VECTRA TECHNOLOGIES INC, 10-K, 1997-03-31

VECTRA TECHNOLOGIES INC
10-K, 1997-03-31
HAZARDOUS WASTE MANAGEMENT

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996 Commission File Number: 0-14618
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VECTRA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Washington 91 -1160888
(State of incorporation) (I.R.S. Employer Identification No.)

6203 San Ignacio Avenue, Suite 100
San Jose, CA 95119
(Address of principal executive offices)
(408) 629-9800
(Registrant's telephone number)

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Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK
(Title of Class)

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Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of voting stock held by non-affiliates of the
registrant is $7,622,530 based on the closing price as quoted on the Nasdaq
National Market tier of The Nasdaq Stock Market on March 7, 1997.

THERE WERE 7,833,527 SHARES OF REGISTRANT'S COMMON STOCK OUTSTANDING AS OF MARCH
7, 1997.

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VECTRA Technologies, Inc.

1996 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS
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PART I
Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4 Submission of Matters to a Vote of Security Holders. . . . . . . . . . 12

PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters . 13
Item 6 Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . 15
Divestitures. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Results of Operations . . . . . . . . . . . . . . . . . . . . . . 17
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . 19
Item 8 Financial Statements and Supplementary Data. . . . . . . . . . . . . . 21
Item 9 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 42

PART III
Item 10 Directors and Executive Officers . . . . . . . . . . . . . . . . . . . 43
Current Directors . . . . . . . . . . . . . . . . . . . . . . . . 43
Current Executive Officers. . . . . . . . . . . . . . . . . . . . 45

Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 46
Option Grants During 1996 Fiscal Year . . . . . . . . . . . . . . 48
Option Exercises During 1996 and Year End Option Values . . . . . 49
Executive Employment Agreements . . . . . . . . . . . . . . . . . 49
Compensation of Directors and Stock Options for Non-Employee
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Compliance with SEC Reporting Requirements. . . . . . . . . . . . 50
Report of Human Resources and Compensation Committee. . . . . . . 51

PART IV
Item 12 Security Ownership of Certain Beneficial Owners, Directors and
Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . 56
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . 57
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PART I
Item 1 BUSINESS

INDUSTRY OVERVIEW

COMMERCIAL NUCLEAR UTILITY MARKET

Over one hundred of the world's more than four hundred operating commercial
nuclear power plants are located in the United States and are owned by
approximately fifty utilities. While nuclear power plant construction continues
in many countries, in the United States the last newly constructed plant was
placed into operation in the early 1990's and no new plant construction is
currently anticipated. As a result, the U.S. market has shifted from new plant
design and construction to the retrofit-design, maintenance, efficiency
enhancement, and decommissioning of currently operating plants. This shift has
resulted in an increased demand for engineered products and engineering services
relating to high level waste management (dry spent fuel storage and eventual
transportation). There are currently nine U.S. commercial nuclear power plants
closed down, five of which have commenced a decommissioning program.
Decommissioning programs require significant management, planning and design of
specifically engineered equipment for the processing, packaging, storing and
transporting of high level radioactive waste.

High level radioactive waste, principally spent nuclear fuel assemblies,
requires specialized systems for handling, transportation and storage. The
U.S. government is obligated through the Nuclear Waste Policy Act to take title
and possession of spent nuclear fuel from utilities by 1998. Currently, plans
for a permanent repository have suffered a series of delays and the U.S.
Department of Energy (the "DOE") has estimated that such a facility will not be
ready before 2010. Until a federally sited interim or permanent storage
facility is available for commercial spent fuel, nuclear power utilities
continue to store their spent fuel in pools within the reactor plants. Most
spent fuel pools were not designed to accommodate all fuel assemblies required
for the life of a plant and plants must develop additional fuel storage
facilities as they approach their spent fuel pool storage capacity. The Nuclear
Regulatory Commission (the "NRC") has recommended dry spent fuel storage as the
preferred solution to this on-site capacity requirement.

The industry's preferred solution for on-site dry fuel storage calls for NRC
licensed storage and transportation systems consistent with the DOE's multi-
purpose canister concept, which consists of canister-based systems suitable for
both the storage and the transportation of spent fuel. The DOE's independent
development of a standardized multi-purpose canister system for receipt,
storage, and transportation of spent fuel has been de-funded and legislation is
pending; directing the DOE to utilize NRC licensed, commercially available
systems. Additionally, these NRC licensed, canister-based storage and
transportation systems are required when emptying a plant's spent fuel pool
during decommissioning. Although the Company and all of its competitors are
making significant research, development and licensing efforts and have
contracts to provide canister-based storage and transportation systems,
currently, there have been no licenses issued for any canister-based storage and
transportation system.

U.S. DEPARTMENT OF ENERGY NUCLEAR MARKET

The DOE's primary mission has changed in the last several years to environmental
remediation, management, and restoration. At the majority of their facilities,
the DOE is concerned with cleanup activities instead of weapons production. As
a result, substantial demand exists in this marketplace for high level
radioactive waste management products and services. Many of the more than fifty

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DOE sites have facilities that are thirty to forty years old and must be
converted to new missions or be decommissioned.

The DOE market's needs are similar to the commercial market's requirements. The
DOE sites contain a significant amount of spent nuclear fuel that must be
conditioned and stored. The major market opportunities that exist for fuel
storage and transportation are the K-Basin fuel at Hanford, the Navy spent fuel
at Idaho National Energy Laboratories, and the foreign research reactor fuel at
Savannah River.

THE COMPANY

VECTRA Technologies, Inc. ("VECTRA" or the "Company") operates in one business
segment which is the nuclear market. The fuel service operations, the sole
remaining business of the Company provides design, licensing, procurement,
fabrication, sale and leasing of equipment for the packaging and transportation
of high level and low level radioactive waste and nuclear material; and related
consulting and engineering services to the commercial nuclear industry worldwide
and to the DOE in the U.S. ("Fuel Services"). The primary products and services
are: (1) dry storage and transport systems for spent nuclear fuel, (2)
transportation packaging for low level and high level radioactive material and
(3) related engineering services.

DRY STORAGE The spent fuel storage pools at many nuclear power plants are at or
near capacity, and federal government efforts to develop temporary and permanent
repositories have been continually delayed by strong opposition. On-site dry
spent fuel storage systems offer operators of nuclear power plants a short term
(up to 40 years) solution for storage of spent fuel until government
repositories are built. Dry storage systems can be built, operated and
maintained at substantially less cost than reactor storage pools and related
support systems and structures.

The Company owns and licenses a system for the dry storage of spent nuclear
fuel, marketed under the trade name NUHOMS-Registered Trademark- (NUtech
HOrizontal Modular Storage), that has been licensed by the NRC for the sites
at which it has been constructed. The Company received a general non-site
specific license for NUHOMS-Registered Trademark- from the NRC in 1995.
NUHOMS-Registered Trademark- is an on-site system that integrates a concrete
storage facility with horizontally placed stainless steel canisters containing
spent fuel assemblies. NUHOMS-Registered Trademark- systems are fabricated
and constructed by selected subcontractors to the Company's design
specifications. NUHOMS-Registered Trademark- systems are currently in use at
Carolina Power and Light's H. B. Robinson Plant, Duke Power Company's Oconee
Station, Baltimore Gas and Electric's Calvert Cliffs Plant and Toledo Edison's
Davis Besse Plant. Further, the Company is under contract with the Sacramento
Municipal Utility District, GPU Nuclear Corporation and Pennsylvania Power and
Light to provide NUHOMS-Registered Trademark- systems and services. VECTRA
also was awarded the contract to provide a modified NUHOMS-Registered
Trademark- system to provide storage of the Three Mile Island, Unit 2, fuel
debris canisters at the Idaho National Engineering Laboratories. This is the
first application of a commercially licensed system at a DOE site.

VECTRA has entered into license agreements for the use of NUHOMS-Registered
Trademark- technology with several international firms for storage systems in
Europe, Japan and other selected countries. The Company received fees upon
execution of these agreements and will receive additional payments upon
production and sale of each NUHOMS-Registered Trademark- system. The Company
will also provide specific design engineering support on a fee basis as
NUHOMS-Registered Trademark- systems are customized to specific client needs.
VECTRA anticipates that it will execute its first application under these
licenses for the supply of NUHOMS-Registered Trademark- technology in 1997.

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TRANSPORTATION PACKAGING The Company owns and leases out, on a project
specific basis, two rail mounted transportation casks for shipping spent
nuclear fuel. The Company also custom designs, obtains licenses for and
fabricates, through subcontractors, transportation casks used to ship high
level and low level radioactive materials. The Company sells or leases these
casks to its customers for their independent use or provides casks in
conjunction with the performance of radioactive materials management and
transportation services. The Company is currently under contract with the
Sacramento Municipal Utility District to build and license two rail
car-mounted casks for the transport of NUHOMS-Registered Trademark- canisters
as part of the project to decommission that utility's Rancho Seco Plant.

VECTRA fabricates, through subcontractors, and sells transportation overpacks,
UX-30s, to ship uranium hexafluoride. The UX-30 is an NRC-licensed transport
package used by fuel vendors to ship the uranium hexafluoride needed to produce
nuclear fuel. The Company originally obtained the NRC license for its UX-30s in
1990 and is currently the only producer of NRC-licensed transportation overpacks
for uranium hexafluoride.

ENGINEERING SERVICES The Company provides structural, mechanical, nuclear
criticality and materials analysis engineering for the design of custom
integrated handling and transportation systems to move low level and high level
radioactive waste. The Company has also supplied remote controlled systems to
the DOE to handle high level waste. Most of the Company's work for the DOE has
been through subcontracts with corporations which operate the DOE's nuclear
facilities. Custom designed equipment has been developed for ultimate use at
the Savannah River Plant, Idaho National Engineering Laboratory and Hanford
Engineering Development Laboratory.

DIVESTITURES

On January 29, 1997, the Company sold its low level radioactive waste packaging
and transportation services operations (the "Waste Business") to MMT of
Tennessee Inc. ("MMT"). MMT purchased substantially all of the assets of the
Waste Business except for cash; accounts receivable; deferred contract start-up
costs; accounts payable; and provisions for contract loss and decommissioning.
The form of the transaction was a sale of assets pursuant to an Asset Purchase
Agreement dated January 29, 1997. Based upon the Asset Purchase Agreement, in
the fourth quarter of 1996 the Company wrote down assets, consisting primarily
of equipment and deferred contract start-up costs, by $5.8 million to their
estimated fair value, net of expenses associated with the transaction of
approximately $0.5 million. The total purchase price of $3.9 million will be
added to working capital in 1997 and no gain or loss will be recorded on the
sale in the first quarter of 1997. A provision for contract loss of $0.2
million was recorded in the fourth quarter of 1996 and the reported results of
operations of the Waste Business will be nil in 1997. The Waste Business
generated revenues of approximately $8.4 million and $13.0 million for the
fiscal years ended December 31, 1996, and December 31, 1995, respectively, and
operating losses of approximately $6.2 million and $5.1 million for the same
periods.

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related to Engineering Businesses' employees, for the payment of transaction
expenses and to reduce trade accounts payable to normal levels of commercial
practice). The Engineering Businesses generated revenues of approximately $43.2
million and $78.1 million for the fiscal years ended December 31, 1996, and
December 31, 1995, respectively, and operating income of approximately $2.7
million and $1.5 million for the same periods.

Effective April 26, 1996, the Company sold all of the outstanding capital stock
of its wholly owned subsidiary, VECTRA Technologies Ltd. ("VECTRA UK"), to Amey,
plc and recorded a gain on the sale of $0.6 million. The sale price was $1.9
million. The net proceeds were approximately $1.6 million after expenses
associated with the transaction. The net proceeds were used to reduce the
Company's revolving credit facility by $1.1 million and the balance was added to
working capital. VECTRA UK generated revenues of approximately $3.5 million and
$7.7 million for the fiscal years ended December 31, 1996, and December 31,
1995, respectively, and operating income of approximately $0.3 million and $0.1
million for the same periods.

In September 1995, the Company sold its 10% ownership in Recytec America, Inc.
to Recytec, S.A. for $1.2 million resulting in a loss of $0.2 million which was
included in selling, general and administrative expenses. These shares had been
issued to VECTRA in connection with the sale of Alaron Corporation to Recytec
S.A. in August 1991.

Effective June 30, 1995, the Company sold all of the outstanding capital stock
of its wholly owned subsidiary, Plant Services, Inc. ("Plant Services"), to
Westinghouse Electric Corporation plc and recorded a gain on the sale of $12.7
million. The sale price was $17.4 million after final adjustments including
environmental remediation and earnout provisions. The proceeds from the sale
were used to reduce notes payable and long term debt to banks, pay retained
liabilities, and pay expenses associated with the transaction. Plant Services
generated revenues of approximately $11.4 million and operating income of
approximately $4.0 million for the fiscal year ended December 31, 1995.

ACQUISITIONS

In January 1994, the Company's shareholders approved the purchase of all of the
stock of ABB Impell Corporation, ABB Government Services, Inc. and ABB Impell
Ltd. (the "Impell Companies") from affiliates of ABB Asea Brown Boveri Ltd. of
Zurich, Switzerland (the "Seller"). The acquisition, effective as of midnight
December 31, 1993, was completed on January 7, 1994, and was accounted for as a
purchase in 1994. The purchase price of $32.3 million, together with the direct
costs of the acquisition were allocated to the fair market value of the assets
acquired and liabilities assumed. The seller received common stock (1,714,503
shares), then valued at $14.0 million, and the remainder of the purchase price
in cash.

