay this promissory note when
it becomes due. As a result, we will need to seek additional funding through
public or private financing or other arrangements. Our ability to obtain debt or
equity funding will depend on a number of factors, including market conditions,
our operating performance and investor interest.

We currently intend to seek to refinance the promissory note, as well as to
obtain additional working capital, by entering into a credit facility or other
debt arrangement with an institutional lender, but we do not expect to begin
seeking this arrangement until after the distribution. We therefore cannot
assure you

that such an arrangement will be available to us or, if available, will be
available on acceptable or affordable terms.

Alternatively, we could repay the promissory note from the proceeds of a
public offering that we are required to conduct in order to comply with the IRS
ruling that Thermo Electron received in connection with the distribution. See
"-- Our failure to conduct a public offering of our common stock within one year
after the distribution could impair our ability to grow our business and may
cause the distribution to be taxable to us, Thermo Electron and stockholders of
Thermo Electron who receive shares of our common stock in the distribution." We
may not be able to complete this public offering within one year after the
distribution. Even if we are able to complete the offering before the promissory
note matures, our allocation of offering proceeds to the repayment of the note
may require that we revise our business plan to reduce expenditures, including
curtailing our growth strategies, foregoing acquisitions or reducing our product
development efforts. If we raise additional funds by issuing equity securities,
further dilution to then-existing stockholders may result. In addition, as a
condition to giving additional funds to us, future investors may demand rights
superior to those of then-existing stockholders.

WE FACE AGGRESSIVE COMPETITION IN MANY AREAS OF OUR BUSINESS, AND OUR BUSINESS
WILL BE HARMED IF WE FAIL TO COMPETE EFFECTIVELY.

We encounter aggressive competition from numerous competitors in many areas
of our business. Many of our current and potential competitors have longer
operating histories, greater name recognition and substantially greater
financial, technical and marketing resources than we have. We may not be able to
compete effectively with these competitors. For example, a number of large
medical device companies, including Philips Medical Systems, which acquired
Agilent Technologies' Healthcare Solutions Group in August 2001, and GE Medical
Systems, have entered the market for portable patient monitoring systems. These
companies have substantially greater resources, including capital, name
recognition and manufacturing and marketing capabilities, than our company. To
remain competitive, we must develop new products and periodically enhance our
existing products in a timely manner. We anticipate that we may have to adjust
the prices of many of our products to stay competitive. In addition, new
competitors may emerge, and entire product lines may be threatened by new
technologies or market trends that reduce the value of these product lines.

IT MAY BE DIFFICULT FOR US TO INCREASE OUR REVENUES OR PROFITS BECAUSE SOME OF
THE MARKETS FOR OUR PRODUCTS ARE MATURE.

Some of the markets in which we compete, such as the market for mechanical
ventilators, are relatively mature. Revenues in these markets have been flat or
declining over the past several years. To address this issue, we are pursuing a
number of strategies to enable us to continue to develop and introduce new
products and increase our revenues and market share. These strategies may not
result in the growth of our business, and we may not be able to successfully
implement these strategies.

A SIGNIFICANT PERCENTAGE OF OUR TOTAL ASSETS CONSISTS OF GOODWILL FROM ACQUIRED
COMPANIES, AND WE MAY NOT BE ABLE TO REALIZE THE VALUE OF THIS ASSET.

We have paid substantial premiums over the fair value of the net assets of
some of the companies that comprise our business. We have acquired significant
intangible assets, including approximately $180 million of cost in excess of net
assets of acquired companies, or goodwill, recorded on our balance sheet as of
June 30, 2001. This represents approximately 47% of our total assets as of that
date. Our ability to realize the value of this asset will depend on future cash
flows of the acquired businesses. These cash flows in turn depend on how well we
have identified these acquired businesses as desirable acquisition candidates
and how well we can integrate these acquired businesses.

DIFFICULTIES PRESENTED BY INTERNATIONAL OPERATIONS COULD NEGATIVELY AFFECT OUR
BUSINESS.

International revenues account for a substantial portion of our revenues.
International revenues from continuing operations, including export revenues
from the United States, accounted for 34% of our total revenues in fiscal 1999,
35% of our total revenues in fiscal 2000 and 39% of our total revenues in the
first six months of 2001. We plan to continue expanding our presence in
international markets. Our international operations present a number of risks,
including the following:

- Differences in language often require us to translate marketing
literature, technical specifications and operating manuals for our
medical products into the local language, which can be expensive, take a
significant amount of time and result in translation errors that could
affect the proper operation of the equipment and expose us to potential
liability.

- Foreign laws in a number of countries limit our ability to properly
maintain our distribution channels. For example, a number of foreign laws
restrict our ability to terminate a distributor for taking actions that
adversely affect our business, such as manufacturing and selling
competing products.

- The successful marketing of our products in some countries, including
many European countries, requires us to establish a local presence. The
revenues generated in these countries may not justify the expense of
establishing and maintaining such a local presence.

- Fluctuations in currency exchange rates have, on occasion, forced us to
lower the prices, and therefore reduced our margins, for some of our
respiratory and neurodiagnostic products.

FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS COULD CAUSE OUR STOCK PRICE TO
DECREASE.

Our operating results have fluctuated significantly from quarter to quarter
in the past and are likely to vary in the future. These fluctuations are due to
several factors relating to the sale of our products, including the timing and
volume of customer orders, customer cancellations, reductions in orders by our
distributors and the timing and amount of our expenses. For example:

- We typically experience increased sales each October, which we believe
results primarily from budget spending by federally funded organizations
such as veterans' hospitals and Department of Defense facilities at the
end of the federal government's fiscal year.

- Our ventilator rental and respiratory disposables businesses tend to
increase each year during the flu and allergy seasons.

- We also typically experience reduced sales in Europe each summer.

Because of these fluctuations, it is likely that in some future quarter or
quarters our operating results could fall below the expectations of securities
analysts or investors. If so, the market price of our stock would likely
decrease.

Our quarterly results may also be adversely affected because some customers
may have inadequate financial resources to purchase our products or may fail to
pay for our products after receiving them. In particular, hospitals are
increasingly experiencing financial constraints, consolidations and
reorganizations as a result of cost containment measures and declining
third-party reimbursement for services, which may result in decreased product
orders or an increase in bad debts in any quarter.

OUR MANAGEMENT TEAM IS NEW AND ITS WORKING RELATIONSHIPS ARE UNTESTED.

Until the third fiscal quarter of 2000, we functioned primarily as a
holding company for a number of businesses that had been acquired by Thermo
Electron. We have only recently assembled our management team, as part of the
changes in our operating structure. Randy H. Thurman became our president and
chief executive officer and a director in April 2001, and Martin P. Galvan
became our chief financial officer in June 2001. Moreover, Richard F. Syron and
Elaine S. Ullian, two of our current directors, will resign on the distribution
date, and our board of directors then will be comprised of Mr. Thurman,
10

Robert W. O'Leary and five other directors who are not otherwise affiliated with
our company or Thermo Electron. Members of our management team have generally
not worked with each other in the past, and we therefore cannot assess at this
time the effectiveness of their working relationships.

WE ADOPTED A NEW NAME IN CONNECTION WITH THE DISTRIBUTION. OUR NEW NAME WILL NOT
IMMEDIATELY BE RECOGNIZED AS A BRAND IN THE MARKETPLACE, AND, AS A RESULT, OUR
BUSINESS COULD SUFFER.

Prior to the distribution, we changed our corporate name from Thermo
Biomedical Inc. to Viasys Healthcare Inc. The loss of the "Thermo" brand name
may hinder our ability to establish new relationships. In addition, our
customers, suppliers and partners may react negatively to our separation from
Thermo Electron.

OUR COMPETITIVE POSITION IS DEPENDENT IN PART ON PROTECTING OUR INTELLECTUAL
PROPERTY, WHICH CAN BE DIFFICULT AND EXPENSIVE.

Patent and trade secret protection is important to us because developing
and marketing new technologies and products is time-consuming and expensive. We
own many U.S. and foreign patents and intend to apply for additional patents to
cover our products. We may not obtain issued patents from any pending or future
patent applications owned by or licensed to us. The claims allowed under any
issued patents may not be broad enough to protect our technology.

Our competitive position is also dependent upon unpatented trade secrets.
Trade secrets are difficult to protect. Our competitors may independently
develop proprietary information and techniques that are substantially equivalent
to ours or otherwise gain access to our trade secrets, such as through
unauthorized or inadvertent disclosure of our trade secrets.

WE MAY BECOME INVOLVED IN LITIGATION RELATING TO OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH MAY RESULT IN SUBSTANTIAL EXPENSE AND MAY DIVERT OUR ATTENTION
FROM THE IMPLEMENTATION OF OUR BUSINESS STRATEGY.

We believe that the success of our business depends, in part, on obtaining
patent protection for our products, defending our patents once obtained and
preserving our trade secrets. Litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets and to determine the
validity and scope of our proprietary rights. Any litigation could result in
substantial expense and diversion of our attention from our business, and may
not adequately protect our intellectual property rights.

In addition, we may be sued by third parties which claim that our products
infringe the intellectual property rights of others. This risk is exacerbated by
the fact that the validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions for which important legal
principles are unresolved. Any litigation or claims against us, whether or not
valid, could result in substantial costs, place a significant strain on our
financial resources, divert management resources and harm our reputation. Such
claims could result in awards of substantial damages, which could have a
significant adverse impact on our results of operations. In addition,
intellectual property litigation or claims could force us to:

- cease selling, incorporating or using any of our products that
incorporate the challenged intellectual property, which would adversely
affect our revenue;

- obtain a license from the holder of the infringed intellectual property
right, which license may not be available on reasonable terms, if at all;
and

- redesign our products, which would be costly and time-consuming.

See "Our Business -- Legal Proceedings -- Pulmonetic Systems Litigation."

IF WE BREACH ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION
RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, WE COULD LOSE LICENSE RIGHTS THAT
ARE IMPORTANT TO OUR BUSINESS.

We license rights to products and technology that are important to our
business, and we expect to enter into additional licenses in the future.
Although the products and technology that we currently license account for less
than 5% of our total annual revenues, we expect that this percentage will
increase as we develop and introduce additional licensed products to the market.
For instance, a number of the therapy-based products that we are developing
incorporate proprietary technologies that we have licensed from third parties.
Under these licenses, we are subject to commercialization and development,
sublicensing, royalty, insurance and other obligations. If we fail to comply
with any of these requirements, or otherwise breach a license agreement, the
licensor may have the right to terminate the license in whole or to terminate
the exclusive nature of the license. In addition, upon the termination of the
license, we may be required to license to the licensor any related intellectual
property that we develop.

OUR ABILITY TO MARKET AND SELL OUR PRODUCTS DEPENDS UPON RECEIPT OF DOMESTIC AND
FOREIGN REGULATORY APPROVAL OF OUR PRODUCTS AND MANUFACTURING OPERATIONS. OUR
FAILURE TO OBTAIN OR MAINTAIN REGULATORY APPROVALS COULD NEGATIVELY AFFECT OUR
BUSINESS.

Our products and manufacturing operations are subject to extensive
regulation in the United States by the Food and Drug Administration, or FDA, and
by similar regulatory agencies in many other countries in which we do business.
The principal risks that we face in obtaining and maintaining the regulatory
approvals necessary to market our products include:

- The approval process for medical devices in the United States and abroad
can be lengthy, expensive and require extensive preclinical and clinical
trials. As a result, we may expend substantial resources in developing
and testing a new product but fail to obtain the necessary approvals to
market or manufacture the product on a timely basis or at all.

- When we modify a medical device for which we have received marketing
approval, we must determine whether the modification requires us to seek
new regulatory approvals. If the FDA or other regulatory agency does not
agree with our determination, we may be prohibited from marketing the
modified device until we receive the requisite regulatory approval.

- The FDA and foreign regulatory agencies require us to comply with an
array of manufacturing and design controls and testing, quality control,
storage and documentation procedures. Because our business is
geographically dispersed in the United States and abroad, compliance with
these procedures is difficult and costly.

If we fail to comply with applicable regulations, we could be subject to a
number of enforcement actions, including warning letters, fines, product
seizures, recalls, injunctions, withdrawal of marketing clearances or approvals
and civil and criminal penalties. For a summary of government regulations
applicable to our business, see "Our Business -- Government Regulation."

OUR DEPENDENCE ON SUPPLIERS FOR MATERIALS COULD IMPAIR OUR ABILITY TO
MANUFACTURE OUR PRODUCTS.

Outside vendors, some of which are sole-source suppliers, provide key
components and raw materials that we use in the manufacture of our products,
such as the raw materials for our medical-grade polyurethanes and the beryllium
copper strips included in our medical imaging components. Although we believe
that alternative sources for these components and raw materials are available,
any supply interruption in a limited or sole-source component or raw material
could harm our ability to manufacture the affected product until we identify and
qualify a new source of supply. In addition, an uncorrected defect or supplier's
variation in a component or raw material, either unknown to us or incompatible
with our manufacturing process, could harm our ability to manufacture the
affected product. We may not be able to find a sufficient alternative supplier
in a reasonable time period, or on commercially reasonable terms, if at all,
which could impair our ability to produce and supply our products. If we cannot
obtain a necessary component, we may need to find, test and obtain regulatory
approval for a replacement

component, which would cause significant delays that could seriously harm our
business and operating results. Although we have not experienced any material
shortages or delays to date, we expect that we may experience shortages and
delays in the future, especially in the area of electronic components, such as
video boards for our line of products for long-term epilepsy monitoring.

OUR BUSINESS COULD SUFFER DUE TO POTENTIAL DEFECTS IN SOFTWARE CONTAINED IN SOME
OF OUR PRODUCTS.

Some of our products, such as our neurodiagnostic and intra-operative
monitoring products, incorporate sophisticated computer software that we have
developed or licensed from third parties. Software as complex as that
incorporated into our products may contain errors or failures, especially when
first introduced. In addition, new products or enhancements may contain
undetected errors or performance problems that, despite testing, are discovered
only after commercial shipment. Because some of our products are used with
critically ill patients, we expect that our customers will have an increased
sensitivity to software defects than purchasers of software products generally.
Any errors or performance problems that arise may cause delays in product
shipments, loss of revenue, delays in market acceptance of our products,
diversion of management's time, damage to our reputation, litigation and
increased service or warranty costs.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW AND THE
POTENTIAL TAX EFFECTS OF THE DISTRIBUTION COULD PREVENT OR DELAY TRANSACTIONS
THAT OUR STOCKHOLDERS MAY FAVOR.

Provisions of our charter and by-laws may discourage, delay or prevent a
merger or acquisition that our stockholders may consider favorable, including
transactions in which you might otherwise receive a premium for your shares. For
example, these provisions:

- authorize the issuance of "blank check" preferred stock without any need
for action by stockholders;

- provide for a classified board of directors with staggered three-year
terms;

- require supermajority stockholder approval to effect various amendments
to our charter and by-laws;

- eliminate the ability of stockholders to call special meetings of
stockholders;

- prohibit stockholder action by written consent; and

- establish advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.

In addition, we expect that our board of directors will, before the
distribution, approve a stockholder rights plan intended to protect stockholders
in the event of an unfair or coercive offer to acquire our company and to
provide our board of directors with adequate time to evaluate unsolicited
offers. This rights plan may have anti-takeover effects. The rights plan would
cause substantial dilution to a person or group that attempts to acquire us on
terms that our board of directors does not believe are in the best interests of
us and our stockholders and may discourage, delay or prevent a merger or
acquisition that stockholders may consider favorable, including transactions in
which you might otherwise receive a premium for your shares.

The tax treatment of the distribution under the Internal Revenue Code and
regulations thereunder could also serve to discourage an acquisition of our
company following the distribution. An acquisition of our company within two
years following the distribution could result in federal tax liability being
imposed on Thermo Electron and, in more limited circumstances, on stockholders
of Thermo Electron who receive shares of our common stock in the distribution.
In addition, an acquisition more than two years after the distribution could
cause the distribution to be taxable to Thermo Electron if the acquisition were
determined to be pursuant to an overall plan that existed at the time of the
distribution. As part of the distribution, we will indemnify Thermo Electron,
but not its stockholders, for any resulting tax liability if the tax liability
is attributable to certain acts by us, including an acquisition of our company.
The prospect of that tax liability and our indemnification obligation may have
anti-takeover effects.
13

RISKS RELATED TO THE DISTRIBUTION

A NUMBER OF ACTIONS FOLLOWING THE DISTRIBUTION OF OUR COMMON STOCK COULD CAUSE
THE DISTRIBUTION TO BE TAXABLE TO US, THERMO ELECTRON AND/OR STOCKHOLDERS OF
THERMO ELECTRON WHO RECEIVE SHARES OF OUR COMMON STOCK IN THE DISTRIBUTION.

The IRS has issued a ruling that no gain or loss will be recognized by us,
Thermo Electron or its stockholders upon the distribution of our common stock as
of the date of the distribution, except with respect to cash received in lieu of
fractional shares of our common stock. However, the distribution could become
taxable if we, Thermo Electron and/or the stockholders of Thermo Electron who
receive shares of our common stock in the distribution take any of a number of
actions following the distribution. As part of the distribution, we will enter
into a tax matters agreement with Thermo Electron that will restrict our ability
to engage in these actions. The IRS ruling is based in part on our
representation that we will conduct a public offering of 10% to 20% of our
common stock within one year after the distribution. We may be unable to
complete a public offering for a number of reasons, including adverse market
conditions or adverse developments in our business following the distribution.
If we do not conduct a public offering within one year after the distribution,
or if any other condition of the IRS ruling is not satisfied, the distribution
could become taxable to us, Thermo Electron and/or the stockholders of Thermo
Electron who receive shares of our common stock in the distribution. As part of
the distribution, we will indemnify Thermo Electron for any resulting tax
liability attributable to certain acts by us, including our inability to
complete a public offering of 10% to 20% of our common stock within one year
after the distribution. Actions that could render the distribution taxable are
discussed below under the caption "The Distribution -- Material U.S. Federal
Income Tax Consequences of the Distribution." Our tax matters agreement with
Thermo Electron will restrict our ability to engage in these types of actions.
These restrictions could prevent us from engaging in transactions following the
distribution that might otherwise benefit our business.

YOU MAY HAVE DIFFICULTY EVALUATING OUR BUSINESS BECAUSE OUR HISTORICAL
CONSOLIDATED FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS A
SEPARATE COMPANY.

The historical consolidated financial information included in this
information statement is not necessarily indicative of our future results of
operations, financial position and cash flows. We have not made adjustments to
this information to reflect many significant changes that will occur in our cost
structure, funding and operations as a result of our separation from Thermo
Electron, including changes in our employee base, changes in our tax structure,
increased marketing expenses related to establishing a new brand identity and
increased costs associated with being a public, stand-alone company. We cannot
determine at this time either our future cost structure as we operate as a
separate company or the actual business and financial effects of our spin-off
from Thermo Electron.

OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THE DISTRIBUTION, WHICH
COULD AFFECT THE VALUE OF OUR COMMON STOCK.

Our common stock will not be publicly traded prior to the distribution
date, although a trading market for the entitlement to receive shares of our
common stock in the distribution, referred to as a "when-issued" market, may
develop on or shortly before the record date for the distribution. See "The
Distribution -- Trading Between the Record Date and Distribution Date." After
the distribution of shares of our common stock to stockholders of Thermo
Electron, the public market will establish trading prices for our common stock.
An active trading market may not develop or be sustained in the future.

We cannot predict the prices at which our common stock may trade after the
distribution. The market price of our common stock may fluctuate significantly
due to a number of factors, some of which may be beyond our control, including:

- actual or anticipated fluctuations in our operating results;

- changes in earnings estimated by securities analysts or our ability to
meet those estimates;

- the operating and stock price performance of other comparable companies;
and

- developments in and publicity regarding the medical device industries in
which we compete.

In particular, the realization of any of the risks described in these "Risk
Factors" could have a significant and adverse impact on the market price of our
common stock. In addition, the stock market in general has experienced extreme
volatility that has often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of our common stock regardless of our actual performance.

SALES OF SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET FOLLOWING
THE DISTRIBUTION COULD DEPRESS OUR STOCK PRICE.

All of the shares of our common stock distributed by Thermo Electron, other
than shares distributed to our affiliates, will be eligible for immediate resale
in the public market. It is likely that some Thermo Electron stockholders will
sell shares of our common stock received in the distribution for various
reasons, including the fact that our business profile or market capitalization
does not fit their investment objectives. Moreover, a portion of Thermo
Electron's common stock is held by index funds tied to the Standard & Poor's 500
Index or other stock indices. These index funds may be required to sell the
shares of our common stock they receive in the distribution, if our stock is not
to be included in the underlying indices. In addition, we represented to the IRS
that we will complete a public offering of 10% to 20% of our common stock within
one year after the distribution date. Any sales of substantial amounts of our
common stock in the public market, or the perception that such sales might
occur, whether as a result of this distribution or otherwise, could harm the
market price of our common stock and could impair our ability to raise capital
through the sale of additional equity securities.

WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH THERMO ELECTRON WITH
RESPECT TO OUR PAST AND ONGOING RELATIONSHIPS THAT COULD HARM OUR BUSINESS
OPERATIONS.

Conflicts of interest may arise between us and Thermo Electron in a number
of areas relating to our past and ongoing relationships, including:

- labor, tax, employee benefit, indemnification and other matters arising
from our separation from Thermo Electron;

- the nature, quality and pricing of the transition services Thermo
Electron has agreed to provide us; and

- business opportunities that may be attractive to both Thermo Electron and
us.

We may not be able to resolve any potential conflicts.

FORWARD-LOOKING STATEMENTS

This information statement includes statements that are subject to risks
and uncertainties and are based on the beliefs and assumptions of our
management, based on information currently available to our management. When we
use words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," "likely," "will" or similar expressions, we are making
forward-looking statements. Forward-looking statements include the information
concerning possible or assumed future results of our operations set forth under
"Summary," "Risk Factors," "The Distribution -- Background and Reasons for the
Distribution," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Our Business," "Relationship and Potential Conflicts of
Interest with Thermo Electron and Related Parties" and "Consolidated Financial
Statements" in this information statement.

Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. Our future results of operations may
differ materially from those expressed in the forward-looking statements. Many
of the important factors that will determine these results and values are beyond
our ability to control or predict. You should not put undue reliance on any
forward-looking statements. For a discussion of important factors that may cause
our actual results to differ materially from those suggested by the
forward-looking statements, you should read carefully the section of this
information statement captioned "Risk Factors."

OUR BUSINESS

OVERVIEW

We design, manufacture, market and service a variety of medical devices,
instruments and medical and surgical products for use in delivering a range of
healthcare services. We focus on three markets: respiratory care, neurocare and
medical and surgical products. We believe that we are a global market leader
with significant brand name recognition in several of the areas in which we
compete, including the areas of neurodiagnostic instrumentation, lung function
testing, pediatric ventilation and high frequency oscillating ventilation. In
addition, we believe that we have the second largest installed base of
mechanical ventilators worldwide. We currently market our products in
approximately 150 countries, and our customers include hospitals, alternate care
sites, clinical laboratories, private physicians, and original equipment
manufacturers. Our global revenues in fiscal 2000 totaled $345 million.

We conduct our operations through three groups:

- Our respiratory care group designs, manufactures and markets products for
the diagnosis and treatment of respiratory, circulatory and sleep-related
disorders. These products are used in a variety of settings, from
intensive care to home care, but they generally share a common
therapeutic or diagnostic focus on breathing and on the adequate
availability of oxygen throughout the body. We offer these products under
a number of brand names, including Bird Products, Bear Medical Systems,
Erich Jaeger and SensorMedics.

- Our neurocare group designs, manufactures and markets a comprehensive
line of neurodiagnostic systems. We offer these products under a number
of well-known brand names, including Grason-Stadler, Nicolet Biomedical
and Nicolet Vascular, IMEX and EME. We believe that our Nicolet
Biomedical subsidiary is the world leader in annual sales of neurological
instrumentation used in neurodiagnostic testing and long-term epilepsy
monitoring.

- Our medical and surgical group designs, manufactures and markets critical
care disposable devices, specialty medical products and materials, and a
line of wireless patient monitoring systems. Our critical care disposable
products include tube feeding systems, disposable respiratory accessories
and surgical barrier control systems. Our specialty products and
materials include medical-grade plastics, called polyurethanes. We offer
our medical and surgical products under brand names such as Medical Data
Electronics, Stackhouse, Tecomet, Corpak and Thermedics Polymer.

The following table shows the revenues contributed by each of our operating
segments, expressed in absolute dollars (in thousands) and as percentages of
total revenues for the periods presented:

<Table>
<Caption>
SIX MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------- ---------------
OPERATING SEGMENT JANUARY 2, 1999 JANUARY 1, 2000 DECEMBER 30, 2000 JUNE 30, 2001
----------------- --------------- --------------- ----------------- ---------------

Respiratory care.............. $149,813 49% $184,371 51% $172,553 50% $ 89,871 51%
Neurocare..................... 70,088 23 91,624 26 90,902 26 42,012 24
Medical and surgical
products.................... 86,462 28 82,558 23 81,973 24 45,407 25
-------- --- -------- --- -------- --- -------- ---
Totals............... $306,363 100% $358,553 100% $345,428 100% $177,290 100%
======== === ======== === ======== === ======== ===
</Table>

We focus our development and marketing activities on growth segments of the
healthcare industry. We estimate that the global demand for respiratory care
equipment and disposables is growing at an annual rate of 10% and that the
neurocare market is growing at an annual rate of 8%. We are seeking to
capitalize on our research, development and marketing expertise and our
relationships with physicians and other medical caregivers in these markets to
expand our business into high-value opportunities, including therapy and
information-based products. In addition to developing these new opportunities,
we are working to enhance and extend our existing product lines into
next-generation products and to develop new products to broaden our existing
respiratory care, neurocare and medical and surgical product offerings.

Next generation products that we have recently introduced include: the Endeavor
ICU, a neuro ICU monitor for tracking brain function; the Vital Vac, a smoke
evacuator for electro and laser surgical applications; and the Alpha Screen, a
portable eight-channel sleep diagnostic system.

We were incorporated in Delaware in August 1995 as a wholly owned
subsidiary of Thermo Electron. Our business was formed from a number of
enterprises that had been acquired by Thermo Electron, including Bird Medical
Systems, Bear Medical Technologies and Nicolet Biomedical. The following table
sets forth the principal brands and products that comprise our business.

<Table>
<Caption>
COMMENCED ACQUIRED BY
PRINCIPAL BRANDS PRINCIPAL PRODUCTS OPERATIONS THERMO ELECTRON
---------------- ------------------ ---------- ---------------

RESPIRATORY CARE:
Bear Medical Systems Mechanical ventilators 1972 October 1997
Bird Medical Technologies Mechanical ventilators 1954 October 1995
Erich Jaeger Pulmonary function testing and 1954 July 1999
metabolic equipment
SensorMedics Pulmonary function testing 1983 July 1996
equipment, sleep diagnostic
equipment and specialized
ventilators
NEUROCARE:
Grason-Stadler Hearing diagnostic equipment 1949 November 1998
Nicolet Biomedical Neurodiagnostic equipment 1967 August 1993
Nicolet Vascular Peripheral vascular testing 1976 August 1997
equipment

MEDICAL AND SURGICAL:
Corpak Critical care feeding tubes and 1980 April 1986
disposable respiratory accessories
Medical Data Electronics Wireless patient monitoring 1979 July 1996
systems
Stackhouse Surgical barrier control systems 1936 October 1995
Tecomet Surgical implant components and 1964 n/a
medical imaging components
Thermedics Polymer
Products Medical grade polyurethanes and 1983 n/a
polyurethane films
</Table>

OUR STRATEGY

Our objective is to increase stockholder value by leveraging our
market-leading positions in segments of the respiratory care, neurocare, and
medical and surgical product markets into opportunities in therapy and
service-based products. We believe that our brands have an established
reputation for quality and a strong market presence in several specialized
areas, including electroencephalography, pulmonary function testing and
intra-operative monitoring of nerve pathways. We intend to build upon our market
reputation and leverage our installed equipment base to offer related
therapeutic disposable products, which generally have relatively high margins.
In marketing therapy products for use with our equipment, we can offer
vertically integrated packages composed of related products from our various
subsidiaries. For example, we currently offer sleep diagnostic instrumentation
product lines from Erich Jaeger, Nicolet Biomedical and SensorMedics. We plan to
expand our sleep therapy product line, which now consists of a single product,
and leverage our position in diagnostic instrumentation to market new
disposable, therapeutic products.

More specifically, to achieve our objective we intend to implement the
following strategies:

- DEVELOP NEW, HIGH-VALUE BUSINESS LINES. We are focusing our development
strategy on innovative, high-value therapeutic and service-based business
lines that will complement our existing respiratory care, neurocare, and
medical and surgical product businesses. We intend to use our expertise
in research, development and marketing, as well as our relationships with
members of the medical community, to achieve market acceptance of these
potential products. Among the business lines being developed are an
inhaled drug delivery system, a consciousness monitoring system and
products for use in stroke therapy based on bio-feedback.

- GROW OUR SERVICE BUSINESS. Most of our products require ongoing service
relationships with our customers. We are consolidating our service
operations into one worldwide service division. We believe this will
allow us to provide the best customer service and provide an opportunity
to grow our revenues and profits through service contracts and parts and
supplies sales.

- ENHANCE AND EXTEND MARKET LEADING PRODUCT OFFERINGS. We have established
ourselves as a market leader in particular segments of the respiratory
care, neurocare, and medical and surgical product markets. Many of our
products enjoy strong brand name recognition and established reputations
for after-sale support. We are committing increased resources within our
research and development programs to create product enhancements and next
generation products that can help us strengthen our market position. For
example, we currently are developing next-generation and new lines of
ventilators.

- LEVERAGE SALES CHANNELS. We currently receive a significant portion of
our revenue from international operations, and we expect to expand
further our presence outside of the United States. We have recently
consolidated the international sales operations of our subsidiaries into
two groups: a European group and a group covering Asia and South and
Latin America. We expect the consolidated sales groups to build upon the
past successes of our individual subsidiaries in marketing their products
internationally and to achieve even greater geographic coverage based on
the more comprehensive portfolio of product offerings they can now offer.
We also seek to increase the effectiveness of our domestic marketing
efforts by selling bundled packages of diagnostic equipment and
therapeutic products directly to those who can most benefit from total
cost reductions, such as insurance companies and government agencies. For
example, our stroke rehabilitation product can save payors such as
insurance companies a portion of the significant costs associated with
the long-term care of a debilitated patient.

- ACHIEVE SYNERGIES AND COST REDUCTION. Historically, the companies
comprising our business were operated independently. As a consolidated
business, we plan to improve our profitability by capitalizing on
available synergies, including the elimination of duplicate positions and
administrative costs and cross-selling among our subsidiaries. For
example, we have begun to achieve savings from our new standardized
employee benefit programs. In addition, we can achieve both enhanced
capabilities and a lower cost structure by combining some of our
operations. By cross-training our field service personnel to repair
multiple product lines, we have improved on-site response time and
lowered travel costs, reduced management and overhead, and improved the
efficiency of our field personnel.

- PURSUE VALUE-ADDED ACQUISITIONS. We intend to acquire and integrate
businesses and new technologies that will complement our product lines,
enhance our competitiveness in the marketplace, be synergistic and add
stockholder value.

OUR PRODUCTS

We offer a variety of respiratory care, neurocare, and medical and surgical
products for use in the delivery of a range of healthcare services.

RESPIRATORY CARE PRODUCTS

Our respiratory care group designs, manufactures and markets a variety of
medical devices for the diagnosis and treatment of respiratory-related
disorders. Our product offerings include:

- mechanical ventilators;

- diagnostic equipment for respiratory and circulatory disorders; and

- diagnostic and therapeutic equipment for sleep-related disorders.

Our respiratory care products are used in a variety of settings, from intensive
care to home care, but they generally share a common therapeutic or diagnostic
focus on breathing and the adequate availability of oxygen throughout the body.

We market our respiratory care products in the United States and
internationally to a variety of customers, including hospitals, clinics, private
physicians, research centers and original equipment manufacturers. We offer
these products under a number of brand names, including:

- Bird Products;

- Bear Medical Systems;

- Erich Jaeger; and

- SensorMedics.

Respiratory Care: Mechanical Ventilators

We design, manufacture and market a range of mechanical ventilators and
related products for use by hospitals and medical professionals. Mechanical
ventilators assist patients who are unable to breathe adequately for themselves
due to disease or injury. These devices pump heated, humidified, oxygen-
enriched air into the lungs at regulated pressures, volumes and times in order
to approximate normal breathing or to modify breathing to treat disorders.
Mechanical ventilators may be stationary or portable. They are typically
configured either for adult or pediatric use. We market our mechanical
ventilators globally under the Bird Products, Bear Medical Systems and
SensorMedics brand names.

Adult Ventilators. Adult patients who require respiratory support from a
ventilator include sufferers of severe lung disease and those who have
experienced trauma, burns or near-drowning. Adult ventilators also assist
patient breathing during and after surgery until the effects of general
anesthesia have dissipated. We offer a range of adult ventilators for
institutional and home use, including:

- TBird Ventilator, a full-featured adult and pediatric ventilator that can
be powered by a battery and used without an air compressor, thereby
facilitating the movement of patients;

- Bear 1000 Adult Ventilator, a full-featured ventilator for intensive care
applications; and

- Bird 8400 STI, a full-featured adult ventilator for critical care
applications.

