OSI Systems, Inc. to Acquire Leading Developer of Advanced Neutron Analysis Inspection Systems, Ancore Corp. for Initial $7.75M with Additional Performance-Based Earn-out.

Business Editors

HAWTHORNE, Calif.--(BUSINESS WIRE)--Nov. 1, 2002

OSI Systems, Inc. (Nasdaq:OSIS) a worldwide leader in providing security and inspection solutions to airports, port and border customs facilities, correctional facilities, and other government and private facilities, announced today that it has signed a definitive agreement to acquire Ancore Corporation, a Santa Clara, California based privately held high-technology developer and provider of advanced inspection systems for aviation security, port and border inspection and counter-terrorism.

Consideration paid for the acquisition consists of a combination of OSI Common Stock and cash. At the close of the acquisition, OSI will pay $2 million in cash, and issue 347,915 shares of OSI Common stock. Based upon certain performance criteria, OSI may pay an additional $2 million cash and $4.69 million, in either cash or stock at OSI's election, prior to May 10, 2003. In addition, during the next five years, upon each commercial sale of Pulsed Fast Neutron Analysis (PFNA) inspection systems, which represent a potential generational advance above and beyond current contraband detection systems, OSI will pay former Ancore stockholders an earn-out of 6% of the price of the PFNA system, up to $750,000 per system, in either cash or stock, at OSI's election. The PFNA earn-outs are capped at an aggregate of $34 million. A typical large cargo PFNA installation is expected to be in the $10-$15 million range.

The consideration paid by OSI is inclusive of the exercise of all Ancore stock options and retirement or conversion of all Ancore promissory notes. OSI will be required to file registration statements covering OSI stock issued in the acquisition, and the former Ancore stockholders will be subject to certain restrictions upon their sale of the OSI stock.

"This acquisition represents a tremendous leap forward for OSI's technology portfolio," said Deepak Chopra, Chairman and CEO of OSI Systems, Inc. "Ancore's talented team and their advanced technologies will position our combined company as a significant force in shaping the future of the security and detection arena."

Chopra continued, "Additionally, we have already enjoyed a productive relationship with Ancore, having won more than $6 million in large cargo inspection system tenders in Romania and Asia in partnership with them. The Romanian order was for a scanning system utilizing a gamma source while the Asian win was for a combination x-ray and TNA hybrid system. In both cases, we found our mutual abilities to be very complementary."

"Ancore employees and management are excited to join the family of OSI companies," said Dr. Tsahi Gozani, President of Ancore Corp. "Ancore's automatic and material specific non-intrusive inspection systems fully complements Rapiscan's security inspection products."

Dr. Gozani added, "Ancore's technologies, especially TNA and PFNA, developed over the last decade, are poised to fulfill an important need for high performance inspection systems in the national and international security arenas. Ancore inspection technologies apply to all modes of transportations: land, sea, and air. The PFNA Cargo Inspection system is the only system available to automatically inspect fully loaded containers and trucks for a large variety of national security threats: explosives, hazardous materials including chemical agents, radiological and nuclear threats. This is achieved automatically without human interpretation."

"OSI's worldwide marketing and sales network and strong manufacturing base will greatly facilitate production and sales of Ancore products," said Dr. Patrick Shea, Ancore's Chief Operating Officer. "Ancore cargo inspection will greatly benefit from the accelerating sales of Rapiscan x-ray based systems and will offer to customers the best technologies available."

Dr. Shea continued, "Ancore personnel are looking forward to strengthen and solidify their ongoing relationship with other OSI companies, bringing much needed new technologies and products to the security market."

About Ancore Corporation

Ancore is the leader in developing and supplying governments and large commercial facilities with material-specific, non-intrusive inspection technologies for aviation security, cargo inspection and counter-terrorism. Ancore's team of scientists have pioneered, developed and patented both Thermal Neutron Analysis (TNA(R)) and Pulsed Fast Neutron Analysis (PFNA(TM)) technologies with over $100 million in government and venture capital financing.

Products using these technologies range from small systems for checking briefcases and computers for explosives to the large Ancore Cargo Inspector (ACI) systems for automatically screening luggage, air cargo, trucks and sea containers. For more information please visit, www.ancore.com.