CLIENTS

The following identifies clients that accounted for more than 10% of the
Company's total revenues in 1996, 1995 and 1994 (dollars in thousands):

Fiscal Year Ended
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Client December 31,1996 December 31,1995 January 1, 1995
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Commonwealth Edison Company $ 12,854 18.9% $ 24,469 19.8% $ 26,828 19.2%

</TABLE>

After the divestiture of the Waste Business and the Engineering Businesses,
VECTRA has transitioned from a diverse engineering and nuclear services company
to one based on the Company's technology leadership in the design, licensing,
procurement, fabrication, sale and leasing of equipment for the packaging and
transportation of high level and low level radioactive waste and

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nuclear material; and related consulting and engineering services to the
commercial nuclear industry worldwide and to the DOE in the U.S. While the
Company's Fuel Services business performs continuing services for its clients,
billings to a particular client may fluctuate dramatically depending upon the
status of a particular project. Depending upon the timing and size of
contracts, the identities of the Company's largest clients may change from year
to year. However, the Company's Fuel Services business depends upon a small
number of clients for its revenues in any given year, the loss of any one or
more of which would have a material adverse effect on the Company.

FOREIGN OPERATIONS

The Company competes in certain international markets, principally Canada, South
Korea, Taiwan, and Europe. The Company's international projects have been
primarily involved with plant maintenance and waste handling services and
engineering services to the government owned nuclear utilities in the United
Kingdom, as well as the offshore oil industry. In addition, the Company has
sold containers and handling equipment for export. International revenues were
approximately $4.9 million in 1996, $10.3 million in 1995, and $12.1 million in
1994. The Company's operations in foreign countries are subject to the laws and
regulations of such countries. U.S. export restrictions limit the Company's
ability to export some of its products and services. The Company's historical
international revenues were generated primarily by VECTRA UK and the Waste
Business which were sold in 1996.

COMPETITORS

The Company's Fuel Services business' major competitors include: ABB Asea Brown
Boveri Ltd.; Chem-Nuclear Systems, Inc.; Foster Wheeler Energy Corporation;
Holtec International; Nuclear Assurance Corporation; Sierra Nuclear Corporation;
Transnucleaire and Westinghouse Electric Corporation. The Company competes on
the basis of price, range of service, technical expertise, success in obtaining
licenses, quality and responsiveness to customer needs. Several of these
competitors have substantially greater financial and technical resources than
the Company.

CONTRACTS

Most of the Company's contracts are awarded by a competitive process in which a
number of firms submit proposals in response to a client's request for proposals
to provide specified products or services. Each of the Company's contracts is
negotiated independently and varies as to profitability. In entering into
contracts with its clients the Company considers, among other factors, the
relative profitability of the contract as well as the long term goals of the
Company.

Typically, all contracts, including the Company's material contracts, are
subject to termination for convenience upon 30 days written notice by the
client or the Company. Payments under engineering contracts are based on fee
schedules for its engineering and other staff, plus costs and materials.
Engineering contracts are often short term, specific task contracts, while
contracts for NUHOMS-Registered Trademark- systems are multi-year,
multi-million dollar contracts. In some instances, such contracts require
use of the Company's working capital to fund a portion of the design and
fabrication of products or the provision of services. The Company seeks
progress payments in each contract, but the timing and amount of such
payments varies with each contract and is contingent upon meeting scheduled
commitments. In the course of contract negotiations, the Company endeavors
to limit its liability for indemnity claims and warranty items and to
specifically exclude responsibility for any incidental and consequential
damages.

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Company has historically been able to obtain these permits and licenses, but the
inability to obtain such permits and licenses in the future could have a
material adverse effect on the Company's results of operations.

INSURANCE

The Company's liability insurance policies can generally be grouped into the
following three categories: General liability insurance, professional errors
and omissions, and nuclear related incidents.

The Company's general liability insurance, which relates primarily to property
damage and personal injury incidents, is composed of two components. VECTRA
self-insures the first $1 million of any general liability damages. The Company
also maintains an excess liability insurance policy in the amount of $10
million. Three types of incidents are excluded from the Company's general
liability insurance: those relating to errors and omissions (relating
principally to engineering design work), nuclear incidents, and
pollution/environmental damages.

The Company does not carry errors and omissions insurance for its professional
engineering liability. In the course of negotiations with a client, the Company
endeavors to have errors and omissions insurance deleted from the requirements
of the contract. If required by a client, the Company will endeavor to purchase
an errors and omissions policy specific to such contract. In these cases, the
Company endeavors to limit its liability for errors and omissions to the insured
amount, share the deductible portion with its client, and pass the cost of such
insurance to its clients.

In general, nuclear incidents are covered under insurance carried by and
provided to operators of nuclear plants. Under the "nuclear facility form"
insurance carried by all U.S. commercial nuclear utilities, coverage for nuclear
incidents is provided to contractors, such as VECTRA, performing work on nuclear
facilities. American Nuclear Insurers, a pool of domestic and mutual insurers,
provides coverage for up to $200 million per site in claims. Pursuant to the
Price-Anderson Amendment to the Atomic Energy Act of 1954 ("Price-Anderson"),
additional coverage is provided through a resource pool contributed to by the
U.S. government and licensed power reactor owners. The Price-Anderson program
provides approximately $8.7 billion in additional coverage. In certain
circumstances, transporters of radioactive waste are covered by separate
coverage. In situations where waste is transported directly to or from a
licensed reactor site, incidents are covered under the nuclear facility form
(subcontracting does not remove a party from the nuclear facility form).
However, if the transportation of waste from or to a reactor site is for
purposes other than the furtherance of conveyance, the facility form coverage is
no longer applicable. While the Company does have transporters and shippers
coverage in the amount of $10,000,000, management believes that its involvement
in transporting waste (for which the Company subcontracts to transporting
companies) is covered by the nuclear utility facility form.

Internationally, VECTRA's activities have generally been limited to operations
in Canada, South Korea, Taiwan and Europe. The Company has contractual
arrangements that may expand sales of its NUHOMS-Registered Trademark- systems,
involving the storage of high level radioactive waste, in Japan, South Korea and
Europe. In general, Japan, South Korea and countries in Europe impose liability
for nuclear incidents on the operators of nuclear facilities, and require an
operator of a nuclear facility to provide certain minimum coverage. Many
European countries have executed the Paris/Brussels Conventions (1960-1963), an
international treaty relating to coverage for nuclear incidents that provides
for additional coverage for claims through special drawing rights (representing
up to approximately $420 million) on countries that are parties to the
conventions. The Paris/Brussels Conventions also establish uniform systems to
handle inter-country nuclear damage and resulting claims. The Paris/Brussels
Conventions provide coverage for nuclear incidents to contractors, such as
VECTRA, performing work on nuclear facilities.

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Under the laws of Japan, South Korea and Canada, the operator of a nuclear
reactor is liable, irrespective of fault, for damages caused as a result of
operation of a nuclear reactor. Contractors of the reactor operator are
generally not liable for damages, except where the damages are caused by
malicious or deliberate acts. Where damages are caused in the transport of
radioactive waste generated by a nuclear reactor, the operator from whose
facility the material is being shipped is liable for the damages unless
otherwise agreed in writing. The Company's policy is not to agree to this type
of exposure. The operator must carry specified amounts of insurance for
damages, with the amounts of coverage varying from country to country. In each
of the three countries, the government provides protection in excess of the
required insurance through nuclear indemnification or other means.

PROPRIETARY TECHNOLOGY

The Company's policy is to seek patent protection for those features of its
products with a design utility of sufficient length to warrant the cost of
seeking a patent. While most of the technology relied on by the Company is
unpatented, it is regarded by the Company as proprietary and confidential.
The Company has patented its NUHOMS-Registered Trademark- dry storage systems
for spent nuclear fuel from commercial nuclear power plants. Most of the
Company's employees have entered into confidentiality agreements with the
Company restricting the employee's disclosure and use of the Company's
proprietary information.

NRC regulations require the technical specifications and supporting data of each
design submitted for NRC approval to be available for public inspection, unless
the NRC determines that a design or certain features thereof constitute
proprietary information, in which case public access to the proprietary
information is not permitted. The Company has and will continue to seek such
proprietary treatment of certain features of its designs submitted to the NRC.
Parties, including competitors, may challenge administratively and judicially
the staff's determination that the designs are proprietary and thus entitled to
confidential treatment.

Although the Company maintains that most of its technical drawings and designs
are unpublished works protectable by copyright and trade secret laws, these
contentions have never been tested judicially. There is no assurance that the
Company will be able to maintain confidentiality of its NRC approved designs or
prevent competitors from copying such designs. At least two of its competitors
have obtained NRC approval to market casks based on a Company designed cask.

The Company's research and development strategy consists of taking its custom
designed products and systems funded by individual customers and adapting them
for broader market applications with internally funded research and development.
In 1996, 1995 and 1994, the Company spent approximately $0.4 million, and $3.3
million and $ 1.6 million, respectively, on Company sponsored research and
development. Except for government contracts, the Company usually retains
exclusive rights to customer funded technology to the extent it is proprietary.

EMPLOYEES

At March 31, 1997, following the disposition of the Waste Business in the first
quarter of 1997, the Company had approximately 68 employees of which
approximately 66% have an engineering background or degree. The Company is
dependent upon obtaining and retaining highly skilled and motivated personnel.
As noted above, most employees are required to sign confidentiality agreements
restricting their ability to disclose or use the Company's proprietary
information.

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GOVERNMENT REGULATION

In the United States, the NRC administers a regulatory program which affects
nearly every aspect of the Company's operations. The Department of
Transportation, the Environmental Protection Agency, some states, localities and
other federal agencies also regulate aspects of the Company's business.
Regulatory changes with significant business impact have occurred with some
frequency in the industry. The nuclear industry in general, and the handling,
disposal and transportation of radioactive waste in particular, have sometimes
been the subject of intense political and legal action. As a result of safety
issues brought to light in the nuclear power generation industry and the
resulting public and congressional pressure in 1996, that industry and all
related industries, including that of the Company, have come under increased
regulatory scrutiny. This has resulted in increased inspections, more frequent
audits and a more stringent review of verbatim compliance to licenses.

FEDERAL REGULATION The Company must obtain a Certificate of Compliance from the
NRC for each type of cask it sells or leases and any modifications to such
casks. Among other requirements, applicants for a Certificate of Compliance
must provide the NRC: (1) a description of the cask design (including
manufacturing specifications); (2) a quality assurance program to assure that
the cask will be constructed in accordance with such design; and (3) a safety
analysis report documenting the simulation of various types of transportation
accidents. A Certificate of Compliance is effective for five to twenty years,
however, the NRC has the authority at any time to review a Certificate of
Compliance and modify or cancel it based on safety considerations. Once issued,
the design and construction procedures for an approved container may not be
modified without the consent of the NRC.

The NRC also requires the Company to maintain approved quality assurance
programs for its equipment systems. The Company also files, for approval from
the NRC, topical reports detailing the performance characteristics of various
equipment.

The Company must comply with the extensive transportation regulations
promulgated by the Department of Transportation and the NRC concerning the
packaging, handling, labeling and routing of radioactive materials. The
regulations also set forth detailed safety and equipment standards as well as
requirements covering training, quality control, insurance and other matters.

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design control, quality control and specification development activities for
all of its products. This plan has been developed and will be implemented
with the assistance of Performance Improvement International, a leading root
cause assessment company in the nuclear industry. This plan will form the
basis of the Company's response to the US Nuclear Regulatory Commission's
Demand for Information letter. The Company's response to the US Nuclear
Regulatory Commission's Demand for Information letter is due on April 11,
1997. The Company expects to submit a response on or before that date that
will address the program to be implemented to correct any nonconformances.
In conjunction with the response, the Company will develop a program for the
phased restart of its fabrication activities in the second quarter of 1997.
The Company expects that the deferral in revenues and gross margin resulting
from this delay together with the costs of the assessment program and
immediate corrective actions will result in net losses in the first and
second quarters of 1997 and the utilization of a significant portion of its
available working capital. There can be no assurances that the NRC will find
the Company's response acceptable or that the NRC will not issue an order to
suspend fabrication in the event the Company lifts the Company's unilateral
suspension and resumes fabrication as planned in the second quarter.
Continued suspension of fabrication beyond the second quarter of 1997 would
have a material adverse impact on the Company's operations, financial
performance and working capital.

STATE REGULATION Certain states regulate the shipment of radioactive materials.
Some localities have attempted to regulate radioactive waste shipments as well
and to prohibit such shipments through their jurisdictions. Such state and
local government actions have at times affected a portion of the Company's
business, although the Company believes that it is able to operate in compliance
with the requirements imposed. If such regulations proliferate, they could have
a material adverse effect on the Company.

OTHER REGULATORY CONCERNS Several states have adopted laws prohibiting or
limiting the construction of nuclear power plants or waste disposal sites or
both, and referenda to close existing plants have been made. The NRC has
proposed regulations which would tie the granting of new licenses for nuclear
reactors to the resolution of problems in the disposal of high level
radioactive wastes. In addition, several power companies have canceled plans
for, delayed the construction or operation of, or shut down operating nuclear
power plants.