We also offer several portable adult ventilators, such as the Legacy, the Avian
and the Bear 33, which are primarily used for home care, patient transport and
military applications.

Infant and Pediatric Ventilators. Infant and pediatric ventilators are
similar in function to adult ventilators but deliver smaller amounts of oxygen
at lower pressures than adult ventilators. Infants and children requiring
respiratory support from a ventilator include:

- prematurely delivered infants with respiratory distress syndrome, a
condition whereby a premature infant's underdeveloped lungs cannot
properly transfer oxygen into the blood or remove carbon dioxide from the
blood;

- infants and children in post-operative care;

- infants with chronic pulmonary diseases or neuromuscular diseases, such
as bronchopulmonary dysplasia, a chronic lung disease affecting premature
infants; and

- victims of trauma or acute infections.

We currently offer a range of infant and pediatric ventilators, including the
Bird V.I.P. and the Bear Cub 750 ventilators. Each of these products provides
for air flow in synchronization with a patient's normal breathing patterns,
thereby reducing the strain on an infant's lungs. Our Bear Cub ventilator, which
we introduced in 1981, was among the first ventilators specifically designed for
use with infants. The Bear Cub 750 is designed for newborns and patients under
35 kg. We designed the Bird V.I.P. for use with newborns and patients under 60
kg.

High Frequency Ventilator. High frequency ventilators are specialized
ventilators designed to reduce the damage to a patient's lungs that may be
caused by the continuous expansion and compression characteristic of traditional
mechanical ventilation. The SensorMedics 3100 HFOV, our high frequency
oscillating ventilator, delivers up to 900 very rapid, small volume breaths per
minute. This product provides superior oxygenation at much lower pressures,
which reduces lung damage as compared with conventional ventilators and other
types of high frequency ventilators. The FDA first approved the 3100 HFOV for
use in newborns between 0.54 and 4.6 kg in weight in 1991. In 1994, the FDA
approved the 3100 HFOV for use in children in acute respiratory failure with no
upper weight limit. In addition to selling the 3100 HFOV, we offer the product
on a short-term rental basis through an arrangement with a national medical
equipment supplier. In October, 2001, the FDA approved the 3100B HFOV, a high
frequency oscillating ventilator product developed by us, for use in the
treatment of adult respiratory distress syndrome, or ARDS.

Related Products. We offer a variety of related respiratory care products,
including:

- air/oxygen blenders, which are ventilator components that regulate, in
specific concentrations, the oxygen delivered by a mechanical ventilator;

- ventilator accessories, such as air compressors, heated humidifiers and
mounting stands; and

- monitoring devices that measure the volume of gas entering and exiting a
patient's lungs during mechanical ventilation.

Respiratory Care: Pulmonary Function Testing Equipment

We design, manufacture and market an extensive line of pulmonary function
testing equipment for use by a variety of healthcare providers, including
hospitals and research centers. Pulmonary function testing equipment measures
and analyzes breathing in order to evaluate the condition of the heart, lungs
and metabolism. These instruments assist in the diagnosis of heart and lung
disease and in the evaluation of a patient's fitness and metabolic condition. In
pulmonary function testing, a patient typically breathes into a mouthpiece
connected to a diagnostic instrument. This instrument measures the gas
concentration, air flow and air volume and collects data on the level of
exchange of oxygen and carbon dioxide in the patient's lungs.

We market our pulmonary function testing equipment internationally under
the SensorMedics and Erich Jaeger brand names. We believe that our SensorMedics
and Erich Jaeger subsidiaries together represent the largest manufacturer of
pulmonary function testing equipment globally.

We offer a broad line of pulmonary function testing equipment, from basic
spirometry products, which measure the rate and volume of breathing, to complete
pulmonary function and metabolic systems, which measure a range of heart, lung
and metabolic functions. Our principal pulmonary function testing products are:

- SensorMedics VMAX, a portable pulmonary function and metabolic diagnostic
system designed for use primarily by healthcare providers. VMAX is a
modular system that allows end-users to tailor it to their specific needs
and to add diagnostic functions as those needs change. VMAX may be

configured in a variety of ways, ranging from a simple spirometry system
to a full-featured pulmonary function and metabolic diagnostic lab.

- Erich Jaeger MasterScreen, a full-function, pulmonary function and
metabolic diagnostic system for use primarily by healthcare providers.
Our MasterScreen series of products are similar to the VMAX system, but
are constructed in a more integrated fashion. We plan to continue to
offer both products in order to meet varying customer requirements and
preferences. We market MasterScreen primarily outside the United States.

Respiratory Care: Sleep Diagnostic Testing Equipment

We offer a complete line of specialized sleep diagnostic testing equipment.
These products measure a variety of respiratory and neurological functions to
assist in the diagnosis and monitoring of sleep disorders, such as snoring and
obstructive sleep apnea, a condition that causes a person to stop breathing
intermittently during sleep. Our products range from basic sleep diagnostic
systems that monitor one patient, such as the SensorMedics SomnoTract, to a
networked, modular, expandable sleep lab that can monitor multiple patients
simultaneously, such as the SensorMedics SomnoStar. We offer a range of sleep
diagnostic testing equipment, from a small, portable monitor capable of tracking
eight respiratory parameters to a 24-channel combined respiratory and neurology
systems, often in configurations of two to eight beds. In 2000, we introduced
our first sleep therapy product, the Alura. The Alura is a continuous positive
airway pressure, or CPAP, system that assists breathing to allow for
uninterrupted sleep.

NEUROCARE PRODUCTS

Our neurocare group designs, manufactures and markets a comprehensive line
of neurodiagnostic systems. We market our neurodiagnostic products globally to a
variety of customers, including hospitals, universities, clinics and physicians'
offices. We offer these products under a number of well-known brand names,
including:

- Grason-Stadler;

- Nicolet Biomedical; and

- Nicolet Vascular, IMEX and EME.

We believe that our Nicolet Biomedical subsidiary is the world leader in annual
sales of neurological instrumentation used in neurodiagnostic testing and
long-term epilepsy monitoring.

Neurocare: Neurodiagnostic Products

We design, manufacture and market a comprehensive line of instruments,
referred to as neurodiagnostic systems, that measure, display and analyze
electrical impulses in a patient's brain, nerves, muscles and other organs.
Physicians and technologists use these data to assist in the diagnosis of
neurological, brain, auditory, psychological, learning and sleep disorders.

We offer a range of products that address the principal areas of
neurodiagnostics, including:

Electromyography and Evoked Potential. We offer a line of instruments for
electromyography and evoked potential. Electromyography, or EMG, is the
measurement of electrical activity in the nerves and muscles. Evoked potential,
or EP, is the monitoring of patient response to stimuli in order to evaluate the
condition of specific nerve pathways. Physicians and technicians in the fields
of neurology, physical medicine and rehabilitation use EMG and EP data to
confirm the diagnosis of various diseases and disorders, including Lou Gehrig's
disease, multiple sclerosis and spinal cord injury. Our principal EMG and EP
diagnostic product is the Nicolet Biomedical Viking, which offers a high quality
signal to distinguish electrical impulses within the body from background noise.
We believe that the success of the Viking results from its high signal quality,
reliability and modular design.

Electroencephalography. We offer a line of instruments for
electroencephalography. An electroencephalograph, or EEG, is a visual display of
electrical activity generated by nerve cells in the brain. Placing electrodes on
the scalp allows the brain's activity to be amplified and displayed in rising
and falling potentials called brain waves. Physicians use EEGs primarily for
epilepsy diagnosis and monitoring of surgical and pharmaceutical treatments. Our
principal EEG diagnostic product is the Nicolet Biomedical AllianceWorks digital
EEG monitor, which allows screening of brain wave abnormalities.

Epilepsy Monitoring. We offer a line of EEG products for long term
epilepsy monitoring. Our BMSI epilepsy monitoring system combines EEG data with
digital video of a patient to enable a physician to assess the frequency and
severity of epileptic seizures over a multiple day period, typically three or
four days. Our system helps the physician to locate the site of epileptic
seizures in the brain for surgical intervention and to determine the proper
dosage of drug therapies for treatment of a particular patient.

Audiology. We offer a variety of audiology diagnostic instruments.
Audiology is the assessment of hearing, auditory performance and balance
disorders using a variety of testing techniques, including the evaluation of the
function of the ear and the measurement of neural responses to sound. We offer a
broad range of audiology diagnostic instruments for middle ear testing in adults
and children that we market under the Grason-Stadler and Nicolet brand names. We
also offer instruments for evaluating balance disorders, such as the Nystar
System, which analyzes reflexive eye movements in response to visual stimuli. In
September 1999, we introduced the GSI 70, an infant hearing screener for early
detection of hearing disorders that could affect the development of speech and
language abilities in children.

Intra-Operative Monitoring. We offer a line of products for monitoring
nerve pathways during spine, skull or muscle surgery to reduce the possibility
of nerve damage. Our intra-operative monitoring products assist surgeons in
preserving the functional integrity of a patient's circulatory and nervous
systems during and after complex surgical procedures, such as vascular
reconstruction and tumor removal. Our Nicolet Biomedical subsidiary was a
pioneer in the area of intra-operative monitoring of nerve pathways, with the
introduction of the Viking IOM in 1991. In the third quarter of 2000, Nicolet
Biomedical introduced the Bravo Endeavor, a sophisticated 16-channel
intra-operative monitoring system providing simultaneous EEG, EP and EMG
monitoring for use in the operating room and intensive care units.

Related Products. We offer a variety of products related to our
neurodiagnostic instruments, including:

- Medical pocket dopplers, which are instruments that detect fetal
heartbeats and blood clots in the legs. We market these products under
the Nicolet Vascular brand name.

- Transcranial doppler sonographs, which are instruments that measure blood
flow in the brain. We market these products under the Nicolet Vascular
brand name.

- Nic Vue Patient Administrator database software, which manages patient
data from multiple Nicolet Biomedical applications and across multiple
patient visits. This software enables the review of data acquired across
Nicolet Biomedical's neurodiagnostic systems.

- Sleep study systems that measure a variety of neurological functions to
assist in the diagnosis and monitoring of sleep disorders, which we
market under the Ultrasom brand name.

Many neurodiagnostic systems are designed to function only on one model of
a personal computer and with a specified version of an operating system.
Upgrades in personal computers or the release of a newer version of a specified
operating system can render these neurodiagnostic systems obsolete. In contrast,
Nicolet Biomedical has designed its neurodiagnostic systems to function on all
personal computer systems compatible with Windows software to prevent its
products from becoming obsolete in the short-term as a result of changes in
personal computer technologies.

MEDICAL AND SURGICAL PRODUCTS

Our medical and surgical group designs, manufactures and markets critical
care disposable devices, specialty products and materials, and a line of
wireless patient monitoring systems. We market our critical
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care disposable products, such as our tube feeding systems, disposable
respiratory accessories and surgical barrier control systems, to hospitals and
clinics globally. We market our specialty products and materials, such as our
medical grade plastics, called polyurethanes, to original equipment
manufacturers for inclusion in their products. We market our patient monitoring
products globally to a variety of customers, including hospitals, universities,
clients and physicians' offices.

Medical and Surgical: Critical Care Disposables

We design, manufacture and market a variety of critical care disposable
products, including:

- Specialty feeding tubes that supply nutrition to critically ill or
compromised patients by a tube that runs from the nose into the stomach
or small bowel. This allows easily-digested nutrients to be delivered
into a patient's digestive tract rather than into the blood stream. Our
specially designed tubes can be placed into the small bowel at the
patient's bedside by the nursing staff, without any special equipment,
thus reducing patient transport and physician involvement. We market
these products under the Corflo brand name.

- Neonatal/Pediatric devices, such as:

- Closed suctioning systems that assist infants who require mechanical
ventilation by maintaining an open airway and ensuring that the lungs
remain inflated. We market this product under the Neo Link brand name.

- Farrell Gastric Relief Systems that eliminate the gas and fluid
buildup common in infants suffering from digestive complications,
thereby allowing the delivery of nutrients into the stomach. We market
this product under the Corflo brand name.

- Disposable respiratory accessories that assist a patient's breathing
during surgery or trauma. We market these products under the Pulmonex
brand name. Our disposable respiratory accessory products include:

- ventilator masks;

- resuscitation bags, which enable manual ventilation during
cardio-pulmonary resuscitation;

- hyperinflation circuits, which assist infants and small children in
breathing during suctioning procedures and patient transport; and

- KidO(2) oxygen delivery system, which resembles a toy bear and
delivers oxygen to pediatric patients.

- Surgical implant components, which are fine metal parts used in
reconstructive surgery of bones and joints. We market implant components
to original equipment manufacturers that design and distribute orthopedic
implants globally.

- Surgical barrier control systems, which protect both patients and doctors
from contamination introduced into the operating room. We market these
products to hospitals globally under the Stackhouse brand name. Our
principal surgical barrier control systems are:

- Freedom Mark IV Surgical Helmets and ACS Surgical Face Shields, which
are head protection devices that protect surgeons from contamination
introduced into the operating room; and

- Versa Vac 2 and Intellivac Surgical Smoke Evacuation Systems, which
are air filtration systems that collect the smoke plume created from
vaporizing tissue during a laser surgery or electrosurgery procedure.

Medical and Surgical: Specialty Materials and Products

We design, manufacture and market a variety of specialty products and
materials for inclusion by original equipment manufacturers in their products.
Our specialty products and materials include:

- Medical imaging components that limit the "scatter" of high resolution
images of patient anatomy, such as an X-ray image, thereby sharpening the
image.

- Medical-grade polyurethanes that are used to make catheters that go into
the body, stents that prop open blood vessels and as part of implantable
devices, such as pacemakers. We market our medical-grade polyurethanes
under the Tecoflex brand name.

- Polyurethane films that are used in a variety of applications, including
security glazing for anti-ballistic windows and protective coatings for
computer monitor screens.

- Latex films that are used to make condoms.

Medical and Surgical: Wireless Patient Monitoring Systems

We design, manufacture and market a variety of wireless patient monitoring
systems that measure, display and document a variety of vital signs, including
heart activity, blood pressure, pulse rate, blood oxygen levels, body
temperature, respiration rate and other specialized parameters. These systems
enable hospitals to relocate patients who require monitoring but do not
otherwise need to be in an intensive care unit to lower cost settings. We market
our wireless patient monitoring systems to hospitals globally.

We offer our wireless, portable patient monitors under the Escort brand
name. Our Escort wireless monitors are capable of monitoring up to 11 vital
signs and transmitting this information over radio frequencies to a monitoring
station. These monitors are well suited for emergency room use, where critical
care patients often require transportation to other areas of the hospital.

We also offer a computer-based wireless central monitoring station for our
Escort wireless monitors that we market under the Escort Vision brand name. The
Escort Vision central monitoring station provides centralized, real-time patient
monitoring, alarm surveillance and documentation for up to 16 patients. Because
the Escort Vision central monitoring station receives patient data by radio
signal, it provides hospitals with flexibility in designing a patient monitoring
system and allows patient monitoring units to be moved easily to different areas
of a hospital.

We also offer a line of telemetry transmitters that transmit data about a
patient's cardiovascular system, such as blood pressure and pulse, to a central
monitoring station. Telemetry systems are used in post-coronary care and other
situations where a patient requires heart monitoring but is allowed freedom of
movement as part of the recovery process.

RESEARCH AND DEVELOPMENT

We plan to capitalize on our existing installed equipment base in the
respiratory care, neurocare, and medical and surgical product markets and our
expertise in research, development and marketing to expand our business into
products that are more therapeutic in nature or that can be provided as
services. In high growth areas, we license our key technology and collaborate
with outside partners in devising our product offerings. We currently have six
such arrangements. In order to incentivize our partners, our agreements link the
partners' compensation to our success. Our internal development work remains,
however, the key component of bringing new product lines to market. In addition
to our partnering strategy, we have pursued a substantial internal development
strategy. Our internal research and development staff is currently working on
the development of approximately 15 next-generation and new products.

We are developing a number of therapy and service-based products, including
those described below.

Inhaled Drug Delivery Device and Related Asthma Therapy Program. We are
developing, with technology licensed from Battelle Pulmonary Therapeutics, Inc.,
an electrohydrodynamic, or EHD, nebulizer that provides for the administration
of a drug in a uniform particle size. A nebulizer is a device
24

that transforms a liquid drug into a vapor, thereby permitting the
administration of the drug into the respiratory system. Traditional nebulizers
for asthma treatment provide for an uneven particle size, which causes a
significant portion of the administered drug to end up in the mouth, throat and
stomach, with only a small portion reaching the lungs.

Because our EHD nebulizer delivers a drug in a uniform particle size, a
larger portion of the administered drug ends up in evenly dispersed
concentrations in the lungs. We believe this product has particular potential
for application in the treatment of asthma and in the delivery of therapeutic
agents for the treatment of diseases such as cystic fibrosis and chronic
obstructive pulmonary disease, commonly referred to as COPD.

We believe that our EHD nebulizer will require 510(k) clearance from the
FDA prior to marketing in the United States. Although we have designed and
tested the prototype of our EHD nebulizer, human clinical trials of the device
have yet to be performed. We plan to commence a human clinical trial of our
nebulizer with the use of albuterol, a generic drug used in the treatment of
asthma, in the second half of 2002. We expect this trial program to begin after
we determine the optimal formulation of albuterol for use with the nebulizer, a
process that we expect to complete in the fourth quarter of 2001. For a summary
of 510(k) clearance procedures, as well as other FDA regulation of our products,
see "-- Government Regulation -- United States -- U.S. Food and Drug
Administration." Although albuterol has previously been approved by the FDA, we
expect that each additional drug planned for use with our EHD nebulizer will
require separate FDA approval under applicable drug approval procedures.

We expect to introduce our albuterol medication in conjunction with an
asthma monitoring and therapy program. Asthma is a chronic respiratory disorder
in which inflammation in the airways of the lungs causes difficulty breathing.
The National Center for Health Statistics estimates that, as of 1998, more than
26 million people in the United States had been diagnosed with asthma within
their lifetimes, of whom approximately 8.6 million were under the age of 18. The
American Lung Association estimates that the cost for asthma treatment in the
United States was approximately $8.1 billion in 2000.

Patients who are enrolled in our asthma therapy program continue to receive
their standard form of treatment, including medication and visits, but also
breathe into a small hand-held device twice a day. The device measures the
patient's lung function and transmits the data via a telephone line to an asthma
case manager, who reviews the data and recommends changes in medication.

In 1998, we began a collaboration with a pharmaceutical company to
institute a pilot study for our asthma therapy program in South Africa. During
this 12-month study, approximately 68 patients were monitored on a daily basis.
Total asthma-related costs among participants in the pilot program decreased by
21% compared to a similar-sized control group. We recently implemented a second
pilot study in Germany and have expanded the program in South Africa.

Consciousness Monitor. We are developing a consciousness monitor to
accurately assess a patient's level of consciousness when under the effects of
anesthesia. Incorporating third-party proprietary technology that we license,
our monitor uses high frequency data along with existing lower frequency
bandwidth technology to provide a more comprehensive view of the state of brain
activity during anesthetic procedures. Clinical trials of this product are in
process, and we expect to conclude the trials and submit the resulting data to
the FDA in the fourth quarter of 2001 in connection with a 510(k) clearance
application for the device.

Peripheral Nerve Imaging. We are developing a system to locate peripheral
nerves non-invasively. Use of peripheral nerve imaging will improve the safety
and effectiveness of regional nerve blocks and will enable regional, rather than
general, anesthesia to be used in some surgical procedures. The system may also
be used in pre-surgical planning to avoid nerves during surgical intervention.
We plan to configure the nerve imaging system to work with much of the same
hardware as our consciousness monitoring product. We believe that the device
will require 510(k) clearance from the FDA prior to marketing in the United
States, and we currently expect to submit a 510(k) application with the FDA in
the second half of 2002.

Gas Clearance and Rebreathing Device. We are developing a device that
rapidly clears gases such as carbon monoxide and some anesthesias from the
blood. This device also allows a patient to rebreathe exhaled gases when
hyperventilating, thereby enabling the rapid delivery of oxygen to a patient
without increasing the level of carbon dioxide in the blood. We do not believe
that this device will require 510(k) clearance from the FDA prior to marketing
it as a rebreather in the United States. However, we believe that this device
will require 510(k) clearance from the FDA prior to marketing it as a gas
clearance device in the United States. We have completed clinical trials of this
device for the clearance of inhalational anesthetic agents, and we submitted a
510(k) application with the FDA in July 2001.

We have historically organized our research and development activities by
operating group and subsidiary. However, we recently implemented an initiative
to strategically reorganize our research and development efforts by product area
and functional use rather than along traditional company lines. For example, our
Erich Jaeger, Nicolet Biomedical and SensorMedics subsidiaries each historically
maintained a research and development group with expertise in the area of brain
wave amplifiers. We are currently engaged in a project in which the members of
these groups share their expertise in brain wave amplifiers in order to take
advantage of each member's specialized knowledge. We believe that a number of
other opportunities exist to structure our research and development organization
on a functional, rather than organizational, basis.

In addition to developing therapy and service-based products, we plan to
enhance and extend our existing product lines into next generation products and
to develop new products to broaden our existing portfolio of respiratory care,
neurocare and medical and surgical products. We primarily focus our research and
development activities on responding to marketplace needs. Our internal research
and development efforts include work to produce next-generation products for our
core businesses as well as new products that expand our portfolio in market
segments where we already compete. For example, we are developing new ventilator
platforms that will enable us to offer a more comprehensive suite of products in
the respiratory critical care market. In our respiratory and neurology
businesses we have several products that are pending FDA approval. We also have
efforts underway in each of our businesses to leverage our technologies for new
applications. For example, we are attempting to expand the use of our HTC grids,
an image enhancer for mammography X-rays, to general radiology.

Our research and development expenses totaled $14.2 million in fiscal 1998,
$18.5 million in fiscal 1999, $24.8 million in fiscal 2000, and $13.8 million in
the first six months of 2001. We expect research and development expenses to
increase in the future as we seek to enhance our existing products and develop
additional products. As of September 30, 2001, we had 215 full-time employees
engaged in research and development.

OUR SERVICES

Our worldwide service organization is designed to provide a high level of
customer satisfaction by providing all levels of support to our customers.
Customer product support is achieved by offering many levels of support,
beginning with full service contracts, parts only contracts, phone technical
assistance and website technical assistance. In a similar manner, our training
programs consist of high level seminars with continuing education accreditation,
on site and factory operating training, and website or CD training materials. We
believe that the consolidation of our many service organizations into one allows
us to both improve efficiencies as well as improve our customer response time.
With this consolidation we will be able to offer more comprehensive service
programs to all of our customers resulting in higher revenue opportunities as
well as improved customer satisfaction. Our service organization is responsible
for monitoring the quality of our products and provides important feedback to
manufacturing operations for continual product improvements.

SALES AND MARKETING

We currently market our products in approximately 150 countries using a
network of distributors, independent manufacturers' representatives and our own
direct sales force. Our sales and marketing

strategy for our product lines differs based on the type of market and our
assessment of how we can maximize our resources and make the greatest impact on
the particular market. Our customers include hospitals, alternate care sites,
clinical laboratories, private physicians and original equipment manufacturers.
As of September 30, 2001 we had 412 full-time sales and marketing employees.

We market our products in the United States through our field hospital
sales organization of approximately 125 full-time sales representatives and, in
some cases, through distributors. We believe this significant direct sales
organization will enable us to increase sales of existing products as well as
launch new products effectively. A number of our subsidiaries have entered into
arrangements with several group purchasing organizations in the United States,
including Premier, Inc., Novation LLC, HCA-- The Healthcare Company, Consorta,
Inc. and Tenet Healthcare Corporation. Group purchasing organizations are
associations of hospitals and other health care organizations that pool their
purchasing power to negotiate more favorable terms. We believe that these
arrangements provide us with the opportunity for increased market penetration
without requiring significant additional sales and marketing resources.

We market many of our products globally, including in most major European
countries. A number of our subsidiaries, including Erich Jaeger and Nicolet
Biomedical, maintain sales and marketing organizations in a number of foreign
countries, including the United Kingdom, Austria, France, The Netherlands,
Germany and Japan. We also use distributors to market our products in over 150
countries globally. We select our distributors based on their knowledge of the
particular product and medical specialty.

We have recently consolidated the international sales operations of our
subsidiaries into a European group and an Asian and Latin America group. We
expect these two consolidated sales groups will achieve greater geographic
coverage with a more comprehensive portfolio of product offerings. We also
expect to add incremental product lines to existing distribution channels and to
extend our influence with local distribution partners.

Our backlog was $59.1 million as of June 30, 2001, compared with a backlog
of $61.2 million at the end of fiscal 2000 and a backlog of $58.0 million as of
July 1, 2000. We include in our backlog only orders confirmed with a purchase
order for products scheduled to be shipped within one year. Purchase orders
included in our backlog may be subject to termination, revision or delay, and
our backlog may not necessarily be a meaningful predictor of future results.

MANUFACTURING AND RAW MATERIALS

We currently manufacture substantially all of our products at eleven
facilities in the United States, with approximately 380,000 square feet of
manufacturing space. We manufacture a small number of products at manufacturing
facilities located in Europe. We anticipate reducing the number of our
manufacturing facilities following the distribution in connection with our plan
to restructure some of our operations. Our manufacturing processes are diverse
and include, among other processes:

- machining of surgical implant components, ventilator components and
imaging equipment;

- assembly and testing of purchased components in the case of ventilators,
neurodiagnostic instruments and other electronic products;

- assembly of surgical helmet systems;

- manufacturing of polyurethane resins;

- development of software programs for neurodiagnostic and pulmonary
diagnostic systems and other electronics products; and

- molding and clean room assembly of polyurethane feeding tubes.

We believe that our in-house manufacturing and assembly capabilities allow us to
achieve high quality levels and significantly reduce our time to introduce
products to market. The quality assurance groups at

each facility independently verify that product fabrication and inspection
processes meet our specifications and applicable regulatory requirements.

Our manufacturing facilities are subject to periodic inspection by
regulatory authorities, including Quality System Regulation inspections
conducted by the FDA and European Medical Device Directive compliance
inspections conducted by ISO-authorized agencies. We believe that our facilities
are in substantial compliance with current good manufacturing practice
requirements set forth in the Quality System Regulations and the Medical Device
Directive. Almost all of our manufacturing facilities are ISO 9001 certified,
which means they meet the manufacturing requirements of the Medical Device
Directive of the European Union. All of our principal products are qualified to
bear the CE mark, which means that these products meet the necessary safety
standards for marketing and sale in the European Union.

We believe that we have a readily available supply of raw materials for all
of our significant products from various sources, and we do not anticipate any
difficulties in obtaining raw materials essential to our business. However, we
purchase some components and raw materials, such as the raw materials for our
medical grade polyurethanes and the beryllium copper strips included in our
medical imaging components, from sole sources of supply. We believe that we have
the ability to locate, over time, alternative sources of supply or to develop
the internal capability to produce such components, if necessary.

INTELLECTUAL PROPERTY

We pursue a policy of seeking patent protection of our technology, products
and product improvements both in the United States and in selected foreign
countries. As of September 30, 2001, we held 131 issued U.S. patents and 26
patents in foreign countries, which expire at various dates over the next 20
years. We also had approximately 22 pending U.S. patent applications and
approximately 24 pending patent applications in foreign jurisdictions. We do not
consider any patent or related group of patents to be of such importance that
its expiration or termination would materially affect our business.

We also rely on trade secrets and technological innovations to develop and
maintain our competitive position. In an effort to protect our trade secrets, we
generally require our employees, consultants and advisors to execute
confidentiality and invention assignment agreements upon commencement of
employment or consulting relationships with us.

We have entered into a number of license and other arrangements under which
we have obtained rights to manufacture and market some of our products or
product candidates. For instance, a number of the therapeutic-based products
that we are developing incorporate proprietary technologies that we have
licensed from third parties. Under our existing licenses, we are subject to
commercialization and development, sublicensing, royalty, insurance and other
obligations. If we fail to comply with any of these requirements, or otherwise
breach a license agreement, the licensor may have the right to terminate the
license in whole or to terminate the exclusive nature of the license. In
addition, upon the termination of the license, we may be required to license to
the licensor any related intellectual property that we develop.

COMPETITION

The respiratory care, neurocare and medical and surgical product markets
are highly competitive. We compete with many companies ranging from small
start-up enterprises to companies that are larger and more established than us,
with access to significant financial resources and greater name recognition,
research and development experience and regulatory, manufacturing and marketing
capabilities. We compete in each of our markets primarily on the basis of
reputation, product reliability and performance, product features and benefits,
price and post-sale service and support. Although we believe that our products
currently compete favorably with respect to these factors, we cannot assure you
that we can maintain our competitive position against our current and potential
competitors.

Our respiratory care group competes with products from firms such as
Siemens AG, Tyco Healthcare Group, Dragerwork AG and Respironics, Inc. The
principal competitors of our neurocare group include

Bio-logic Systems Corporation, Shanghai Kohden Medical Instrument Corporation,
formerly Nihen Koden Corporation, Teca-Oxford Instruments PLC and Excel Tech
Ltd. The principal competitors of our medical and surgical group include the
Ross Products Division of Abbott Laboratories, The Dow Chemical Company and
Agilent Technologies Inc.

GOVERNMENT REGULATION

UNITED STATES

U.S. Food and Drug Administration

In the United States, the testing, manufacture and sale of our products are
subject to regulation by numerous governmental authorities, principally the FDA
and corresponding state agencies. Pursuant to the Food, Drug, and Cosmetic Act,
and the related regulations, the FDA regulates the preclinical and clinical
testing, manufacture, labeling, distribution and promotion of medical devices,
such as our products. If we do not comply with applicable requirements, we can
be subject to, among other things:

- fines;

- injunctions;

- civil penalties;

- recall or seizure of products;

- total or partial suspension of production;

- refusal of the government to grant premarket clearance or premarket
approval for devices;

- withdrawal of marketing clearances or approvals; and

- criminal prosecution.

A medical device may be marketed in the United States only if (1) the FDA
gives prior authorization, (2) the device is subject to a specific exemption or
(3) the device was marketed prior to May 28, 1976, the effective date of the
Medical Device Amendments to the Food, Drug, and Cosmetic Act. Depending on the
type of medical device, FDA authorization typically takes one of the following
two forms:

- Premarket clearance under section 510(k) of the Food, Drug, and Cosmetic
Act. The FDA will generally grant a device 510(k) premarket clearance
when an applicant submits information which establishes that a proposed
device is substantially equivalent to a legally marketed device. For any
devices that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect safety or effectiveness or
constitute a major change in the intended use of the device, require new
510(k) submissions. We believe that it now usually takes from three to
six months from the date of submission to obtain 510(k) clearance,
although it can take substantially longer, depending on the device.

- Premarket approval, or PMA. A PMA application requires an applicant to
prove the safety and effectiveness of the device to the FDA. The process
of obtaining PMA approval is expensive and uncertain. We believe that FDA
approval usually takes from one to three years after filing, but it can
take longer, depending on the device.

The FDA classifies medical devices in the following three categories,
according to the level of patient risk associated with a device.

- Class I devices are non-critical products for which general regulatory
controls are sufficient to provide reasonable assurance of safety and
effectiveness. Most Class I devices are exempt from the requirement of
510(k) premarket clearance. The FDA must grant 510(k) premarket clearance
prior to marketing a non-exempt Class I device in the United States.

- Class II devices are devices for which general regulatory controls are
insufficient to provide reasonable assurance of safety and effectiveness
and which therefore need special regulatory controls such as compliance
with FDA prescribed standards. The FDA must grant 510(k) premarket
clearance prior to marketing a Class II device in the United States.

- Class III devices are devices classified by the FDA as posing the
greatest risk, such as life-sustaining, life-supporting or implantable
devices, or devices that are not substantially equivalent to a legally
marketed Class I or Class II device. The FDA generally must approve a PMA
application prior to marketing a Class III device in the United States.
Only one of our principal products, the 3100A HFOV high frequency
oscillating ventilator, is a Class III device. The FDA has approved a
premarket approval application for use of this product in children in
acute respiratory failure with no upper weight limit.

If human clinical trials of a device are required, whether to support a
510(k) or a PMA application, the sponsor of the trial, which is usually the
manufacturer or the distributor of the device, must have an investigational
device exemption, or IDE, before beginning human clinical trials. If a device
presents a significant risk to the patient, the FDA must approve the sponsor's
IDE application before the clinical trial may start. An IDE application for a
significant risk device must be supported by data, typically including the
results of animal and laboratory testing. If the IDE application is approved by
the FDA and one or more appropriate Institutional Review Boards, or IRBs, human
clinical trials may begin at a specific number of investigational sites with a
specific number of patients, as approved by the FDA. If the device presents a
nonsignificant risk to the patient, a sponsor may begin a clinical trial after
obtaining approval for the study by the IRB at each clinical site without the
need for FDA approval of an IDE application.