Specifics about Ancore Technology and Products

Ancore's Thermal Neutron Analysis (TNA) technology detects bulk amounts of explosives, chemical hazardous materials, drugs and other contraband concealed in cars, vans, cargo pallets or semi-trailers. During the scanning process, TNA sensors detect specific material signatures of the inspected item excited by the probing neutrons. These signatures allow the TNA computer system to automatically identify whether the chemical composition of any part of the cargo matches the intended threat such as explosives or drugs. Due to their material-specificity TNA systems provide automatic decisions which do not rely upon a human operator's interpretation.

Two existing products utilize the TNA technology. The Vehicular Explosive Detection System (VEDS) non-invasively detects contraband hidden in cars, trucks, or other vehicles. It is well-suited to protect against car bomb attacks by terrorists. Nuclear and chemical threats also can be prevented through use of the VEDS.

Two configurations of the VEDS are available. The Mobile VEDS is mounted on a vehicle and driven alongside parked cars or trucks, on streets or in parking lots, to automatically detect concealed explosives and drugs. Thanks to the Mobile VEDS, authorities can non-intrusively check potential hot spots to rapidly secure any area.

Placed on a moving platform, the Portal VEDS efficiently scans all sizes of trucks and cars at fixed or temporary checkpoints. It is particularly effective for screening vehicle entrances to vulnerable facilities, land and sea ports of entry, and at temporary roadblocks, such as to national convention sites or major public events.

The second system using TNA technology is the Small Parcel Explosive Detection System (SPEDS). It detects explosives in hand-carried items such as portable electronics, briefcases, mobile phones, small handbags, bottles of liquid, etc. Small or medium size postal packages, large enough to contain pipe bombs or more sophisticated explosives, can also be inspected by the SPEDS. The system is especially sensitive to liquid explosives.

Cargo containers and trucks can be inspected quickly, automatically, and non-intrusively with Ancore's Pulsed Fast Neutron Analysis (PFNA) technique. PFNA determines the elemental contents within small volume segments of a scanned object. These measurements are used to generate three-dimensional maps of the cargo's elemental composition. Specific substances and contraband then can be identified using the PFNA's imaging system, as the images provided by PFNA display the position and extent of contraband in the cargo container or truck. The entire process is fully automated and does not rely upon human operator interpretation. PFNA thereby is virtually immune to concealment.

Ancore's Cargo Inspector (ACI), is based on the PFNA technology, is automatic and highly effective. The ACI detects a wide range of contraband including explosives, narcotics, hazardous chemicals, chemical agents and other weapons of mass destruction (such as radiological or nuclear) and their components, and many specific dutiable goods, etc. With its different configurations it is able to inspect air cargo and passenger luggage, full-size marine cargo containers, loaded freight trucks, freight trains and passenger cars. The ACI establishes the presence or absence of contraband based upon unique characteristics of the suspect materials. The decision process is fully automatic and does not require human involvement. Lack of experience, fatigue, or corruption, or other problems associated with human operators are thereby eliminated. The ACI also can be used for cargo manifest verification.

About OSI Systems Inc.

OSI Systems Inc. is a diversified global developer, manufacturer and seller of optoelectronic-based components and systems. The company has more than 30 years of optoelectronics experience, and through its family of subsidiaries, competes in four specific growth areas: OEM Manufacturing, Security, Medical and Fiber Optics. For more information on OSI Systems Inc. or any of its subsidiary companies, visit www.osi-systems.com.

Rapiscan Security Products, Inc., a wholly-owned subsidiary of OSI Systems, is a leading supplier of high quality X-ray screening and explosive detection systems. The company has delivered thousands of these detection systems to customers worldwide for use in airports, customs facilities, courthouses, government buildings, mail rooms, schools, prisons, embassies, and other locations. The OSI Systems line of security products, marketed under the Rapiscan, Metorex, and Secure 1000 brand names, is manufactured at four global locations and offers a wide range of security screening systems with diverse technologies. For more information on Rapiscan Security Products, Inc., please visit www.rapiscan.com.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995: The statements contained in this release that are not historical facts are forward-looking statements that are subject to risks and uncertainties including those risks detailed in the company's Securities and Exchange Commission filings that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. In addition to the factors discussed in the filings with the Securities and Exchange Commission, among the other factors that could cause actual results to differ materially are the following: adverse changes in the business conditions and the general economy; competitive factors, such as rival companies' pricing and marketing efforts; availability of fourth-party material products at reasonable prices; the financial condition of the customer; risks of obsolescence due to shifts in market demand; and litigation involving product liabilities and consumer issues; and a change in the demand for security systems based upon the ever changing domestic and international political climate.