The Company is subject to federal, state and local regulations limiting exposure
of its employees and the public to radioactive materials and to the chemicals
used in the cleaning and decontamination processes. The standards imposed have
been made more stringent in recent years.

11
<PAGE>

ITEM 2 PROPERTIES

Upon the disposition of the Waste Business in January 1997, the Company leases
and occupies approximately 30,494 square feet of office space. The Company
subcontracts the fabrication of its products and has no manufacturing
facilities. Management believes the Company's facilities are adequate and
suitable for its present needs, and will continue to periodically review its
leased facilities for economic optimization. The Company's headquarters are at
6203 San Ignacio Avenue, Suite 100, San Jose CA 95119.

ITEM 3 LEGAL PROCEEDINGS

The Company is involved in contractual, personal injury and general liability
cases and claims which are considered normal to its business. In the opinion of
Company management, none of these claims will have a material adverse effect on
the Company. However, an unfavorable outcome could materially impact the
Company's financial position and results of operations.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

12
<PAGE>

PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS

The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol VCTR.

The following table sets forth the range of the high and low sales price
information for the Company's Common Stock from the First Quarter 1995 through
the Fourth Quarter 1996 as reported by Nasdaq.

1996 1995
----------------------- --------------------------
PERIOD HIGH LOW HIGH LOW
- ------------------------ --------- --------- --------- --------
First Quarter 3 1/8 1 3/8 3 1/2 2 7/8
Second Quarter 3 3/8 2 1/4 3 3/8 2 3/8
Third Quarter 2 5/8 1 3/4 3 25/32 2 5/8
Fourth Quarter 2 3/8 1 7/8 2 7/8 1 7/8

At December 31, 1996, the Company had 7,833,527 shares of Common Stock issued
and outstanding and 290 known shareholders of record. At that same date the
Company had approximately 2,300 beneficial shareholders. The Company has not
paid dividends on its Common Stock and does not expect to pay dividends in the
foreseeable future.

13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

VECTRA TECHNOLOGIES, INC.
FINANCIAL HIGHLIGHTS
(in thousands, except percent and per share data)

1996 1995 1994 1993 1992
---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR:
Revenues $ 68,005 $ 123,501 $ 140,023 $ 64,581 $ 68,989

Gross margin $ 20,141 $ 34,057 $ 45,703 $ 21,681 $ 23,318

Percent gross margin 29.6% 27.6% 32.6% 33.6% 33.8%

Total operating
expense $ 23,715 $ 55,786 $ 48,176 $ 21,626 $ 24,389

Percent total operating
expense 34.9% 45.2% 34.4% 33.5% 35.4%

Write downs of assets (1) $ 5,841 $ 14,319 $ 629 $ 791 $ 910

Operating income (loss) $ (3,574) $ (21,729) $ (2,473) $ 55 $ (1,071)

Net loss $ (7,032) $ (12,213) $ (5,325) $ (546) $ (1,827)

Net loss per share $ (0.90) $ (1.56) $ (0.68) $ (0.09) $ (0.32)

AT YEAR END:

Total assets $ 23,163 $ 60,666 $ 84,165 $ 43,881 $ 38,102

Long term debt $ -- $ 17,216 $ 8,617 $ 1,514 $ 1,309

Shareholders' equity $ 10,374 $ 17,386 $ 29,800 $ 19,073 $ 18,770
</TABLE>

Note:
(1) Write downs of assets is included in Total operating expense

14
<PAGE>

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in Item 1
Business.

With the sale of the Engineering Business in August 1996 and of the Waste
Business in January 1997, the Company's current business consists principally
providing the design, licensing, procurement, fabrication, sale and leasing of
equipment for the packaging and transportation of high level and low level
radioactive waste and nuclear material; and related consulting and engineering
services to the commercial nuclear industry worldwide and to the DOE in the U.S.
Because of the Company's reduced size and product lines, the Company's current
and future business operations are subject to a number of risks and
uncertainties. In evaluating the risks of an investment and any forward looking
information provided by the Company, investors should be aware that the
Company's actual results could differ materially from the results discussed in
any forward looking statements because of, among other factors generally
affecting companies in the nuclear industry, the following: (a) the Company is
subject to a variety of stringent regulatory agency requirements in the U.S. and
foreign countries that affect the manufacturing of its products, and the failure
to comply with such requirements may result in litigation, liability or
government ordered shutdowns; (b) the Company's need for working capital and
annual and quarterly operating results may vary considerably from period to
period as a result of a number of factors, including milestone requirements
under customer contracts, and cancellations or delays by customers; (c) a
substantial portion of the Company's future sales will be to fewer than 10
customers, the loss of any of which would adversely affect the Company's
business, results of operations and financial condition; (d) some of the
Company's principal competitors have been active in the nuclear service industry
for many years and may have extensive relationships with customers in the
Company's current area of operations and have strong financial resources.

DIVESTITURES

15
<PAGE>

Engineering & Services, Inc. and recorded a loss on the sale of $2.0 million.
The form of the transaction was a sale of assets pursuant to an Asset Purchase
Agreement dated May 23, 1996. Based upon the Asset Purchase Agreement, in the
fourth quarter of 1995 the Company wrote down assets, consisting primarily of
costs in excess of net assets acquired by $12.8 million to their estimated fair
value. The total purchase price was $28.7 million, of which $18.3 million was
used to pay all of the Company's bank debt and associated fees and $10.4 million
was added to the Company's working capital (of which approximately $8.5 million
was used for payroll liabilities related to Engineering Businesses' employees,
for the payment of transaction expenses and to reduce trade accounts payable to
normal levels of commercial practice). The Engineering Businesses generated
revenues of approximately $43.2 million and $78.1 million for the fiscal years
ended December 31, 1996, and December 31, 1995, respectively, and operating
income of approximately $2.7 million and $1.5 million for the same periods.

Effective June 30, 1995, the Company sold all of the outstanding capital stock
of its wholly owned subsidiary, Plant Services, Inc. ("Plant Services"), to
Westinghouse Electric Corporation and recorded a gain on the sale of $12.7
million. The sale price was $17.4 million after final adjustments including
environmental remediation and earnout provisions. The proceeds from the sale
were used to reduce notes payable and long term debt to banks, pay retained
liabilities, and pay expenses associated with the transaction. Plant Services
generated revenues of approximately $11.4 million and operating income of
approximately $4.0 million for the fiscal year ended December 31, 1995.

16
<PAGE>

RESULTS OF OPERATIONS

1996 COMPARED TO 1995

REVENUES Total revenues decreased $55.5 million (44.9%) to $68.0 million in
1996, from $123.5 million in 1995. Excluding the revenues of Plant Services
that was sold in 1995 and VECTRA UK and the Engineering Businesses that were
sold in 1996, the Company's revenues decreased $5.0 million (19.3%) to $21.2
million in 1996, from $26.3 million in 1995. This decrease was the result of a
$4.6 million decrease in revenues of the Waste Business primarily because of the
non-recurrence in 1996 of $2.3 million equipment sales and $0.7 million
transportable vitrification unit related revenues in the Waste Business in 1995
and as a result of the timing of the revenue recognition with respect to various
long term contracts in the Fuel Services business.

Especially with respect to the Company's Fuel Services business, revenues may
significantly differ from period to period as a result of varying contractual
terms that relate to the specific services or materials provided and their
respective delivery schedules for the Company's multi-year, multi-million dollar
contracts. This variability is expected to continue in future periods and to be
more pronounced with the sale of the Company's Engineering Businesses and the
Waste Business.

GROSS MARGIN Total gross margin as a percent of revenue increased to 29.6% in
1996 from 27.6%, in 1995. Excluding the gross margin of Plant Services that was
sold in 1995 and VECTRA UK and the Engineering Businesses that were sold in
1996, gross margin increased to 32.1% in 1996 from 16.5% in 1995. This increase
in gross margin was primarily within the Company's Fuel Services business,
however, each of the Company's contracts is negotiated independently and varies
as to profitability and, due to changes in the mix of contracts, the Company's
gross margin may vary significantly from quarter to quarter. The timing and
actual performance by the Company in fulfilling its major contracts also affect
the Company's gross margin.

OPERATING EXPENSES The Company's operating expenses decreased $32.1 million
(57.5%) to $23.7 million in 1996 from $55.8 million in 1995. Excluding the
selling, general and administrative expenses of Plant Services that was sold in
1995 and VECTRA UK and the Engineering Businesses that were sold in 1996,
operating expenses decreased $18.3 million in 1996, a 57.7% decrease from 1995.
This decrease was the result of a $8.5 million decrease in write downs of assets
to estimated fair value; an approximate $5.7 million decrease in corporate costs
as a result of lower staff levels and other cost reduction measures; a reduction
of $2.8 million in research and development expense primarily a result of the
hold put on the development of the transportable vitrification unit at the end
of 1995; and amortization and depreciation expenses decreasing $1.3 million
primarily as a result of the Company's write down of assets in December 1995.

NET LOSS Excluding the 1996 and 1995 write downs of assets to net estimated
fair value, 1996 reflected an operating profit of $2.3 million, a $9.7 million
increase from an operating loss of $7.4 million in 1995. Gain(loss) on sale of
subsidiaries decreased $14.2 million as a result of the net $1.4 million loss
recorded on the sale of VECTRA UK and the Engineering Businesses in 1996 as
compared to the $12.7 million gain recorded on the sale of Plant Service
operations in 1995. Interest expense decreased by $1.0 million because of the
satisfaction of all of the Company's bank debt in August 1996. Income taxes
decreased by $0.2 million. As a result of the foregoing, net loss was reduced
by $5.2 million to a loss of $7.0 million in 1996 from a loss of $12.2 million
in 1995.

17
<PAGE>

RESULTS OF OPERATIONS (CONTINUED)

1995 COMPARED TO 1994

REVENUES Total revenues decreased 11.8% to $123.5 million in 1995 from $140.0
million in 1994. The decrease in revenues for 1995 was attributable to the sale
of Plant Services, a decrease in nuclear engineering activity, and lower sales
in the Waste Business relating to the completion of a large contract with a
client in South Korea during 1994; offset in part by higher revenues from a
spent fuel storage system contract.

GROSS MARGIN Gross margin decreased to 27.6% of revenues in 1995 from 32.6% of
revenues in 1994. The lower gross margin in the engineering services operations
was due to competitive pricing pressures. Plant Services, prior to disposition
in June 1995, and the Fuel Services business experienced a slight decrease,
while the Waste Business experienced a slight increase in gross margin percent
due to the relative profitability of individual contracts. Each of the
Company's contracts is negotiated independently and varies as to profitability.
The timing and actual performance by the Company on its major contracts also
affect the Company's gross margin.

OPERATING EXPENSES Research and development expenses increased 104.6% to $3.3
million in 1995 from $1.6 million in 1994. The increase was mainly due to
expenses related to the Company's development of its vitrification process,
EnviroGlass-Registered Trademark-.

Selling, general and administrative expenses decreased 16.9% to $38.2 million in
1995 from $46.0 million in 1994 and, as a percentage of revenue, decreased to
30.9% in 1995 from 32.8% in 1994. The decrease was primarily due to decreased
severance related costs and lower ongoing staff levels.

Based primarily upon the letter of intent for the sale of the Engineering
Businesses, at the end of 1995 the Company wrote down intangible assets
consisting primarily of costs in excess of net assets acquired by $12.8 million
to their estimated fair value.

The Company periodically reviews its property, plant and equipment for
impairment in the value of these assets. As a result of this review, the
Company wrote off assets with carrying values of approximately $1.5 million in
1995.

NET LOSS The net loss increased 129.4% to $12.2 million in 1995 from $5.3
million in 1994. Net interest expense increased $0.4 million as a result of
bank fees and the amortization of warrant related debt discount offset by
decreases in the loan balances resulting from the sale of Plant Services. The
increased net loss was primarily due to increased research and development
costs, the write down of plant, property and equipment and intangibles, and
decreased revenues offset by a gain on the sale of Plant Services.

18
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided/used by operating activities is comprised of two components:
Net loss adjusted for non-cash items and changes in operating assets and
liabilities.

Net loss adjusted for non-cash items provided approximately $1.7 million in 1996
and used approximately $5.1 million in 1995. This reflects the improved
operating performance of the Company, as detailed in the RESULTS OF OPERATIONS
for 1996 compared to 1995, above.

In 1996, $11.5 million was used by changes in operating assets and liabilities,
primarily the result of paying down accounts payable and accrued expenses.
Primarily from the proceeds of the sale of the Engineering Businesses in August
1996, the Company reduced its current liabilities by: (i) approximately $3.8
million primarily related to paying out accrued vacation and other payroll
related items to the Engineering Businesses employees; (ii) approximately $3.0
million related to expenses associated with the Company's dispositions (see
Dispositions, above); and (iii) approximately $1.7 million for the reduction of
trade accounts payable to normal levels of commercial practice from the high
levels utilized in late 1995 to preserve operating capital. Additionally,
during the year the Company reduced its liability for billings in excess of
costs and estimated earnings on uncompleted contracts by approximately $1.4
million and had a further reduction of approximately $1.0 million related to
other liabilities.

Although the net cash effect of changes in accounts receivable and estimated
earnings in excess of billings was not significant in 1996, the balances of
accounts receivable and estimated earnings in excess of billings may differ from
period to period as a result of varying contractual terms that relate to the
timing and amount of progress payments for some of the Company's multi-year,
multi-million dollar contracts. This variability is expected to continue in
future periods and become more pronounced as the Fuel Services business becomes
a larger part of the Company's operations.