The Food, Drug, and Cosmetic Act regulates our quality control and
manufacturing procedures by requiring us to demonstrate and maintain compliance
with the Quality System Regulation, or QSR, which sets forth the FDA's current
good manufacturing practices requirements. These requirements include, among
other things, that:

- we use written procedures to control our product development and
manufacturing process;

- we validate, by extensive and detailed testing of every aspect of the
process, our ability to produce devices which meet our manufacturing
specifications;

- we investigate any deficiencies in the manufacturing process or in the
products produced; and

- we maintain detailed record keeping.

The FDA monitors compliance with the QSR and current good manufacturing
practices requirements by conducting periodic inspections of manufacturing
facilities. Violations of applicable regulations noted by the FDA during
inspections of our manufacturing facilities could adversely affect the continued
marketing of our products.

The FDA enforces post-marketing controls that include the requirement to
file medical device reports, or MDRs, when we become aware of information
suggesting that any of our marketed products may have caused or contributed to a
death, serious injury or serious illness. The FDA also requires the filing of an
MDR when we become aware that any of our products has malfunctioned and that a
recurrence of that malfunction would likely cause or contribute to a death,
serious injury or serious illness. The FDA relies on MDRs to identify product
problems and utilizes MDRs to determine whether it should exercise its
enforcement powers.

Other FDA requirements govern product labeling and prohibit a manufacturer
from marketing an approved device for unapproved applications. If the FDA
believes that a manufacturer is not in compliance with the law, it can institute
an enforcement action against the manufacturer, its officers and employees.

Other Regulations

We are also subject to numerous federal, state and local laws relating to
safe working conditions, manufacturing practices, environmental protection, fire
hazard control and disposal of hazardous or potentially hazardous substances. In
addition, some of our products, such as our wireless patient monitoring systems,
transmit or receive information through radio signals and are, therefore,
subject to regulation by the U.S. Federal Communications Commission.

INTERNATIONAL

We derive a significant portion of our revenue from sales of our products
outside the United States. Sales of medical devices outside the United States
are subject to foreign regulatory requirements that vary widely from country to
country. These laws and regulations range from simple product registration
requirements in some countries to complex clearance and production controls in
others. As a result, the processes and time periods required to obtain foreign
marketing approval may be longer or shorter than those necessary to obtain FDA
approval or marketing clearance. These differences may affect the efficiency and
timeliness of international market introduction of our products.

We may not sell medical devices in European Union countries unless the
devices bear the CE mark, a symbol of adherence to quality assurance standards
and compliance with applicable regulatory requirements known as the European
Directives. Almost all of our manufacturing facilities have received ISO 9001
certification, evidence of a quality system that meets the requirements of the
Medical Device Directive, a European directive that prescribes safety standards
for medical devices. Compliance with the Medical Device Directive is one of the
prerequisites to CE mark certification of a medical device. As of September 30,
2001, all of our key respiratory care and neurocare products bore the CE mark.

Unapproved medical devices manufactured in the United States may be
distributed and sold outside the United States subject to FDA export
requirements. An unapproved device that could be marketed under the FDA's 510(k)
premarket notification requirements may be exported to another country without
the FDA's permission if the device meets the specifications of a foreign
purchaser, is not in conflict with the laws of the country to which it is
exported, is marketed for export only and is not distributed in the United
States. An unapproved device that is subject to PMA requirements may be exported
after notification to the FDA if the device is approved for use by selected
countries or regional regulatory authorities specified in the Food, Drug, and
Cosmetic Act and if the device meets the specifications of a foreign purchaser,
is not in conflict with the laws of the country to which it is exported, is
marketed for export only and is not distributed in the United States. An
unapproved device that is not approved by recognized countries may only be
exported after a determination by the FDA that exportation is not contrary to
the public health and that the device is approved in the country to which it is
exported, meets the specifications of a foreign purchaser, is not in conflict
with the laws of the country to which it is exported, is marketed for export
only and is not distributed in the United States.

THIRD PARTY REIMBURSEMENT

In the United States, healthcare providers that purchase medical devices
generally rely on third party payors, such as Medicare, Medicaid, private health
insurance plans and health maintenance organizations, to reimburse all or a
portion of the cost of the devices. The Centers for Medicare and Medicaid
Services of the U.S. Department of Health and Human Services, commonly referred
to as CMS, funds and administers the Medicare program. CMS and the states
jointly fund the Medicaid program, and the states administer the Medicaid
program under general federal oversight. The competitive position of some of our
products will depend, in part, upon the extent of coverage and adequate
reimbursement for such products and for the procedures in which such products
are used. Prices at which we seek reimbursement for our products can be subject
to challenge by the government.

The federal government and various state governments are currently
considering proposals to reform the Medicare and Medicaid healthcare
reimbursement system. We are unable to evaluate what legislation may be drafted
and whether or when any such legislation will be enacted and implemented. Some
of these
31

proposals, if adopted, could have an adverse effect on our business, financial
condition and results of operations.

During the past several years, the major third party payors have
substantially revised their reimbursement methodologies in an attempt to contain
their healthcare reimbursement costs. Medicare reimbursement for inpatient
hospital services is based on a fixed amount per admission based on the
patient's specific diagnosis. As a result, any illness to be treated or
procedure to be performed will be reimbursed only at a prescribed rate set by
the government that is known in advance to the healthcare provider. If the
treatment costs less, the provider keeps the overage; if it costs more, the
provider cannot bill the patient for the difference. No separate payment is made
in most cases for products such as our instrumentation when they are furnished
or used in connection with inpatient care. Many private third party payors and
some state Medicaid programs have also adopted similar prospective payment
systems.

Third party payors have recently increased their emphasis on managed care,
which has led to an increased emphasis on the use of cost-effective medical
devices by healthcare providers. In addition, through their purchasing power,
these payors often seek discounts, price reductions or other incentives from
medical products suppliers.

Reimbursement and healthcare payment systems in international markets vary
significantly by country and include both government sponsored healthcare and
private insurance. We have received international reimbursement approvals for
many of our products and plan to seek international reimbursement approvals for
other products. In contrast to the United States, Europe is a highly fragmented
market, with a large number of distinct and uniquely structured health care
delivery and payment systems. European health care systems are beginning to
confront the same fiscal pressures and limitations that characterize the United
States health care system and are increasingly adopting many of the same cost
and utilization control mechanisms. To the extent that any of our products are
not entitled to reimbursement in any international market, market acceptance of
such products in such international market would be adversely affected.

PRODUCT LIABILITY AND INSURANCE

Our business entails the risk of product liability and product recall
claims. Any claims of these types could have an adverse impact on us. We
maintain general liability and commercial liability insurance policies which
include coverage for product liability claims. We evaluate our insurance
requirements on an ongoing basis to enable us to maintain an adequate level of
coverage. However, product liability claims could exceed our insurance coverage
limits and insurance may not be available on commercially reasonable terms or at
all.

LEGAL PROCEEDINGS

PULMONETIC SYSTEMS LITIGATION

Our Bird Products subsidiary currently has lawsuits pending in the United
States District Court for the Central District of California and in the Superior
Court of California, County of Riverside, against Pulmonetic Systems, Inc. and a
former employee, Douglas DeVries. On July 19, 1999, Bird Products commenced a
lawsuit alleging patent infringement, misappropriation of trade secrets, breach
of contract, unfair competition and wrongful interference with a business
relationship in connection with the marketing by Pulmonetic of a mechanical
ventilator that we believe is based on misappropriated trade secrets and
infringes a patent related to our TBird Ventilator. On June 2, 2000, Bird
Products commenced a second lawsuit against Pulmonetic Systems and Mr. DeVries
alleging copyright infringement in connection with the alleged copying by
Pulmonetic Systems of computer software programs and operating manuals
associated with our TBird Ventilator. The suits were subsequently consolidated.

The Court has entered partial summary judgment against Bird on its
patent-infringement claim and on its breach-of-contract claims against
Pulmonetic Systems, as well as having entered partial summary judgment against
Bird on one of its two breach-of-contract claims against Mr. DeVries. The Court,

however, has denied Mr. DeVries' motion for summary judgment on Bird's second
breach-of-contract claim against him. In addition, in denying Bird's motion for
a preliminary injunction, the Court stated that Bird had failed to show a
reasonable likelihood of success on the merits. With respect to our remaining
claims, we are seeking damages as well as injunctive and declaratory relief. The
suit generally remains in discovery, which is expected to be completed in
December 2001. Bird has filed a notice of appeal to the federal circuit with
respect to its patent infringement claim. In connection with the same claim,
Pulmonetic Systems has filed an application seeking costs and attorneys' fees of
approximately $765,000.

Both of the defendants in the suit have asserted counterclaims against Bird
Products, as well as Bird Medical Technologies Inc., formerly the parent
corporation of Bird Products, and Thermo Electron. Pulmonetics has alleged,
among other things, trade libel, abuse of process, unfair competition and
violations of antitrust laws. Mr. DeVries has asserted a breach-of-contract
claim for damages of approximately $500,000 in connection with the alleged
breach of an option contract with Bird Medical. Mr. DeVries also claims damages
in excess of $10.0 million in connection with a claim for rescission of his
assignment of intellectual property rights to Bird. In its counterclaim,
Pulmonetic Systems is seeking actual damages of $2.0 million and punitive
damages of $20.0 million. Bird Products, Bird Medical Technologies and Thermo
Electron have moved to dismiss these counterclaims, and a hearing on the motion
is scheduled for November 2001.

On October 18, 2000, Bird Products commenced another lawsuit against Mr.
DeVries, Pulmonetic Systems and other former employees and consultants of Bird
Products in the Superior Court of California, County of Riverside, alleging
breach of contract, misappropriation of trade secrets, unfair competition,
breach of fiduciary duty, and usurpation of corporate opportunity. This suit
seeks both injunctive relief and damages, but is currently stayed pending
resolution of the federal lawsuit.

We believe that our claims against Douglas DeVries, Pulmonetic Systems, and
the other defendants are meritorious and that the defendants' claims against
Bird Products, Bird Medical and Thermo Electron are without merit. We plan to
pursue our claims in these cases vigorously and to defend vigorously against
each claim asserted by the defendants. We cannot assure you that we will be
successful in this litigation, and an adverse resolution of the claims made by
the defendants could require the payment of substantial monetary damages.
Through September 30, 2001, we had incurred $3.2 million in legal fees in
connection with this litigation. Our involvement in this litigation may continue
to entail the expenditure of significant financial and managerial resources.

OTHER LITIGATION

In addition to the foregoing, we are involved from time to time in
litigation on various matters which are routine to the conduct of our business,
including product liability claims. We believe that none of these actions,
individually or in the aggregate, will have a material adverse effect on our
financial position or results of operations.

PROPERTIES

We own or lease 14 properties in the United States and lease 13 properties
internationally, which generally consist of administrative and sales offices,
manufacturing, assembly and distribution facilities and warehouse facilities. In
the United States, we own facilities with an aggregate size of approximately
319,000 square feet, and we lease approximately 376,000 square feet of space. We
have entered into a lease for approximately 69,000 square feet of space in
Conshohocken, Pennsylvania for our corporate headquarters following the
distribution. Internationally, we lease facilities with an aggregate size of
approximately 135,000 square feet. We believe our current facilities will be
sufficient to meet out needs for the foreseeable future and that additional
space will be available at a reasonable cost to meet our needs in the future.

PERSONNEL

We had 1,834 full-time employees at September 30, 2001, consisting of 1,449
employees based in the United States and 385 employees based outside of the
United States.

We have no collective bargaining agreements with our United States
employees. Eight of our operating locations outside the United States have
collective bargaining agreements and/or work counsel agreements covering
approximately 330 employees.

THE DISTRIBUTION

BACKGROUND AND REASONS FOR THE DISTRIBUTION

THERMO ELECTRON REORGANIZATION

On January 31, 2000, Thermo Electron announced that its board of directors
had authorized its management to proceed with a major reorganization of its
operations. The reorganization reflects a significant change in strategic
direction for Thermo Electron, in terms of both its business focus and its
operating structure.

- Until Thermo Electron adopted the reorganization plan, it had been
engaged in operating and managing a diversified group of businesses. As a
result of the reorganization, Thermo Electron today focuses primarily on
its core instruments business.

- Thermo Electron historically pursued a strategy of publicly offering
minority interests in some of its subsidiaries. These subsidiaries, in
turn, pursued the same strategy. Thermo Electron's management reevaluated
the benefits and detriments of this corporate structure and concluded that
Thermo Electron would benefit if it reorganized its instruments business
under a single parent company without minority interests.

The reorganization announced by Thermo Electron in January has three major
components:

- first, the acquisition of all of the minority interests in Thermo
Electron's subsidiaries other than Kadant (including its publicly traded
subsidiary) and Spectra-Physics;

- second, the divestiture of all of Thermo Electron's non-instruments
businesses; and

- third, the spin-off of Kadant and Viasys through dividends to Thermo
Electron's stockholders.

Thermo Electron has completed the first and second components of this
reorganization. Thermo Electron completed its spin-off of Kadant in August 2001
and expects to complete its spin-off of Viasys, through the distribution
contemplated by this information statement, in the second half of 2001.

PURPOSE OF THE DISTRIBUTION

On October 11, 2001, as part of its corporate reorganization, Thermo
Electron announced the distribution on November 15, 2001 of all of our
outstanding shares of common stock to stockholders of record of Thermo Electron
on November 7, 2001. On the date of the distribution, each Thermo Electron
stockholder of record on the record date will receive approximately 0.1428
shares of our common stock for each share of Thermo Electron common stock held
by such stockholder on the record date. The actual number of shares to be
delivered to a stockholder will depend on the number of Thermo Electron shares
outstanding on the record date.

Thermo Electron is effecting the distribution of our common stock for the
following purposes:

- Thermo Electron Reorganization. Management of Thermo Electron has
determined that Thermo Electron should redefine itself as a focused
instrument company without the distraction of managing unrelated business
units, such as our company. The distribution will assist Thermo Electron
in focusing on its core instruments business by spinning-off our
biomedical business.

- Need for Additional Capital. Thermo Electron estimates that our capital
needs, combined with those of Thermo Electron and Kadant, exceed Thermo
Electron's projected capital resources. Thermo Electron has determined
that the most efficient way to meet these projected capital needs is for
us and Kadant to raise our own additional capital, while Thermo Electron
dedicates available cash and anticipated proceeds from the divestiture of
its non-core business units to its instruments business.

- Facilitating Our Future Financings. Thermo Electron has concluded that a
public offering by us as an independent company would raise funds on
better economic terms than could be raised through either an additional
public offering of Thermo Electron common stock or a public offering of
our common stock by us while we continue to be controlled by Thermo
Electron. Thermo Electron also believes that its present organizational
structure limits the ability of Thermo Electron and its

subsidiaries, including our company, to fund future growth opportunities.
We will only make a public offering of our common stock by means of a
prospectus complying with the requirements of the Securities Act, and
this information statement does not constitute an offer to sell, or a
solicitation of an offer to buy, any shares of our common stock.

- Facilitating Our Growth Strategy. We intend to grow our business through
the development of new, high-value products, the enhancement and
extension of market-leading product offerings, the expansion of sales
channels, the achievement of synergies, and the acquisition of strategic
businesses. In order to pursue acquisitions or invest significant capital
in research and development, we, as a wholly owned subsidiary of Thermo
Electron, have had to obtain the approval of Thermo Electron's management
and compete with other Thermo Electron businesses for limited capital
resources. As an independent company, with access to our own capital and
without the involvement of Thermo Electron, we will be free to pursue our
growth and acquisition strategies.

- Attraction and Retention of Employees. Following the distribution, we
and Thermo Electron each will have a continued need to recruit qualified
managers. Due to the differences of the industries in which we and Thermo
Electron compete, we and Thermo Electron believe that we each will be
better able to attract qualified candidates because our respective
businesses will be more focused and not part of a large diversified
company. We and Thermo Electron each will be able to focus on our
respective businesses, and we each will be able to reward our employees
through incentive compensation and option plans that are tied more
directly to the performance of our own business.

DETERMINATION OF THE BOARD OF DIRECTORS OF THERMO ELECTRON TO SPIN-OFF VIASYS

In authorizing the distribution, the board of directors of Thermo Electron
considered a number of positive and negative factors, evaluated other options
with respect to our business and consulted with its financial advisors, J.P.
Morgan and The Beacon Group. The Thermo Electron board of directors ultimately
concluded that the distribution would maximize the combined value of Thermo
Electron and Viasys for Thermo Electron's stockholders.

Positive Considerations. In authorizing the distribution, the board of
directors of Thermo Electron considered the factors described above under
"-- Purpose of the Distribution." Thermo Electron's board of directors also
considered Thermo Electron's need to operate as a single company focused on its
core instruments business. Our operational focus, customer profile and market
dynamics were determined to be sufficiently dissimilar to Thermo Electron's core
instruments business to render our company difficult to manage together with
Thermo Electron's instruments business. The Thermo Electron board of directors
also considered that we would possess sufficient scale and business fundamentals
to operate as a stand-alone entity.

Negative Considerations. Thermo Electron's board of directors also
considered several negative factors in its evaluation of the distribution. For
example, the board believed that we would need a new chief executive officer and
a broader management team. The board also considered our need to establish
stand-alone accounting and information systems and our size in comparison to
some of our competitors. The board of directors of Thermo Electron also weighed
the elimination of our revenues from Thermo Electron's combined financial
statements.

Alternatives to the Distribution. The board of directors of Thermo
Electron considered several alternatives to the distribution. In particular, the
board considered retaining us as a wholly owned subsidiary of Thermo Electron,
but concluded that our operational focus, customer profile and market dynamics
were sufficiently dissimilar to those of Thermo Electron's core instrument
business to render it difficult for Thermo Electron to continue to manage our
business following Thermo Electron's reorganization. In addition, the board
considered a sale of our business, but concluded that the tax consequences of
such a sale would result in less of a benefit to Thermo Electron's stockholders
than a spin-off of our business.

MANNER OF EFFECTING THE DISTRIBUTION

In connection with the distribution, we have entered into a distribution
agreement and a tax matters agreement with Thermo Electron that set forth the
general terms and conditions of the distribution. See "Our Relationship with
Thermo Electron After the Distribution -- Distribution Agreement." We also have
entered into a transition services agreement with Thermo Electron that will
govern our relationship with Thermo Electron following the distribution. See
"Our Relationship with Thermo Electron After The Distribution -- Transition
Services Agreement."

THE NUMBER OF SHARES YOU WILL RECEIVE

Pursuant to the distribution agreement, for each share of Thermo Electron
common stock that you own at 4 P.M., Eastern time, on November 7, 2001, the
record date, you will be entitled to receive that number of shares of our common
stock equal to the quotient obtained by dividing the number of shares of our
common stock to be distributed in the spin-off by the total number of shares of
Thermo Electron common stock outstanding at 4 P.M., Eastern time, on the record
date. The following equation demonstrates the manner in which we will calculate
the number of shares of our common stock you will be entitled to receive for
each share of Thermo Electron common stock you hold:

<Table>

Total number of our shares to be distributed in the 26,000,000
spin-off
------------------------------------------------------ -----------
= = 0.1428
Total number of shares of Thermo Electron common stock 182,000,000
estimated to be outstanding as of 4 P.M., Eastern
time, on the record date
</Table>

Based on the number of shares of Thermo Electron common stock that we
estimate will be outstanding as of 4 P.M., Eastern time, on November 7, 2001,
you would be entitled to receive approximately 0.1428 of a share of our common
stock for each share of Thermo Electron common stock you owned. The final ratio
will be based on the actual number of Thermo Electron shares outstanding on the
record date.

You are not required to pay cash or any other consideration for the shares
of our common stock that you receive in the distribution. You will not need to
surrender or exchange certificates representing shares of Thermo Electron common
stock in order to receive shares of our common stock. You will continue to own
your shares of Thermo Electron common stock and, if you were a stockholder of
record on the record date for the distribution, you will also receive shares of
our common stock. The distribution will not otherwise change the number of, or
the rights associated with, outstanding shares of Thermo Electron common stock.

All shares of our common stock distributed to Thermo Electron stockholders
in the distribution will be fully paid and nonassessable, and the holders
thereof will not be entitled to preemptive rights. See "Description of Capital
Stock."

TRADING BETWEEN THE RECORD DATE AND DISTRIBUTION DATE

During the period beginning approximately two business days prior to the
record date and ending at the market close on the distribution date, there will
be two markets in Thermo Electron common stock: a "regular way" market and an
"ex-dividend" market. Shares that trade on the regular way market will trade
with an entitlement to shares of our common stock distributed pursuant to the
spin-off. Shares that trade on the ex-dividend market will trade without an
entitlement to shares of our common stock distributed pursuant to the spin-off.
Therefore, if you own shares of Thermo Electron common stock at 4 P.M., Eastern
time, on the record date, and sell those shares on the regular way market prior
to market close on the distribution date, you will also be trading the shares of
our common stock that would have been distributed to you pursuant to the
spin-off. If you sell those shares of Thermo Electron common stock on the
ex-dividend market prior to the distribution date, you will still receive the
shares of our common stock that were to be distributed to you pursuant to your
ownership of the shares of Thermo Electron common stock.

Furthermore, between the period beginning on or shortly before the record
date and market close on the distribution date, a "when-issued trading" market
in our common stock may develop. The when-issued trading market will be a market
for shares of our common stock that will be distributed to Thermo Electron
stockholders on the distribution date. If you own shares of Thermo Electron
common stock at 4 P.M., Eastern time, on the record date, then you will be
entitled to shares of our common stock distributed pursuant to the spin-off. You
may trade this entitlement to shares of our common stock, without the shares of
Thermo Electron common stock you own, on the when-issued trading market.

WHEN AND HOW YOU WILL RECEIVE THE DIVIDEND

Thermo Electron will distribute the dividend after market close on the
distribution date by releasing its shares of our common stock to be distributed
in the spin-off to American Stock Transfer & Trust Company, our transfer agent
and the distribution agent for the spin-off. As of 4 P.M., Eastern time, on
November 15, 2001, the distribution agent will cause the shares of our common
stock to which you are entitled to be registered in your name. As of that time,
you will become the record holder of that number of shares of our common stock.

The distribution agent will not deliver any fractional shares of our common
stock in connection with the spin-off. Instead, the distribution agent will
aggregate all fractional shares and sell them on behalf of those holders who
otherwise would be entitled to receive a fractional share. Such holders will
then receive a cash payment in the amount of their pro rata share of the total
net proceeds of that sale.

You will receive stock certificates representing your whole shares of our
common stock from the distribution agent. The distribution agent will begin
mailing stock certificates representing your whole shares of our common stock on
or promptly after November 15, 2001. Your check for any cash that you may be
entitled to receive instead of fractional shares of our common stock will follow
separately. We currently estimate that it will take about two weeks from the
distribution date for the distribution agent to complete these mailings. No
interest will accrue on the amount of any payment made in lieu of the issuance
of a fractional share.

ACCOUNTING TREATMENT OF THE DISTRIBUTION

The distribution will be treated for accounting purposes as a payment of a
dividend of shares of our common stock to stockholders of Thermo Electron in the
period in which the distribution is consummated.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION

Thermo Electron has received a favorable private letter ruling from the IRS
substantially to the effect that, among other things, the distribution will
qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code.
The following is a list of the material U.S. federal income tax consequences of
the distribution.

- Thermo Electron stockholders will not recognize gain or loss upon the
receipt of our common stock in the distribution, except that a Thermo
Electron stockholder will recognize gain or loss to the extent any cash
received in lieu of a fractional share of our common stock is greater or
less than, as applicable, the stockholder's basis in the fractional
share.

- Neither we nor Thermo Electron will recognize gain or loss upon the
distribution.

- The aggregate tax basis of the Thermo Electron common stock and our
common stock (including any fractional shares for which cash is received)
in the hands of each Thermo Electron stockholder after the distribution
will equal the aggregate tax basis of the Thermo Electron common stock
held immediately before the distribution. Applicable treasury regulations
require that the tax basis of the Thermo Electron common stock and our
common stock (including any fractional shares for which cash is received)
in the hands of each Thermo Electron stockholder be allocated in
proportion to fair market value at the time of the distribution.

- Assuming that a holder's Thermo Electron common stock is held as a
capital asset, the holding period for the shares of our common stock
received in the distribution by the holder will include

the holding period of the Thermo Electron common stock upon which the
distribution will be made.

Although the distribution will be tax-free as of the distribution date, the
occurrence of various actions or events following the distribution could render
the distribution taxable to us, Thermo Electron and stockholders of Thermo
Electron who receive shares of our common stock in the distribution. The events
that could cause the distribution to become taxable to Thermo Electron and/or
its stockholders retroactively include:

- our transfer of a material portion of our assets outside of the ordinary
course of business;

- Thermo Electron's transfer of a material portion of its assets outside of
the ordinary course of business;

- the liquidation of our company or Thermo Electron, or the merger of our
company or Thermo Electron with or into another corporation;

- our discontinuance of a material portion of our historical business
activities;

- Thermo Electron's discontinuance of a material portion of its historical
business activities;

- the conversion, redemption or exchange of shares of our common stock
received in the distribution into or for any other stock, security,
property or cash;

- transfers of our common stock or Thermo Electron common stock in amounts
sufficient to cause the historic stockholders of Thermo Electron not to
be considered to have maintained sufficient continuity of proprietary
interest in our company, Thermo Electron or both; and

- our failure to conduct a public offering of 10% to 20% of our common
stock within one year after the distribution in accordance with our
representation to the IRS.

As of the date of this information statement, neither we nor Thermo Electron has
any plans to take any of the foregoing actions.

If the distribution of our shares becomes taxable as a result of one of any
of the foregoing actions, then:

- The group of corporations with which we and Thermo Electron currently
file consolidated federal income tax returns would recognize a
corporate-level taxable gain. This gain generally would equal the amount
by which the fair market value of the shares of our common stock
distributed in the distribution exceeded Thermo Electron's basis in those
shares.

- Under applicable law, we and Thermo Electron each would be severally
liable for the corporate-level tax on such gain.

- Each holder of Thermo Electron common stock who received shares of our
common stock in the distribution would be treated as having received a
taxable dividend in an amount equal to the fair market value of the
shares of our common stock received.

In addition, the acquisition of 50% or more of the stock of Thermo Electron
or of our company, by vote or value, pursuant to a plan that contemplated both
the acquisition and the distribution would cause the distribution to become
fully taxable to Thermo Electron, but not its stockholders. For this purpose,
most acquisitions of stock within the four-year period beginning two years prior
to the distribution will be presumed to have been undertaken pursuant to such a
plan.

Under the tax matters agreement, we have agreed to indemnify Thermo
Electron, but not the stockholders of Thermo Electron, against liability for
taxes resulting from (a) the conduct of our business following the distribution
or (b) the failure of the distribution to Thermo Electron stockholders of shares
of our common stock or of Kadant common stock to continue to qualify as a
tax-free spin-off under Section 355 of the Internal Revenue Code as a result of
some actions that we take (or fail to take) following the distribution. Thermo
Electron has agreed to indemnify us against taxes resulting from the conduct of
Thermo Electron's business prior to and following the distribution or from the
failure of the distribution of shares of our common stock to the Thermo Electron
stockholders to continue to qualify as a tax-free spin-off under Section 355 of
the Internal Revenue Code other than as a result of actions that we may take (or
fail to take) following the distribution. If any of our post-distribution
activities causes the
39

distribution to become taxable, we could incur significant liability to Thermo
Electron and/or various taxing authorities, which could adversely affect our
results of operations, financial position and cash flows.

YOU SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES
OF THE DISTRIBUTION TO YOU, INCLUDING THE APPLICATION OF STATE, LOCAL AND
FOREIGN TAX LAWS. IN ADDITION, YOU SHOULD FILE WITH THE IRS THE FORM OF
INFORMATION STATEMENT ANNEXED HERETO AS ANNEX A WITH THE TAX RETURN COVERING THE
PERIOD IN WHICH THE DISTRIBUTION OCCURS.

STOCK PLANS AND RESTRICTED STOCK AND STOCK OPTION GRANTS

We have adopted an equity incentive plan and have reserved 4,680,000 shares
of our common stock for issuance to our employees, officers, directors,
consultants and advisors under this plan. We have granted options to purchase an
aggregate of 3,254,550 shares of our common stock under our equity incentive
plan. In addition, we expect to grant, at or shortly before the time of the
distribution, options under our equity incentive plan to purchase up to an
aggregate of 35,750 shares of our common stock. In addition, at or about the
time of distribution, we anticipate making a restricted stock grant to William
Ross, our executive vice president and chief operating officer, of shares of our
common stock under our equity incentive plan in an amount equal to $225,000
divided by the fair market value of our common stock at the time of the
distribution. We also have adopted an employee stock purchase plan, under which
we have reserved an aggregate of 650,000 shares, and a directors' deferred
compensation plan, under which we have reserved an aggregate of 25,000 shares.

TREATMENT OF THERMO ELECTRON OPTIONS HELD BY OUR EMPLOYEES

On the distribution date, all unexercised options for Thermo Electron
common stock, whether vested or unvested, held by our employees will be
converted into options to purchase shares of our common stock. In order to
determine the number of shares and the exercise price of options to purchase our
common stock to be issued in lieu of Thermo Electron options, we will first
calculate a conversion ratio by dividing the closing market price per share of
Thermo Electron common stock on the distribution date by the opening market
price per share of Viasys common stock on the day after the distribution. To
calculate the number of shares of Viasys stock to be covered by the options, we
will multiply the conversion ratio by the number of shares of Thermo Electron
common stock previously covered by the options held. To calculate the exercise
price for the Viasys options, we will divide the original exercise price of the
Thermo Electron options by the conversion ratio.

The resulting options for our common stock will maintain the original
vesting provisions and option periods. As of September 30, 2001, our employees
held options covering an aggregate of 367,581 shares of Thermo Electron common
stock. We do not currently know how many of our options we will issue upon the
assumption of Thermo Electron options because, among other things, we will not
know some of the conversion formula components until the day after the
distribution date.

TREATMENT OF THERMO ELECTRON RESTRICTED STOCK

Thermo Electron has granted four of our employees, including William Ross
and Gerald Brew, awards of restricted shares of Thermo Electron common stock
that are subject to forfeiture, in whole or in part, if employment terminates
prior to three years from the date of grant. At the time of the distribution, we
will exchange these shares of Thermo Electron restricted stock for restricted
shares of our common stock with the same vesting provisions. In order to
determine the number of shares of our restricted stock that we will issue in
lieu of Thermo Electron restricted stock, we will first calculate a conversion
ratio by dividing the closing market price per share of Thermo Electron common
stock on the distribution date by the opening market price per share of Viasys
common stock on the day after the distribution. To calculate the number of
shares of Viasys restricted stock to be issued, we will multiply the conversion
ratio by the number of shares of Thermo Electron restricted stock previously
held. We do not currently know how many Viasys restricted shares we will issue
upon the assumption of Thermo Electron restricted stock because, among other
things, we will not know the conversion formula components until the day after
the distribution date.

OUR RELATIONSHIP WITH THERMO ELECTRON AFTER THE DISTRIBUTION

In connection with the distribution, we and Thermo Electron have entered
into a distribution agreement and a transition services agreement, the material
terms of which are summarized below. In addition, we have entered into a tax
matters agreement, the material terms of which are summarized below under the
caption "The Distribution -- Material U.S. Federal Income Tax Consequences of
the Distribution."

DISTRIBUTION AGREEMENT

The distribution agreement provides for, among other things:

- the principal corporate transactions required to effect the distribution,
including the preparation of a registration statement registering our
common stock and associated preferred stock purchase rights under the
Securities Exchange Act;

- the conditions to effecting the distribution; and

- other arrangements governing the relationship between us and Thermo
Electron with respect to and resulting from the distribution.

The distribution agreement provides for cross-indemnification designed
principally to place financial responsibility for the liabilities of our
business with us and financial responsibility for the liabilities of Thermo
Electron's business with Thermo Electron. The distribution agreement also
provides for cross-indemnities in respect of liabilities under the Securities
Exchange Act relating to the registration of our common stock.

TRANSITION SERVICES AGREEMENT

The transition services agreement provides that Thermo Electron's corporate
staff will provide us with routine administrative services, including corporate
record keeping, legal, treasury, employee benefit, internal audit, executive
compensation, real estate and information systems services until December 31,
2001, accounting and securities compliance services until March 31, 2002, tax
related services until April 30, 2002 and insurance and risk management services
until June 30, 2002. Thermo Electron will provide us with these routine services
at a level and in a manner consistent with the services that Thermo Electron
provided to us prior to the distribution. In return for these routine
administrative services, we will pay Thermo Electron a fee equal to 0.6% of our
consolidated revenues for the fourth fiscal quarter of 2001, 0.4% for the first
fiscal quarter of 2002 and 0.1% for the second fiscal quarter of 2002, plus
out-of-pocket and third party expenses. We and Thermo Electron believe that this
fee arrangement reflects an arms-length, fair market valuation of the services
that Thermo Electron will provide us under this agreement.

In addition to routine administrative services, the transition services
agreement provides that Thermo Electron, in its discretion, may also provide us
with additional services specifically requested by us, such as acquisition and
offering support services, on terms that we and Thermo Electron mutually agree
upon. We expect that these terms will include fees that are comparable to the
fees Thermo Electron charged us and its other subsidiaries for similar services
prior to the distribution, plus out-of-pocket and third party expenses. Thermo
Electron's determination of whether a service is an additional service to be
provided at additional cost is binding on both parties unless made in bad faith.

LISTING AND TRADING OF OUR COMMON STOCK

Thermo Electron presently owns all of the outstanding shares of our common
stock. No trading prices are available with respect to such shares. Neither we
nor Thermo Electron can assure you as to the trading price of our common stock
or Thermo Electron's common stock after the distribution or as to whether their
initial combined price will be higher or lower than the price of Thermo Electron
common stock prior to the distribution.

After the distribution, 26,000,000 shares of our common stock will be
issued and outstanding. We have granted options to purchase an aggregate of
3,254,550 shares of our common stock under our equity incentive plan. We expect
to grant, on or shortly before the time of the distribution, options under our
equity incentive plan to purchase an aggregate of 35,750 shares of our common
stock. In addition, on or shortly before the distribution, we expect to grant
restricted shares of our common stock to one of our officers in an amount equal
to $225,000 divided by the fair market value of our common stock at the time of
the distribution.

The New York Stock Exchange has approved our common stock for listing under
the symbol "VAS." Based on the number of holders of Thermo Electron common stock
of record as of October 18, 2001, we expect to have approximately 13,000
stockholders of record on the date of the distribution.

The New York Stock Exchange has also approved our preferred stock purchase
rights for listing. Initially, these preferred stock purchase rights will attach
to and trade with our common stock. See "Description of Capital
Stock -- Stockholder Rights Plan" for a description of our preferred stock
purchase rights.

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

An active trading market in our common stock may not develop. If a market
does develop, we cannot predict the prices at which our common stock will trade.
A "when-issued" trading market in our common stock may develop on or shortly
before the record date for the distribution. A "when-issued" trading market
occurs when trading in shares begins prior to the time stock certificates are
actually available or issued.

Shares of our common stock distributed to Thermo Electron stockholders will
be freely transferable, except for shares received by persons who may be deemed
to be our "affiliates" under the Securities Act. Persons who may be deemed to be
our affiliates after the distribution generally may include individuals or
entities that control, are controlled by, or are under common control with us,
and will include our directors and executive officers. Our affiliates generally
may only resell the shares of our common stock held by them:

- in compliance with the applicable provisions of Rule 144 under the
Securities Act;

- under an effective registration statement under the Securities Act; or

- pursuant to an exemption from the registration requirements of the
Securities Act.

Under Rule 144, an affiliate may sell, within any three-month period, a
number of shares of our common stock that does not exceed the greater of:

- 1% of the then-outstanding shares of our common stock (260,000 shares
immediately after the distribution) or

- the average weekly trading volume of our common stock during the four
calendar weeks preceding the date on which notice of such sale was filed
under Rule 144,

provided, in either case, applicable requirements concerning availability of
public information, manner of sale and notice of sale are satisfied.

Upon consummation of the distribution, our affiliates will hold 5,256
shares of our common stock. Prior to the distribution, we plan to file with the
SEC one or more registration statements on Form S-8 to register under the
Securities Act the 5,355,000 shares of our common stock that we have reserved
for issuance under our equity incentive plan, employee stock purchase plan and
directors' deferred compensation plan.

CAPITALIZATION

The following table sets forth our short-term obligations and
capitalization as of June 30, 2001, after giving effect to a 13,332-for-one
stock split in August 2001 and a one-for-1.5384615 reverse split of all of our
outstanding shares of common stock effected in October 2001. This table should
be read in conjunction with the consolidated financial statements of related
notes included elsewhere in this information statement.

<Table>
<Caption>
JUNE 30, 2001
--------------
(IN THOUSANDS)

Short-term obligations...................................... $ 33,306
========
Shareholder's investment:
Common stock, $.01 par value, 100,000,000 shares
authorized,
26,000,000 shares issued and outstanding............... $ 260
Capital in excess of par value............................ 262,095
Retained earnings......................................... 25,757
Accumulated other comprehensive items..................... (2,780)
--------
Total capitalization.............................. $285,332
========
</Table>

The above information excludes:

- shares issuable upon the exercise of options that we have granted and
anticipate granting under our equity incentive plan;

- shares issuable upon the exercise of options that currently are
exercisable for Thermo Electron common stock but will become exercisable
for our common stock effective on the distribution date;

- restricted shares of our common stock that we anticipate issuing under
our equity incentive plan as of the distribution date to our employees in
exchange for their restricted shares of Thermo Electron common stock;

- restricted shares of our common stock that we anticipate awarding under
our equity incentive plan at or shortly before the time of the
distribution; and

- additional shares of common stock that we have reserved for issuance
under our stock plans.

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below as of January 1,
2000 and December 30, 2000 and for the fiscal years ended January 2, 1999,
January 1, 2000 and December 30, 2000 have been derived from our consolidated
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants, included elsewhere in this information
statement. The selected consolidated financial data as of January 3, 1998 and
January 2, 1999 and for the fiscal year ended January 3, 1998 have been derived
from our consolidated financial statements, which have been audited by Arthur
Andersen LLP, independent accountants, not included in this information
statement. The selected consolidated financial data as of and for the fiscal
year ended December 28, 1996 have been derived from our unaudited consolidated
financial statements not included in this information statement. The selected
consolidated financial data as of and for the six months ended July 1, 2000 and
June 30, 2001 have been derived from our unaudited consolidated financial
statements included elsewhere in this information statement. The selected
consolidated financial data as of and for the fiscal year ended December 28,
1996 and the six months ended July 1, 2000 and June 30, 2001 have not been
audited but, in the opinion of our management, include all adjustments,
consisting only of normal, recurring adjustments, necessary to present fairly
such information in accordance with generally accepted accounting principles
applied on a consistent basis. The results of operations for the six months
ended June 30, 2001 are not necessarily indicative of results for the entire
fiscal year. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements included elsewhere in this
information statement.

We acquired Medical Data Electronics in July 1996, Nicolet Vascular in
August 1997, Bear Medical Systems in October 1997, Grason-Stadler in November
1998 and Erich Jaeger in July 1999. The consolidated financial data below
reflect the financial data of each acquired company beginning as of the date of
its acquisition. Operating results for fiscal 1996 reflect $12.7 million of
unusual costs to write-off intangible assets in the medical and surgical
products segment and $12.0 million of other restructuring costs, primarily
associated with the respiratory care segment's acquisition of SensorMedics.

STATEMENT OF INCOME DATA:
Revenues...................... $222,675 $267,464 $306,363 $358,553 $345,428 $176,482 $177,290
-------- -------- -------- -------- -------- -------- --------
Costs and operating expenses:
Cost of revenues............ 112,869 134,542 158,572 186,444 180,494 90,755 94,112
Selling, general and
administrative expenses... 76,299 83,261 89,628 102,780 102,052 50,317 53,036
Research and development
expenses.................. 12,018 11,869 14,188 18,519 24,791 11,509 13,758
Restructuring and other
unusual costs (income),
net....................... 24,764 (1,259) 788 -- 1,964 1,016 1,124
-------- -------- -------- -------- -------- -------- --------
225,950 228,413 263,176 307,743 309,301 153,597 162,030
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)....... (3,275) 39,051 43,187 50,810 36,127 22,885 15,260
Interest income............... 22 3 85 275 106 86 60
Interest expense.............. (1,470) (1,477) (981) (1,410) (2,066) (985) (980)
Other income (expense), net... (574) -- -- 437 (393) (68) (134)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and minority
interest.................... (5,297) 37,577 42,291 50,112 33,774 21,918 14,206
Income tax (provision)
benefit..................... 1,263 (15,482) (17,198) (20,686) (14,690) (8,741) (5,967)
Minority interest (expense)
income...................... 4,119 (892) (759) (576) (191) (191) --
-------- -------- -------- -------- -------- -------- --------
Net income.................... $ 85 $ 21,203 $ 24,334 $ 28,850 $ 18,893 $ 12,986 $ 8,239
======== ======== ======== ======== ======== ======== ========
Basic and diluted earnings per
share....................... $ -- $ .82 $ .94 $ 1.11 $ .73 $ .50 $ .32
======== ======== ======== ======== ======== ======== ========
Basic and diluted weighted
average shares.............. 26,000 26,000 26,000 26,000 26,000 26,000 26,000
======== ======== ======== ======== ======== ======== ========
</Table>

<Table>
<Caption>
DEC. 28, JAN. 3, JAN. 2, JAN. 1, DEC. 30, JUNE 30,
1996 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- --------

BALANCE SHEET DATA:
Cash and cash equivalents..... $ 332 $ 1,814 $ 2,398 $ 3,012 $ 12,611 $ 4,916
Working capital............... 50,075 64,616 67,216 49,964 68,229 72,189
Total assets.................. 249,805 312,268 320,344 380,109 390,351 382,286
Short-term obligations........ 9,516 9,845 11,212 38,916 42,368 33,306
Long-term obligations......... 21,290 8,651 -- -- -- --
Minority interest............. 6,995 7,887 8,646 9,222 -- --
Shareholder's investment...... 168,322 226,892 249,271 255,431 285,490 285,332
OTHER FINANCIAL DATA:
Book value per share.......... $ 6.47 $ 8.73 $ 9.59 $ 9.82 $ 10.98 $ 10.97
Cash dividends................ -- -- -- -- -- --
</Table>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our
consolidated financial statements and related notes included elsewhere in this
information statement. Our fiscal year ends on the Saturday nearest December 31,
and each of our fiscal quarters ends on the Saturday nearest the final day of a
calendar quarter. The following discussion contains forward-looking statements.
Please see "Forward-Looking Statements" for a discussion of uncertainties, risks
and assumptions associated with these statements.

OVERVIEW

We design, manufacture, market and service a variety of medical and
surgical devices, instruments and other products for use in delivering a range
of healthcare services. We were incorporated in Delaware in August 1995 as a
wholly owned subsidiary of Thermo Electron. We were formed from a number of
businesses that had been acquired by Thermo Electron, including Bird Medical
Technologies, Bear Medical Systems and Nicolet Biomedical. In the third fiscal
quarter of 2000, Thermo Electron reallocated a number of subsidiaries and
operating divisions among Thermo Electron and some of its subsidiaries,
including our company. These transactions included Thermo Electron's transfer to
us of its Corpak, Erich Jaeger and Tecomet subsidiaries and substantially all of
the assets and related liabilities of its Thermedics Polymer Products division.
The effect of these transactions was to transfer to us all of the assets and
subsidiaries of Thermo Electron, other than those previously owned by us, that
comprise our respiratory care, neurocare and medical and surgical products
businesses.

We report our operations in three segments: respiratory care, neurocare
and medical and surgical products. The respiratory care segment designs,
manufactures and markets a variety of medical devices for the diagnosis and
treatment of respiratory-related disorders. The neurocare segment designs,
manufactures and markets a comprehensive line of neurodiagnostic systems. The
medical and surgical products segment designs, manufactures and markets critical
care disposable devices, a line of wireless patient monitoring systems and
specialty products and materials for sale to original equipment manufacturers.

The following table shows the revenues contributed by each of our operating
segments, expressed in absolute dollars (in thousands) and as percentages of
total revenues for the periods presented:

<Table>
<Caption>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------------ -------------------------------
JANUARY 2, JANUARY 1, DECEMBER 30, JULY 1, JUNE 30,
OPERATING SEGMENT 1999 2000 2000 2000 2001
----------------- -------------- -------------- -------------- -------------- --------------

Respiratory care........ $149,813 49% $184,371 51% $172,553 50% $ 86,766 49% $ 89,871 51%
Neurocare............... 70,088 23 91,624 26 90,902 26 47,541 27 42,012 24
Medical and surgical
products.............. 86,462 28 82,558 23 81,973 24 42,175 24 45,407 25
-------- --- -------- --- -------- --- -------- --- -------- ---
Totals......... $306,363 100% $358,553 100% $345,428 100% $176,482 100% $177,290 100%
======== === ======== === ======== === ======== === ======== ===
</Table>

REVENUES

We derive revenues primarily from the sale of products, and to a lesser
extent the provision of services, in our three operating segments. Prior to
fiscal 2000, we generally recognized revenues when title transferred, except
where complex installation was required, in which instances revenue was
recognized upon completion of installation. Effective January 2, 2000, we
adopted SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." Under SAB No. 101, revenues for products that require installation
for which the installation either is essential to functionality or is not deemed
inconsequential or perfunctory are recognized upon completion of installation.
Revenues for products sold where installation is not essential to functionality
and is deemed inconsequential or perfunctory are recognized upon transfer of
title with estimated installation costs accrued. As our revenues were not
materially affected by the adoption of SAB No. 101, we recorded no cumulative
effect of the change in

accounting principle for periods prior to fiscal 2000. We provide a reserve for
our estimate of installation and warranty costs at the time of shipment.

We recognize revenues from service contracts ratably over the terms of the
contracts. Our service revenues are derived from parts and supplies, in-house
and field repairs, service contracts and customer education.

Export revenues accounted for 27% of our total revenues in fiscal 1998, 24%
of our total revenues in fiscal 1999 and 23% of our total revenues in fiscal
2000. Revenues from countries outside the United States, based on selling
location, accounted for 5% of our total revenues in fiscal 1998, 10% of our
total revenues in fiscal 1999 and 12% of our total revenues in fiscal 2000.

COSTS AND OPERATING EXPENSES

Our cost of revenues consists primarily of manufacturing overhead,
materials, parts and labor. Our selling, general and administrative expenses and
research and development expenses consist primarily of salaries, commissions,
benefits, amortization and other expenses in support of these activities.

In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," we expense software development costs as incurred until technological
feasibility has been established. We believe that, under our current process for
developing software, the software is essentially completed concurrently with the
establishment of technological feasibility, and accordingly no software
development costs have been capitalized except for software recorded in
connection with an acquisition.

We focus our research, development and marketing activities on growth
segments of the healthcare industry. We estimate that the global demand for
respiratory care equipment and disposables is growing at an annual rate of 10%
and that the neurocare market is growing at an annual rate of 8%. We are seeking
to capitalize on our research, development and marketing expertise and our
relationships with physicians and other medical caregivers in the respiratory
care and neurocare markets to expand our business into high-value opportunities,
including therapy and information-based products. In addition to developing new
products, we are working to enhance and extend our existing product lines and to
develop next-generation products to broaden our existing respiratory care,
neurocare and medical and surgical product offerings.

We are party to a corporate services arrangement with Thermo Electron under
which Thermo Electron's corporate staff provides routine administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management and certain financial and other services, for which
we have paid Thermo Electron annually an amount equal to 0.8% of our revenues.
For these services we paid $2.8 million in fiscal 2000, $2.9 million in fiscal
1999 and $2.5 million in fiscal 1998. These amounts were recorded as selling,
general and administrative expenses. For additional items such as employee
benefit plans, insurance coverage and other identifiable costs, Thermo Electron
has charged us based upon costs attributable to our company.

In connection with the distribution, we have entered into a transition
services agreement under which Thermo Electron's corporate staff will continue
to provide us with routine administrative services following the distribution.
Thermo Electron will provide us with these services at a level and in a manner
consistent with the services that Thermo Electron provided to us prior to the
distribution. In return, we will pay Thermo Electron a fee equal to 0.6% of our
consolidated revenues for the fourth quarter of 2001, 0.4% for the first quarter
of 2002 and 0.1% for the second quarter of 2002, plus out-of-pocket and third
party expenses. The transition services agreement provides that Thermo
Electron's corporate staff will provide us with corporate record keeping, legal,
treasury, employee benefit, internal audit, executive compensation, real estate
and information systems services until December 31, 2001, accounting and
securities compliance services until March 31, 2002, tax related services until
April 30, 2002 and risk management services until June 30, 2002. The transition
services agreement provides that Thermo Electron, in its discretion, may also
provide us with additional services specifically requested by us, such as
acquisition and offering support services, on terms upon which we and Thermo
Electron mutually agree.

RESULTS OF OPERATIONS

The following table sets forth line items from our consolidated statements
of income as percentages of total revenues for the periods indicated:

<Table>
<Caption>
FISCAL YEAR ENDED SIX MONTHS ENDED
---------------------------- ------------------
JAN. 2, JAN. 1, DEC. 30, JULY 1, JUNE 30,
1999 2000 2000 2000 2001
------- ------- -------- ------- --------

Revenues............................................. 100% 100% 100% 100% 100%
--- --- --- --- ---
Costs and operating expenses:
Cost of revenues................................... 52 52 52 51 53
Selling, general and administrative expenses....... 29 29 30 28 30
Research and development expenses.................. 5 5 7 7 7
Restructuring and other unusual costs (income),
net............................................. -- -- 1 1 1
--- --- --- --- ---
86 86 90 87 91
--- --- --- --- ---
Operating income..................................... 14 14 10 13 9
Other expenses, net.................................. -- -- (1) (1) (1)
Provision for income taxes........................... (6) (6) (4) (5) (3)
--- --- --- --- ---
Net income........................................... 8% 8% 5% 7% 5%
=== === === === ===
</Table>

FIRST SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH FIRST SIX MONTHS ENDED JULY
1, 2000

Revenues. Revenues increased slightly to $177.3 million in the first six
months of 2001 from $176.5 million in the first six months of 2000. Increases in
revenues of $3.2 million in the medical and surgical products segment and $3.1
million in the respiratory care segment were offset by a decrease in revenues of
$5.5 million in the neurocare segment. We estimate that approximately $6.0
million of our revenues in the first six months of 2000 were attributable to
demand for year 2000 compliant products that we were unable to ship in fiscal
1999, including $1.5 million in the respiratory care segment and $4.5 million in
the neurocare segment.

Revenues in the respiratory care segment increased 4% to $89.9 million in
the first six months of 2001 from $86.8 million in the first six months of 2000.
Revenues increased primarily due to increased international demand for
ventilation products. Backlog for this segment increased 12% to $29.1 million at
June 30, 2001 from $26.0 million at December 30, 2000, primarily due to the
increased demand described above. The segment's backlog at July 1, 2000 totaled
$27.9 million.

Revenues in the neurocare segment decreased 12% to $42.0 million in the
first six months of 2001 from $47.5 million in the first six months of 2000,
primarily due to the completion of shipments in the first six months of 2000 of
year 2000 compliant products that had been ordered in fiscal 1999. Backlog for
this segment decreased 18% to $14.3 million at June 30, 2001 from $17.5 million
at December 30, 2000 due to cyclical order patterns. The segment's backlog at
July 1, 2000 totaled $13.3 million.

Revenues in the medical and surgical products segment increased 8% to $45.4
million in the first six months of 2001 from $42.2 million in the first six
months of 2000. The increase in revenues resulted primarily from the sale of
precision metal components including the introduction in late 2000 of a new
artificial joint replacement product for use in knee surgery. The increase in
revenues also resulted from demand for polyurethane products including film for
use in the manufacture of secure glass for adverse weather conditions and
security applications. Backlog for this segment decreased 11% to $15.7 million
at June 30, 2001 from $17.7 million at December 30, 2000, primarily due to a
slowdown in orders for precision metal components from a major customer and
ongoing lower demand for wireless patient monitoring equipment. The segment's
backlog at July 1, 2000 totaled $16.7 million.

Our total backlog decreased 3% to $59.1 million at June 30, 2001 from $61.2
million at December 30, 2000 due to the reasons discussed above. Our total
backlog was $58.0 million at July 1, 2000.

Costs and Gross Margin. Our gross margin decreased to 47% in the first six
months of 2001 from 49% in the first six months of 2000. A decrease in margin
occurred among all three of our segments but the lower consolidated margin was
primarily due to a 3.2% decrease in the neurocare segment's margin and a 2.2%
decrease in the medical and surgical products segment's margin. The gross margin
in the neurocare segment decreased due to increased sales of products through
third-party distributorships, which carry lower margins, and a smaller
contribution towards fixed costs as a result of lower sales. The gross margin in
the medical and surgical products segment decreased due in part to pricing
pressures from a large customer for precision metal components. The gross margin
in the respiratory care segment decreased slightly due to a change in product
mix to lower-margin ventilation products that were sold as part of orders from
large international customers.

Selling, general and administrative. Selling, general and administrative
expenses as a percentage of revenues increased to 30% in the first six months of
2001 from 29% in the first six months of 2000. Selling, general and
administrative expenses as a percentage of revenues increased due to $0.8
million of higher incentive compensation in the respiratory care segment due to
anticipated improved results in 2001 based on orders growth after softness in
2000. In addition, we incurred $1.1 million of higher expenses to establish
corporate office functions in anticipation of becoming a public company and an
increase in costs for ongoing litigation. Selling, general and administrative
expenses increased 5% to $53.0 million in the first six months of 2001 from
$50.3 million in the first six months of 2000. The increase was primarily due to
higher expenses discussed above.

Research and development. Research and development expenses increased $2.3
million to $13.8 million in the first six months of 2001 from $11.5 million in
the first six months of 2000. The increase was primarily due to higher research
and development costs for new products, including expenditures for seizure
prediction, level of consciousness, rehabilitation, and nerve imaging products
in the neurocare segment and for a static nebulizer product in the respiratory
care segment.

Restructuring and other unusual costs, net. We recorded restructuring and
unusual costs of $1.1 million in the first six months of 2001, compared with
$1.0 million in the first six months of 2000. The restructuring and unusual
costs in 2001 were primarily for employee retention costs. Approximately 23
employees, principally key management team members, received retention agreement
from Thermo Electron to help ensure their continued availability at least
through the date of the distribution of our common stock. We currently expect
that these employees generally will continue employment following the
distribution date. We also recorded $0.2 million of severance for 13 employees
in the neurocare segment, all of which will be paid in 2001. Restructuring and
unusual costs in 2000 include $0.3 million of severance for 54 employees in the
respiratory care segment, $0.2 million for abandoned facility costs, $0.3
million of retention costs, and $0.2 million of other restructuring costs. We
expect to pay amounts accrued for retention in the fourth fiscal quarter of
2001.

Our management has approved and commenced a plan to restructure some of our
operations in an effort to reduce costs and streamline operations. The actions
include headcount reductions and consolidation of facilities. In connection with
these plans we expect to record charges totaling $4.6 million, including $0.5
million in the third quarter of 2001, $3.6 million in the fourth quarter of 2001
and $0.5 million thereafter for costs that will be recorded in the periods they
are incurred, primarily for relocation of personnel and retention costs. The
$4.6 million of charges include $2.7 million in the neurocare segment and $1.9
million in the respiratory care segment. The charges include cash costs of $4.2
million, including $3.0 million of severance for approximately 110 employees
across all functions, $0.4 million of facility lease costs, $0.4 million of
retention costs and $0.4 million of other costs. We expect these expenditures to
occur primarily during the remainder of 2001 and early 2002. We will incur
non-cash costs of $0.4 million for asset write-offs associated with abandoned
facilities, primarily for fixed assets. The actions include closure of the
neurocare segment's operating facility in New Hampshire and consolidation with
existing operations in Wisconsin. In addition, this segment will vacate a sales
and service office in France and appoint a third party distributor. The
respiratory care segment is closing five sales and service operations in Germany
and Austria and will consolidate operations in an existing facility in Germany.
We expect the restructuring actions to be substantially completed by the first
quarter of 2002. We estimate the resulting
49

annual cost reductions will total $6.3 million, including $3.7 million in the
neurocare segment and $2.6 million in the respiratory care segment, generally
beginning in the first quarter of 2002.

Interest expense, net. Interest expense was $0.9 million in the first six
months of 2001 and in the first six months of 2000. Interest income was
immaterial in both periods.

Provision for income taxes. Our effective tax rate was 42% in the first
six months of 2001 and 40% in the first six months of 2000. The effective tax
rates exceeded the statutory federal income tax rate primarily due to the impact
of state income taxes and nondeductible amortization of goodwill. Our effective
tax rate in the first six months of 2000 was lower than the rate for the full
year 2000 due to operating losses in the second half of 2000 for which no tax
benefit was provided.

FISCAL YEAR ENDED DECEMBER 30, 2000 COMPARED WITH FISCAL YEAR ENDED JANUARY 1,
2000

Revenues. Revenues decreased 4% to $345.4 million in fiscal 2000 from
$358.6 million in fiscal 1999. Revenues decreased by $11.8 million in the
respiratory care segment, $0.7 million in the neurocare segment and $0.6 million
in the medical and surgical products segment. We believe that approximately
$22.0 million of our revenues in fiscal 1999 were attributable to demand for
year 2000 compliant products, including $15.0 million in the respiratory care
segment and $7.0 million in the neurocare segment. We estimate that
approximately $6.0 million of our revenues in fiscal 2000 were attributable to
demand for year 2000 compliant products that we were unable to ship in fiscal
1999, including $1.5 million in the respiratory care segment and $4.5 million in
the neurocare segment.

Revenues in the respiratory care segment decreased 6% to $172.6 million in
fiscal 2000 from $184.4 million in fiscal 1999. Revenues increased $18.4 million
due to the inclusion of Erich Jaeger, acquired in July 1999, for the full fiscal
year in 2000. This increase was offset by a decline in sales of respiratory
products due to strong demand in fiscal 1999 for year 2000 compliant products
and competitive pricing pressures in Europe due to Euro weakness in fiscal 2000.
Our export sales from the United States generally are denominated in U.S.
dollars. As the Euro weakens, selling prices of competitors with manufacturing
bases in Europe become relatively lower. Backlog for this segment increased to
$26.0 million at December 30, 2000 from $23.4 million at January 1, 2000,
primarily due to renewed growth after softness in fiscal 2000.

Revenues in the neurocare segment decreased 1% to $90.9 million in fiscal
2000 from $91.6 million in fiscal 1999. Revenues decreased due to the effect of
competitive pricing pressures and customer capital budget restraints in fiscal
2000 and high demand in fiscal 1999 for year 2000 compliant products. These
decreases were offset in part by completion of shipments in early fiscal 2000 of
year 2000 compliant products that we had been unable to ship by the end of
fiscal 1999. Backlog for this segment decreased to $17.5 million at December 30,
2000 from $20.2 million January 1, 2000, primarily due to the completion of
shipments for year 2000 compliant products and new products that had been
ordered in fiscal 1999.

Revenues in the medical and surgical products segment decreased 1% to $82.0
million in fiscal 2000 from $82.6 million in fiscal 1999. The decrease was
primarily due to $3.1 million of lower revenues from patient monitoring
equipment due to a continuing downturn in demand. This decrease was offset in
part by an increase in demand for polyurethane films due to the introduction of
product improvements. Backlog for this segment increased to $17.7 million at
December 30, 2000 from $12.0 million at January 1, 2000, due in part to orders
growth in our precision metal components business for new product introductions
and releases of orders for most of 2001 from several large customers. In
addition, backlog increased due to demand for polyurethane films, offset in part
by lower orders for wireless patient monitoring equipment.

Total backlog increased to $61.2 million at December 30, 2000, from $55.7
million at January 1, 1999 due to the reasons discussed above.

Costs and gross margin. Our gross margin was 48% in both fiscal 2000 and
fiscal 1999. Improvement in the neurocare segment, primarily due to the
introduction of higher-margin products, was offset in part by a decrease in the
gross margin in the respiratory care segment, primarily due to lower revenues at
existing businesses.
50

Selling, general and administrative. Selling, general and administrative
expenses as a percentage of revenues were 30% in fiscal 2000 and 29% in fiscal
1999. Selling, general and administrative expenses as a percentage of revenues
increased in the respiratory care segment due to the inclusion of Erich Jaeger
for a full period in 2000 and its higher expenses as a percentage of revenues.
This was offset, in part, by a reduction in expenses as a percentage of revenues
in the medical and surgical products segment due to a reduction in selling
expenses associated with wireless patient monitoring equipment. Selling, general
and administrative expenses decreased 1% to $102.1 million in fiscal 2000 from
$102.8 million in fiscal 1999. The decrease was primarily due to lower costs in
the respiratory care segment for incentive compensation, which fluctuates based
on the degree to which the segment achieves targeted sales and operating
results, and lower selling expenses discussed above. These expense reductions
were offset in part by the inclusion of expenses at Erich Jaeger for the full
year in fiscal 2000.

Research and development. Research and development expenses increased 34%
to $24.8 million in fiscal 2000 from $18.5 million in fiscal 1999. The increase
was primarily due to the inclusion of expenses at Erich Jaeger for the full year
in fiscal 2000. In addition, higher research and development costs for new
products contributed to the increase, including expenditures for seizure
prediction and level of consciousness products in the neurocare segment.

Restructuring and other unusual costs, net. We recorded restructuring and
unusual costs of $2.0 million in fiscal 2000. These costs included $1.3 million
for employee retention costs. Restructuring and unusual costs also include $0.3
million of severance for 54 employees in the respiratory care segment, $0.2
million for abandoned facility costs and $0.1 million of other restructuring
costs.

Interest expense, net. Interest income was $0.1 million in fiscal 2000 and
$0.3 million in fiscal 1999. Interest expense increased to $2.1 million in
fiscal 2000 from $1.4 million in fiscal 1999. The increase in interest expense
was due primarily to the inclusion in fiscal 2000 of a full year of interest
expense incurred on borrowings used to fund the acquisition of Erich Jaeger,
compared with five months in fiscal 1999. This increase was offset in part by
the effect of lower outstanding borrowings related to the acquisition of Medical
Data Electronics.

Provisions for income taxes. Our effective tax rate was 43% in fiscal 2000
and 41% in fiscal 1999. The effective tax rates exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of goodwill. The effective tax rate increased in
fiscal 2000 in part due to an increase in losses outside the U.S. that were not
benefited.

FISCAL YEAR ENDED JANUARY 1, 2000 COMPARED WITH FISCAL YEAR ENDED JANUARY 2,
1999

Revenues. Revenues increased 17% to $358.6 million in fiscal 1999 from
$306.4 million in fiscal 1998. Increases in revenues in the respiratory care
segment of $34.6 million and the neurocare segment of $21.5 million were offset
in part by a decrease in revenues in the medical and surgical products segment
of $3.9 million.

Revenues in the respiratory care segment increased 23% to $184.4 million in
fiscal 1999 from $149.8 million in fiscal 1998, primarily due to the inclusion
of $22.0 million in revenues from Erich Jaeger, which was acquired in July 1999.
Revenues also increased due to higher demand for year 2000 compliant products.

Revenues in the neurocare segment increased 31% to $91.6 million in fiscal
1999 from $70.1 million in fiscal 1998. Revenues increased $12.5 million due to
the inclusion of a full twelve months of revenues from Grason-Stadler, which was
acquired in November 1998. Revenues also increased due to higher demand for year
2000 compliant products and enhanced product introductions, as well as $2.8
million of higher sales in Asia due to improved economic conditions there
following uncertainty in fiscal 1998.

Revenues in the medical and surgical products segment decreased 5% to $82.6
million in fiscal 1999 from $86.5 million in fiscal 1998. Revenues decreased
$1.8 million due to lower demand for precision metal components, particularly
artificial hips. The segment's principal customer for this product reduced its

purchases as part of measures to improve its inventory management. In addition,
revenues from wireless patient monitoring systems decreased $1.8 million due to
lower demand.

Costs and gross margin. The gross margin was 48% in fiscal 1999 and fiscal
1998. The gross margin in the medical and surgical products segment decreased to
41% in fiscal 1999 from 44% in fiscal 1998, primarily due to a decrease in
revenues from wireless patient monitoring systems and inventory provisions of
$0.7 million for this product line. This decrease was offset by an increase in
the gross margin in the respiratory care segment due to $1.2 million of
inventory provisions for obsolete mechanical ventilators in fiscal 1998.

Selling, general and administrative. Selling, general and administrative
expenses represented 29% of revenues in fiscal 1999 and fiscal 1998. Selling,
general and administrative expenses increased 15% to $102.8 million in fiscal
1999 from $89.6 million in fiscal 1998, primarily due to the inclusion of $9.6
million of expenses at acquired businesses. In addition, selling, general and
administrative expenses increased due to higher commissions and incentive
compensation in the respiratory care and neurocare segments related to increased
revenues and higher provisions for accounts receivable reserves in the
respiratory care segment due to an increase in international revenues and an
associated increase in the aging of accounts receivable.

Research and development. Research and development expenses increased 31%
to $18.5 million in fiscal 1999 from $14.2 million fiscal 1998. The increase in
research and development expenses was primarily due to the inclusion of $3.9
million of expenses at acquired businesses.

Restructuring and other unusual costs, net. We recorded unusual costs of
$0.8 million in fiscal 1998, primarily for severance costs for seven employees
at SensorMedics.

Interest expense, net. Interest expense increased to $1.4 million in
fiscal 1999 from $1.0 million in fiscal 1998. The increase was a result of
borrowings used to finance the acquisition of Erich Jaeger, offset in part due
to lower outstanding borrowings related to the acquisition of Medical Data
Electronics.

Provisions for income taxes. Our effective tax rate was 41% in both fiscal
1999 and fiscal 1998. The effective tax rate exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of goodwill.