As a result of the foregoing, operating activities used $9.7 million in 1996, an
approximate $10.7 million greater usage than the same period of 1995.

Cash proceeds from disposition/acquisition activities in 1996 were approximately
$1.8 million from the sale of VECTRA UK and $28.6 million from the sale of the
Engineering Businesses, as opposed to $16.2 million in 1995 from the sale of
Plant Services and the liquidation of retention accounts related to the 1994
Impell acquisition.

Capital expenditures in 1996 were approximately $1.6 million primarily
related to the Company's building of reverse osmosis units for the Waste
Business. Capital expenditures in 1995 of approximately $8.2 million related
primarily to the Company's building of its transportable vitrification unit
for the Waste Business and the OS197 transportation cask for the Fuel
Services business. The $1.6 million patent and license expenditure in 1996
relates primarily to the cost of licensing of the Company's new transportable
NUHOMS-Registered Trademark- system for spent nuclear fuel.

The Company's capital expenditures in 1997 are expected to be incurred for
the continuing licensing activity for the Company's Fuel Services business'
new transportable NUHOMS-Registered Trademark- system for spent nuclear fuel.
The Company anticipates that it will need to continue to devote significant
capital resources to technology development and licensing activities in the
future in order to remain competitive. The Company had contractual capital
acquisition commitments of approximately $0.7 million as of December 31, 1996.

19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

Concurrent with the sale of the Engineering Businesses in August 1996, the
Company paid approximately $17.2 million, which combined with payments earlier
in the year, satisfied in full the then outstanding balances of the Company's
revolving credit agreement and term debt. The revolving credit and term debt
agreements have been terminated and the Company currently has no indebtedness to
banks and no available credit facilities.

In January 1997, the Company received a Demand for Information letter from
the NRC requesting that VECTRA respond as to why: (1) the NRC should not
require VECTRA to perform a comprehensive review of its design control to
verify that its specifications have been accurately translated to the
fabricators; (2) the NRC should not require VECTRA to perform a comprehensive
review of all design changes and nonconformances since 1995 to determine if
any generic implications exist; and (3) the NRC should not issue an order to
suspend fabrication activities. As a result of the Demand for Information
letter, in January 1997 the Company voluntarily placed a hold on fabrication
activities associated with its NUHOMS-Registered Trademark- and UX-30
products to allow the Company and its consultants to conduct a complete
assessment of its processes from engineering through fabrication in order to
address the root causes of deficiencies in its Quality Control operations.
The Company feels that its designs conform to their Safety Analysis Reports
and NRC Certificates of Compliance. The Company has identified no
deficiencies in the products in service today that would prevent them from
meeting the rigorous safety standards set by the NRC. The Company will
verify that the processes used for future products maintain the level of
safety and compliance required by the NRC. The assessment by the Company and
its consultants determined that the composition of VECTRA's Quality Assurance
Program is adequate and does not require major restructuring; however, there
have been deficiencies in the implementation of the program and the Company
must implement corrective actions and other recommended changes to restore
confidence with clients and the NRC. The Company has developed a detailed
plan to assess its design control, quality control and specification
development activities for all of its products. This plan has been developed
and will be implemented with the assistance of Performance Improvement
International, a leading root cause assessment company in the nuclear
industry. This plan will form the basis of the Company's response to the US
Nuclear Regulatory Commission's Demand for Information letter. The Company's
response to the US Nuclear Regulatory Commission's Demand for Information
letter is due on April 11, 1997. The Company expects to submit a response on
or before that date that will address the program to be implemented to
correct any nonconformances. In conjunction with the response, the Company
will develop a program for the phased restart of its fabrication activities
in the second quarter of 1997. The Company expects that the deferral in
revenues and gross margin resulting from this delay together with the costs
of the assessment program and immediate corrective actions will result in net
losses in the first and second quarters of 1997 and the utilization of a
significant portion of its available working capital. There can be no
assurances that the NRC will find the Company's response acceptable or that
the NRC will not issue an order to suspend fabrication in the event the
Company lifts the Company's unilateral suspension and resumes fabrication as
planned in the second quarter. Continued suspension of fabrication beyond
the second quarter of 1997 would have a material adverse impact on the
Company's operations, financial performance and working capital.

Subject to the potential noted above regarding suspension of fabrication and
assuming the Company resumes fabrication in the second quarter, the Company
believes that cash and cash equivalents at December 31, 1996, together with cash
generated from the sale of the Waste Business and from operations will be
adequate to meet its cash needs through December 31, 1997. Management made
substantial expense reductions in 1996 and is committed to decreasing costs in
order to bring the Company to sustained profitable operations.

20
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>

Page
-----------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 22

Consolidated Balance Sheets at December 31, 1996, and December 31,
1995 23 & 24

Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1996 25

Consolidated Statements of Shareholders' Equity for each of the three years
in the period ended December 31, 1996 26

Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1996 27

Notes to Consolidated Financial Statements 28 thru 41
</TABLE>

21
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
VECTRA Technologies, Inc.

We have audited the accompanying consolidated balance sheets of VECTRA
Technologies, Inc. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
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 consolidated financial position of VECTRA
Technologies, Inc. at December 31, 1996, and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

San Francisco, California
March 24, 1997

22
<PAGE>

VECTRA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

DECEMBER 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,741 $ 2,834
Securities available for sale 1,330 1,274
Assets held for disposition 3,430 --
Accounts receivable, net of allowance of $84 for 1996
and $785 for 1995 7,082 20,902
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,153 1,665
Refundable income tax prepayments -- 600
Inventories 251 1,176
Prepaid expenses 297 720
--------- ---------
Total Current Assets 16,284 29,171
--------- ---------
Property, Plant and Equipment, at cost
Land -- 94
Buildings -- 359
Machinery and equipment 4,042 8,707
Construction in progress -- 8,038
Furniture and fixtures 895 2,587
--------- ---------
Total Property, Plant and Equipment 4,937 19,785
Less accumulated depreciation 2,093 8,614
--------- ---------
Net Property, Plant and Equipment 2,844 11,171
--------- ---------
Costs in excess of net assets of acquired businesses, net
of accumulated amortization -- 14,780
Licenses, patents and other intangibles, at cost, net
of accumulated amortization 3,600 2,173
Investments and long term prepaid costs 404 3,305
Other assets 31 66
--------- ---------
Total Assets $ 23,163 $ 60,666
--------- ---------
--------- ---------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

23
<PAGE>

VECTRA TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except share data)
<TABLE>
<CAPTION>

DECEMBER 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
Notes payable $ 400 $ --

Accounts payable 5,957 10,965

Accrued payroll and related expenses 715 4,706

Other accrued liabilities 2,041 3,510

Accrued liabilities related to sale of subsidiaries 1,894 2,407

Billings in excess of costs and estimated earnings on
uncompleted contracts 400 2,288
--------- ---------
Total Current Liabilities 11,407 23,876

Long term debt -- 17,216

Other long term liabilities 1,382 1,764

Deferred lease incentive -- 424
--------- ---------
Total Liabilities 12,789 43,280
--------- ---------

Shareholders' Equity
Class A Preferred Stock, 4,100,000 shares authorized,
none issued and outstanding -- --
Common Stock, $0.01 par value, 30,000,000 shares
authorized; 7,833,527 shares issued and outstanding in
1996 and 1995 44,960 44,960
Accumulated deficit (34,586) (27,574)
--------- ---------
Total Shareholders' Equity 10,374 17,386
--------- ---------

Total Liabilities and Shareholders' Equity $ 23,163 $ 60,666
--------- ---------
--------- ---------

</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24
<PAGE>

VECTRA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)

YEARS ENDED
---------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995 JANUARY 1,
1995
----------------- ----------------- ----------
<S> <C> <C> <C>
Revenues $ 68,005 $123,501 $ 140,023
Cost of revenues 47,864 89,444 94,320
--------- --------- --------
Gross margin 20,141 34,057 45,703
--------- --------- --------

Operating Expenses
Research and development expenses 446 3,257 1,592
Selling, general and administrative
expenses 17,428 38,210 45,955
Write downs of property, plant and
equipment and intangible assets 5,841 14,319 629
--------- --------- --------
Total operating expenses 23,715 55,786 48,176
--------- --------- --------
Operating loss (3,574) (21,729) (2,473)
Interest expense, net 2,090 3,105 2,702

Gain (Loss) on sale of subsidiary (1,443) 12,731 --
--------- --------- -----------
Loss before income taxes (7,107) (12,103) (5,175)
Provision (Benefit) for income taxes (75) 110 150
--------- --------- ------------
Net loss $(7,032) $(12,213) $(5,325)
---------- ----------- ------------
---------- ----------- ------------

Net loss per share $(0.90) $(1.56) $(0.68)
--------- --------- ------------
--------- --------- ------------

Number of shares used to calculate net loss
per share 7,833,527 7,840,038 7,801,802
--------- --------- -----------
--------- --------- -----------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25
<PAGE>

VECTRA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)

NUMBER OF ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 5,954,013 $29,202 $(10,129) $19,073

Exercise of stock options 189,649 968 -- 968
Issuance of common stock,
net of cancellations 1,704,965 14,004 -- 14,004
Warrants issued -- 1,038 -- 1,038
Unrealized gain on securities
available for sale -- -- 42 42
Net loss -- -- (5,325) (5,325)
----------- ---------- ----------- -----------
Balances at January 1, 1995 7,848,627 45,212 (15,412) 29,800

Issuance of common stock,
net of cancellations (15,100) -- -- --
Warrants issued, net of
warrants repriced -- (252) -- (252)
Unrealized gain on securities
available for sale -- -- 51 51
Net loss -- -- (12,213) (12,213)
----------- ---------- ----------- -----------
Balances at December 31, 1995 7,833,527 44,960 (27,574) 17,386

Unrealized gain on securities
available for sale -- -- 20 20
Net loss -- -- (7,032) (7,032)
----------- ---------- ----------- -----------

Balances at December 31, 1996 7,833,527 $ 44,960 $ (34,586) $ 10,374
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26
<PAGE>

VECTRA TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (7,032) $(12,213) $(5,325)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Amortization 140 3,058 3,082
Depreciation 1,195 2,321 3,392
Write downs of assets to estimated fair value 5,841 14,319 629
(Gain)/Loss on sale of subsidiary 1,443 (12,731) --
Other Loss 153 156 --
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable and
estimated earnings in excess of billings 20 (565) 5,734
(Increase) Decrease in inventories and prepaid expenses (542) 493 (128)
Increase (Decrease) in accounts payable and accrued expenses (10,933) 6,144 (262)
--------- -------- -------
Net cash provided (used) by operating activities (9,715) 982 7,122
--------- -------- --------
Cash flows from investing activities:
Increase in securities available for sale (36) (303) (123)
Refunds (payments) related to Impell acquisition, net of cash acquired -- 559 (23,137)
Capital expenditures (1,626) (8,197) (3,872)
Payments for earnout of acquired business -- -- (304)
Increase in patent and license costs (1,559) (973) (115)
Proceeds from sale of long term investments -- 1,150 --
Proceeds from sales of subsidiaries, net of transaction costs 30,372 16,152 129
(Increase) Decrease in other assets (713) 19 (270)
--------- -------- -------
Net cash provided (used) by investing activities 26,438 8,407 (27,692)
--------- -------- -------

Cash flows from financing activities:
Net (repayments) borrowings under short term loans 400 (2,811) 12,871
Proceeds from long term debt -- 3,000 15,000
Repayment of long term debt (17,216) (10,171) (5,414)
Proceeds from sale of common stock -- -- 968
--------- -------- --------
Net cash provided (used) by financing activities (16,816) (9,982) 23,425
--------- -------- -------

Net increase(decrease) in cash and cash equivalents (93) (593) 2,855
Cash and cash equivalents at beginning of year 2,834 3,427 572
--------- -------- -------
Cash and cash equivalents at end of year $ 2,741 $ 2,834 $ 3,427
--------- -------- -------
--------- -------- -------

Cash paid for interest $ 3,883 $ 1,973 $ 1,652
Cash paid for income taxes $ 153 $ 712 $ 236

Supplemental disclosure of non-cash financing activities:
Issuance of Common Stock related to acquisition $ -- $ -- $ 14,000
Warrants issued in connection with debt $ -- $ 643 $ 1,038
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

VECTRA Technologies, Inc. ("VECTRA" or the "Company") operates in one business
segment which is the nuclear market. In this market, the Company provides
technology based systems and services for the packaging and transportation of
high level and low level radioactive waste and nuclear material; and related
consulting and engineering services to the commercial nuclear industry
worldwide and to the Department of Energy in the U.S.

Most of the Company's contracts are awarded by a competitive process in which
a number of firms submit proposals in response to a client's request for
proposals to provide specified products or services. Each of the Company's
contracts is negotiated independently and varies as to profitability. In
entering into contracts with its clients the Company considers, among other
factors, the relative profitability of the contract as well as the long term
goals of the Company. The Company competes in certain international markets,
principally Canada, South Korea, Taiwan, and Europe.

In the United States, the Nuclear Regulatory Commission administers a
regulatory program which affects every aspect of the Company's operations.
The Department of Transportation, the Environmental Protection Agency, some
states, localities and other federal agencies also regulate aspects of the
Company's business. Regulatory changes with significant business impact have
occurred with some frequency in the industry. The nuclear industry in
general, and the handling, disposal and transportation of radioactive waste in
particular, have sometimes been the subject of intense political and legal
action. While the Company attempts to anticipate changes in the regulatory,
political and legal environment in which it operates, it is not always able to
do so and such changes could render the Company's products and its methods of
doing business obsolete, cause the Company to suspend operating activities or
require extensive modification of the Company's product lines.

PRESENTATION

Previously reported amounts in the 1995 consolidated balance sheet have been
reclassified to conform with the 1996 presentation with no effect on
shareholder's equity.

PRINCIPLES OF CONSOLIDATION AND FOREIGN CURRENCY TRANSLATION

The consolidated financial statements include the accounts of VECTRA
Technologies, Inc. and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts and transactions have been eliminated.
Assets and liabilities of the foreign subsidiary are translated at current
exchange rates. Income statement accounts are translated at the average rates
during the period. Foreign currency translation and transaction gains and
losses have not been material.

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 amounts reported in the financial statements and accompanying
Notes. Actual results could differ from those estimates.

28
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

REVENUE RECOGNITION

Revenue on long term contracts, other than those billed on a time and material
basis, is recognized on the percentage-of-completion method, measured by the
percentage of costs incurred to date to estimated total costs for each
contract. Cost estimates are reviewed periodically as the work progresses,
and adjustments to revenues are reflected in the period in which estimates are
revised. When current estimates indicate a probable ultimate loss on a
contract, the full amount of the projected loss is accrued. The accompanying
consolidated financial statements reflect management's best estimates of
contract revenues and costs. However, actual amounts could differ from such
estimates and such differences could be material to the financial statements.
Other revenues are recorded on the basis of shipment of products or
performance of services.

The Company periodically enters into contracts which are subject to audit by
U.S. Government agencies with respect to costs and other information
submitted. Ultimate costs recoverable under these Government contracts are
not known until final determination by the U.S. Government agency. Deviations
to submitted costs have not been significant in the past and management does
not expect them to be significant in the future.

The Company also enters into certain contracts that require the Company to
obtain permits and licenses from regulatory agencies, and in the event such
permits and licenses are not obtained, these contracts may be canceled and
payments on these contracts could be subject to refund. The Company has
historically been able to obtain these permits and licenses, but the inability
to obtain such permits and licenses in the future could have a material
adverse effect on the Company's results of operations.

COST OF REVENUES

Cost of revenues consist of materials, fabrication costs, direct labor and
related payroll burden and charges, including depreciation and amortization,
that are directly identified to a contract.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include investments with an original maturity of
three months or less.

SECURITIES AVAILABLE FOR SALE

Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Under this statement, the Company's marketable securities
are classified as "available for sale" and are recorded at current market
value with an offsetting adjustment to shareholders' equity. The adoption of
this statement did not have a material effect on the Company's consolidated
financial position. $818,233 in 1996 and $618,722 in 1995 of the Company's
marketable securities available for sale are restricted since they are held as
collateral or held by the Company's captive offshore insurance subsidiary.
The amortized cost basis of securities available for sale is $1,216,612 in
1996 and $1,180,803 in 1995.

29
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

INVENTORIES

Inventories, which consist principally of products associated with the
performance of certain contracts, are stated at the lower of cost or market
determined on a specific identification basis.

PROPERTY, PLANT AND EQUIPMENT

Depreciation is computed principally on the straight line method over the
following estimated useful lives:

Buildings 36 years
Machinery and equipment 3-15 years
Furniture and fixtures 3-7 years

The Company periodically reviews its property, plant and equipment for
impairment in value. As a result of this review, the Company wrote off assets
with carrying values of approximately $5,841,000 in 1996 and $14,319,000
million in 1995. (See Note 2 Dispositions)

The primary component of the Company's 1996 capital expenditures relates to
the construction of two reverse osmosis systems.

COSTS IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES

In 1996, with the sale of the Engineering Businesses, the Company removed all
costs in excess of net assets of acquired businesses from its balance sheet.
Prior to that time, the excess of the total acquisition costs of acquired
subsidiaries over the fair value of net assets acquired was being amortized on
the straight line basis over 25 years. Accumulated amortization was
$4,330,000 at December 31, 1995.

LICENSES AND PATENTS

Licenses and patents are amortized on the straight line method over a period
of 5 to 25 years. Accumulated amortization was $256,000 at December 31, 1996,
and $602,000 at December 31, 1995. The $1,559,000 patent and license
expenditure in 1996 relates primarily to the cost of licensing of the
Company's new transportable NUHOMS-Registered Trademark- system for spent
nuclear fuel.

INCOME TAXES

The Company recognizes deferred tax assets and liabilities based on
differences between financial reporting and tax basis of assets and
liabilities measured using tax rates and laws that will be in effect when the
differences are expected to reverse. The Company provides a valuation
allowance on its deferred tax assets to the extent there is uncertainty
regarding the Company's ability to generate taxable income in the future.

NET LOSS PER SHARE

Net loss per share is based upon the weighted average number of common shares
outstanding during each period.
30
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

NEW ACCOUNTING PRONOUNCEMENTS

IMPAIRMENT OF LONG LIVED ASSETS In 1995, the Financial Accounting Standards
Board issued the Statement of Financial Accounting Standards No. 121 ("SFAS
121"), "Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be Disposed Of." SFAS 121 requires recognition of impairment of
long lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets. The Company
adopted the provisions of SFAS 121 as of December 31, 1995.

2. DISPOSITIONS

On January 29, 1997, the Company sold its low level radioactive waste
packaging and transportation services operations (the "Waste Business") to MMT
of Tennessee Inc. ("MMT"). MMT purchased substantially all of the assets of
the Waste Business except for cash; accounts receivable; deferred contract
start-up costs; accounts payable; and provisions for contract loss and
decommissioning. The form of the transaction was a sale of assets pursuant to
an Asset Purchase Agreement dated January 29, 1997. Based upon the Asset
Purchase Agreement, in the fourth quarter of 1996 the Company wrote down
assets with a book value of $9.2 million, consisting primarily of equipment
and deferred contract start-up costs, by $5.8 million to their estimated fair
value, net of expenses associated with the transaction of approximately $0.5
million. The net value of these assets is reflected on the balance sheets as
"Assets held for disposition" at December 31, 1996. The total purchase price
of $3.9 million will be added to working capital in 1997 and no gain or loss
will be recorded on the sale in the first quarter of 1997.
A provision for contract loss of $0.2 million was recorded in the fourth
quarter of 1996 and the reported results of operations of the Waste Business
will be nil in 1997. The Waste Business generated revenues of approximately
$8.4 million and $13.0 million for the fiscal years ended December 31, 1996,
and December 31, 1995, respectively, and an operating loss of approximately
$6.2 million and $5.1 million for the same periods.

On August 19, 1996, the Shareholders of the Company voted to approve, and the
Company then consummated, the sale of the Company's nuclear engineering
services business, power services business, and government services business,
(collectively, the "Engineering Businesses") to Duke Engineering & Services,
Inc. and recorded a loss on the sale of $2.0 million. The form of the
transaction was a sale of assets pursuant to an Asset Purchase Agreement dated
May 23, 1996. Based upon the Asset Purchase Agreement, in the fourth quarter
of 1995 the Company wrote down assets, consisting primarily of costs in excess
of net assets acquired by $12.8 million to their estimated fair value. The
total purchase price was $28.7 million, of which $18.3 million was used to pay
all of the Company's bank debt and associated fees and $10.4 million was added
to the Company's working capital (of which approximately $8.5 million was used
for payroll liabilities related to Engineering Businesses' employees, for the
payment of transaction expenses and to reduce trade accounts payable to normal
levels of commercial practice). The Engineering Businesses generated revenues
of approximately $43.2 million and $78.1 million for the fiscal years ended
December 31, 1996, and December 31, 1995, respectively, and operating income
of approximately $2.7 million and $1.5 million for the same periods.

31
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. DISPOSITIONS (CONTINUED)

Effective April 26, 1996, the Company sold all of the outstanding capital
stock of its wholly owned subsidiary, VECTRA Technologies Ltd. ("VECTRA UK"),
to Amey, plc and recorded a gain on the sale of $0.6 million. The sale price
was $1.9 million. The net proceeds were approximately $1.6 million after
expenses associated with the transaction. The net proceeds were used to
reduce the Company's revolving credit facility by $1.1 million and the balance
was added to working capital. VECTRA UK generated revenues of approximately
$3.5 million and $7.7 million for the fiscal years ended December 31, 1996,
and December 31, 1995, respectively, and operating income of approximately
$0.3 million and $0.1 million for the same periods.

In September 1995, the Company sold its 10% ownership in Recytec America, Inc.
to Recytec, S.A. for $1.2 million resulting in a loss of $0.2 million which
was included in selling, general and administrative expenses. These shares
had been issued to VECTRA in connection with the sale of Alaron Corporation to
Recytec S.A. in August 1991.

3. ACCOUNTS RECEIVABLE AND PROGRESS BILLINGS

Accounts receivable are summarized as follows (in thousands):

DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- -----------------
Accounts receivable $ 6,639 $ 20,310
Retainage 396 988
Other 131 389
Allowance for contract adjustments (84) (785)
----------------- ----------------
Total accounts receivable, net $ 7,082 $ 20,902
----------------- ----------------
----------------- ----------------

Retainages beyond one year are insignificant. Progress billings on long term
percentage of completion contracts that were in process at December 31, 1996,
and December 31, 1995, were $22.0 million and $32.4 million, respectively. The
Company performs services and provides products mainly to commercial power
utilities. Based on the credit standing of these clients, credit is generally
granted without collateral being required.

32
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACCOUNTS RECEIVABLE AND PROGRESS BILLINGS (CONTINUED)

Historically, there have been no significant credit losses to the Company;
accordingly, no allowance for doubtful accounts is considered necessary by
management. The allowance for contract adjustments provides for management's
estimate of periodic adjustments that arise from contract related billing
issues. These estimates may differ from actual contract adjustments and such
differences could be material to the financial statements.

4. NOTES PAYABLE

In February 1996 the Company received two $0.2 million short term loans from a
customer to assist the Company in the building of capital equipment for use on
a long term contract at that customer's sites. The notes, including interest
at 6% per annum, were repaid in full in January 1997.

5. INDEBTEDNESS TO BANKS

Concurrent with the sale of Company's nuclear engineering services business,
power services business, and government services business, (collectively, the
"Engineering Businesses") to Duke Engineering & Services, Inc. on August 19,
1996, the Company paid $16.6 million, which combined with payments earlier in
the year, paid in full the remaining balances of the Company's revolving
credit agreement and term debt. At that time the Company also paid its former
banks $1.5 million in deferred bank fees. The revolving credit and term debt
agreements have been terminated and the Company has no indebtedness to banks
at December 31, 1996. As of December 31, 1996, the Company has reserved
1,300,977 shares of common stock for warrants previously earned by the banks.

At December 31, 1995, the Company had $12,389,000 outstanding under a
revolving credit facility at a weighted average interest rate of 9.1%; a long
term loan from banks of $2,927,000 at an interest rate of 10%; and a second
long term loan from banks of $1,900,000 at an interest rate of 11.5%, all of
which were secured by substantially all of the Company's assets.

33
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets and liabilities as of December 31,
1996, December 31, 1995, and January 1, 1995, are as follows using the
liability method (in thousands):

DECEMBER 31, 1996 DECEMBER 31, 1995 JANUARY 1,
1995
------------------ ----------------- -------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ 6,813 $ 2,279 $ 1,952
Tax credit carryforwards 254 254 254
Expenses not currently deductible for
tax purposes 34 1,294 1,661
Other 3,009 1,098 941
------------ ------------- ------------
Deferred tax assets 10,110 4,925 4,808

Valuation allowance (10,110) (4,898) (4,736)
------------- ------------- -------------
Net deferred tax assets $ 0 $ 27 $ 72
------------- ------------- -------------
------------- ------------- -------------

DEFERRED TAX LIABILITIES:
Depreciation $ -- $ 27 $ 72
------------- ------------- -------------

Net deferred tax liabilities $ -- $ 27 $ 72
------------- ------------- -------------
------------- ------------- -------------
NET DEFERRED TAXES: $ -- $ -- $ --
------------- ------------- -------------
------------- ------------- -------------

</TABLE>

34
<PAGE>

VECTRA TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes differed from the amount computed by
applying the federal statutory income tax rate for the fiscal years ended
December 31, 1996, December 31, 1995, and January 1, 1995, as follows (in
thousands):

DECEMBER 31, 1996 DECEMBER 31, 1995 JANUARY 1,
1995
----------------- ------------------ -------------
<S> <C> <C> <C>

Income tax (benefit) at federal statutory rate $(2,579) (4,275) $(1,864)
Amortization -- -- 106
FAS 121 write down of assets not
deductible for tax purposes 1,706 4,228 --
Write off of assets sold during the
year which were written off for
book purposes in the prior year (1,937) -- --
Utilization of net operating loss
carryforwards -- -- --
Valuation allowance 4,635 162 1,751
Federal income taxes -- -- --
State and foreign income taxes 40 110 150
Other (includes $1,240 timing differences
related to employee benefit charges in 1996) (1,940) (115) 7
----------- --------- ---------
Provision (Benefit) for income taxes $ (75) $ 110 $ 150
----------- --------- ---------
----------- --------- ---------

</TABLE>

At December 31, 1996, the Company has federal net operating loss and research
tax credit carryforwards of approximately $19,467,000 and $254,000,
respectively, which expire in varying amounts through the year 2011. Annual
utilization of the Company's net operating loss and tax credit carryforwards
may be limited if a cumulative change in ownership of more than 50% is deemed
to occur within any three year period.