LIQUIDITY AND CAPITAL RESOURCES

Cash generated from operating activities was $11.0 million for the first
six months of 2001 compared with $20.0 million for the first six months of 2000.
Cash generated from operating activities was $27.7 million for fiscal 2000. Our
cash flow primarily reflects net income, excluding the non-cash financial effect
associated with depreciation and amortization. The cash from operations in the
first six months of 2001 also reflected an increase in inventories of $6.6
million, including(1) an increase in inventories of $2.7 million in the
neurocare segment in anticipation of a new product release and delays in
shipments and (2) an increase in inventories in the respiratory care segment as
the result of new products and expanded volume purchases. The cash flow from
operations in fiscal 2000 reflected (1) a decrease of $12.7 million in accounts
receivable due to lower revenues in the fourth fiscal quarter of 2000 compared
with the fourth fiscal quarter of 1999, (2) an increase of $11.8 million in
inventories, primarily at the respiratory care segment due to a decline in
revenues and at the medical and surgical products segment due to the effect of
improved inventory management measures by the segment's principal customer for
artificial hips, and (3) a decrease of $10.4 million in other current
liabilities, primarily associated with accrued payroll, benefits and sales
commissions that were paid in 2000 and restructuring expenses associated with
the acquisition of our Erich Jaeger subsidiary.

Cash used in investing activities was $4.4 million for the first six months
of 2001 compared with $4.2 million for the first six months of 2000. Cash used
in investing activities was $8.8 million for fiscal 2000. Capital expenditures
have been the principal component of our investing activities. We purchased
property, plant and equipment using cash of $4.2 million in the first six months
of 2001, $4.1 million in

the first six months of 2000 and $7.5 million in fiscal 2000. During the last
two fiscal quarters of 2001, we expect to make capital expenditures of
approximately $7.0 million.

During the first six months of 2001, our financing activities used cash of
$13.6 million, due to net transfers of $7.1 million and the repayment of
short-term obligations to Thermo Electron. During fiscal 2000, our financing
activities used cash of $8.4 million, primarily due to net transfers of $10.9
million to Thermo Electron.

As of June 30, 2001, we owed a wholly owned subsidiary of Thermo Electron
an aggregate of $33.3 million for indebtedness relating primarily to the
acquisition of our Erich Jaeger subsidiary. This advance is currently due on
demand by Thermo Electron, but the amount of our indebtedness outstanding as of
the distribution date will be evidenced by an unsecured promissory note on the
distribution date. This promissory note will bear interest at the prime rate
plus 0.5% payable quarterly and will mature 12 months from the distribution
date. In the event that prior to the maturity of the note we receive cash
proceeds from a debt financing, we must prepay the principal up to the net
amount of such proceeds.

Our consolidated working capital was $72.2 million at June 30, 2001,
compared with $68.2 million at December 30, 2000. Our cash and cash equivalents
totaled $4.9 million at June 30, 2001, compared with $12.6 million at December
30, 2000. In accordance with Thermo Electron's past practices, we transfer, and
will continue to transfer until the distribution date, to Thermo Electron all of
our cash and cash equivalents, other than the cash and cash equivalents of our
foreign subsidiaries. Cash and cash equivalents in the consolidated balance
sheet included in this information statement, and in this discussion, represent
cash of our foreign subsidiaries. On or prior to the distribution date, Thermo
Electron will provide us with sufficient cash, which when added to our existing
cash and cash equivalents, will result in our having a "net debt" balance of
$18.7 million. For purposes of this calculation, "net debt" is defined as our
outstanding indebtedness to Thermo Electron as of the distribution date less our
cash and cash equivalents as of such date.

We believe our existing resources are sufficient to meet the capital
requirements of our existing business for at least the next 12 months and to pay
interest as it becomes due on our promissory note to Thermo Electron. We do not
expect, however, that our cash resources and our net operating cash flow will
provide us with sufficient funds to repay the principal amount of the promissory
note when it comes due. As a result, we will need to seek additional funding to
repay this debt, through public or private financing or other arrangements. Our
ability to obtain debt or equity funding will depend on a number of factors,
including market conditions, our operating performance and investor interest. As
a result, we cannot assure you that we will succeed in obtaining the funds
necessary to pay the promissory note when due. Even if we are able to obtain the
funds, we may need to revise our business plan to reduce expenditures, including
curtailing our growth strategies, foregoing acquisitions or reducing our product
development efforts.

Beyond the next 12 months our capital requirements will depend on many
factors, including the rate of our sales growth, market acceptance of our new
and existing products, the success of our product development efforts, capital
spending policies of our customers, government spending policies and general
economic conditions. Although we are not a party to any agreement or letter of
intent with respect to a potential transaction, we may enter into acquisitions
or strategic arrangements in the future that could require us to seek additional
debt or equity financing.

The IRS ruling with respect to the distribution is based, in part, on our
representation that we will conduct a public offering of 10% to 20% of our
common stock within one year after the distribution. We may be unable to
complete a public offering for a number of reasons, including adverse market
conditions or adverse developments in our business following the distribution.
If we are unable to complete a public offering of shares of our common stock on
acceptable terms or at all, we may be required to revise our business plan to
reduce expenditures, including curtailing our growth strategies, foregoing
acquisitions or reducing our product development efforts. In addition, if we do
not conduct a public offering of 10% to 20% of our common stock within one year
after the distribution, the distribution could become taxable to us, Thermo
Electron and the stockholders of Thermo Electron who receive shares of our
common stock in

the distribution. As part of the distribution, we will indemnify Thermo Electron
for any resulting tax liability if the tax liability is attributable to certain
acts by us.

RISK MANAGEMENT

We are exposed to market risk from changes in interest rates and foreign
currency exchange rates, which could affect our future results of operations and
financial condition. We manage our exposure to these risks through our regular
operating and financing activities. Our exposure to market risks did not change
materially between December 30, 2000 and June 30, 2001.

We generally view our investment in international subsidiaries with a
functional currency other than our reporting currency as long-term. Our
investment in international subsidiaries is sensitive to fluctuations in
currency exchange rates. The functional currencies of our international
subsidiaries are principally denominated in German marks and Dutch guilders. The
effect of a change in currency exchange rates on our net investment in
international subsidiaries is reflected in the "Accumulated other comprehensive
items" component of shareholder's investment. A 10% reduction in fiscal year-end
2000 functional currencies, relative to the U.S. dollar, would result in a $1.4
million reduction of shareholder's investment. A 10% reduction in fiscal
year-end 1999 functional currencies would not have a material impact on
shareholder's investment.

Our cash, cash equivalents and variable-rate short-term obligations are
sensitive to changes in interest rates. Interest rate changes would result in a
change in interest income and expense due to the difference between the current
interest rates on cash, cash equivalents and the variable-rate short-term
obligations and the rate that these financial instruments may adjust to in the
future. A 10% increase in fiscal year-end 2000 interest rates would result in a
negative impact of $168,000 on our net income. A 10% decrease in fiscal year-end
1999 interest rates would have resulted in a negative impact of $86,000 on our
net income.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," and No. 142,
"Goodwill and Other Intangible Assets." We will adopt the requirements of SFAS
No. 141 and No. 142 effective December 30, 2001. SFAS No. 141 requires that all
acquisitions must be accounted for under the purchase method of accounting. SFAS
No. 142 requires companies to test all goodwill for impairment and to cease
amortization of this asset. The provisions of SFAS No. 142 apply to all goodwill
regardless of when it was acquired. We are evaluating the impact of adoption of
these standards and have not yet determined the effect of adoption on our
financial statements. Amortization of goodwill was $5.0 million in fiscal 2000
and $2.6 million in the first six months of 2001.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on
the recognition, presentation and disclosure of revenues in financial
statements. For a description of our implementation of SAB No. 101, see
"Overview -- Revenues" above.

In 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133, as amended, requires that all
derivatives, including foreign currency exchange contracts, be recognized on the
balance sheet at fair value. Changes in the fair value of derivatives that are
not hedges must be recorded through earnings. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative are either offset against the change in fair value of the hedged item
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. We adopted SFAS No. 133 in the first fiscal
quarter of 2001. We do not believe the effect of adoption of SFAS No. 133 has
been, or will be, material to our consolidated financial statements.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Set forth below is information with respect to those individuals who will
be serving as our executive officers and directors upon completion of the
distribution.

<Table>
<Caption>
NAME AGE POSITION
---- --- --------

Randy H. Thurman..................... 52 President, Chief Executive Officer and Chairman of the
Board
William B. Ross...................... 51 Executive Vice President and Chief Operating Officer
Martin P. Galvan..................... 49 Senior Vice President and Chief Financial Officer
Gerald G. Brew....................... 46 Group President, Viasys Neurocare
Stephen P. Connelly.................. 50 Group President, Medical/Surgical and International
Sales
Edward Pulwer........................ 54 Group President, Viasys Respiratory Care
Teunis T. van den Berg............... 58 Group President, Viasys Critical Care
Ronald A. Ahrens(2).................. 62 Director
David W. Golde(1).................... 61 Director
Kirk E. Gorman(1).................... 50 Director
Mary J. Guilfoile(1)................. 47 Director
Robert W. O'Leary(2)................. 57 Director
Thomas A. Vanderslice(2)............. 69 Director
</Table>

---------------

(1) Member of the Audit Committee

(2) Member of the Compensation Committee

Prior to the distribution, our board of directors was comprised of Robert
W. O'Leary, Richard F. Syron, Randy H. Thurman and Elaine S. Ullian. Dr. Syron
and Ms. Ullian will resign as directors on the distribution date, and Mr.
Thurman will succeed Dr. Syron as chairman of our board of directors.

Mr. Thurman has served as our president and chief executive officer since
April 2001 and will become our chairman upon the distribution of our common
stock by Thermo Electron. From 1996 to April 2001, Mr. Thurman served as
chairman and chief executive officer of Strategic Reserves LLC, a privately held
company he founded to provide funding and strategic direction to healthcare
technology companies. From 1993 to 1996, Mr. Thurman served as chairman and
chief executive officer of Corning Life Sciences Inc., a healthcare company
specializing in clinical diagnostics, advanced diagnostic testing and
pharmaceutical research. From 1984 to 1993, Mr. Thurman served in various
capacities at Rhone-Poulenc Rorer Pharmaceuticals, Inc., a global pharmaceutical
company, most recently as president and chief executive officer. Mr. Thurman is
also currently the chairman of the board of directors of Enzon, Inc. and a
director of CuraGen Corporation and CLOSURE Medical Corporation.

Mr. Ross has served as our executive vice president and chief operating
officer since April 2001 and the president of SensorMedics Corporation, one of
our wholly owned subsidiaries, since October 1996. From July 2000 to April 2001,
Mr. Ross served as our interim chief executive officer and as one of our
directors. Mr. Ross was president of SensorMedics Corporation's critical care
division from January 1995 to October 1996, and prior to that time, was the vice
president, sales and marketing for SensorMedics Corporation.

Mr. Galvan has served as our senior vice president and chief financial
officer since June 2001. From January 1999 to June 2001, Mr. Galvan served as
chief financial officer of Rodel, Inc., a precision surface technologies firm
serving the semiconductor industry. From 1979 to January 1998, Mr. Galvan held
positions at Rhone-Poulenc Rorer Pharmaceuticals, Inc., a global pharmaceuticals
company, most recently as vice president, finance.

Mr. Brew has served as our group president, Viasys neurocare since April
2001 and the president of Nicolet Biomedical Inc., one of our wholly owned
subsidiaries, since October 1993. From 1988 to 1993, Mr. Brew held several
positions at Nicolet Instrument Corporation, most recently as a vice president.
Mr. Brew currently serves as the vice chairman of the American Academy of
Neurology Foundation.

Mr. Connelly has served as group president, medical/surgical and
international sales since August 2001. From 1980 to 1999, Mr. Connelly held a
number of positions at Rhone-Poulenc Rorer, a global pharmaceutical company,
including senior vice president and general manager, the Americas from 1995 to
1998, and senior vice president, Asia/Pacific from 1992 to 1995.

Mr. Pulwer has served as group president, Viasys respiratory care since
June 2001 and has served as the general manager of SensorMedics Corporation, one
of our wholly owned subsidiaries, since October 1999. Mr. Pulwer has held
numerous positions with SensorMedics since 1983, including vice president for
world wide sales, regional area sales manager and critical care marketing and
sales manager.

Mr. van den Berg has served as group president, Viasys critical care since
July 2001. From 1998 to 2001, Mr. van den Berg served as president of Bird
Medical Technologies, one of our wholly owned subsidiaries. From 1998 to 2001,
Mr. van den Berg was president of Bear Medical Systems, another of our wholly
owned subsidiaries. Mr. van den Berg served as vice president of Bird Products
Company, another of our wholly owned subsidiaries, from 1984 to 1998.

Mr. Ahrens will serve as one of our directors commencing at 4 P.M., Eastern
time, on the distribution date. Mr. Ahrens, a retired senior executive, has
served since 1995 as an advisor to Merck & Company, Inc., a pharmaceutical
company. From 1991 to 1995, Mr. Ahrens served as the president of Merck Consumer
Healthcare Group Worldwide. Mr. Ahrens is chairman of the board of directors of
Closure Medical Corporation, a developer of proprietary and patented medical
devices.

Dr. Golde will serve as one of our directors commencing at 4 P.M., Eastern
time, on the distribution date. Since 1996, Dr. Golde has served as
physician-in-chief and as a member of the board of overseers and managers of
Memorial Sloan-Kettering Cancer Center, New York. Since 1991, Dr. Golde has also
been a professor of medicine emeritus, at the University of Los Angeles School
of Medicine and a professor of medicine at Cornell University Medical College.
Since 1992, Dr. Golde has been a professor of molecular pharmacology and
therapeutics at the Cornell University Graduate School of Medical Sciences.

Mr. Gorman will serve as one of our directors commencing at 4 P.M., Eastern
time, on the distribution date. Since 1992, Mr. Gorman has served as senior vice
president and chief financial officer of Universal Health Services Inc., a
health care provider. Mr. Gorman has also served as vice president and treasurer
of Universal Health Services Inc. since April 1987.

Ms. Guilfoile will serve as one of our directors commencing at 4 P.M.,
Eastern time, on the distribution date. Since August 2001, Ms. Guilfoile has
served as the chief administrative officer and executive vice president of an
investment banking subsidiary of JPMorgan Chase. From August 2000 to July 2001,
Ms. Guilfoile served as Corporate Treasurer of J.P. Morgan & Company. From 1993
until July 2000, Ms. Guilfoile served as chief financial officer of the Beacon
Group, a private investment and wealth management partnership.

Mr. O'Leary has served as a director since June 2001. Mr. O'Leary has been
the chairman and chief executive officer of The Sagamore Group, a firm
specializing in change management situations with a focus on the service sector,
since March 2001. He was the president and chief executive officer of
PacificCare Health Systems Inc., a managed health services company, from July
2000 to October 2000. From 1995 until July 2000, Mr. O'Leary was the chairman
and chief executive officer of Premier Inc., a strategic alliance of
not-for-profit health care and hospital systems. From 1990 to 1995, Mr. O'Leary
was the chairman of American Medical International, Inc., one of the three
predecessor entities of Premier Inc. Mr. O'Leary is also a director of Smith
Group PLC.

Dr. Vanderslice will serve as one of our directors commencing at 4 P.M.,
Eastern time, on the distribution date. From November 1989 to June 1995, Dr.
Vanderslice, who is now a private investor, served as chairman and chief
executive officer of M/A-COM, Inc., a manufacturer of radio frequency and
microwave components. Dr. Vanderslice is a member of the board of directors of
ChevronTexaco Corp., a global energy company.

CLASSIFIED BOARD OF DIRECTORS

At the time of the distribution, we will have seven directors, and the
terms of office of our directors will be divided into three classes with
staggered three-year terms. As a result, a portion of our board of directors
will be elected each year. The division of the three classes, the initial
directors and their respective election dates are as follows:

- the class 1 directors will be Kirk E. Gorman, David W. Golde and Thomas
A. Vanderslice, and their term will expire at the 2002 annual meeting of
stockholders;

- the class 2 directors will be Ronald A. Ahrens and Mary J. Guilfoile, and
their term will expire at the 2003 annual meeting of stockholders; and

- the class 3 directors will be Randy H. Thurman and Robert W. O'Leary, and
their term will expire at the 2004 annual meeting of stockholders.

At each annual meeting of stockholders after the distribution, a class of
directors will be elected to serve for a three-year term to succeed the
directors of the same class whose terms are then expiring. Only our board of
directors may change the authorized number of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of our company.

BOARD COMMITTEES

Our board of directors has established an audit committee and a
compensation committee, each composed exclusively of outside directors. The
audit committee assists the board in fulfilling its oversight responsibilities
by reviewing the financial information that will be provided to our
stockholders, the systems of internal controls that management and the board of
directors establish, the independence of our auditors and all audit processes.
Following the distribution, David W. Golde, Kirk E. Gorman and Mary J. Guilfoile
will serve as members of the audit committee. The compensation committee reviews
the performance of senior members of management, recommends executive
compensation and administers our stock option and other stock-based compensation
plans. Following the distribution, Ronald A. Ahrens, Robert O'Leary and Thomas
A. Vanderslice will serve as members of the compensation committee.

COMPENSATION

COMPENSATION OF DIRECTORS

All directors who are not our employees will receive options each year to
acquire 7,500 shares of our common stock, a fee of $1,500 per day for attending
regular meetings of our board of directors in person, $750 for attending regular
meetings of our board of directors by means of conference telephone and $750 for
participating in any meetings of committees of our board. We have granted to
each of Ronald A. Ahrens, David W. Golde, Kirk E. Gorman, Mary J. Guilfoile,
Robert W. O'Leary and Thomas A. Vanderslice an option to purchase 22,750 shares
of our common stock at an exercise price per share of $14.23, which our board
determined to be the fair market value of our common stock. After the
distribution, we anticipate that, upon being elected, each additional outside
director will receive options to acquire 13,000 shares of our common stock. We
will also reimburse directors for reasonable out-of-pocket expenses incurred in
attending board or committee meetings.

DIRECTORS' DEFERRED COMPENSATION PLAN

We have adopted a directors' deferred compensation plan and reserved 25,000
shares of our common stock for issuance to our directors under this plan. Under
our deferred compensation plan for directors, a director may defer receipt of
his cash fees until he ceases to serve as a director, dies or retires from his
principal occupation. In the event of a change in control or proposed change in
control of our company that is not approved by our board of directors, deferred
amounts will become payable immediately. For these purposes, a change in control
includes:

- the acquisition by any person of 40% or more of our outstanding common
stock or voting securities;

- the failure of our board of directors to include a majority of directors
who are "continuing directors", which term is defined to include
directors who were members of our board on the date on which the plan was
adopted or who subsequent to that date were nominated or elected by a
majority of directors who were "continuing directors" at the time of such
nomination or election;

- the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving our company or the
sale or other disposition of all or substantially all of our assets
unless immediately after such transaction (1) all holders of our common
stock immediately prior to such transaction own more than 60% of the
outstanding voting securities of the resulting or acquiring corporation
in substantially the same proportions as their ownership immediately
prior to such transaction and (2) no person after the transaction owns
40% or more of the outstanding voting securities of the resulting or
acquiring corporation; or

- approval by our stockholders of a complete liquidation or dissolution.

Amounts deferred pursuant to the deferred compensation plan will be valued
at the end of each quarter as units of our common stock. When payable, amounts
deferred may be disbursed solely in shares of our common stock accumulated under
the deferred compensation plan. The deferred compensation plan will be effective
on the date of distribution of shares of our common stock. No units have yet
been accumulated under this plan.

DIRECTOR OPTION GRANTS

We may, in our discretion, grant stock options and other equity awards to
our non-employee directors under our equity incentive plan. Prior to the
distribution, we granted to each of Ronald A. Ahrens, David W. Golde, Kirk E.
Gorman, Mary J. Guilfoile, Robert W. O'Leary and Thomas A. Vanderslice an option
under our equity incentive plan to purchase 22,750 shares of our common stock at
an exercise price per share of $14.23, the fair market value of our common stock
as of the date of grant as determined by our board of directors. These options
vest at the rate of one-third per year and expire on October 18, 2008.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the total compensation paid or accrued to
William B. Ross, who served as our interim chief executive officer from July
2000 to April 2001, and Gerald G. Brew, our only other executive officer at the
end of our most recently completed fiscal year. We refer to Messrs. Ross and
Brew as our named executive officers. The compensation shown in this table was
paid by Thermo Electron or its subsidiaries, including our company, for services
rendered to Thermo Electron and its subsidiaries. Amounts shown are for each
named executive officer in his position with Thermo Electron or its
subsidiaries, including our company, at the end of our most recently completed
fiscal year and do not necessarily reflect the compensation that these
individuals will earn in their new capacities as our executive officers.

SUMMARY COMPENSATION TABLE

<Table>
<Caption>
LONG TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
FISCAL ------------------- STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARD(1) OPTIONS(2) COMPENSATION(3)
--------------------------- ------ -------- -------- ------------ ---------- ---------------

William B. Ross............. 2000 $225,000 $185,000 -- -- $4,105
Interim Chief Executive 1999 $190,000 $165,000 $205,037(TMD)(4) 14,100(TMO) $7,200
Officer 1998 $170,000 $127,000 -- 57,800(TMO) $5,625
Gerald G. Brew.............. 2000 $185,000 $112,500 -- -- $3,850
President 1999 $162,693 $ 85,000 $174,249(TMD)(4) 9,600(TMO) $4,800
Nicolet Biomedical Inc. 1998 $159,681 $ 71,000 -- 36,500(TMO) $4,800
</Table>

---------------
(1) In fiscal 1999, Mr. Ross was awarded 23,600 shares of restricted common
stock of Thermedics Inc., then a majority owned public subsidiary of Thermo
Electron Corporation referred to in the table as TMD, with a value of
$205,037 on the grant date. In fiscal 1999, Mr. Brew was awarded 20,300
shares of restricted common stock of Thermedics with a value of $174,249 on
the grant date. The restricted stock awards vest 33% per year commencing on
the first anniversary of the grant date. Any cash dividends paid on
restricted shares are entitled to be retained by the executive officer
without regard to vesting. Any non-cash dividends paid on restricted shares
are entitled to be retained by the executive officer subject to the same
vesting restrictions as the underlying stock. At January 1, 2001, Mr. Ross
held 3,748 shares of restricted stock of Thermo Electron with an aggregate
value of $111,503, and Mr. Brew held 6,090 shares of restricted stock of
Thermo Electron with an aggregate value of $181,177. Our employees that hold
restricted shares of Thermo Electron common stock have elected to exchange
such shares at the time of the distribution for an adjusted number of
restricted shares of Viasys common stock with the same vesting provisions.
See "-- Treatment of Thermo Electron Options and Restricted Stock."

(2) During each of fiscal 1998 and fiscal 1999, Thermo Electron granted our
named executive officers options to purchase shares of its common stock,
designated in the table as TMO, as part of its stock option program. Those
options, to the extent unexercised, will become exercisable for shares of
our common stock effective as of the distribution date.

(3) Represents the amount of matching contributions made by the individual's
employer on behalf of the named executive officers participating in the
Thermo Electron 401(k) plan or, in the case of Mr. Brew, the Nicolet
Instruments Savings Retirement Plan, maintained by Nicolet Biomedical Inc.,
one of our wholly owned subsidiaries.

(4) Subsequent to January 1, 2000, Thermo Electron took Thermedics private in a
merger transaction whereby each outstanding share of Thermedics common stock
was exchanged for 0.45 shares of the common stock of Thermo Electron and
each outstanding option for Thermedics common stock was converted into
approximately 0.45 options to purchase shares of the common stock of Thermo
Electron.

We expect Mr. Thurman, who became our chief executive officer in April
2001, and Mr. Galvan, who became our chief financial officer in June 2001, to be
among our most highly compensated executive officers during the current fiscal
year. The employment agreements of Messrs. Thurman and Galvan are summarized
below.

EXECUTIVE EMPLOYMENT AGREEMENTS

Employment Agreement with Randy H. Thurman

We have entered into an executive employment agreement with Randy H.
Thurman, commencing April 16, 2001 and ending on the third anniversary of the
distribution date. This agreement was amended as of September 24, 2001. Under
this agreement, as amended, Mr. Thurman is entitled to receive an annual base
salary of $500,000, an annual cash incentive bonus and other benefits.

Mr. Thurman's annual cash incentive bonus for 2001 will be $212,500, and
his annual cash incentive bonus for the ensuing years will be an amount equal
to:

- $300,000, prorated for any partial calendar year of service, multiplied
by

- a factor ranging from zero to two, determined in accordance with
subjective and objective standards established by our board of directors
for such year.

We granted to Mr. Thurman an option to purchase 910,000 shares of our
common stock at an exercise price of $14.23 per share, the fair market value of
our common stock as of the date of grant as determined by our board of
directors.

In the event that Mr. Thurman's employment is terminated due to his death
or disability, all options held by Mr. Thurman would become immediately
exercisable in full and remain exercisable for one year, and Mr. Thurman or his
estate, as the case may be, would be entitled to receive:

- his prorated annual cash incentive bonus; and

- the balance, to the extent not previously paid, of any other applicable
benefits under our plans or programs, or our contracts or agreements with
Mr. Thurman.

In the event that Mr. Thurman's employment is terminated due to his
disability, Mr. Thurman also would be entitled to receive disability benefits in
accordance with any long-term disability program then in effect for our senior
executives and, within 30 days, a lump sum payment of his base salary through
the end of the long term disability program elimination period.

In the event that Mr. Thurman's employment is terminated by Mr. Thurman for
good reason, or by us without cause, all options held by Mr. Thurman would
become immediately exercisable in full and remain exercisable for one year, and
Mr. Thurman would be entitled to receive:

- his prorated annual cash incentive bonus;

- a lump sum payment, within 90 days, in an amount of two times the sum of
his annual base salary in effect at the time of the termination plus the
higher of $300,000 or Mr. Thurman's most recent annual cash incentive
award; and

- the balance, to the extent not previously paid, of any other applicable
benefits under our plans or programs, or our contracts or agreements with
Mr. Thurman.

In the event that Mr. Thurman resigns without good reason, or his
employment is terminated by us for cause, his stock options would immediately
cease to vest, vested options would remain exercisable for three months and
unvested options would be forfeited to us and cancelled.

Good reason is defined to include, among other things, a reduction in Mr.
Thurman's base salary, his removal as chairman of the board of directors, or
material reduction in employment responsibilities. Following termination of
employment for any reason other than as a result of the expiration of the then

current term of his employment, Mr. Thurman has agreed not to compete with us or
solicit our employees or customers for one year.

In the event that Mr. Thurman's employment is terminated within 18 months
following a change in control (as defined in his executive retention agreement,
which is summarized below under the caption "- Executive Retention Agreements"),
he would be entitled to the greater of the benefits under his employment
agreement or his executive retention agreement.

In April 2001, we loaned Mr. Thurman a total of $500,000, which bears
interest at an annual rate of six percent. So long as Mr. Thurman is employed by
us, we will credit him with payment of $125,000 of the principal amount of the
loan on April 19 of each of 2002, 2003, 2004 and 2005. In the event that Mr.
Thurman's employment is terminated due to death or disability, by him for good
reason or by us without cause, the unpaid principal balance of the loan would be
forgiven.

Employment Agreement with Martin P. Galvan

We have entered into an executive employment agreement with Martin P.
Galvan, commencing June 11, 2001 and ending on the third anniversary of the
distribution date. Under this agreement, Mr. Galvan is entitled to receive an
annual base salary of $225,000, an annual cash incentive bonus and other
benefits.

Mr. Galvan's annual cash incentive bonus for 2001 will be $112,500, and his
annual cash incentive bonus for the ensuing years will be an amount equal to:

- $112,500, prorated for any partial calendar year of service, multiplied
by

- a factor ranging from zero to two, determined in accordance with
subjective and objective standards established by our board of directors
for such year.

We granted to Mr. Galvan an option to purchase 130,000 shares of our common
stock at an exercise price of $14.23 per share, the fair market value of our
common stock as of the date of grant as determined by our board of directors.

If Mr. Galvan continues to be employed by us, or by a permitted successor,
on April 15, 2004 and the intrinsic value of this option is less than $300,000,
we or our permitted successor will pay Mr. Galvan an amount equal to the
difference between the aggregate intrinsic value of the option on April 15, 2004
and $300,000. If Mr. Galvan is terminated by us prior to April 15, 2004 for any
reason except for cause, or by Mr. Galvan for good reason, and if the aggregate
intrinsic value of the vested portion of this option is less than $300,000 on
the date of his termination, we will pay Mr. Galvan an amount equal to the
difference between the value of the vested portion of this option on the date of
his termination and $300,000. We refer to this payment, as applicable, as a
valuation guarantee payment. If Mr. Galvan exercises any portion of this option,
any realized gain from such exercises will be added to the aggregate intrinsic
value of this option or vested portion of this option, as the case may be, for
purposes of calculating the valuation guarantee payment.

In the event that Mr. Galvan's employment is terminated due to his death or
disability, all options held by Mr. Galvan would become immediately exercisable
in full and remain exercisable for one year, and Mr. Galvan or his estate, as
the case may be, would be entitled to receive:

- his prorated annual cash incentive bonus;

- the valuation guarantee payment, to the extent not previously paid; and

- the balance, to the extent not previously paid, of any other applicable
benefits under our plans or programs, or our contracts or agreements with
Mr. Galvan.

In the event that Mr. Galvan's employment is terminated due to his
disability, Mr. Galvan also would be entitled to receive disability benefits in
accordance with any long-term disability program then in effect

for our senior executives and, within 30 days, a lump sum payment of his base
salary through the end of the long term disability program elimination period.

In the event that Mr. Galvan's employment is terminated by Mr. Galvan for
good reason, or by us without cause, all options held by Mr. Galvan would become
immediately exercisable in full and remain exercisable for one year, and Mr.
Galvan would be entitled to receive:

- his prorated annual cash incentive bonus;

- a lump sum payment, within 90 days, in an amount of one and one-half
times the sum of his annual base salary in effect at the time of the
termination plus the higher of $112,500 or Mr. Galvan's most recent
annual cash incentive award;

- the valuation guarantee payment, to the extent not previously paid; and

- the balance, to the extent not previously paid, of any other applicable
benefits under our plans or programs, or our contracts or agreements with
Mr. Galvan.

In the event that Mr. Galvan resigns without good reason, or his employment
is terminated by us for cause, his stock options would immediately cease to
vest, vested options would remain exercisable for three months and unvested
options would be forfeited to us and cancelled.

Good reason is defined to include, among other things, a reduction in Mr.
Galvan's base salary, his removal from the positions of senior vice president
and chief financial officer, a material reduction in employment
responsibilities, or a change in our reporting structure so that Mr. Galvan
reports to someone other than our president and chief executive officer.
Following termination of employment for any reason, Mr. Galvan has agreed not to
compete with us or solicit our employees or customers for one year.

In the event that Mr. Galvan's employment is terminated within 18 months
following a change in control (as defined in his executive retention agreement,
which is summarized below under the caption "-- Executive Retention
Agreements"), he would be entitled to the greater of the benefits under his
employment agreement or his executive retention agreement.

EXECUTIVE RETENTION AGREEMENTS

We have entered into agreements with certain of our executive officers and
key employees that provide severance benefits if there is a change in control of
Viasys and their employment is terminated by us without cause or by the
individual for good reason, as those terms are defined in the agreement, within
18 months thereafter. For purposes of these agreements, a change in control
exists upon:

- the acquisition by any person of 40% or more of our outstanding common
stock or voting securities;

- the failure of our board of directors to include a majority of directors
who are "continuing directors," which term is defined to include
directors who were members of our board on the date of the agreement or
who subsequent to the date of the agreement were nominated or elected by
a majority of directors who were "continuing directors" at the time of
such nomination or election;

- the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving us or the sale or
other disposition of all or substantially all of our assets unless
immediately after the transaction (1) all holders of our common stock
immediately prior to such transaction own more than 60% of the
outstanding voting securities of the resulting or acquiring corporation
in substantially the same proportions as their ownership immediately
prior to such transaction and (2) no person after the transaction owns
40% or more of the outstanding voting securities of the resulting or
acquiring corporation; or

- approval by our stockholders of a complete liquidation or dissolution.

We are a party to executive retention agreements with Messrs. Brew,
Connelly, Galvan, Ross and Thurman, and other key employees. These agreements
provide that in the event the executive officer's

employment is terminated under circumstances described above, the executive
officer would be entitled to a lump sum payment equal to the sum of:

- in the case of Mr. Thurman, three times, and in the case of the other
executive officers, one and one-half times, the sum of the individual's
highest annual base salary and highest annual bonus in any 12-month
period during the prior five-year period, plus

- the sum of the individual's base salary through the date of termination
plus any compensation previously deferred by the individual, plus

- the product of the annual bonus paid or payable for the most recently
completed fiscal year and a fraction, the numerator of which is the
number of days in the current fiscal year through the date of termination
and the denominator of which is 365.