7. SAVINGS AND RETIREMENT PLAN

The Company has a defined contribution plan covering eligible full time and
part time employees (the "Plan"). The Plan is a profit sharing plan with a
salary reduction arrangement pursuant to Internal Revenue Code Section 401(k)
and subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA). Employees may contribute up to 15% of their gross wages,
subject to these provisions. The Company may, solely at its own discretion,
make a profit sharing contribution to the Plan for each plan year. In
addition to the profit sharing contribution, the Company may make
discretionary matching contributions to the Plan, at a predetermined rate
subject to certain limitations. In 1995, matching contributions were only
made for employees within certain operating units. In fiscal 1995, and 1994,
the Company made contributions to the Plan of $112,000, and $1,171,000,
respectively. No contributions were made to the plan in 1996.

35
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTIONS

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This new standard defines a fair value based
method of accounting for an employee stock option or similar equity
instrument. This statement gives entities a choice of recognizing related
compensation expense by adopting the new fair value method or to continue to
measure compensation using the intrinsic value approach under Accounting
Principles Board Opinion No. 25 ("APBO 25") standard. If the APBO 25 standard
for measurement is elected, SFAS 123 requires supplemental disclosure to show
the effects of using the new measurement criteria. The Company intends to
continue using the measurement prescribed by APBO 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires the use of option valuation methods that were not developed for
use in valuing employee stock options similar to those of the Company. Under
APBO 25, no compensation expense has been recognized by the Company because
the exercise price of all employee stock options granted equals the market
price of the underlying stock on the date of each grant.

Pro forma information regarding net income and earnings per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for both 1996 and 1995: Risk free interest rates of 5.6% to 7.5%; dividend
yields of 0%; volatility factors of the expected market price of the Company's
common stock of 1.0894; and a weighted average expected life of the option of
5 years.

The Black-Scholes option valuation 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 valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the 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.

The following indicates the pro forma information, using a Black-Scholes
option pricing model, regarding net loss and loss per share required by SFAS
123 (in thousands, except share data):

1996 1995
---------------- -------------
Pro forma net loss $ (7,159) $ (12,326)

Pro forma loss per share $ (0.91) $ (1.57)

Pro forma primary shares outstanding 7,833,527 7,840,038

36
<PAGE>

VECTRA Technologies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTIONS (CONTINUED)

Under the Company's stock option plans which include incentive stock options
qualified by the Internal Revenue Service (IRS) and non-qualified options, the
Company can issue up to 2,297,500 stock options. Through December 31, 1996,
such incentive stock options totaling 916,731 have been exercised and 275,389
options are available for grant.

Stock options are granted at fair market value on the date of grant, are
exercisable in whole or in part beginning one year from the date of grant, and
expire up to ten years from the date of grant.

In February 1995, the Board of Directors approved a program to reprice certain
incentive stock options granted in 1994. Under the repricing program, the
options held by employees could have been repriced at the employees' option at
an exercise price of $4.50 per share. The then current market price of the
Company's common stock was $3.00 per share. In consideration of the price
change, the vesting schedule was changed from an eighteen month "cliff
vesting" and proportional vesting over four years to 100% "cliff vesting" at
January 1, 1998.

At December 31, 1996, the Company has reserved 958,258 shares of Common Stock
under the incentive stock option plans, which represent stock options
outstanding and stock options available for grant.

Stock options outstanding under the plans are:

OPTION PRICE PER SHARE
------------------------------------------
NUMBER OF WEIGHTED
SHARES FROM TO AVERAGE
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1995 1,019,186 $ 3.00 $ 9.50 $ 8.71
Granted (includes 143,000 shares
that were repriced) 269,500 2.75 4.50 3.72
Forfeitures (includes 143,000
shares that were repriced) (454,626) 3.00 9.50 6.20
----------- ---------- -------- ---------
Outstanding at December 31, 1995 834,060 2.75 9.50 7.81

Granted 375,000 1.625 2.00 1.94

Forfeitures (526,180) 1.625 9.50 6.18
----------- ---------- -------- ---------
Outstanding at December 31, 1996 682,880 $ 1.625 $ 7.00 $ 2.22
----------- ---------- -------- ---------
----------- ---------- -------- ---------
Exercisable at December 31, 1996 20,964 $ 2.75 $ 7.00 $ 3.69
----------- ---------- -------- ---------
----------- ---------- -------- ---------

</TABLE>

In addition to the stock option plans, the Company has issued non-qualified
options of which 393,250 shares were outstanding at December 31, 1996, at a
price per share from $2.00 to $9.25, 277,000 options were exercisable at a
price per share from $2.125 to $9.25, and had a weighted average exercise
price of $4.17.

37
<PAGE>
VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. WARRANTS

At December 31, 1996, in connection with bank debt incurred in 1994 and 1995,
the Company has outstanding warrants issued to its former banks to purchase
the following shares of the Company's common stock:

EXERCISE
NUMBER PRICE EXERCISABLE
OF SHARES PER SHARE THROUGH
------------- ----------- -------------------
830,060 $2.94 January 7, 1999
392,432 $0.01 September 20, 2000
78,485 $0.01 December 26, 2000

10. COMMON STOCK

The Company has established a Stockholders' Rights Agreement (SRA) designed to
deter coercive or unfair takeover tactics that could deprive shareholders of
an opportunity to realize the full value of their shares. The Company amended
the SRA effective December 31, 1993.

Under the SRA, as amended, the Company could declare a dividend of one right
for each outstanding share of the Company's Common Stock. The rights become
exercisable after the announcement of either a tender or exchange offer for
more than 25% of the Company's Common Stock or a purchaser acquires 25% of the
Company's Common Stock. Each right entitles the holders, other than the 25%
purchaser, to purchase Common Stock of the Company having a market value of
twice the exercise price of the right. In the event that the Company is
acquired in a merger or sells or transfers 50% or more of its assets or
earning power, each right entitles the holder to purchase Common Stock of the
surviving or purchasing company having a market value of twice the exercise
price of the right. The rights, which expire June 1, 1999, may be redeemed by
the Company at a price of $0.01 per right.

38
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. REVENUES AND COST OF REVENUES INFORMATION

Revenues and cost of revenues of tangible products and services are as follows
for the fiscal years ended December 31, 1996, December 31, 1995, and January
1, 1995, (in thousands):

DECEMBER 31, 1996 DECEMBER 31, 1995 JANUARY 1,
1995
----------------- ----------------- --------------
<S> <C> <C> <C>
REVENUES:
Products $ 12,601 $ 13,580 $ 6,917
Services 55,404 109,921 133,106
---------------- --------------- -------------
Total Revenues $ 68,005 $ 123,501 $ 140,023
---------------- --------------- -------------
---------------- --------------- -------------
COST OF REVENUES:
Products $ 9,124 $ 11,574 $ 4,561
Services 38,740 77,870 89,759
---------------- --------------- -------------
Total Cost of Revenues $ 47,864 $ 89,444 $ 94,320
---------------- --------------- -------------
---------------- --------------- -------------
</TABLE>

Sales to foreign clients in 1996, 1995, and 1994 were $4,862,000, $10,254,000,
and $12,099,000, respectively. The Company's historical international
revenues were generated primarily by VECTRA UK and the Waste Business which
were sold in 1996 and 1997, respectively.

12. MAJOR CLIENTS

The nature of the Company's business is such that a single client may account
for more than 10% of the Company's revenues during a specific period when the
Company is performing a significant project for that client. The percentage
of sales to individual clients that were 10% or more of total revenues follows
for the fiscal years ended December 31, 1996, December 31, 1995, and January
1, 1995:

DECEMBER 31, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------- -------------- ------------
<S> <C> <C> <C>
Commonwealth Edison Company 18.9% 19.8% 19.2%

</TABLE>

After the divestiture of the Waste Business and the Engineering Businesses,
VECTRA is transitioned from a diverse engineering and nuclear services company
to one based on the Company's technology leadership in the design, licensing,
procurement, fabrication, sale and leasing of equipment for the packaging and
transportation of high level and low level radioactive waste and nuclear
material; and related consulting and engineering services to the commercial
nuclear industry worldwide and to the DOE in the U.S. While the Company's
Fuel Services business performs continuing services for its clients, billings
to a particular client may fluctuate dramatically depending upon the status of
a particular project. Depending upon the timing and size of contracts, the
identities of the Company's largest clients may change from year to year.
However, the Company's Fuel Services business depends upon a small number of
clients for its revenues in any given year, the loss of any one or more of
which would have a material adverse effect on the Company.
39
<PAGE>

VECTRA Technologies, Inc.
Notes to Consolidated Financial Statements (continued)

13. Commitments and Contingencies

Annual rental commitments (exclusive of insurance and property taxes) under
non-cancelable operating leases on office facilities are payable as follows
(in thousands):

1997 $ 540
1998 180
1999 92
2000 --
2001 --
Thereafter --
-----------
Total $ 812
-----------
-----------

Rent expense was as follows for the years ended December 31, 1996, December
31, 1995, and January 1, 1995 (in thousands):

December 31, 1996 $ 2,717

December 31, 1995 $ 5,012

January 1, 1995 $ 5,473

The Company is self-insured for general liability risk for $1 million per
occurrence and $2 million in the aggregate. Coverage above the self-insured
limits is provided for under an umbrella policy with a commercial insurance
company. The Company's general liability risk insurance excludes professional
errors and omissions. Such insurance is purchased on a contract specific
basis as required by the customer. At December 31, 1996, the Company had
accrued approximately $0.6 million for estimated unreported and/or potential
losses under its self-insurance program which is included in Other long term
liabilities in the Company's consolidated balance sheets. Actual self-
insurance losses may differ from such estimates and such differences could be
material to the consolidated financial statements.

The radioactive materials handled by the Company are the legal responsibility
of the Company's utility customers. The Company does not take title to such
materials. In the event of an accident or incident involving such material,
the Company is covered under insurance carried by and provided to operators of
nuclear plants or transporters of nuclear materials.

The Company anticipates that it will need to devote significant capital
resources to technology development in the future in order to remain
competitive. The Company had contractual commitments of $666,650 as of year
end for capital expenditures during 1997.

The Company is involved in contractual, personal injury and general liability
cases and claims which are considered normal to its business. In the opinion
of Company management, none of these claims will have a material adverse
impact on the Company's results of operations or financial position. However,
an unfavorable outcome could have a material adverse impact on the Company's
results of operations and financial position.

40
<PAGE>

VECTRA TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SUBSEQUENT EVENTS

41
<PAGE>

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

42
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

CURRENT DIRECTORS

The following table lists the names and ages of the directors:
<TABLE>
<CAPTION>

NAME AGE POSITIONS HELD (DIRECTOR SINCE)
- ------------------------- --------- -------------------------------------------
<S> <C> <C>
Edward J. Keith 62 Chairman of the Board, Director (1994)

Roy Kirkorian 51 Vice Chairman of the Board, Director (1995)

J.E. (Ted) Ardell, III 57 Director (1992)

Ray A. Fortney 51 Director, President and CEO (1994)

Fruzsina Harasanyi 54 Director (1995)

</TABLE>

In February 1997, the board of directors amended the bylaws to reduce the number
of directors to five members subject to approval of such a reduction by the
Company's shareholders at the 1997 annual meeting

In November 1996, with mutual agreement by all directors in recognition of the
reduced size of the Company following the sale of the Waste Business, E. D.
Howse, Jr., E. L. Draper, Jr., and A. J. Baciocco resigned from the Board of
Directors.

In February 1995, the Board of Directors amended the bylaws to remove the
staggered election of board members, so that all directors will be, beginning at
the 1995 Annual Meeting, elected annually.

BIOGRAPHIES

Mr. Keith was elected Chairman of the Board in June 1995. He is also Chairman
of the Board of Directors of The Failure Group, a consulting firm specializing
in the analysis and prevention of engineering failures, and a former Director of
Inlex Corporation, which provides computer automation systems to libraries.
From 1969 until 1983, Mr. Keith served as Chairman of the principal operating
subsidiary, Executive Vice President and Director of Impell Corporation. Mr.
Keith was also the co-founder of the Commercial Bank of San Francisco. He is a
licensed professional engineer and structural engineer in the state of
California. Mr. Keith received his BS and MS in Engineering in 1961 and 1964,
respectively, from the University of California, Berkeley.

Mr. Kirkorian was elected to the Board of Directors in August 1995, and was
elected Vice Chairman in October 1995. Mr. Kirkorian is an active partner in El
Rancho Farms and is currently active in various Sand Hill Financial Company
capital investments. He was President of C.P. National (NYSE) and former
President of Contel Corp.'s Contel Business Systems. Mr. Kirkorian received his
BS degree in Business Administration in 1967 from California State Polytechnic
University and his JD of the Law from Hastings College in 1970.

43
<PAGE>

Mr. Ardell is a general partner with Technology Partners, a venture capital
firm, and a Director of a number of private companies. From 1968 to 1971, Mr.
Ardell was with Bechtel Power Corporation. From 1971 to 1984, he was a Director
of Impell Corporation and held various other positions with Impell Corporation
and its principal operating subsidiary; and from 1984 to 1986, he was President
and Chief Executive Officer of Impell Corporation. From 1961 to 1968, he served
in the U.S. Navy nuclear submarine force. Mr. Ardell is a registered nuclear
engineer in California and received a BS degree in Engineering from the U.S.
Naval Academy in 1961.

Mr. Fortney was appointed as President and Chief Executive Officer in July 1994.
Prior to his appointment, he served as Executive Vice President of the Company
from August 1993, and was President of the Cygna Group of ICF Kaiser Engineers,
an engineering consulting firm, and a Senior Vice President of ICF Kaiser from
1992 to 1993. He previously served as Vice President and General Manager of the
Power Services Business at Combustion Engineering and ABB/Combustion Engineering
from 1988 through 1990, and President and Chief Executive of Impell Corporation
from 1986 to 1988. Mr. Fortney is a registered professional engineer in over 10
states. He received his BS degree from the U.S. Naval Academy in 1967, his MSME
degree from Stanford University in 1972 and attended the Stanford University
Business School Executive Program in 1989.

Dr. Harsanyi was elected to the Board in June 1995. She is Vice President,
Public Affairs and Corporate Communications, and a corporate officer of Asea
Brown Boveri Inc. ABB is a Connecticut based company, providing products and
services for power generation, transmission and distribution, and industrial
processes. She joined the company in 1980 after working for two years for the
Continental Group and prior to that for the U.S. Government. Dr. Harsanyi
received BA and MA degrees in International Relations and a Ph.D. in Government
from the American University. She has served as an adjunct professor of
International Business at Georgetown University's School of Foreign Service and
is a member of the Business-Government Relations Council, the Council for
Excellence in Government, the Bryce Harlow Foundation, the Public Affairs
Council, and Georgetown University's Landegger Program Advisory Board.

44
<PAGE>

CURRENT EXECUTIVE OFFICERS

The following table, as of March 15, 1997, sets forth the names, titles and ages
of the Company's executive officers who are serving in the indicated positions.
All executive officers serve until removed by the Board of Directors:

NAME AGE POSITIONS HELD
- --------------------------- ------ -------------------------------------------
<S> <C> <C>
Ray A. Fortney 51 President and Chief Executive Officer

Walter R. Bak 42 Vice President

Vincent Franceschi 38 Vice President

Thomas B. Pfeil 50 Vice President, Chief Financial Officer and Secretary
</TABLE>

BIOGRAPHIES

Mr. Fortney's biography is included with the directors.

Mr. Bak was appointed to Vice President, Business Development, in October 1995.
Mr. Bak has held the positions of Manager, Power Services, and Manager, Fuel
Services, with VECTRA prior to his current assignment. Mr. Bak has been
involved in managing businesses in the commercial nuclear, government, and non-
nuclear sectors of Impell since 1987. Mr. Bak is a registered professional
engineer in California. He received his MS degree in Civil Engineering from the
University of California, Berkeley, in 1978, and his BS degree in Civil
Engineering from the University of Notre Dame in 1977.

Mr. Franceschi was appointed to his current position in January 1994, following
the Company's acquisition of ABB Impell Corporation. From 1989 until his
appointment, Mr. Franceschi was the Manager of projects for Impell's Western
Region. From 1980 to 1989, Mr. Franceschi served in various positions of
increasing responsibility, including Manager, Systems Engineering and Manager of
Business Development for the DOE market. Mr. Franceschi is a registered
professional engineer in California. He received his BS degree in Civil
Engineering from the University of California, Berkeley in 1980 and his MBA from
Saint Mary's College in 1994.

Mr. Pfeil was appointed to his current position in April 1996. From 1992, until
his appointment, Mr. Pfeil served as a director and officer of several start-up
manufacturing and small sales businesses. From 1985 to 1992, Mr. Pfeil served
in various positions, including Corporate Controller and Chief Financial Officer
during the restructuring and turnaround of WorldCorp Inc. and its predecessor,
World Airways Inc. Prior to 1985, he served for twelve years in various
positions of increasing responsibility with Baker Hughes, a multi-national
manufacturer of oil field equipment and provider of related engineering
services. He received his MBA and BS degree in Business Administration
(Accounting) from California State University, Los Angeles.

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

The following tables set forth compensation paid by the Company for services
rendered in the Company's last three fiscal years ended December 31, 1996, to
the Company's chief executive officer; the Company's three executive officers as
of December 31, 1996; and two former executive officers who were no longer
serving in that capacity at December 31, 1996.

SUMMARY COMPENSATION TABLE (1)

LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------- ------------
NAME NUMBER OF
AND OTHER ANNUAL OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION
- ---------------------- ------ ---------- --------- -------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ray A. Fortney 1996 $206,260 -- -- 150,000 --
President and 1995 201,000 -- -- 173,000 --
CEO 1994 194,074 -- 17,574(2) 68,000 2,276(3)

Walter R. Bak 1996 146,761 14,000 -- 25,000 --
Vice President 1995 112,062 -- -- 34,000 --
1994 110,485 -- 3,600(4) -- --

Vincent Franceschi 1996 132,477 15,000 -- 30,000 --
Vice President 1995 114,810 -- -- 36,000 --
1994 110,255 -- 17,605(2) -- --

Thomas B. Pfeil 1996 124,558 20,000 -- 55,000 --
Vice President,
CFO and
Secretary

Jeffrey W. Cummings 1996 92,977(5) 12,500 105,000(6) -- 55,462(7)
Former Vice 1995 130,650 -- -- 46,000 --
President 1994 118,688 -- 28,492(8) -- --

John R. Holding 1996 46,824(9) -- 37,500(6) -- 186,538(10)
Former Vice 1995 150,749 -- 60,000(11) 6,000 --
President, CFO 1994 138,219 -- 32,377(12) 41,000 3,265(3)
and Secretary
</TABLE>

46
<PAGE>

NOTES TO SUMMARY COMPENSATION TABLE
- ------------------------------------

1 None of the named executives received compensation reportable as Restricted
Stock Awards or Long Term Incentive Plan Payouts.

2 One time payment of accrued vacation balances reflecting change in policy
whereby officers do not accrue vacation.

3 Matching contribution to the 401(k) and retirement plan.

4 Payment of car allowance.

5 For the period January 1, 1996, to August 18, 1996, the date Mr. Cummings
terminated employment with the Company.

6 Retention incentive payments.

7 Severance related payments.

8 One time payment of accrued vacation (see note 2) and $19,000 employment
contract buyout.

9 For the period January 1, 1996, to April 12, 1996, the date Mr. Holding
terminated employment with the Company.

10 Payment of commission for the sale of VECTRA UK and the Engineering
Businesses of $100,000 and severance related payments of $86,538.

11 Relocation and retention incentive payments.

12 Reimbursement of federal income tax differential of $22,336 attributable to
relocation cost reimbursement, and payment of accrued vacation of
$10,041.

<PAGE>

OPTION GRANTS DURING 1996 FISCAL YEAR

The following table provides information related to options granted to the named
executive officers during 1996.

OPTIONS / SAR GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
-------------------------------------------------------- --------------------------
% OF TOTAL EXERCISE OR EXPIRATION
OPTIONS/SARS GRANTS IN BASE PRICE DATE
NAME GRANTED(2) FISCAL YEAR ($/SHARE)(3) 5% ($) 10% ($)
- ---------------------- --------------- ----------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Ray A. Fortney 75,000(4) 10.22 $ 2.00 08/19/06 $94,334 $239,061
75,000(4) 10.22 2.00 08/19/06 $94,334 $239,061

Walter R. Bak 25,000(4) 3.41 2.00 08/19/06 31,445 79,687

Vincent 30,000(4) 4.09 2.00 08/19/06 37,734 95,625
Franceschi

Thomas B. 30,000(4) 4.09 2.00 08/19/06 37,734 95,625
Pfeil 25,000(5) 3.41 1.75 01/15/06 27,514 69,726

Jeffrey W. Cummings -- -- -- -- -- --

John R. Holding -- -- -- -- -- --
</TABLE>

NOTES TO OPTIONS/SAR GRANTS IN LAST FISCAL YEAR TABLE
- -----------------------------------------------------

1 The potential realizable value portion of the table illustrates value that
might be realized upon exercise of the options immediately prior to the
expiration of their term, assuming the specified compounded rates of
appreciation on the Company's common stock over the term of the options.
These numbers do not take into account certain provisions of the options
providing for cancellation of the option following termination of
employment.

2 Options to acquire shares of common stock.

3 The option exercise price may be paid in shares of common stock owned by
the executive officer, in cash, or in any other form of valid consideration
or a combination of any of the foregoing, as determined by the Human
Resources and Compensation Committee in its discretion.

4 Options are exercisable with respect to 25% of the shares covered thereby
on 2/19/97, with the remaining shares becoming exercisable ratably over the
next eighteen months.

5 Options are exercisable with respect to 25% of the shares covered thereby
on the anniversary of the exercise date in 1997, 1998, 1999 and 2000.

48
<PAGE>

OPTION EXERCISES DURING 1996 AND YEAR END OPTION VALUES

The following table provides information related to options exercised by the
named executive officers during the 1996 fiscal year and the number and value of
options held at fiscal year end. The Company does not have any outstanding
stock appreciation rights ("SARs").

AGGREGATE OPTION/SAR EXERCISES IN 1996 AND
YEAR END OPTION/SAR VALUE

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT DECEMBER 31, 1996 AT DECEMBER 31, 1996.(1)
-------------------------------- --------------------------------
SHARES
ACQUIRED ON VALUE REALIZED
NAME EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ray A. Fortney -- $ -- 7,500 172,500 $ -- $ --

Walter R. Bak -- -- 7,250 52,750 -- --

Vince Franceschi -- -- 6,250 59,750 -- --

Thomas B. Pfeil -- -- 0 55,000 -- 6,250

Jeffrey W. Cummings -- -- 0 0 -- --

John R. Holding -- -- 0 0 -- --
</TABLE>

NOTE TO AGGREGATE OPTION/SAR EXERCISES IN 1995 AND YEAR END OPTION/SAR VALUE

(1) The closing price for the Company's common stock as reported by Nasdaq on
December 31, 1996, was $2.00. No value is reported in the table if the
option exercise price for an officer is higher than the market price for
the Company's Common Stock on December 31, 1996.

EXECUTIVE EMPLOYMENT AGREEMENTS

The Company has executed an Executive Employment Agreement with its President,
Mr. Ray A. Fortney. Mr. Fortney's employment continues until terminated
pursuant to the terms of the agreement and he may be terminated by the Company
if he is disabled for more than 90 days, subject to payment of disability
amounts, and for cause, which includes the failure to follow reasonable
directives of the Board of Directors; gross malfeasance or flagrant disloyalty
to the Company; criminal conduct involving moral turpitude; or deficiency in job
performance.

The Company may also terminate Mr. Fortney's employment without cause upon sixty
days notice. Mr. Fortney has the right to terminate his employment for good
reason, which includes material breach by the Company of its obligations;
reduction of base salary or alteration of his duties or responsibilities without
his consent; his geographic relocation; or a change in control of the Company.

49
<PAGE>

If the termination by the Company is for cause or by Mr. Fortney without good
reason, salary ceases upon termination. If the termination is without cause by
the Company or by Mr. Fortney for good reason, Mr. Fortney receives severance
payments equal to a minimum 100% of base salary for twelve months or until the
time that he is employed on a full time basis by another employer, plus payment
of the prorated portion of incentive bonus that he would have received.

Mr. Fortney also agreed to refrain from engaging in other business activities in
the nuclear utility service industry while employed by the Company. If Mr.
Fortney terminates his employment without good reason (but not for any other
type of termination), he is required to refrain for twelve months from competing
with the Company or its subsidiaries on any pending contract, proposal or bid on
which he participated while an employee or with respect to which he has
confidential information. Mr. Fortney also agreed to maintain the
confidentiality of information belonging to, used by, or in the possession of
the Company relating to its business, except information available in the public
domain.

COMPENSATION OF DIRECTORS AND STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS

During 1996, Directors of the Company, other than Mr. Fortney and the Chairman
of the Board, were paid a fee of $750 for each Board of Directors meeting they
attended, $750 for each committee meeting they attended, and a monthly retainer
of $667. The Chairman of the Board received $1,000 for each Board of Directors
meeting attended and a monthly retainer of $889. Mr. Fortney received
compensation as a member of the management of the Company as indicated in the
"Summary Compensation Table".

Each present director of the Company who is not an employee of the Company is an
"Eligible Director" for the grant of options under the Company's stock option
plans, which plans contain a provision for annual non-discretionary option
grants to all non-employee directors. On the first trading day of January of
each year, each individual, who is on such date an eligible director, will be
granted a nonqualified option to purchase 2,000 shares of the Company's common
stock at 100% of the fair market value of the stock on the date of such grant.
The grants for 1996 were made on January 2, 1996, at an option price of $2.25.
Additionally in August 1996, The Chairman and the Vice-Chairman of the Board
each received stock options for 100,000 shares and one other member of the Board
received stock options for 50,000 shares, at an option price of $2.00 for each
grant.

COMPLIANCE WITH SEC REPORTING REQUIREMENTS

Officers and directors of the Company and greater than ten percent Shareholders
are required to report to the Securities and Exchange Commission (the
"Commission") on a timely basis certain changes in their legal or beneficial
ownership of the Company's stock. Regulations promulgated by the Commission
require the Company to disclose to its Shareholders any reporting violations
occurring after May 1, 1991, that came to the Company's attention during the
current fiscal year based on a review of the applicable filings required by the
Commission to report such changes in legal or beneficial ownership. The Company
believes that during the fiscal year ended December 31, 1996, its directors,
executive officers, and principal shareholders filed all required forms, with
the exception of the initial Form 3 for Mr. Pfeil.