In addition, the individual would be provided benefits for a period of, in the
case of Mr. Thurman, three years, and in the case of the other executive
officers, one and one-half years, after such termination substantially
equivalent to the benefits package the individual would have been otherwise
entitled to receive if the individual was not terminated. Further, all of our
repurchase rights will lapse in their entirety with respect to all options to
purchase common stock, and all shares of restricted common stock that the
individual holds as of the date of the change in control. Finally, the
individual would be entitled to a cash payment equal to, in the case of Mr.
Thurman, $25,000, and in the case of the other executive officers, $20,000, to
be used toward outplacement services. In the event that payments under these
agreements are deemed to be so-called "excess parachute payments" under the
applicable provisions of the Internal Revenue Code, the individuals would be
entitled to receive a gross-up payment equal to the amount of any excise tax
payable by such individual with respect to such payment plus the amount of all
other additional taxes imposed on such individual that are attributable to the
gross-up payment.

TREATMENT OF THERMO ELECTRON OPTIONS AND RESTRICTED STOCK

On the distribution date, all options for Thermo Electron common stock,
whether vested or unvested, held by our employees will be converted into options
to purchase shares of Viasys common stock. We will determine the number of
shares and the exercise price of these options using the conversion formula
described under "The Distribution -- Treatment of Thermo Electron Options Held
by Our Employees." The resulting options to purchase our common stock will
maintain the original vesting provisions and option periods. Thermo Electron
will adjust all options for Thermo Electron common stock held by its employees
on the distribution date to reflect the distribution.

At the time of the distribution, we will exchange shares of Thermo Electron
restricted stock held by our employees for restricted shares of Viasys common
stock with the same vesting provisions. We intend to provide replacement Viasys
restricted shares using the conversion formula described under "The
Distribution -- Treatment of Thermo Electron Restricted Stock."

STOCK OPTIONS GRANTED DURING FISCAL 2000

Neither we nor Thermo Electron granted any stock options to our named
executive officers during fiscal 2000.

OPTION EXERCISES DURING FISCAL 2000 AND FISCAL YEAR-END OPTION VALUES

The following table reports information regarding stock option exercises
during fiscal 2000 and outstanding stock options held at the end of fiscal 2000
by our named executive officers.

AGGREGATED OPTION EXERCISES IN FISCAL 2000 AND FISCAL 2000 YEAR-END OPTION
VALUES

<Table>
<Caption>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT FISCAL AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME COMPANY(1) EXERCISE REALIZED(2) UNEXERCISABLE)(1) UNEXERCISABLE)
---- ---------- ----------- ----------- ----------------- --------------

William B. Ross.......... TMO 6,000 $ 65,520 75,900/0 $994,724/--
Gerald G. Brew........... TMO 42,100 $282,773 37,801/0 $450,221/--
TBA(3) 800 $ 16,952 0/0 $ --/--
</Table>

---------------
(1) All of the options reported outstanding at the end of the fiscal year were
immediately exercisable as of fiscal year-end. In all cases, the shares
acquired upon exercise of the options reported in the table are subject to
repurchase at the exercise price if the executive officer ceases to be
employed by us or Thermo Electron. The repurchase rights may be exercised
within six months after the termination of the executive officer's
employment. The repurchase rights generally lapse ratably over a one- to
ten-year period, depending on the option term, which may vary from five to
twelve years, provided that the executive officer continues to be employed
by us or Thermo Electron. The executive officer may be permitted to exercise
options and to satisfy tax withholding obligations by surrendering shares
equal in fair market value to the exercise price or withholding obligation.
In this table, Thermo BioAnalysis Corporation is designated as TBA and
Thermo Electron Corporation is designated as TMO.

(2) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to be
held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.

(3) Subsequent to January 1, 2000, Thermo Electron took Thermo BioAnalysis
Corporation private in a merger transaction whereby each outstanding share
of Thermo BioAnalysis common stock was exchanged for $28.00 in cash and each
outstanding Thermo BioAnalysis option converted into approximately 1.47
options to purchase shares of the common stock of Thermo Electron.

RESTRICTED STOCK AWARDS AND STOCK OPTIONS GRANTED DURING FISCAL 2001

Our equity incentive plan provides for the issuance of stock options,
restricted stock and other stock based awards for up to 4,680,000 shares of our
common stock to our employees, directors, consultants and advisors. We have
granted to each of Ms. Guilfoile and Messrs. Ahrens, Golde, Gorman, O'Leary and
Vanderslice an option to purchase 22,750 shares of our common stock at an
exercise price of $14.23 per share, the fair market value of our common stock as
of the date of grant, as determined by our board of directors. In addition, we
have granted to Messrs. Galvan and Thurman options to purchase 130,000 and
910,000 shares of our common stock, respectively, at an exercise price of $14.23
per share. At about the time of the distribution, we plan to grant restricted
shares of our common stock under our equity incentive plan to several employees,
including Messrs. Ross and Brew, in exchange for restricted shares of Thermo
Electron common stock. See "The Distribution -- Stock Plans and Restricted Stock
and Stock Option Grants." We also anticipate making a restricted stock grant to
Mr. Ross at or about the time of the distribution. See "The
Distribution -- Stock Plans and Restricted Stock and Stock Options Grants."

EQUITY INCENTIVE PLAN

We have adopted an equity incentive plan and have reserved an aggregate of
4,680,000 shares of our common stock for issuance to our employees, officers,
directors, consultants and advisors under this plan.

Our plan provides for the grant of a variety of stock and stock-based
awards in such form or in such combinations as may be approved by our board of
directors. Our plan provides for awards including stock

options, restricted and unrestricted shares, rights to receive cash or shares on
a deferred basis or based on performance, cash payments sufficient to offset the
federal, state and local ordinary income taxes of participants resulting from
transactions under the plan, and loans to participants in connection with
awards. Our officers, employees, directors, consultants and advisors and those
of our subsidiaries are eligible to receive awards under the plan. However,
incentive stock options will only be granted to our employees. Incentive stock
options will have an exercise price of 100% or more of the fair market value of
our common stock on the grant date. Nonstatutory stock options may have an
exercise price as low as 85% of the fair market value of our common stock on the
grant date.

Our board of directors administers the plan, although it has the ability to
delegate its authority to one or more of its committees and, in limited
circumstances, to one or more of our executive officers who are also members of
our board of directors. We expect that our board of directors will authorize the
compensation committee to administer the plan, including the granting of options
to our executive officers. In accordance with the provisions of the plan, our
compensation committee would select the recipients of awards and determine:

- the number of shares of common stock covered by options and the dates
upon which such options become exercisable;

- the exercise price of options;

- the duration of options; and

- the number of shares of common stock subject to any restricted stock or
other stock-based awards and the terms and conditions of such awards,
including the conditions for repurchase, issue price and repurchase
price.

Unless otherwise provided in the agreement evidencing an award, if there is
a change in control of our company, as defined in the plan, any stock options
that are not then exercisable and fully vested will become fully exercisable and
vested; the restrictions applicable to restricted stock awards will lapse and
shares issued pursuant to such awards will be free of restrictions and fully
vested; and deferral and other limitations and conditions that related solely to
the passage of time or continued employment or other affiliation will be waived
and removed but other conditions will continue to apply unless otherwise
provided in the instrument evidencing the awards or by agreement between the
participant and us. A change in control includes:

- the acquisition by any person of 40% or more of our outstanding common
stock or voting securities;

- the failure of our board of directors to include a majority of directors
who are "continuing directors", which term is defined to include
directors who were members of our board on date on which the plan was
adopted or who subsequent to that date were nominated or elected by a
majority of directors who were "continuing directors" at the time of such
nomination or election;

- the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving our company or the
sale or other disposition of all or substantially all of our assets
unless immediately after such transaction (a) all holders of our common
stock immediately prior to such transaction own more than 60% of the
outstanding voting securities of the resulting or acquiring corporation
in substantially the same proportions as their ownership immediately
prior to such transaction and (b) no person after the transaction owns
40% or more of the outstanding voting securities of the resulting or
acquiring corporation; or

- approval by our stockholders of a complete liquidation or dissolution.

Our board of directors will make appropriate adjustments to the maximum
number of shares of our common stock that may be delivered under the plan, and
under outstanding awards, to reflect stock dividends, stock splits and similar
events. Our board of directors may also make appropriate adjustments to avoid
distortions in the operation of the plan in the event of any recapitalization,
merger or consolidation involving our company, any transaction in which we
become a subsidiary of another entity, any sale or other disposition of all or a
substantial portion of our assets or any similar transaction, as determined by
our board of directors.

The plan will remain in full force and effect until September 24, 2011 or
until shares are depleted under the plan. Our board of directors may at any time
or times amend or review the plan or any outstanding award for any purpose which
may at the time be permitted by law, or may at any time terminate the plan as to
any further grants of awards. No amendment of the plan or any outstanding award
may adversely affect the rights of a participant as to any previously granted
award without his or her consent. Stockholder approval of amendments shall be
required only as is necessary to satisfy the then-applicable requirements of
Rule 16b-3 under the Securities Exchange Act, of any stock exchange upon which
our common stock is listed, of Section 162(m) of the Internal Revenue Code, or
of any federal tax law or regulation relating to stock options or awards.

EMPLOYEE STOCK PURCHASE PLAN

We have adopted an employee stock purchase plan and have reserved 650,000
shares of our common stock for issuance to our employees under this plan.

All full-time employees and part-time employees working at least 20 hours
per week and who have been employed for at least six months are eligible to
participate in the stock purchase plan, unless they own more than 5% of our
common stock. Options to purchase shares of our common stock may be granted from
time to time at the discretion of our board of directors, which will also
determine the date upon which such options are exercisable. Only employees based
in the United States will be eligible to participate in the stock purchase plan.

A participating employee may purchase stock only through payroll
deductions, which may not exceed 10% of his gross salary or wages during the
year. Employees will be allowed to decrease, but not increase the percentage of
wages contributed once during the plan year. An employee may suspend his or her
contributions, but then is not permitted to contribute again for the remainder
of the plan year.

The exercise price of options to purchase shares of our common stock
granted under the stock purchase plan will be 85% of the lower of the per share
fair market value of our common stock as of the first or last day of a plan
period. On the last day of a plan period, referred to as the exercise date,
participants may elect to use their accumulated payroll deductions to purchase
shares at the exercise price. Participants must agree not to resell the shares
so purchased for a period of one year following the exercise date. A
participant's rights under the purchase plan are nontransferable, and except in
the case of death of the employee, may not be exercised if the employee is not
still employed by us at the exercise date. If an employee dies, his or her
beneficiary may withdraw the accumulated payroll deduction or use such
deductions to purchase shares on the exercise date. A participant may elect to
discontinue participation at any time prior to the exercise date and to have his
or her accumulated payroll deduction refunded together with interest on such
amount as fixed by the board of directors from time to time.

The stock purchase plan will remain in full force and effect until
suspended or discontinued by our board of directors. Our board of directors may
at any time or times amend or review the stock purchase plan for any purpose
which may be permitted by law, or may at any time terminate the stock purchase
plan, provided that no amendment that is not approved by our stockholders shall
be effective if it would cause the stock purchase plan to fail to satisfy the
requirements of Rule 16b-3 (or any successor rule) of the Securities Exchange
Act. No amendment of the stock purchase plan may adversely affect the rights of
any recipient of any option previously granted without such recipient's consent.

The stock purchase plan will expire on January 1, 2013, provided that the
number of shares available for issuance under the stock purchase plan is not
exhausted prior to that date.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

We have appointed Messrs. Ahrens, O'Leary and Vanderslice, each of whom is
a non-employee director, to our compensation committee. No executive officer has
served as a director or member of the compensation committee, or other committee
serving an equivalent function, of any entity whose executive officers serve as
a member of the compensation committee of our board of directors. Prior to the
formation of the compensation committee, the full board of directors made all
decisions regarding executive officer compensation and the granting of stock
options.

PRINCIPAL STOCKHOLDERS

Thermo Electron currently owns all of the outstanding shares of our common
stock.

FIVE-PERCENT STOCKHOLDERS

The following table sets forth information regarding the number of shares
of our common stock that we expect to be held by each person or entity that we
believe will own beneficially more than five percent of the outstanding shares
of our common stock immediately following the distribution. This information is
based on the number of shares of Thermo Electron common stock beneficially owned
by FMR Corporation and Dodge & Cox Incorporated as of December 31, 2000 derived
from the most recent Schedule 13G of such entity filed with the SEC.

<Table>
<Caption>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
------------------------------------ ------------------ ------------------

FMR Corporation.................................... 3,847,903 14.8%
82 Devonshire Street
Boston, MA 02109
Dodge & Cox Incorporated........................... 1,559,961 6.0%
One Sansome Street
35th Floor
San Francisco, CA 94104
</Table>

MANAGEMENT

The following table sets forth information regarding the number of shares
of our common stock that we expect to be held immediately following the
distribution, as well as the number of shares of Thermo Electron common stock
beneficially owned as of September 30, 2001, by each of our named executive
officers, Messrs. Thurman and Galvan, each of our directors immediately
following the distribution, and our executive officers and directors as a group.
The information set forth below with respect to our common stock is based on
information known to us with respect to each listed person's beneficial
ownership of shares of Thermo Electron common stock as of September 30, 2001.
The table assumes with respect to our common stock that ownership of Thermo
Electron common stock by such persons will not change before the record date of
the distribution.

Beneficial ownership is determined in accordance with the rules of the SEC
and includes voting or investment power with respect to shares. Shares of common
stock issuable under stock options that are exercisable within 60 days after
September 30, 2001 or issuable pursuant to outstanding warrants that may be
exercised upon completion of the distribution are deemed outstanding for
computing the percentage ownership of the person holding the options or warrants
but are not deemed outstanding for computing the percentage ownership of any
other person. Unless otherwise indicated below, to our knowledge, all persons
named in the table have sole voting and investment power with respect to their
shares of common stock, except to the extent authority is shared by spouses
under community property laws.

<Table>
<Caption>
THERMO ELECTRON
NAME(1) VIASYS(2) CORPORATION
------- --------- ---------------

Ronald A. Ahrens............................................ -- --
Gerald G. Brew.............................................. 285(3) 27,641(4)
Martin P. Galvan............................................ -- --
David W. Golde.............................................. -- --
Kirk E. Gorman.............................................. -- --
Mary J. Guilfoile........................................... -- --
Robert W. O'Leary........................................... 1,856(5) 48,400(6)
William B. Ross............................................. 1,710(7) 73,923(8)
Randy H. Thurman............................................ 428(9) 3,000
Thomas A. Vanderslice....................................... -- --
All directors and executive officers as a group (13
persons).................................................. 5,256(10) 164,460(11)
</Table>

---------------
(1) Except as reflected in the footnotes to this table, shares beneficially
owned consist of shares owned by the indicated person or by that person for
the benefit of minor children, and all share ownership includes sole or
shared voting and investment power.

(2) This table excludes new restricted shares of our common stock that we
anticipate granting at about the time of or following the distribution. See
"Management -- Restricted Stock Awards and Stock Option Granted During
Fiscal 2001." This table also excludes restricted shares of Viasys common
stock to be issued in exchange for Thermo Electron restricted shares held
by the indicated person as of the distribution date and shares of Viasys
common stock such person will have the right to acquire within 60 days of
September 30, 2001 through the exercise of stock options to be issued in
lieu of Thermo Electron stock options held as of the distribution date. The
exact number of Viasys restricted shares and options to be issued to each
person will be calculated using a conversion ratio based on the opening per
share price of Viasys common stock on the New York Stock Exchange on the
first trading day after the distribution date relative to the closing price
of the Thermo Electron common stock on the New York Stock Exchange on the
distribution date. We do not currently know how many Viasys restricted
shares or options we will issue to each person because, among other things,
we will not know some of the conversion formula components until the day
after the distribution date.

(3) Consists of shares to be issued in the distribution in respect of
unrestricted shares of Thermo Electron common stock held by Mr. Brew as of
the record date. We do not expect that Mr. Brew will beneficially own more
than 1% of the Viasys common stock to be outstanding immediately following
the distribution.

(4) Includes 6,090 restricted shares owned by Mr. Brew as of September 30,
2001, as well as 19,551 shares that Mr. Brew had the right to acquire
within 60 days of September 30, 2001 through the exercise of stock options.
Mr. Brew did not beneficially own more than 1% of the Thermo Electron
common stock outstanding as of September 30, 2001.

(5) Consists of 1,856 shares to be issued in the distribution in respect of
unrestricted shares of Thermo Electron common stock held by Mr. O'Leary as
of the record date. Mr. O'Leary will not receive Viasys stock options in
lieu of his Thermo Electron Stock options. We do not expect that Mr.
O'Leary will beneficially own more than 1% of the Viasys common stock to be
outstanding immediately following the distribution.

(6) Includes 29,941 shares that Mr. O'Leary had the right to acquire within 60
days of September 30, 2001 through the exercise of stock options. Shares
beneficially owned by Mr. O'Leary include 5,459 shares allocated to Mr.
O'Leary's account under the Thermo Electron Deferred Compensation Plan.
Mr. O'Leary did not beneficially own more than 1% of the Thermo Electron
common stock outstanding as of September 30, 2001.

(7) Consists of shares to be issued in the distribution in respect of
unrestricted shares of Thermo Electron common stock held by Mr. Ross as of
the record date. We do not expect that Mr. Ross will beneficially own more
than 1% of the Viasys common stock to be outstanding immediately following
the distribution.

(8) Includes 3,748 restricted shares owned by Mr. Ross as of September 30,
2001, as well as 58,197 shares that Mr. Ross had the right to acquire
within 60 days of September 30, 2001 through the exercise of stock options.
Mr. Ross did not beneficially own more than 1% of the Thermo Electron
common stock outstanding as of September 30, 2001.

(9) Consists of shares to be issued in the distribution in respect of
unrestricted shares of Thermo Electron common stock held by Mr. Thurman as
of the record date. We do not expect that Mr. Thurman will beneficially own
more than 1% of the Viasys common stock to be outstanding immediately
following the distribution.

(10) Includes 285, 1,856, 1,710 and 428 shares to be issued in the distribution
in respect of the unrestricted shares of Thermo Electron common stock held
by Mr. Brew, Mr. O'Leary, Mr. Ross and Mr. Thurman, respectively, as of
September 30, 2001. We do not expect that all directors and executive
officers as a group will beneficially own more than 1% of the Viasys common
stock to be outstanding immediately following the distribution.

(11) Includes 19,551, 29,941 and 58,197 shares that Mr. Brew, Mr. O'Leary and
Mr. Ross, respectively, had the right to acquire within 60 days of
September 30, 2001 through the exercise of stock options. All directors and
executive officers as a group beneficially owned less than 1% of the Thermo
Electron common stock outstanding as of September 30, 2001.

RELATIONSHIP AND POTENTIAL CONFLICTS OF INTEREST
WITH THERMO ELECTRON AND RELATED PARTIES

The following is a description of the material terms of the agreements and
arrangements involving our company and either Thermo Electron or its direct or
indirect subsidiaries.

GENERAL

We were organized in August 1995 as a wholly owned subsidiary of Thermo
Electron. Prior to the distribution, some of our directors and executive
officers were also directors, officers and employees of Thermo Electron and/or
its other subsidiaries. In acting on our behalf, these directors and officers
considered not only the short-term and long-term impact of operating decisions
on our business, but also the impact of such decisions on the consolidated
financial results of Thermo Electron.

In the ordinary course of business, we have entered into a number of
agreements with Thermo Electron and its subsidiaries relating to our historical
business and our relationship with the Thermo Electron group of companies, the
material terms of which are described below. In addition, we recently entered
into a number of agreements with Thermo Electron relating to the distribution,
which are described below and elsewhere in this information statement. Although
these agreements were not negotiated on an arm's-length basis, we and Thermo
Electron each believe that the terms of these agreements are comparable to those
that we would receive from unaffiliated third parties.

AGREEMENTS RELATING TO THE DISTRIBUTION

Prior to the distribution, Thermo Electron transferred several subsidiaries
and operating divisions to us. These transfers are discussed in more detail
under the heading "Background and Reasons for the Distribution -- Thermo
Electron Reorganization."

Immediately prior to the distribution, we will be a wholly owned subsidiary
of Thermo Electron. After the distribution, we will be an independent, publicly
traded company. Thermo Electron will not own any shares of our common stock, no
Thermo Electron directors will serve on our board of directors and no Thermo
Electron officers will serve as officers of our company.

We have entered into several agreements with Thermo Electron to define our
ongoing relationship after the distribution and to allocate tax and other
specified liabilities and obligations arising from periods prior to the
distribution date. We entered into these agreements while we are still a wholly
owned subsidiary of Thermo Electron. The material terms of these agreements are
set forth under the caption "The Distribution -- Our Relationship with Thermo
Electron After the Distribution" and "-- Material U.S. Federal Income Tax
Consequences of the Distribution."

OTHER AGREEMENTS

Corporate Services Arrangement. Prior to the distribution, we had a
corporate services arrangement with Thermo Electron under which Thermo
Electron's corporate staff provided administrative services, including legal
advice and services, risk management, employee benefit administration, tax
advice and preparation of tax returns, centralized cash management and financial
and other services, for which we paid Thermo Electron an amount equal to 0.8% of
our revenues in fiscal 2000 and fiscal 1999, and 1.0% of our revenues in fiscal
1998. For additional items such as employee benefit plans, insurance coverage
and other identifiable costs, Thermo Electron charged us based upon the actual
costs attributable to these services. Under this arrangement, Thermo Electron
charged us a total of $2,451,000 in fiscal 1998, $2,868,000 in fiscal 1999,
$2,763,000 in fiscal 2000 and $1,241,000 in the six-months ended June 30, 2001.
We believe that the service fees charged by Thermo Electron were reasonable and
that such fees were representative of the expenses that we would have incurred
had we been independent of Thermo Electron during these periods. Effective April
2001, the fee under this arrangement was reduced to 0.6% of our consolidated
revenues. Our corporate services arrangement with Thermo Electron will terminate
upon the

distribution and will be replaced by the transition services agreement described
above under "Our Relationship with Thermo Electron After the
Distribution -- Transition Services Agreement."

Tax Allocation Agreement. Prior to the distribution, we had a tax
allocation agreement with Thermo Electron that outlined the terms under which we
were to be included in Thermo Electron's consolidated federal and state income
tax returns and under which we were responsible for the payment of taxes. Under
current law, we were included in such tax returns so long as Thermo Electron
owned at least 80% of our outstanding common stock. In years in which we had
taxable income, we were obligated to pay Thermo Electron amounts comparable to
the taxes we would have paid if we had filed our own separate company tax
returns. Under this agreement, we paid Thermo Electron a total of $12,627,000 in
fiscal 1998, $21,000,000 in fiscal 1999, $15,931,000 in fiscal 2000 and
$5,999,000 in the six months ended June 30, 2001.

Cash Transfers to and from Thermo Electron. Prior to the distribution, our
cash receipts and disbursements were combined with other Thermo Electron
corporate cash transactions. In fiscal 1998, we transferred $3,703,000 to Thermo
Electron. In fiscal 1999, fiscal 2000 and the six months ended June 30, 2001,
Thermo Electron transferred to us $1,783,000, $7,775,000 and $179,000,
respectively.

Cash Management Arrangement. Prior to the distribution, some of our
European-based subsidiaries participated in a cash management arrangement with a
wholly owned subsidiary of Thermo Electron. Under this arrangement, amounts
advanced to the wholly owned subsidiary of Thermo Electron by our European-based
subsidiaries bore interest based on the Euro market rates. The arrangement
required Thermo Electron's subsidiary to maintain cash, cash equivalents, and/or
immediately available bank lines of credit equal to at least 50% of all funds
invested under this cash management arrangement by all Thermo Electron
subsidiaries other than wholly owned subsidiaries. We could withdraw funds
invested in this cash management arrangement on 30 days' prior notice. Under
this arrangement, our European-based subsidiaries had access to a $1,770,000
line of credit, of which we had no borrowings outstanding at the end of fiscal
2000 and at June 30, 2001.

Acquisition Debt. In July 1999, a subsidiary of Thermedics Inc., then a
majority-owned subsidiary of Thermo Electron, acquired Erich Jaeger GmbH for
$30,479,000 in cash, including the repayment of debt, and the assumption of
$13,401,000 of indebtedness. Thermedics financed this acquisition with
$30,479,000 of short-term borrowings from a wholly owned subsidiary of Thermo
Electron which are due on demand and bear interest at prevailing German market
rates, set at the beginning of each month. The interest rate was 3.95% at
January 1, 2000 and 4.98% at July 1, 2000. Of the indebtedness assumed,
Thermedics refinanced $9,692,000 with additional borrowings from the wholly
owned subsidiary of Thermo Electron and repaid the balance upon maturity in May
2000. Following the merger of Thermedics with Thermo Electron, in the third
quarter of 2000, Thermo Electron contributed Erich Jaeger to Viasys along with
the indebtedness from the acquisition. As of June 30, 2001, we owed the wholly
owned subsidiary of Thermo Electron $33,306,000 under this arrangement. This
advance is due on demand by Thermo Electron. Thermo Electron has advised us that
it plans to assist us in refinancing this amount with a third party on a
long-term basis. If these efforts are not completed prior to the distribution,
Thermo Electron plans to convert the debt to a single-installment, short-term
note.

Operating Lease. We lease approximately 67,000 square feet of office space
in Madison, Wisconsin from Nicolet Instruments Corp., a wholly owned subsidiary
of Thermo Electron, under an operating lease that expires in 2001. Under this
lease, we paid rent of $782,000 in fiscal 1998, $772,000 in fiscal 1999,
$768,000 in fiscal 2000 and $363,000 in the six months ended June 30, 2001.

Woburn, Massachusetts Sub-Leases. In October 2001, we entered into
sub-lease agreements with Thermo Electron for two facilities in Woburn,
Massachusetts that we currently occupy. The first sub-lease, for approximately
30,000 square feet of space at 205 Wildwood Avenue, provides for rent at the
current annual rate of approximately $165,000 and expires on September 30, 2005.
The second sub-lease, for approximately 26,000 square feet of space at 470
Wildwood Avenue, provides for rent at the current annual rate of approximately
$124,000 and expires on February 28, 2004.

Services for Thermo Cardiosystems. We provide metal fabrication services
to Thermo Cardiosystems Inc., a majority-owned subsidiary of Thermo Electron
through February 2001. For these services, Thermo Cardiosystems paid us
$1,714,000 in fiscal 1998, $3,622,000 in fiscal 1999, $3,283,000 in fiscal 2000
and $443,000 in the six months ended June 30, 2001.

Sale of Products to Thermo Electron Subsidiaries. From time to time, we
may transact business with Thermo Electron and its subsidiaries in the ordinary
course of business. We sold products to Thermo Electron and its subsidiaries for
a total of $1,350,000 in fiscal 1998, $1,446,000 in fiscal 1999, $810,000 in
fiscal 2000 and $49,000 in the six months ended June 30, 2001.

Agreements with Trex Medical Corporation. Our Tecomet subsidiary and Trex
Medical Corporation, a wholly owned subsidiary of Thermo Electron, jointly
developed technology related to one of our medical imaging components, referred
to as a high transmission cellular, or HTC, grid. On August 23, 2000, in
contemplation of the sale of the United States operations of Trex Medical to
Hologic, Inc., Tecomet entered into an agreement with Trex Medical setting forth
their rights in this jointly developed technology, and in four United States
patents related to this technology. Under this agreement:

- Tecomet retained the exclusive, royalty-free right to use the technology
and related patents to make HTC grids for use in the field of x-ray
mammography and agreed, subject to the terms and conditions of the supply
agreement described below, to sell these grids exclusively to Trex
Medical;

- Tecomet retained the non-exclusive, royalty-free right to use the
technology and related patents to make HTC grids for any party for use in
any medical field other than x-ray mammography, and Trex Medical retained
the non-exclusive, royalty-free right to use the technology and related
patents to make HTC grids for its own use in any medical field other than
x-ray mammography; and

- Tecomet retained the exclusive, royalty-free right to use the technology
and related patents to make HTC grids and other products for use in
non-medical fields.

This agreement expires on May 9, 2015, the date of expiration of the last of the
related patents, unless earlier terminated for a material breach.

In connection with this agreement, Tecomet entered into a supply agreement
with Trex Medical whereby Tecomet agreed to manufacture and sell HTC grids for
use in the field of x-ray mammography exclusively to Trex Medical. In return,
Trex Medical agreed to purchase all of the HTC grids for use in the field of
x-ray mammography as it may require from Tecomet. This agreement has a three
year term, which automatically renews for successive one year periods unless
terminated on at least 60 days notice prior to the end of a term.

On September 15, 2000, Trex Medical closed the sale of its U.S. operations
to Hologic, Inc.

Promissory Note. As of June 30, 2001, we owed an affiliate of Thermo
Electron an aggregate of $33.3 million. The amount of our outstanding
indebtedness to Thermo Electron and its affiliates as of the distribution date
will be evidenced by an unsecured promissory note. This unsecured promissory
note will bear interest at the prime rate plus 0.5%, payable quarterly. The note
will mature 12 months from the distribution date. In the event that prior to the
maturity of the note we receive cash proceeds from any debt financing, we must
prepay the principal up to the net amount of such proceeds.

DESCRIPTION OF CAPITAL STOCK

The following summary is qualified by reference to the provisions of our
charter and by-laws included as exhibits to the registration statement of which
this information statement is a part.

COMMON STOCK

Our charter authorizes 100,000,000 shares of common stock, par value $.01
per share, for issuance. As of the date of this information statement,
26,000,000 shares of our common stock are issued, outstanding and held by Thermo
Electron. Our charter provides for the following with respect to our common
stock:

Voting. Holders of common stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election.

Dividends. If our board of directors declares a dividend, holders of
common stock will receive payments on a ratable basis from our funds that are
legally available to pay dividends. However, this dividend right is subject to
any preferential dividend rights we may grant to the persons who hold preferred
stock, if any is outstanding.

Liquidation. If we are dissolved, the holders of our common stock will be
entitled to share ratably in all the assets that remain after we pay our
liabilities and any amounts we may owe to the persons who hold preferred stock,
if any is outstanding.

Other. Holders of our common stock do not have preemptive, subscription,
redemption or conversion rights. The outstanding shares of our common stock are,
and the shares to be distributed by Thermo Electron will be, fully paid and
nonassessable.

The rights, powers, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future. Currently, we have no shares of preferred stock
outstanding.

PREFERRED STOCK

Our charter authorizes our board of directors, subject to any limitations
prescribed by law and without further stockholder approval, to issue from time
to time up to 5,000,000 shares of preferred stock in one or more series. Our
charter also authorizes our board of directors, subject to the limitations
prescribed by Delaware law, to:

- establish the number of shares to be included in each series and to fix
the voting powers, preferences, qualifications and special or relative
rights or privileges of each series; and

- issue preferred stock with voting, conversion and other rights and
preferences that could adversely affect the voting power or other rights
of the holders of common stock.

The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock or of
rights to purchase preferred stock, however, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding common stock.

We expect that our board of directors will authorize, before the
distribution, 10,000 shares of Series A junior participating preferred stock for
issuance under our stockholder rights plan. See "-- Stockholder Rights Plan"
below. We have no current plans to issue any preferred stock other than as may
be provided for by the stockholder rights plan.

DELAWARE LAW AND OUR CHARTER AND BY-LAWS PROVISIONS; ANTI-TAKEOVER EFFECTS

Staggered Board. Our charter provides that:

- the board of directors be divided into three classes, with staggered
three-year terms;

- directors may be removed only for cause by the vote of the holders of at
least 75% of the shares of our capital stock entitled to vote; and

- any vacancy on the board of directors, however occurring, including a
vacancy resulting from an enlargement of the board, may only be filled by
vote of a majority of the directors then in office.

These provisions could discourage, delay or prevent a change in control of our
company or an acquisition of our company at a price which many stockholders may
find attractive. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions may also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or attempting to change the
composition or policies of our board of directors.

Stockholder Action; Special Meeting of Stockholders. Our charter and
by-laws also provide that:

- stockholder action may be taken only at a duly called and convened annual
or special meeting of stockholders and then only if properly brought
before the meeting;

- stockholder action may not be taken by written action in lieu of a
meeting;

- special meetings of stockholders may be called only by our chairman of
the board, our chief executive officer or by our board of directors; and

- in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with requirements regarding providing
specified information and advance notice to us.

These provisions could delay, until the next stockholders' meeting, actions
which are favored by the holders of a majority of our outstanding voting
securities. These provisions may also discourage another person or entity from
making a tender offer for our common stock, because a person or entity, even if
it acquired a majority of our outstanding voting securities, would be able to
take action as a stockholder only at a duly called stockholders' meeting, and
not by written consent.

Supermajority Votes Required. The Delaware General Corporation Law
provides that the vote of a majority of the shares entitled to vote on any
matter is required to amend a corporation's charter or by-laws, unless a
corporation's charter or by-laws, as the case may be, requires a greater
percentage. Our charter requires the vote of the holders of at least 75% of our
capital stock entitled to vote to amend or repeal any of the foregoing
provisions. The 75% stockholder vote is in addition to any separate class vote
that might be required pursuant to the terms of any series of preferred stock
that might be then outstanding.

Business Combinations. Following the distribution, we will be subject to
the provisions of Section 203 of the Delaware General Corporation Law. Section
203 prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. An "interested stockholder" is
a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of the corporation's voting stock.

Indemnification. Our charter provides that our directors will not be
personally liable to us or to our stockholders for monetary damages for breach
of fiduciary duty as a director, except that the limitation will not eliminate
or limit liability to the extent that the elimination or limitation of this
liability is not permitted by the Delaware General Corporation Law as it exists
or may later be amended. Our charter further provides for the indemnification of
our directors and officers to the fullest extent permitted by

Section 145 of the Delaware General Corporation Law, including circumstances in
which indemnification is otherwise discretionary.

STOCKHOLDER RIGHTS PLAN

Under Delaware law, every corporation may create and issue rights entitling
the holders of the rights to purchase from the corporation shares of its capital
stock, subject to any provisions of its charter. The price and terms of the
shares must be stated in the company's charter or in a resolution adopted by the
board of directors for the creation or issuance of such rights.

We expect to enter into a rights agreement with American Stock Transfer &
Trust Company, as rights agent, before the distribution and to issue to Thermo
Electron, our sole stockholder prior to the distribution, one preferred stock
purchase right for each outstanding share of our common stock. Each right, when
exercisable, will entitle the registered holder to purchase from us a unit
consisting of one ten-thousandth of a share of Series A junior participating
preferred stock at a purchase price of a multiple of the market price per share
of our common stock on the date our board adopts the stockholders rights plan,
subject to adjustment.

The rights agreement will provide that, with respect to the period of time
prior to the distribution, the rights will not become exercisable as a result of
Thermo Electron's ownership of our stock.

The following description is a summary of the expected material terms of
our stockholder rights plan after the distribution. It does not restate these
terms in their entirety. We urge you to read our stockholder rights plan because
it, and not this description, defines the terms and provisions of our plan. We
have filed the form of the rights agreement as an exhibit to our registration
statement on Form 10 of which this information statement forms a part. You may
obtain a copy of the rights agreement at no charge by writing to us at the
address listed below under the caption "Where You Can Find More Information."

Distribution of rights. Initially, the rights will not be exercisable and
will be attached to all certificates representing outstanding shares of our
common stock, and we will not distribute separate rights certificates. The
rights will separate from our common stock, and a rights distribution date will
occur, upon the earlier of the following events:

- 10 business days after a public announcement that a person or group has
acquired, or obtained the right to acquire, beneficial ownership of 15%
or more of the outstanding shares of our common stock; and

- 10 business days following the start of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of
the outstanding shares of our common stock.

The distribution date may be deferred by our board of directors. In addition,
some inadvertent actions will not trigger the occurrence of the rights
distribution date.

Prior to the rights distribution date:

- the rights will be evidenced by our common stock certificates and will be
transferred with and only with such common stock certificates; and

- the surrender for transfer of any certificates of our common stock will
also constitute the transfer of the rights associated with our common
stock represented by such certificate.

The rights will not be exercisable until the rights distribution date and
will expire at the close of business on November 12, 2011, unless we redeem or
exchange them earlier as described below.

As soon as practicable after the rights distribution date, rights
certificates will be mailed to the holders of record of our common stock as of
the close of business on the rights distribution date. From and after the rights
distribution date, the separate rights certificates alone will represent the
rights. All shares of our common stock issued prior to the rights distribution
date will be issued with rights. Shares of our common stock issued after the
rights distribution date in connection with specified employee benefit plans

or upon conversion of specified securities will be issued with rights. Except as
otherwise determined by our board of directors, no other shares of our common
stock issued after the rights distribution date will be issued with rights.

Flip-in event. If a person becomes the beneficial owner of 15% or more of
the outstanding shares of our common stock, except as described below, each
holder of a right will thereafter have the right to receive, upon exercise, a
number of shares of our common stock, or, in some circumstances, cash, property
or other securities of ours, which equals the exercise price of the right
divided by one-half of the current market price of our common stock on the date
the acquisition occurs. However, following the acquisition:

- rights will not be exercisable until the rights are no longer redeemable
by us as set forth below; and

- all rights that are, or were, under the circumstances specified in the
rights agreement, beneficially owned by any acquiring person will be null
and void.

The event set forth in this paragraph is referred to as a flip-in event. A
flip-in event would not occur if there is an offer for all of our outstanding
shares of common stock that our board of directors determines is fair to our
stockholders and in their best interests.

For example, at an exercise price of $100 per right, each right not owned
by an acquiring person, or by some related parties, following a flip-in event
would entitle the holder to purchase for $100 the number of shares of our common
stock, or other consideration, as noted above, as equals $100 divided by
one-half of the current market price of our common stock. Assuming that our
common stock had a per share value of $50 at that time, the holder of each valid
right would be entitled to purchase four shares of our common stock for $100.

Flip-over event. If at any time after a person has become the beneficial
owner of 15% or more of the outstanding shares of our common stock:

- we are acquired in a merger or other business combination transaction in
which we are not the surviving corporation,

- our common stock is changed or exchanged for stock or securities of any
other person or for cash or any other property or

- 50% or more of our assets or earning power is sold or transferred,

then each holder of a right, except rights which previously have been voided as
set forth above, shall thereafter have the right to receive, upon exercise, that
number of shares of common stock of the acquiring company which equals the
exercise price of the right divided by one-half of the current market price of
that company's common stock at the date of the occurrence of the event. This
exercise right will not arise if the merger or other transaction follows an
offer for all of our outstanding shares of common stock that our board of
directors determines is fair to our stockholders and in their best interests.

For example, at an exercise price of $100 per right, each right following
an event described in the preceding paragraph would entitle the holder to
purchase for $100 the number of shares of common stock of the acquiring company
as equals $100 divided by one-half of the current market price of that company's
common stock. Assuming that the common stock had a per share value of $100 at
that time, the holder of each valid right would be entitled to purchase two
shares of common stock of the acquiring company for $100.

Exchange of rights. At any time after a flip-in event, when no person owns
a majority of our common stock, our board of directors may exchange the rights,
other than rights owned by the acquiring person that have become void, in whole
or in part, at an exchange ratio of one share of our common stock, or one
ten-thousandth of a share of preferred stock, or of a share of a class or series
of preferred stock having equivalent rights, preferences and privileges, per
right.

Series A junior participating preferred stock. Series A preferred stock
purchasable upon exercise of the rights will not be redeemable. Each share of
series A preferred stock will be entitled to receive, when,

as and if declared by our Board, a minimum preferential quarterly dividend
payment of $100 per share and will be entitled to an aggregate dividend of
10,000 times the dividend declared per share of our common stock. In the event
of liquidation, the holders of the series A preferred stock will be entitled to
a minimum preferential liquidating payment of $100 per share and will be
entitled to an aggregate payment of 10,000 times the payment made per share of
our common stock. Each share of series A preferred stock will have 10,000 votes,
voting together with our common stock. Finally, in the event of any merger,
consolidation or other transaction in which our common stock is changed or
exchanged, each share of series A preferred stock will be entitled to receive
10,000 times the amount received per share of our common stock. These rights are
protected by customary antidilution provisions.

Because of the nature of the series A preferred stock's dividend,
liquidation and voting rights, the value of one ten-thousandth of a share of
series A preferred stock purchasable upon exercise of each right should
approximate the value of one share of our common stock.

Redemption of rights. At any time until ten business days following the
date of a public announcement that a person has acquired or obtained the right
to acquire beneficial ownership of 15% or more of the outstanding shares of our
common stock, we may redeem the rights in whole, but not in part, at a price of
$.001 per right, payable in cash or stock. Immediately upon the redemption of
the rights or such earlier time as established by our board of directors in the
resolution ordering the redemption of the rights, the rights will terminate and
the only right of the holders of rights will be to receive the $.001 redemption
price.

Status of rights holder and tax effects. Until a right is exercised, the
holder of the right, as such, will have no rights as a stockholder of ours,
including the right to vote or to receive dividends. Although the distribution
of the rights should not be taxable to stockholders or to us, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
rights become exercisable for our common stock, or other consideration, or for
common stock of the acquiring company as described above.

Board's authority to amend. Our board of directors may amend any provision
of the rights agreement, other than the redemption price, prior to the date on
which the rights are no longer redeemable. Once the rights are no longer
redeemable, our board's authority to amend the rights agreement is limited to
correcting ambiguities or defective or inconsistent provisions in a manner that
does not adversely affect the interest of holders of rights.

Effects of the rights. The rights are intended to protect our stockholders
in the event of an unfair or coercive offer to acquire our company and to
provide our board of directors with adequate time to evaluate unsolicited
offers. The rights may have anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us without
conditioning the offer on a substantial number of rights being acquired. The
rights, however, should not affect any prospective offeror willing to make an
offer at a fair price and otherwise in the best interests of us and our
stockholders, as determined by a majority of our board of directors. The rights
should not interfere with any merger or other business combination approved by
our board of directors.

DIVIDENDS

We currently anticipate that we will retain all of our earnings for use in
the development of our business, and we do not anticipate paying any cash
dividends in the foreseeable future.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Delaware General Corporation Law and our charter and by-laws limit the
monetary liability of our directors and provide for indemnification of our
officers and directors for liabilities and expenses that they may incur in such
capacities. In general, officers and directors are indemnified with respect to
actions taken in good faith in a manner reasonably believed to be in, or not
opposed to, our best interests, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. In addition, we have entered into indemnification agreements with our
directors and officers that provide for the maximum indemnification allowed by
law. We refer you to our charter, by-laws and form of indemnification agreement
for officers and directors which are filed as exhibits to the registration
statement of which this information statement is a part.

We have an insurance policy which insures our directors and officers
against liabilities that might be incurred in connection with the performance of
their duties.

Under the distribution agreement, Thermo Electron is obligated, under
specified circumstances, to indemnify our directors and officers against
liabilities. We refer you to the form of distribution agreement which is filed
as an exhibit to the registration statement of which this information statement
is a part.

EXPERTS

Our consolidated balance sheet as of December 30, 2000 and January 1, 2000
and the related consolidated statements of income, cash flows and comprehensive
income and shareholder's investment for each of the three years in the period
ended December 30, 2000 included in this information statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

Following the distribution, we will be required to comply with the
reporting requirements of the Securities Exchange Act and will file annual,
quarterly and other reports with the SEC. We will also be subject to the proxy
solicitation requirements of the Securities Exchange Act. We plan to distribute
to our stockholders annual reports containing audited consolidated financial
statements. We also plan to make available to our stockholders, within 45 days
after the end of each of the first three fiscal quarters of each fiscal year,
reports containing interim unaudited financial information.

We have filed a registration statement on Form 10 with the SEC to register
the shares of our common stock to be issued on the date of distribution of
shares of our common stock under the Securities Exchange Act. This information
statement does not contain all the information set forth in the registration
statement and the exhibits and schedules thereto, as some items are omitted in
accordance with the rules and regulations of the SEC. For further information
about us and our common stock, we refer you to the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to, are not necessarily complete, and in
each instance reference is made to the copy of each contract, agreement or other
document filed as an exhibit to the registration statement, each statement being
qualified by this reference.

You may read and copy all or any portion of the registration statement or
any reports, statements or other information we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our SEC filings, including the
registration statement, will also be available to you on the SEC's website at
http://www.sec.gov.

VIASYS HEALTHCARE INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
PAGE
----

Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheet as of January 1, 2000, December
30, 2000 and June 30, 2001................................ F-3
Consolidated Statement of Income for Each of the Three Years
in the Period Ended December 30, 2000 and for the Six
Months Ended July 1, 2000 and June 30, 2001............... F-4
Consolidated Statement of Cash Flows for Each of the Three
Years in the Period Ended December 30, 2000 and for the
Six Months Ended July 1, 2000 and June 30, 2001........... F-5
Consolidated Statement of Comprehensive Income and
Shareholder's Investment for Each of the Three Years in
the Period Ended December 30, 2000 and for the Six Months
Ended June 30, 2001....................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</Table>

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder and Board of Directors of Viasys Healthcare Inc.:

We have audited the accompanying consolidated balance sheet of Viasys
Healthcare Inc. (formerly Thermo Biomedical Inc. and a wholly owned subsidiary
of Thermo Electron Corporation) and subsidiaries as of December 30, 2000 and
January 1, 2000, and the related consolidated statements of income, cash flows
and comprehensive income and shareholder's investment for each of the three
years in the period ended December 30, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Viasys
Healthcare Inc. and subsidiaries as of December 30, 2000 and January 1, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 30, 2000 in conformity with accounting
principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 26, 2001 (except with respect
to the matters discussed in Note 14
as to which the date is
October 18, 2001)

F-2

VIASYS HEALTHCARE INC.

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS EXCEPT SHARE AMOUNTS)

<Table>
<Caption>
JUNE 30,
2001 2000 1999
----------- -------- --------
(UNAUDITED)

ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4,916 $ 12,611 $ 3,012
Advance to affiliate...................................... 1,737 1,517 132
Accounts receivable, less allowances of $7,094, $6,913 and
$6,601.................................................. 66,696 67,290 86,189
Inventories............................................... 75,162 69,991 58,734
Deferred tax asset (Note 4)............................... 14,578 14,832 13,055
Prepaid expenses.......................................... 4,212 4,514 3,803
Due from parent company and affiliated companies, net..... -- 493 --
-------- -------- --------
167,301 171,248 164,925
-------- -------- --------
Property, Plant and Equipment, at Cost, Net................. 28,036 27,881 28,290
-------- -------- --------
Other Assets................................................ 7,299 7,421 5,722
-------- -------- --------
Goodwill (Note 2)........................................... 179,650 183,801 181,172
-------- -------- --------
$382,286 $390,351 $380,109
======== ======== ========

LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Advance from affiliate (Note 2)........................... $ 33,306 $ 42,368 $ 35,402
Notes payable and current maturities of long-term
obligations (Note 5).................................... -- -- 3,514
Accounts payable.......................................... 17,429 18,360 17,821
Accrued payroll and employee benefits..................... 12,779 13,317 15,638
Deferred revenue.......................................... 8,529 8,144 9,957
Accrued installation and warranty costs................... 5,243 5,410 7,236
Accrued commissions....................................... 3,934 4,639 5,451
Other accrued expenses.................................... 13,892 10,781 18,310
Due to parent company and affiliated companies, net (Note
2)...................................................... -- -- 1,632
-------- -------- --------
95,112 103,019 114,961
-------- -------- --------
Deferred Income Taxes and Other Deferred Items (Note 4)..... 1,842 1,842 495
-------- -------- --------
Minority Interest (Note 2).................................. -- -- 9,222
-------- -------- --------
Commitments and Contingency (Note 9)
Shareholder's Investment (Notes 2, 3 and 14):
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued (Note 14)
Common stock, $.01 par value, 100,000,000 shares
authorized; 26,000,000 shares issued.................... 260 260 260
Capital in excess of par value............................ 262,095 262,095 239,907
Retained earnings......................................... 25,757 24,579 16,605
Accumulated other comprehensive items..................... (2,780) (1,444) (1,341)
-------- -------- --------
285,332 285,490 255,431
-------- -------- --------
$382,286 $390,351 $380,109
======== ======== ========
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3

VIASYS HEALTHCARE INC.

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
SIX MONTHS ENDED
-------------------
JUNE 30, JULY 1,
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(UNAUDITED)

Revenues (Note 10)...................... $177,290 $176,482 $345,428 $358,553 $306,363
-------- -------- -------- -------- --------
Costs and Operating Expenses:
Cost of revenues...................... 94,112 90,755 180,494 186,444 158,572
Selling, general and administrative
expenses (Note 7).................. 53,036 50,317 102,052 102,780 89,628
Research and development expenses..... 13,758 11,509 24,791 18,519 14,188
Restructuring and other unusual costs,
net (Note 8)....................... 1,124 1,016 1,964 -- 788
-------- -------- -------- -------- --------
162,030 153,597 309,301 307,743 263,176
-------- -------- -------- -------- --------
Operating Income........................ 15,260 22,885 36,127 50,810 43,187
Interest Income......................... 60 86 106 275 85
Interest Expense........................ (980) (985) (2,066) (1,410) (981)
Other Income (Expense), Net............. (134) (68) (393) 437 --
-------- -------- -------- -------- --------
Income Before Provision for Income Taxes
and Minority Interest................. 14,206 21,918 33,774 50,112 42,291
Provision for Income Taxes (Note 4)..... 5,967 8,741 14,690 20,686 17,198
Minority Interest Expense (Note 2)...... -- 191 191 576 759
-------- -------- -------- -------- --------
Net Income.............................. $ 8,239 $ 12,986 $ 18,893 $ 28,850 $ 24,334
======== ======== ======== ======== ========
Basic and Diluted Earnings per Share
(Note 11)............................. $ .32 $ .50 $ .73 $ 1.11 $ .94
======== ======== ======== ======== ========
Basic and Diluted Weighted Average
Shares (Notes 11 and 14).............. 26,000 26,000 26,000 26,000 26,000
======== ======== ======== ======== ========
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4

VIASYS HEALTHCARE INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)

<Table>
<Caption>
SIX MONTHS ENDED
-------------------
JUNE 30, JULY 1,
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(UNAUDITED)

OPERATING ACTIVITIES
Net income................................................ $ 8,239 $ 12,986 $ 18,893 $ 28,850 $ 24,334
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 6,916 7,762 14,360 13,353 11,757
Provision for losses on accounts receivable............. 567 510 2,427 3,362 1,316
Minority interest expense............................... -- 191 191 576 759
Other noncash items..................................... (143) (5) 147 167 607
Changes in current accounts, excluding the effects of
acquisitions:
Accounts receivable................................... (942) 11,419 12,677 (20,394) (425)
Inventories........................................... (6,620) (8,670) (11,811) 2,643 1,363
Other current assets.................................. 907 3,423 (1,198) (2,274) 1,553
Accounts payable...................................... (728) (420) 648 1,233 (826)
Other current liabilities............................. 2,822 (7,176) (10,408) 8,941 (4,869)
Other................................................... -- -- 1,779 711 (2,199)
-------- -------- -------- -------- --------
Net cash provided by operating activities........... 11,018 20,020 27,705 37,168 33,370
-------- -------- -------- -------- --------
INVESTING ACTIVITIES
Acquisition, net of cash acquired (Note 2)................ -- -- -- (28,395) --
Purchases of property, plant and equipment................ (4,200) (4,149) (7,540) (7,049) (7,352)
Proceeds from sale of property, plant and equipment....... 1,048 246 417 1,029 364
Advances (to) from affiliate.............................. (220) 132 (1,385) (132) --
Other..................................................... (1,015) (433) (279) (289) (300)
-------- -------- -------- -------- --------
Net cash used in investing activities............... (4,387) (4,204) (8,787) (34,836) (7,288)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of short-term obligations to
affiliated companies (Note 2)........................... -- -- -- 40,171 --
Repayment of long-term obligations (Note 6)............... -- -- -- (8,610) (8,088)
Repayment of notes payable (Note 2)....................... -- -- -- (9,692) --
Net transfer to parent company............................ (7,061) (15,070) (10,919) (22,085) (18,781)
Increase (decrease) in short-term borrowings.............. (6,588) 2,781 2,541 (976) 835
-------- -------- -------- -------- --------
Net cash used in financing activities............... (13,649) (12,289) (8,378) (1,192) (26,034)
-------- -------- -------- -------- --------
Exchange Rate Effect on Cash................................ (677) (110) (941) (526) 536
-------- -------- -------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents............ (7,695) 3,417 9,599 614 584
Cash and Cash Equivalents at Beginning of Period............ 12,611 3,012 3,012 2,398 1,814
-------- -------- -------- -------- --------
Cash and Cash Equivalents at End of Period.................. $ 4,916 $ 6,429 $ 12,611 $ 3,012 $ 2,398
======== ======== ======== ======== ========
CASH PAID FOR
Interest.................................................. $ 1,125 $ 445 $ 1,822 $ 1,355 $ 1,203
Income taxes.............................................. $ 5,999 $ 9,815 $ 15,931 $ 21,000 $ 12,627
NONCASH ACTIVITIES (Note 2)
Fair value of assets of acquired company.................. $ -- $ -- $ -- $ 57,059 $ --
Cash paid for acquired company............................ -- -- -- (30,479) --
-------- -------- -------- -------- --------
Liabilities assumed of acquired company................. $ -- $ -- $ -- $ 26,580 $ --
======== ======== ======== ======== ========
Transfer of acquired businesses from parent company....... $ -- $ -- $ -- $ -- $ 16,540
======== ======== ======== ======== ========
Transfer of acquired minority interest in subsidiaries
from parent company..................................... $ -- $ 22,188 $ 22,188 $ -- $ --
======== ======== ======== ======== ========
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5

VIASYS HEALTHCARE INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
AND SHAREHOLDER'S INVESTMENT

(IN THOUSANDS)

<Table>
<Caption>
JUNE 30,
2001 2000 1999 1998
----------- -------- -------- --------
(UNAUDITED)

COMPREHENSIVE INCOME
Net Income....................................... $ 8,239 $ 18,893 $ 28,850 $ 24,334
-------- -------- -------- --------
Other Comprehensive Items:
Foreign currency translation adjustment........ (1,336) (103) (605) 286
-------- -------- -------- --------
$ 6,903 $ 18,790 $ 28,245 $ 24,620
======== ======== ======== ========
SHAREHOLDER'S INVESTMENT
Common Stock, $.01 Par Value:
Balance at beginning and end of period (Note
14)......................................... $ 260 $ 260 $ 260 $ 260
-------- -------- -------- --------
Capital in Excess of Par Value:
Balance at beginning of period................. 262,095 239,907 239,907 223,367
Transfer of acquired minority interest in
subsidiaries from parent company (Note 2)... -- 22,188 -- --
Transfer of acquired businesses from parent
company (Note 2)............................ -- -- -- 16,540
-------- -------- -------- --------
Balance at end of period....................... 262,095 262,095 239,907 239,907
-------- -------- -------- --------
Retained Earnings:
Balance at beginning of period................. 24,579 16,605 9,840 4,287
Net income..................................... 8,239 18,893 28,850 24,334
Net transfer to parent company................. (7,061) (10,919) (22,085) (18,781)
-------- -------- -------- --------
Balance at end of period....................... 25,757 24,579 16,605 9,840
-------- -------- -------- --------
Accumulated Other Comprehensive Items:
Balance at beginning of period................. (1,444) (1,341) (736) (1,022)
Other comprehensive items, net................. (1,336) (103) (605) 286
-------- -------- -------- --------
Balance at end of period....................... (2,780) (1,444) (1,341) (736)
-------- -------- -------- --------
$285,332 $285,490 $255,431 $249,271
======== ======== ======== ========
</Table>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Viasys Healthcare Inc. (the "Company," formerly Thermo Biomedical Inc.)
designs, manufactures and markets medical devices and products, including
respiratory care equipment, neurodiagnostic systems and wireless patient
monitoring systems, critical care disposable devices and other specialty
products and materials.

RELATIONSHIP WITH THERMO ELECTRON CORPORATION

The Company operated as a division of Thermo Electron Corporation ("Thermo
Electron") until its incorporation as a Delaware corporation in August 1995 as a
wholly owned subsidiary of Thermo Electron. Subsequently, Thermo Electron
contributed all of the assets or stock of certain of its subsidiaries relating
to its Nicolet Biomedical Inc. ("Nicolet Biomedical"), Bird Medical
Technologies, Inc. ("Bird Medical Technologies"), SensorMedics Corporation
("SensorMedics"), Medical Data Electronics, Inc. ("Medical Data Electronics")
and Bear Medical Systems Inc. ("Bear Medical Systems") subsidiaries to the
Company. In September 2000, Thermo Electron contributed its MWW, Corpak LLC
("Corpak") and Tecomet Inc. ("Tecomet") subsidiaries and substantially all of
the assets and liabilities of its Thermedics Polymer Products division to the
Company. The transfers of these businesses from Thermo Electron were recorded at
historical cost. As of December 30, 2000, Thermo Electron owned 100% of the
Company's outstanding common stock.

The accompanying financial statements include the assets, liabilities,
income and expenses of the businesses described above from the dates they were
first included in Thermo Electron's consolidated financial statements. The
accompanying financial statements do not include Thermo Electron's general
corporate debt, which is used to finance operations of all of its respective
business segments, or an allocation of Thermo Electron's interest expense. The
Company has had positive cash flows from operations for all periods presented.

PRINCIPLES OF CONSOLIDATION

The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.

FISCAL YEAR

The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 2000, 1999 and 1998 are for the fiscal years ended December
30, 2000, January 1, 2000 and January 2, 1999, respectively.

REVENUE RECOGNITION

Prior to 2000, the Company recognized revenues when title transferred,
except where complex installation was required, in which instances revenue was
recognized upon completion of installation. During the fourth quarter of 2000,
effective as of January 2, 2000, the Company adopted Securities and Exchange
Commission (SEC) Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition
in Financial Statements." Under SAB No. 101, revenues for products that require
installation for which the installation is essential to functionality or is not
deemed inconsequential or perfunctory are recognized upon completion of
installation. Revenues for products sold where installation is not essential to
functionality and is deemed inconsequential or perfunctory are recognized upon
transfer of title with estimated installation costs accrued. As the Company's
revenues were not materially affected by the
F-7

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

adoption of SAB No. 101, the Company recorded no cumulative effect of the change
in accounting principle for periods prior to 2000. The Company recognizes
service contract revenues ratably over the term of the contract. The Company
provides a reserve for its estimate of installation and warranty costs at the
time of shipment.

SOFTWARE DEVELOPMENT COSTS

In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established. The Company believes that, under
its current process for developing software, the software is essentially
completed concurrently with the establishment of technological feasibility.
Accordingly, no software development costs have been capitalized except for
software recorded in connection with an acquisition.

STOCK-BASED COMPENSATION PLANS

The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for stock-based compensation plans (Note 3). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholder's investment. During 2000, Financial
Accounting Standards Board Interpretation (FIN) No. 44, "Accounting for Certain
Transactions Involving Stock Compensation: an Interpretation of APB Opinion No.
25," was released. The Company's financial statements were not materially
affected by FIN No. 44.

INCOME TAXES

The Company and Thermo Electron have a tax allocation agreement under which
the Company is included in Thermo Electron's consolidated federal and certain
state income tax returns. The agreement provides that in years in which the
Company has taxable income, it will pay to Thermo Electron amounts comparable to
the taxes the Company would have paid if it had filed separate tax returns. If
Thermo Electron's ownership of the Company were to fall below 80%, the Company
would be required to file its own federal income tax return.

In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company
recognizes deferred income taxes based on the expected future tax consequences
of differences between the financial statement basis and the tax basis of assets
and liabilities, calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.

CASH AND CASH EQUIVALENTS

The Company's cash receipts and disbursements were combined with other
Thermo Electron corporate cash transactions. The Company's cash and cash
equivalents include investments in interest-bearing accounts of the Company's
foreign subsidiaries, which have an original maturity of three months or less.
Cash equivalents are carried at cost, which approximates market value. Cash
transfers between the Company and Thermo Electron appear in the accompanying
statement of cash flows and statement of comprehensive income and shareholder's
investment as "Net transfer to parent company."

F-8

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the cash flows between the Company and Thermo
Electron:

<Table>
<Caption>
RETAINED AVERAGE
EARNINGS BALANCE
-------- -------
(IN THOUSANDS)

BALANCE JANUARY 3, 1998..................................... $ 4,287 $
Net income................................................ 24,334
Corporate service fee payment............................. (2,451)
Tax allocation payment to parent company.................. (12,627)
Other cash transfers to parent company.................... (3,703)
-------- -------
BALANCE JANUARY 2, 1999..................................... 9,840 7,064
Net income................................................ 28,850
Corporate service fee payment............................. (2,868)
Tax allocation payment to parent company.................. (21,000)
Other cash transfers from parent company.................. 1,783
-------- -------
BALANCE JANUARY 1, 2000..................................... 16,605 13,223
Net income................................................ 18,893
Corporate service fee payment............................. (2,763)
Tax allocation payment to parent company.................. (15,931)
Other cash transfers from parent company.................. 7,775
-------- -------
BALANCE DECEMBER 30, 2000................................... 24,579 20,592
(UNAUDITED)
Net income................................................ 8,239
Corporate service fee payment............................. (1,241)
Tax allocation payment to parent company.................. (5,999)
Other cash transfers from parent company.................. 179
-------- -------
BALANCE JUNE 30, 2001....................................... $ 25,757 $25,168
======== =======
</Table>

ADVANCE TO/FROM AFFILIATE

Certain of the Company's European-based subsidiaries participate in a cash
management arrangement with a wholly owned subsidiary of Thermo Electron. Under
this arrangement, amounts advanced to the wholly owned subsidiary of Thermo
Electron by the Company's European-based subsidiaries bear interest based on
Euro market rates. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days prior notice. The
Company has access to a $1,770,000 line of credit from such wholly owned
subsidiary of Thermo Electron under this arrangement in addition to acquisition
funding described in Note 2. Under the terms of the agreement, the Company may
borrow on a demand basis, amounts bearing interest based on Euro market rates.
No borrowings were outstanding under this arrangement at year-end 2000 and 1999.

F-9

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories are stated at the lower of cost (on a first-in, first-out or
weighted-average basis) or net realizable value and include materials, labor and
manufacturing overhead. The components of inventories are as follows:

<Table>
<Caption>
JUNE 30,
2001 2000 1999
------------ ------- -------
(UNAUDITED)
(IN THOUSANDS)

Raw Materials............................................... $39,811 $36,518 $29,527
Work in Process............................................. 9,477 11,695 9,322
Finished Goods.............................................. 25,874 21,778 19,885
------- ------- -------
$75,162 $69,991 $58,734
======= ======= =======
</Table>

The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of the inventories to net realizable value.

PROPERTY, PLANT AND EQUIPMENT

The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings, 20 to 30 years; machinery
and equipment, 2 to 12 years; and leasehold improvements, the shorter of the
term of the lease or the life of the asset.

Property, plant and equipment consists of the following:

<Table>
<Caption>
2000 1999
------- -------
(IN THOUSANDS)

Land........................................................ $ 8,125 $ 8,125
Buildings................................................... 2,218 2,218
Machinery and Equipment..................................... 62,389 57,217
Leasehold Improvements...................................... 8,592 7,512
------- -------
81,324 75,072
Less: Accumulated Depreciation and Amortization............. 53,443 46,782
------- -------
$27,881 $28,290
======= =======
</Table>

OTHER ASSETS

Other assets in the accompanying balance sheet include the cost of acquired
patents and trademarks. These assets are being amortized using the straight-line
method over their estimated useful lives, which range from 3 to 17 years. These
assets were $6,614,000 and $4,354,000, net of accumulated amortization of
$9,015,000 and $6,744,000, at year-end 2000 and 1999, respectively.

GOODWILL

Goodwill is amortized using the straight-line method over 40 years.
Accumulated amortization was $25,322,000 and $20,278,000 at year-end 2000 and
1999, respectively. The Company assesses the future useful life of this and
other noncurrent assets whenever events or changes in circumstances indicate
that

F-10

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the current useful life has diminished. Such events or circumstances generally
include the occurrence of operating losses or a significant decline in earnings
associated with the acquired business or asset. The Company considers the future
undiscounted cash flows of the acquired businesses in assessing the
recoverability of this asset. The Company assesses cash flows before interest
charges and, when an impairment is indicated, writes the asset down to fair
value. If quoted market prices are not available, the Company estimates fair
value by calculating the present value of future cash flows. If impairment has
occurred, any excess of carrying value over fair value is recorded as a loss.

FOREIGN CURRENCY

All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year, in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected as a
separate component of shareholder's investment titled "Accumulated other
comprehensive items." Foreign currency transaction gains and losses are included
in the accompanying statement of income and are not material for each of the
three years presented.

COMPREHENSIVE INCOME

Comprehensive income combines net income and "other comprehensive items,
net" which represents foreign currency translation adjustments, reported as a
component of shareholder's investment in the accompanying balance sheet. At
year-end 2000 and 1999, the balance of other comprehensive items represents the
Company's cumulative translation adjustment. During the first six months of 2001
and 2000, the Company had unaudited comprehensive income of $6,903,000 and
$12,562,000, respectively.

RECENT ACCOUNTING PRONOUNCEMENT

During 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended, requires that all derivatives, including foreign currency
exchange contracts, be recognized on the balance sheet at fair value. Changes in
the fair value of derivatives that are not hedges must be recorded through
earnings. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative are either offset against the change
in fair value of the hedged item through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
adoption of SFAS No. 133 in the first quarter of 2001 did not materially affect
the Company's financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist mainly of cash and cash
equivalents, advance to affiliate, accounts receivable, advance from affiliate,
notes payable and current maturities of long-term obligations, accounts payable
and due to parent company and affiliated companies. Their respective carrying
amounts in the accompanying balance sheet approximate fair value due to their
short-term nature.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

F-11

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTERIM FINANCIAL STATEMENTS

The financial statements as of June 30, 2001, and for the six-month periods
ended June 30, 2001 and July 1, 2000, are unaudited but, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair presentation of results for the interim periods. The results of operations
for the six-month period ended June 30, 2001, are not necessarily indicative of
the results to be expected for the entire year.

2. ACQUISITIONS

In July 1999, Thermedics Inc. ("Thermedics"), then a majority-owned
subsidiary of Thermo Electron, through its wholly owned subsidiary, MWW,
acquired Erich Jaeger, GmbH ("Erich Jaeger"), a medical products company based
in Germany, for $30,479,000 in cash, including the repayment of certain of Erich
Jaeger's indebtedness, and the assumption of $13,401,000 of Erich Jaeger's
indebtedness. Erich Jaeger develops and manufactures equipment for
lung-function, cardio-respiratory and sleep-disorder diagnosis and monitoring.
MWW financed this acquisition with $30,479,000 of short-term borrowings from a
wholly owned subsidiary of Thermo Electron, which are due on demand and bear
interest at prevailing German market rates, set at the beginning of each month.
The interest rate at January 1, 2000, was 3.95%. MWW was subsequently
contributed by Thermo Electron to the Company. Of the indebtedness assumed, the
Company refinanced $9,692,000 with additional borrowings from the wholly owned
subsidiary of Thermo Electron and repaid the balance upon maturity in May 2000.
This balance totaled $3,290,000 as of January 1, 2000, and bore interest at
5.96%. Of the total borrowings from Thermo Electron of $40,171,000 for the
acquisition of Erich Jaeger and payment of its indebtedness, $36,658,000 and
$34,600,000 is included in advance from affiliate, a component of notes payable
and current maturities of long-term obligations, in 2000 and 1999, respectively.
In addition, $3,853,000 is included in due to parent company and affiliated
companies, net, net of currency effects, in the accompanying 1999 balance sheet.

In November 1998, Thermo Electron acquired the Grason-Stadler Inc.
("Grason-Stadler") subsidiary of Welch-Allyn, Inc. for $16,540,000 in cash and
the assumption of certain liabilities. Grason-Stadler manufactures audio meters
and other clinical hearing measurement instruments.

On June 30, 2000, Thermo Electron completed a transaction through which it
acquired shares representing the minority interest in Thermedics. Goodwill of
$12,775,000 arose in this transaction related to Thermedics' minority
shareholders' ownership of MWW, Corpak and Thermedics Polymer Products. This
amount became part of the historical cost of these businesses as of June 30,
2000. As part of this transaction, the Company's minority interest liability
related to these subsidiaries of $9,413,000 was discharged. Subsequent to this
date, the Company has no minority interests in any of its subsidiaries.

These acquisitions have been accounted for using the purchase method of
accounting and the acquired companies' results of operations have been included
in the accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the estimated
fair value of the acquired net assets by $52,543,000, which is being amortized
over 40 years. Allocation of the purchase price for these acquisitions was based
on estimates of the fair value of the net assets acquired.

In connection with these acquisitions, the Company has undertaken certain
restructuring activities at the acquired businesses. The Company's restructuring
activities, which were accounted for in accordance with Emerging Issues Task
Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing
levels and the abandonment of excess facilities. In connection with these
restructuring activities, as part of the cost of the acquisitions, the Company
established reserves as detailed below, primarily for severance and excess
facilities. In accordance with EITF 95-3, the Company finalized its
restructuring

F-12

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

plans no later than one year from the respective dates of the acquisitions.
Accrued acquisition expenses are included in other accrued expenses in the
accompanying balance sheet.

A summary of the changes in accrued acquisition expenses for Erich Jaeger
is as follows:

<Table>
<Caption>
ABANDONMENT
OF EXCESS
SEVERANCE FACILITIES OTHER TOTAL
--------- ----------- ----- -------
(IN THOUSANDS)

Reserves established............................... $ 2,335 $ 680 $ 431 $ 3,446
Currency translation............................... (146) (42) (27) (215)
--------- ----- ----- -------
BALANCE AT JANUARY 1, 2000........................... 2,189 638 404 3,231
Reserves established............................... 237 -- 379 616
Payments........................................... (1,767) (43) (692) (2,502)
Decrease recorded as a reduction in goodwill....... 9 (480) (128) (599)
Currency translation............................... (167) (47) 94 (120)
--------- ----- ----- -------
BALANCE AT DECEMBER 30, 2000......................... 501 68 57 626
(UNAUDITED)
Reserves established............................... -- -- 34 34
Payments........................................... (270) -- (34) (304)
Currency translation............................... (38) (5) (4) (47)
--------- ----- ----- -------
BALANCE AT JUNE 30, 2001............................. $ 193 $ 63 $ 53 $ 309
========= ===== ===== =======
</Table>

The Company restructured the business of Erich Jaeger to reduce costs and
promote operational efficiencies. The restructuring actions eliminated redundant
functions and excess capacity in geographical regions where the Company has
operations in addition to those of Erich Jaeger. Actions completed in the first
half of 2000 included consolidation of Erich Jaeger's U.S. sales and service
function with other Respiratory Care segment operations in the U.S. and the
closure of Erich Jaeger's Ohio sales and service office. In addition, Erich
Jaeger's assembly and sales and service facility in the Netherlands was closed
and consolidated with existing Respiratory Care segment facilities in the
Netherlands and Germany. The principal accrued acquisition expenses for Erich
Jaeger consisted of severance for 36 employees across all functions and the
abandonment of operating facilities in the United States and the Netherlands
with original lease terms through 2003. The amounts captioned as other primarily
represent employee relocation costs. The Company negotiated a favorable
settlement of lease commitments during 2000 and completed certain employee
relocations at less than the amount originally estimated. As a result, $599,000
of accrued acquisition expenses were reversed to goodwill in 2000. Severance and
other costs will primarily be paid through 2001. No unresolved matters remained
at December 30, 2000 related to the restructuring plans for Erich Jaeger.

3. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK PURCHASE PROGRAM

Substantially all of the Company's full-time employees were eligible to
participate in an employee stock purchase program sponsored by Thermo Electron
through October 31, 2000, when the Company's participation ceased. Under this
program, shares of Thermo Electron's common stock could be purchased at 85% of
the lower of the fair market value at the beginning or end of the plan year, and
the shares purchased were subject to a one-year resale restriction. Shares were
purchased through payroll deductions of up to 10% of each participating
employee's gross wages.

F-13

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTION ACTIVITY

Certain of the Company's employees participate in the stock option plans of
Thermo Electron. A summary of the status of the Thermo Electron stock options
held by the Company's employees at December 30, 2000, is as follows:

<Table>
<Caption>
OPTIONS OUTSTANDING AND EXERCISABLE
--------------------------------------------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES (IN THOUSANDS) CONTRACTUAL LIFE EXERCISE PRICE
------------------------ -------------- ---------------- ----------------

$ 6.55 -- $ 15.08 170,532 3.6 years $13.77
15.09 -- 23.73 303,031 4.0 years 17.93
23.74 -- 32.38 19,367 6.5 years 29.59
32.39 -- 139.45 31,593 5.4 years 42.16
-------
$ 6.55 -- $139.45 524,523 4.0 years $18.47
=======
</Table>

PRO FORMA STOCK-BASED COMPENSATION EXPENSE

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation," which sets forth a fair-value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company has
elected to continue to apply APB No. 25 to account for stock-based compensation
plans.

Had compensation cost for awards granted after 1994 under stock-based
compensation plans been determined based on the fair value at the grant dates
consistent with the method set forth under SFAS No. 123, the effect on the
Company's net income and earnings per share would have been:

<Table>
<Caption>
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Net Income:
As reported............................................. $18,893 $28,850 $24,334
Pro forma............................................... 18,480 27,109 21,637
Basic and Diluted Earnings per Share:
As reported............................................. .73 1.11 .94
Pro forma............................................... .71 1.04 .83
</Table>

Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Compensation expense for options granted is reflected over the vesting period;
therefore, future pro forma compensation expense may be greater as additional
options are granted.

The weighted average fair value per share of Thermo Electron options
granted was $4.39 and $7.15 in 1999 and 1998, respectively. No options were
granted in 2000. The fair value of each option grant was estimated on the grant
date using the Black-Scholes option-pricing model with the following weighted-
average assumptions:

<Table>
<Caption>
1999 1998
--------- ---------

Volatility.................................................. 31% 28%
Risk-free Interest Rate..................................... 5.2% 4.9%
Expected Life of Options.................................... 3.5 years 3.6 years
</Table>

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the
F-14

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

Certain of the Company's key employees have been awarded 32,000 shares of
Thermo Electron restricted common stock. The shares had an aggregate value of
$1,075,000 at the date of award and generally vest over 3 years. The Company is
recognizing the cost of these awards over the vesting period.

401(k) SAVINGS PLANS

Substantially all of the Company's full-time employees are eligible to
participate in Thermo Electron's 401(k) savings plan. In addition, certain of
the Company's employees are eligible to participate in a 401(k) saving plan
sponsored by a subsidiary. Contributions to the plans are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions. For these plans, the Company contributed and charged to
expense $1,659,000, $1,607,000 and $1,387,000 in 2000, 1999 and 1998,
respectively.

4. INCOME TAXES

The components of income before provision for income taxes and minority
interest are as follows:

<Table>
<Caption>
2000 1999 1998
------- ------- -------
(IN THOUSANDS)

Domestic.................................................... $30,786 $46,408 $42,925
Foreign..................................................... 2,988 3,704 (634)
------- ------- -------
$33,774 $50,112 $42,291
======= ======= =======
</Table>

The components of the provision for income taxes are as follows:

<Table>
<Caption>
2000 1999 1998
------- ------- -------
(IN THOUSANDS)

Currently Payable (Refundable):
Federal................................................... $11,057 $16,799 $13,686
State..................................................... 2,184 3,306 2,486
Foreign................................................... 894 1,893 9
------- ------- -------
14,135 21,998 16,181
------- ------- -------
Net Deferred (Prepaid):
Federal................................................... 192 (1,195) 883
State..................................................... (9) (181) 134
Foreign................................................... 372 64 -
------- ------- -------
555 (1,312) 1,017
------- ------- -------
$14,690 $20,686 $17,198
======= ======= =======
</Table>

F-15

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before provision for income taxes due to the
following:

<Table>
<Caption>
2000 1999 1998
------- ------- -------
(IN THOUSANDS)

Provision for Income Taxes at Statutory Rate................ $11,821 $17,540 $14,802
Increases (Decreases) Resulting From:
Foreign sales corporation benefit......................... (511) (1,107) (1,044)
State income taxes, net of federal tax.................... 1,414 2,031 1,703
Amortization of goodwill.................................. 1,041 1,148 845
Foreign tax rate differential and foreign losses not
benefited.............................................. 665 555 231
Nondeductible expenses.................................... 261 511 663
Other..................................................... (1) 8 (2)
------- ------- -------
$14,690 $20,686 $17,198
======= ======= =======
</Table>

Deferred tax asset and deferred income taxes in the accompanying balance
sheet consist of the following:

<Table>
<Caption>
2000 1999
------- -------
(IN THOUSANDS)

Prepaid (Deferred) Income Taxes:
Reserves and accruals..................................... $ 6,356 $ 4,434
Inventory basis difference................................ 5,470 6,197
Net operating loss and credit carryforwards............... 3,241 2,755
Accrued compensation...................................... 1,852 2,377
Depreciation and amortization............................. (1,347) 432
Other, net................................................ 1,154 47
------- -------
16,726 16,242
Less: Valuation allowance................................. (3,241) (2,755)
------- -------
$13,485 $13,487
======= =======
</Table>

The valuation allowance relates to uncertainty surrounding the realization
of U.S. and foreign tax loss and credit carryforwards. At year-end 2000, the
Company had U.S. and foreign net operating loss carryforwards of $8,730,000, of
which $738,000 expire in 2004 and the balance do not expire. A provision has not
been made for U.S. or additional foreign taxes on $1,674,000 of undistributed
earnings of foreign subsidiaries which could be subject to taxation if remitted
to the United States because the Company plans to keep these amounts permanently
invested overseas.

5. SHORT-TERM OBLIGATIONS

Notes payable and current maturities of long-term obligations in the
accompanying 1999 balance sheet includes $187,000 of short-term bank borrowings
and borrowings under lines of credit at certain of the Company's foreign
subsidiaries. The weighted average interest rate for these borrowings was 6.6%
at year-end 1999.

F-16

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At year-end 1999, certain of the Company's Germany-based subsidiaries had
borrowings of $802,000 under an arrangement with a wholly owned subsidiary of
Thermo Electron (Note 1). The weighted average interest rate for these
borrowings was 3.95% at year-end 1999.

In addition, the Company had $37,000 of other short-term obligations at
year-end 1999, primarily lease obligations.

Unused lines of credit, including amounts available under arrangements with
a wholly owned subsidiary of Thermo Electron, were $2,650,000 at year-end 2000.
Borrowings under lines of credit are on a demand basis at variable market rates
and are generally guaranteed by Thermo Electron.

6. LONG-TERM OBLIGATIONS

To partially finance the acquisition of Medical Data Electronics in August
1996, the Company issued a promissory note in the amount of $24,296,000 to the
previous owners. This note was noninterest-bearing and called for annual
payments of $9,167,000 with a final maturity of July 1999. The Company
discounted the note for an effective interest rate of 6.46%.

7. RELATED-PARTY TRANSACTIONS

CORPORATE SERVICES

The Company and Thermo Electron have a corporate services arrangement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management and certain financial and other services, for which
the Company currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. For these services the Company was charged $2,763,000,
$2,868,000 and $2,451,000 in 2000, 1999 and 1998, respectively. Management
believes that the service fees charged by Thermo Electron are reasonable and
that such fees are representative of the expenses the Company would have
incurred on a stand-alone basis. For additional items such as employee benefit
plans, insurance coverage and other identifiable costs, Thermo Electron charges
the Company based upon costs attributable to the Company.

OPERATING LEASE

The Company leases office space from an affiliate which is controlled by
Thermo Electron under an operating lease arrangement that expires in 2001. The
accompanying statement of income includes expense from this lease of $768,000,
$772,000 and $782,000 in 2000, 1999 and 1998, respectively. Future minimum
payments due under this lease at December 30, 2000, are $772,000 in 2001.

OTHER RELATED-PARTY TRANSACTIONS

The Company provided metal fabrication services to Thermo Cardiosystems
Inc., a majority-owned subsidiary of Thermo Electron through February 2001, when
Thermo Cardiosystems was sold. The Company was paid $3,283,000, $3,622,000 and
$1,714,000 in 2000, 1999 and 1998, respectively, for these services.

The Company sold products resulting in revenues of $810,000, $1,446,000 and
$1,350,000 during 2000, 1999 and 1998, respectively, to affiliates controlled by
Thermo Electron.

8. RESTRUCTURING AND OTHER UNUSUAL COSTS

Restructuring and other unusual costs, net in 1998 represents $788,000 of
costs recorded at SensorMedics, primarily consisting of severance costs for
seven employees.

F-17

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company recorded restructuring and other unusual costs of $1,964,000
during 2000, including $1,351,000 of employee retention costs in connection with
Thermo Electron's proposed plan to spin off the Company. The retention
arrangements were awarded to 23 key employees to help ensure their availability
through at least the date of the distribution of the Company's common shares
(Note 12). The awards are generally payable in January 2002 or earlier, upon
completion of the distribution. The total amount of the awards is approximately
$2.6 million, which is being accrued ratably through December 2001.

In addition, in 2000, the Company recorded cash costs of $613,000 at the
Respiratory Care segment. The costs consisted of $346,000 of severance for 54
manufacturing and sales employees, $222,000 of lease cancellation costs for a
facility in Texas that was closed, and $45,000 of relocation costs that were
incurred in 2000. These charges were incurred to reduce costs in response to a
downturn in sales. The operations of the facility that was closed were
consolidated with existing operations in California.

The Company recorded $1,124,000 of restructuring and unusual costs during
the first six months of 2001, including $799,000 of employee retention costs, as
discussed above. In addition, the Company recorded $252,000 for severance for 13
employees, all of whom were terminated at June 30, 2001, and $73,000 of other
costs.

The Company recorded restructuring and other unusual costs, net, as
follows:

<Table>
<Caption>
EMPLOYEE ABANDONED
SEVERANCE RETENTION(A) FACILITIES OTHER TOTAL
--------- ------------- ----------- ----- ------
(IN THOUSANDS)

1998 RESTRUCTURING PLAN
Costs accrued in 1998.................... $ 788 $ -- $ -- $-- $ 788
1998 Payments............................ (11) -- -- -- (11)
----- ------ ----- --- ------
BALANCE AT JANUARY 2, 1999............... 777 -- -- -- 777
1999 Payments............................ (516) -- -- -- (516)
Currency translation..................... (102) -- -- -- (102)
----- ------ ----- --- ------
BALANCE AT JANUARY 1, 2000............... 159 -- -- -- 159
2000 Payments............................ (134) -- -- -- (134)
Reserves reversed........................ (12) -- -- -- (12)
Currency translation..................... (13) -- -- -- (13)
----- ------ ----- --- ------
BALANCE AT DECEMBER 30, 2000 AND JUNE 30,
2001.................................. $ -- $ -- $ -- $-- $ --
===== ====== ===== === ======

2000 RESTRUCTURING PLAN
Costs accrued in 2000 (b)................ $ 346 $1,351 $ 222 $45 $1,964
2000 Payments............................ (346) (241) (222) (45) (854)
----- ------ ----- --- ------
BALANCE AT DECEMBER 30, 2000............. -- 1,110 -- -- 1,110

(UNAUDITED)

Costs accrued in 2001 (c)................ 252 799 -- 15 1,066
2001 Payments............................ (182) (18) -- (13) (213)
Currency translation..................... (3) -- -- -- (3)
----- ------ ----- --- ------
BALANCE AT JUNE 30, 2001................. $ 67 $1,891 $ -- $ 2 $1,960
===== ====== ===== === ======
</Table>

F-18

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

---------------

(a) The Company expects to make the payments for employee retention through
January 2002.

(b) Reflects costs of $492,000, $413,000, $1,007,000 and $52,000 in the
Respiratory Care, Neurocare and Medical and Surgical Products segments and
the corporate office, respectively.

(c) Reflects costs of $179,000, $445,000, $344,000 and $98,000 in the
Respiratory Care, Neurocare and Medical and Surgical Products segments and
the corporate office, respectively, and excludes $58,000 of noncash costs in
the Respiratory Care segment.

9. COMMITMENTS AND CONTINGENCY

COMMITMENTS

In addition to the related-party operating leases described in Note 7, the
Company leases portions of its office and operating facilities under various
operating lease arrangements. The accompanying statement of income includes
expense from these leases of $5,184,000, $4,591,000 and $5,954,000 in 2000, 1999
and 1998, respectively. Future minimum payments due under these noncancelable
operating leases at December 30, 2000, are $4,039,000 in 2001; $3,390,000 in
2002; $2,704,000 in 2003; $2,210,000 in 2004; $585,000 in 2005 and $181,000 in
2006 and thereafter. Total future minimum lease payments are $13,109,000.

CONTINGENCY

In July 1999, the Company commenced a lawsuit against a former employee and
a related corporation for patent infringement and other actions. The defendants
in this case have counter sued, claiming, among other things, trade libel, abuse
of process, unfair competition, false advertising, breach of contract and
violations of antitrust laws and are seeking $12 million in compensatory damages
plus $20 million of punitive damages. The matter is currently in the early
stages of discovery. Summary judgment motions with respect to some of the claims
are pending. The Company believes that its claims are meritorious and that the
defendants' claims are without merit. The Company plans to vigorously pursue its
claims in these cases and defend against each claim asserted in the defendants'
counter suit. Due to the inherent uncertainty of litigation, the Company can not
predict the outcome of this matter. Although the Company does not expect that
any resolution of this matter will materially affect its financial condition, an
adverse resolution of the claims made in the defendants' counter suit could
materially affect the Company's operating results and cash flows in the
quarterly and/or annual period of such resolution.

10. BUSINESS SEGMENT INFORMATION, GEOGRAPHIC INFORMATION AND CONCENTRATIONS OF
RISK

BUSINESS SEGMENT INFORMATION

The Company's businesses operate in three segments: Respiratory Care,
Neurocare and Medical and Surgical Products. The Respiratory Care segment
develops, manufactures and markets a variety of medical products for the
diagnosis and treatment of respiratory-related disorders. The Neurocare segment
develops, manufactures and markets a comprehensive line of neurodiagnostic
systems. The Medical and Surgical Products segment develops, manufactures and
markets critical care disposable devices, specialty products and materials for
sale to original equipment manufacturers, and a line of wireless patient
monitoring systems. In classifying operational entities into a particular
segment the Company aggregates businesses with similar economic characteristics,
products and services, production processes, customers and methods of
distribution.

F-19

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
SIX MONTHS ENDED
-------------------
JUNE 30, JULY 1,
2001 2000 2000 1999 1998
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)

Revenues:
Respiratory Care......................... $ 89,871 $ 86,766 $172,553 $184,371 $149,813
Neurocare................................ 42,012 47,541 90,902 91,624 70,088
Medical and Surgical Products............ 45,407 42,175 81,973 82,558 86,462
-------- -------- -------- -------- --------
$177,290 $176,482 $345,428 $358,553 $306,363
======== ======== ======== ======== ========
Income Before Provision for Income Taxes and
Minority Interest:
Respiratory Care......................... $ 9,228 $ 11,098 $ 17,642 $ 30,480 $ 24,536
Neurocare................................ 779 5,885 7,362 11,005 5,231
Medical and Surgical Products............ 6,668 6,544 11,883 10,133 14,734
Corporate (a)............................ (1,415) (642) (760) (808) (1,314)
-------- -------- -------- -------- --------
Total operating income................... 15,260 22,885 36,127 50,810 43,187
Interest and other expense, net.......... (1,054) (967) (2,353) (698) (896)
-------- -------- -------- -------- --------
$ 14,206 $ 21,918 $ 33,774 $ 50,112 $ 42,291
======== ======== ======== ======== ========
Total Assets:
Respiratory Care......................... $196,074 $193,670 $132,133
Neurocare................................ 104,308 101,587 105,575
Medical and Surgical Products............ 84,538 80,649 81,297
Corporate................................ 5,431 4,203 1,339
-------- -------- --------
$390,351 $380,109 $320,344
======== ======== ========
Depreciation and Amortization:
Respiratory Care......................... $ 7,044 $ 5,979 $ 4,113
Neurocare................................ 3,652 3,338 3,484
Medical and Surgical Products............ 3,664 4,036 4,160
-------- -------- --------
$ 14,360 $ 13,353 $ 11,757
======== ======== ========
Capital Expenditures:
Respiratory Care......................... $ 3,201 $ 2,988 $ 2,838
Neurocare................................ 2,091 1,568 875
Medical and Surgical Products............ 2,248 2,493 3,639
-------- -------- --------
$ 7,540 $ 7,049 $ 7,352
======== ======== ========
</Table>

---------------

(a) Primarily general and administrative expenses.

GEOGRAPHIC INFORMATION

Export revenues accounted for 23%, 24% and 27% of the Company's total
revenues in 2000, 1999 and 1998, respectively. Revenues from countries outside
the United States, based on selling location, accounted for 12%, 10% and 5% of
the Company's total revenues in 2000, 1999 and 1998, respectively. Long-lived
assets in countries outside the United States accounted for 10%, 11% and 1% of
the Company's long-lived

F-20

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets at year-end 2000, 1999 and 1998, respectively, and principally consisted
of property, plant and equipment. There was no country in which revenues or
long-lived assets exceeded 10% of the Company's total in 2000, 1999 or 1998.

CONCENTRATIONS OF RISK

The Company sells its products to customers in the healthcare industry. The
Company does not normally require collateral or other security to support its
accounts receivable. Management does not believe that this concentration of
credit risk has, or will have, a significant negative impact on the Company.

11. EARNINGS PER SHARE

Basic and diluted earnings per share were calculated as follows:

<Table>
<Caption>
SIX MONTHS ENDED
------------------
JUNE 30, JULY 1,
2001 2000 2000 1999 1998
-------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Net Income............................................ $ 8,239 $12,986 $18,893 $28,850 $24,334
======= ======= ======= ======= =======
Basic and Diluted Weighted Average Shares............. 26,000 26,000 26,000 26,000 26,000
------- ------- ------- ------- -------
Basic and Diluted Earnings per Share.................. $ .32 $ .50 $ .73 $ 1.11 $ .94
======= ======= ======= ======= =======
</Table>

12. PROPOSED REORGANIZATION

On January 31, 2000, Thermo Electron announced that, as part of a major
reorganization plan, it plans to spin off the Company as a dividend to Thermo
Electron shareholders. In February 2001, the Company received a favorable ruling
from the Internal Revenue Service concerning the distribution. The distribution
is subject to certain conditions, including final action by Thermo Electron's
Board of Directors. If these conditions are met, the Company expects the
transaction to occur in the fourth quarter of 2001.

13. EMPLOYMENT ARRANGEMENTS

The Company has entered into employment arrangements that commenced in the
second quarter of 2001 with the principal officers. These agreements expire
three years from the date that the Company's common stock is distributed to
shareholders of Thermo Electron and call for aggregate minimum cash compensation
of $1.14 million annually. In addition, under one of the agreements, the Company
advanced its chief executive officer $500,000, which will be forgiven ratably
over the four years, following execution of the employment agreement, assuming
continued employment or in certain other circumstances.

14. SUBSEQUENT EVENTS

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets." The Company will adopt the
requirements of SFAS No. 141 and No. 142 effective December 30, 2001, unless
earlier required. SFAS No. 141 requires that all acquisitions must be accounted
for under the purchase method of accounting. SFAS No. 142 requires companies to
test all goodwill for impairment and to cease amortization of this asset. The
provisions of SFAS No. 142 apply to all goodwill regardless of when it was
acquired. The Company is evaluating the impact of adoption of these standards
and has not yet determined the effect of adoption on its financial statements.
Amortization of goodwill totaled $4,963,000 and $2,605,000 in 2000 and the first
six months of 2001, respectively.

F-21

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets." Adoption of the standard is
required no later than the first quarter of 2002. The Company is evaluating the
impact of adoption of this standard and has not yet determined the effect of
adoption on its financial statements.

CAPITAL STOCK

In August 2001, the Company's Board of Directors and sole stockholder
approved an amendment to the Company's Certificate of Incorporation to, among
other things, authorize 5,000,000 shares of preferred stock, $.01 par value per
share, for issuance by the Company's Board of Directors without future
shareholder approval. The amendment also increased the number of authorized
shares of common stock, $.01 par value per share, for issuance from 3,000 shares
to 100,000,000 shares.

STOCK SPLITS

In August 2001, the Company effected a stock split through a dividend of
approximately 13,332 shares of the Company's common stock for each share of the
Company's common stock outstanding.

In October 2001, the Company effected an approximate one-for-1.54 reverse
split of its common stock.

All share and per share information has been restated to reflect these
stock splits.

STOCK COMPENSATION PLANS

In September 2001, the Company adopted an equity incentive plan and
reserved an aggregate of 4,680,000 shares of the Company's common stock for
issuance under this plan. This plan permits the grant of a variety of stock and
stock-based awards as determined by the Company's board of directors, including
restricted stock, stock options, stock bonus shares, or performance-based
shares. The Company's officers, employees, directors, consultants and advisors
and those of the Company's subsidiaries are eligible to receive awards under the
plan. However, incentive stock options may only be granted to the Company's
employees. Incentive stock options will have an exercise price of 100% or more
of the fair market value of the Company's common stock on the grant date.
Nonstatutory stock options may have an exercise price as low as 85% of the fair
market value of the Company's common stock on the grant date. In September and
October 2001, the Company granted options to purchase an aggregate of 3,254,550
shares of Company common stock at $14.23 per share, the fair market value as
determined by the Company's board of directors.

In October 2001, the Company adopted an employee stock purchase plan and
reserved an aggregate of 650,000 shares of the Company's common stock for
issuance under this plan. Substantially all of the Company's full-time U.S.
employees are eligible to participate. Under this program, shares of the
Company's common stock may be purchased at 85% of the lower of the fair market
value at the beginning or end of the purchase period, and the shares purchased
are subject to a one-year resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee's gross wages.

RESTRUCTURING

The Company has approved and commenced a plan to restructure operations in
an effort to reduce costs and streamline operations. The actions include
headcount reductions and consolidation of facilities. In connection with these
plans the Company expects to record charges totaling $4.6 million, including
$0.5 million in the third quarter of 2001, $3.6 million in the fourth quarter of
2001 and $0.5 million thereafter for costs that will be recorded in the periods
they are incurred, primarily for relocation of personnel and retention costs.
The $4.6 million of charges include $2.7 million in the neurocare segment and
$1.9 million
F-22

VIASYS HEALTHCARE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the respiratory care segment. The charges include cash costs of $4.2 million,
including $3.0 million of severance for approximately 110 employees across all
functions, $0.4 million of facility lease costs, $0.4 million of retention costs
and $0.4 million of other costs. The Company expects these expenditures to occur
primarily during the remainder of 2001 and early 2002. The Company will incur
non-cash costs of $0.4 million for asset write-offs associated with abandoned
facilities, primarily for fixed assets. The actions include closure of the
neurocare segment's operating facility in New Hampshire and consolidation with
existing operations in Wisconsin. In addition, this segment will vacate a sales
and service office in France and appoint a third party distributor. The
respiratory care segment is closing five sales and service operations in Germany
and Austria and will consolidate operations in an existing facility in Germany.
The Company expects the restructuring actions to be substantially completed by
the first quarter of 2002.

F-23

VIASYS HEALTHCARE INC.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder and Board of Directors of Viasys Healthcare Inc.:

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in Viasys
Healthcare Inc.'s, Form 10, and have issued our report thereon dated February
26, 2001 (except with respect to the matters discussed in Note 14, as to which
the date is October 18, 2001). Our audits were made for the purpose of forming
an opinion on those statements taken as a whole. Schedule II on page S-2 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 26, 2001

S-1

VIASYS HEALTHCARE INC.

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

<Table>
<Caption>
BALANCE AT PROVISION ACCOUNTS BALANCE
BEGINNING CHARGED TO ACCOUNTS WRITTEN AT END
DESCRIPTION OF YEAR EXPENSE RECOVERED OFF OTHER(A) OF YEAR
----------- ---------- ---------- --------- -------- --------- -------

ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year Ended December 30, 2000...... $6,601 $2,427 $ - $(1,118) $(997) $6,913
Year Ended January 1, 2000........ $3,448 $3,362 $263 $(1,139) $ 667 $6,601
Year Ended January 2, 1999........ $4,700 $1,316 $142 $(2,306) $(404) $3,448
</Table>

<Table>
<Caption>
BALANCE AT BALANCE
BEGINNING ESTABLISHED AS COST ACTIVITY CHARGED AT END
DESCRIPTION OF YEAR OF ACQUISITIONS TO RESERVE OTHER (C) OF YEAR
----------- ---------- ------------------- ---------------- --------- -------

ACCRUED ACQUISITION EXPENSES (b)
Year Ended December 30, 2000..... $3,231 $ 616 $(2,502) $(719) $ 626
Year Ended January 1, 2000....... $ 25 $3,446 $ (25) $(215) $3,231
Year Ended January 2, 1999....... $ 472 $ 33 $ (480) $ - $ 25
</Table>

<Table>
<Caption>
BALANCE AT PROVISION ACTIVITY BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
DESCRIPTION OF YEAR EXPENSE RESERVE OTHER (E) OF YEAR
----------- ---------- ---------- ---------- --------- -------

ACCRUED RESTRUCTURING COSTS (d)
Year Ended December 30, 2000............... $159 $1,964 $(1,000) $ (13) $1,110
Year Ended January 1, 2000................. $777 $ - $ (516) $(102) $ 159
Year Ended January 2, 1999................. $ 70 $ 788 $ (81) $ - $ 777
</Table>

---------------

(a) Includes allowance of businesses acquired during the year as described in
Note 2 to the consolidated financial statements included elsewhere in this
Form 10 and the effect of foreign currency translation.

(b) The nature of activity in this account is described in Note 2 to the
consolidated financial statements included elsewhere in this Form 10.

(c) Represents reversal of accrued acquisition expenses and corresponding
reduction of goodwill resulting from finalization of restructuring plans and
the effect of foreign currency translation.

(d) The nature of activity in this account is described in Note 8 to the
consolidated financial statements included elsewhere in this Form 10.

(e) Represents the effect of foreign currency translation.

S-2

ANNEX A

SAMPLE FORM OF INFORMATION STATEMENT
TO BE PROVIDED TO INTERNAL REVENUE SERVICE BY STOCKHOLDERS

Note: Attachment to 2001 federal income tax return of stockholders

Statement of stockholders receiving a distribution of stock in Viasys
Healthcare Inc. (a controlled corporation), pursuant to Treas. Reg. Section
1.355-5(b).

1. The undersigned, a stockholder owning shares of Thermo Electron
Corporation as of , 2001, received a distribution of stock in a
controlled corporation that qualifies under Section 355 pursuant to a private
letter ruling received by Thermo Electron Corporation from the Internal Revenue
Service.

2. The name and addresses of the corporations involved are:

Thermo Electron Corporation (Distributing Corporation)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02454-9046

Viasys Healthcare Inc. (Controlled Corporation)
Millennium III, Suite 200
Millennium Corporate Center
Conshohocken, Pennsylvania 19428

3. No stock or securities in Thermo Electron Corporation were surrendered
by the undersigned.

4. shares of Viasys Healthcare Inc. were received constituting
only common shares in such corporation.

5. No cash or other property was received by the undersigned in connection
with the distribution except for $ representing a cash payment in lieu
of fractional shares.

Stockholder

--------------------------------------------------------------------------------

STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE DISTRIBUTION TO THEM.

A-1