50
<PAGE>

REPORT OF HUMAN RESOURCES AND COMPENSATION COMMITTEE

The Human Resources and Compensation Committee (the "Committee") of the Board of
Directors is composed of all outside directors on the Board of Directors and is
responsible for establishing compensation policies that apply to the Chief
Executive Officer (CEO), other executive officers and key employees of the
Company.

PHILOSOPHY

The philosophy of the Company's executive compensation program is that
compensation of executive officers, and in particular that of the CEO, should be
directly and materially linked to both the operating performance of the Company
and to the interests of the Shareholders. In implementing this philosophy, the
Company's policies integrate annual base compensation with incentive awards
based upon corporate performance and individual initiatives and performance.
Annual cash compensation, together with incentive compensation and grants of
stock options, is designed to attract and retain qualified executives and to
ensure that such executives have a continuing stake in the long term success of
the Company.

Measurement of corporate performance is primarily based on Company wide goals,
while measurement of individual initiatives is primarily based on review of
individual and operations performance goals. Annual increases may also be
necessary at times, without reference to performance, to adjust the Company's
executive salaries to remain competitive with salaries paid by comparable
companies.

The Internal Revenue Code places a limit on the amount of certain types of
compensation for each of the executive officers which may be tax deductible by
the Company. The Company's policy is, primarily, to design and administer
compensation plans which support the achievement of long term strategic
objectives and enhance shareholder value and, to the extent possible, to
maximize the proportion of compensation expense that is tax deductible by the
Company. Current regulations do not result in a limitation for the Company to
fully deduct all compensation expense.

The Company's executive compensation program is comprised of base salary, annual
cash incentive compensation, long term incentive compensation in the form of
stock options and various benefits, including medical and profit sharing plans
generally available to all employees of the Company.

BASE SALARY Base salary levels for the Company's CEO and other executive
officers are set in the context of the Company's total compensation philosophy
which is to align executive interests with the Shareholders and make a
significant portion of their compensation opportunity contingent upon achieving
performance goals. These base salaries are generally targeted at or slightly
below the median of companies in the power and environmental services markets
and the service segment of general industry companies of comparable revenue
size. These companies which are selected with the help of a compensation
consultant differ from the broader group of companies included in the Piper
Jaffray Hazardous Remediation Disposal Index used in the stock performance graph
which follows this report. Additionally, competitive data taken from available
private and published survey sources is reviewed annually. In determining
individual salary levels, the Committee takes into account the executive
officer's experience, scope of responsibility, performance level, and relative
impact on the Company's success.

ANNUAL INCENTIVE COMPENSATION The annual incentive compensation plan is a key
element in the Company's pay for performance system and is the vehicle by which
the CEO, executive officers, and other key employees can increase their total
compensation. Annual incentive compensation constitutes that portion of
executive compensation that is at risk and is dependent on achievement of

51
<PAGE>

individual and Company performance objectives. The Company's objectives, which
are not specifically weighted, are a combination of operating, financial, and
strategic goals (such as profitability, revenue growth, productivity, and cash
flow) that are considered to be critical to the Company's short and long term
financial success and its ability to build shareholder value. The Committee
establishes Company wide and individual goals annually for the CEO. The CEO
develops, with Committee advice and approval, individual performance goals for
the executive officers. The amount of the awards paid to the CEO, executive
officers, and other key employees at the end of the year varies depending upon
the performance against the established Company wide, operations, and individual
goals, with an emphasis on overall Company performance. In determining the size
of the awards, no single performance factor or formula is used because the
Committee believes that the rigid application of quantitative performance
measures would eliminate the consideration of qualitative factors critical to
long term strategic performance

STOCK OPTIONS The Company's stock option plans are the long term incentive for
the CEO, executive officers and key employees. The Committee believes that
stock options provide a strong incentive. The Committee awards stock options to
the CEO and, upon the recommendation of the CEO, to other executive officers and
key employees. Individual grants are based upon competitive practices of
companies in the service markets described above, the amount of stock options
previously granted to an individual, and individual potential and performance as
evaluated by the Committee.

SPECIFIC FACTORS IN DETERMINING 1996 EXECUTIVE COMPENSATION

The base salary for all executive officers, including the CEO, has remained at
the amount set for each respective position by the Committee in prior years in
accordance with the factors mentioned above.

In accordance with the Company's philosophy of materially linking the
compensation of the CEO, executive officers, and key employees with the
individual and Company performance objectives, in 1996 the committee recognized
individual contributions which were made during the year and awarded individual
annual incentive compensation amounts based upon the subjective impact of each
individual's contribution to the overall Company's performance.

In August 1996 the Committee canceled 193,000 qualified and non-qualified stock
options (43,750 of which were vested) which had a weighted average exercise
price of $4.37 per share, that had been granted to the CEO from August 1993 thru
June 1995. The Committee then issued 150,000 options (75,000 of which are non-
qualified) at an exercise price of $2.00 per share, 37,500 of which vest in
February 1997 and the balance vest ratably over the following eighteen months.
The Committee concluded that the interests of the shareholders would best be
served by reinforcing the incentive to the CEO with an exercise price within
near term achievable levels.

Members of the Human Resources and Compensation Committee

/s/ Fruzsina Harsanyi /s/ Edward J. Keith
- --------------------------------------- -----------------------------------
(Fruzsina Harsanyi), Committee Chairman (Edward J. Keith)

/s/ J. E. Ardell, III /s/ Roy Kirkorian
- --------------------------------------- -----------------------------------
(J. E. Ardell, III) (Roy Kirkorian)

52
<PAGE>

STOCK PRICE PERFORMANCE GRAPH

The graph below compares the Company's five year cumulative return on its common
stock to the similar returns for (a) all stocks traded under the Nasdaq Stock
Market (US) and (b) the Piper Jaffray Hazardous Waste Remediation/Disposal Index
of 38 stocks (including the Company) of companies in the hazardous waste and
environmental services industry.

[GRAPH]

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
LEGEND
- ----------------------------------------------------------------------------------------------------------------------------------
SYMBOL INDEX DESCRIPTION 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- -------- ----------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / Nasdaq Stock Market (US) 100.0 116.4 133.6 130.6 184.7 227.1

* Piper Jaffray 100.0 98.7 68.0 51.9 42.0 36.8

^ VECTRA Technologies, Inc. 100.0 100.0 151.1 57.8 40.0 35.6
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

53
<PAGE>

PART IV

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS

The following table sets forth information as to the only persons or groups
known by the Company to be the beneficial owners, as defined in Rule 13d-3 of
the Securities and Exchange Commission, of more than five percent of the common
stock of the Company on March 7, 1997, as well as the Company's directors, the
Company's chief executive officer; the Company's three executive officers as of
December 31, 1996; and two former executive officers who were no longer serving
in that capacity at December 31, 1996; and for all directors and officers as a
group:

<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES(1) PERCENT OF CLASS(1)
---------------- ------------------- -------------------
<S> <C> <C> <C>
OWNERS OF MORE THAN 5%

Combustion Engineering, Inc.
501 Merritt 7
Norwalk, Connecticut 06856 1,714,503 (2) 21.9%

Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202 1,570,200 20.0%

Orien Ventures
5520 SW MacAdam Avenue, Suite 112
Portland, Oregon 97201 634,885 (3) 8.1%

Cable & Howse Ventures
Security Pacific Bank Plaza
777 108th Avenue NE, Suite 2300
Bellevue, Washington 98004 532,625 (4) 6.8%

DIRECTORS

Edward J. Keith 90,833 (5) 1.2%

Roy Kirkorian 85,333 (5) 1.1%

J.E. (Ted) Ardell, III 67,500 (5) *

Ray A. Fortney 78,500 (6) 1.0%

Fruzsina Harsanyi 6,500 (5) *

EXECUTIVE OFFICERS

Walter R. Bak 15,583 (5) *

Vince Franceschi 16,250 (5) *

Thomas B. Pfeil 16,250 (5) *

Jeffrey W. Cummings -- *

John R. Holding -- *

All Directors and Officers as a group
(8 persons)(1),(7) 376,749 4.8%
</TABLE>

54
<PAGE>

NOTES TO SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE OFFICERS TABLES

* Less than 1%.

(1) Represents beneficial ownership computed in accordance with Rule 13d-3
which includes shares deemed to be outstanding for purposes of the
percentage of ownership by the deemed owner or group but not for purposes
of determining the percentage of ownership of any other person or group.

(2) Combustion Engineering, Inc. is an indirect wholly-owned subsidiary of ABB
Asea Brown Boveri Ltd., a Swiss company.

(3) Includes 615,385 shares held by Orien II, LP, 2,000 shares owned by Mr.
Anthony J. Miadich [a former director of the Company (1983-1995)] and
17,500 shares which may be purchased by Mr. Miadich within 60 days of
March 7, 1997, pursuant to outstanding stock options. Mr. Miadich may be
deemed a beneficial owner of such shares by reason of his position as a
partner in Orien II, LP. Mr. Miadich shares the power to dispose of and
vote the shares held by that partnership with the other general partner.
Mr. Miadich disclaims beneficial ownership of the 615,385 shares owned by
Orien II, LP.

(4) Includes 520,625 shares held by CH Partners III and 12,000 shares which may
be purchased by Mr. Elwood D. Howse, Jr. [a former director of the
Company (1983-1996)] pursuant to outstanding stock options within 60 days
of March 7, 1997. Mr. Howse may be deemed a beneficial owner of the
shares owned by CH Partners III by reason of his position as a general
partner in CH Partners III. Mr. Howse shares the power to dispose of and
vote the shares held by that partnerships with the other general
partners.

(5) Represents shares which may be purchased within 60 days of March 7, 1997,
pursuant to outstanding stock options.

(6) Includes 57,500 shares which may be purchased within 60 days of March 7,
1997, pursuant to outstanding stock options, 20,000 shares owned by Mr.
Fortney and 1,000 shares owned by Mr. Fortney's parents. Mr. Fortney may
be deemed a beneficial owner of such shares.

(7) Includes a total of 355,749 shares which may be purchased within 60 days of
March 7, 1997, pursuant to outstanding stock options.

On March 7, 1996, Cede & Co., the nominee of the Depository Trust Company, held
of record 5,017,932 shares or 64.1 percent of the outstanding shares of common
stock, all of which was held for the accounts of member firms of the New York
Stock Exchange, the American Stock Exchange and various institutions
participating in the facilities of the Depository Trust Company. With the
exception of Heartland Advisors, Inc. and Orien Ventures, the Company has no
knowledge that any person owns beneficially five percent or more of the
outstanding shares of common stock which are held in the name of Cede & Co.

55
<PAGE>

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In March 1996, the Company entered into an agreement with John R. Holding, then
a Vice President, Chief Financial Officer and Secretary of the Company, whereby:
(1) After his termination on April 13, 1996, Mr. Holding would begin receiving
salary continuation for a nine month period in accordance with VECTRA's officer
severance program; (2) Beginning April 14, 1996, he would become a consultant to
the Company, whereby he would continue in his efforts to represent VECTRA in the
sales of VECTRA UK and the Engineering Businesses, with normal and reasonable
expenses reimbursed; and (3) He would receive a commission of one percent of the
net sales price of those dispositions, up to a maximum of $100,000, within
thirty days after the closing of each sale. In accordance with the agreement,
Mr. Holding was paid commissions of $17,048 in May 1996 for the closing of the
VECTRA UK disposition and $82,952 in September 1996 for the closing of the
Engineering Business disposition.

In October 1996, the Company sold its engineering information technology
business to Mr. Kristin L. Allen, a former Vice President of the Company. Mr.
Allen formerly managed VECTRA's power services and VECTRA Government Services,
Inc. businesses that were sold to Duke Engineering & Services, Inc. in August
1996.

56
<PAGE>

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS PAGE
-------------------- ----------

Report of Ernst & Young LLP, Independent Auditors 22

Consolidated Balance Sheets at December 31, 1996,
and December 31, 1995 23 & 24

Consolidated Statements of Operations for each of
the three years in the period ended December 31, 1996 25

Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended
December 31, 1996 26

Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1996 27

Notes to Consolidated Financial Statements 28 thru 41

2. FINANCIAL STATEMENT SCHEDULES

Schedule II - Valuation and Qualifying Accounts
is filed as a part of this annual report. 60

All other schedules are omitted since the required
information is not present or is not present in
amounts sufficient to require submission of the
schedules, or because the information required is
included in the consolidated financial statements
and Notes thereto.

3. EXHIBITS

The exhibits listed on the accompanying index to
exhibits are filed as part of this annual report.
See page 58 for index to exhibits.

(b) REPORTS ON FORM 8-K

None

57
<PAGE>

VECTRA TECHNOLOGIES, INC.

INDEX TO EXHIBITS
ITEM 14(a)

EXHIBIT
NUMBER DESCRIPTION REFERENCE
- ------- ---------------------------------------------------------- ---------

3.1 Articles of Incorporation as amended . . . . . . . . . . . . C

3.2 Restated Bylaws as amended . . . . . . . . . . . . . . . . . A

10.1 1983 Amended and Restated Stock Option Plan . . . . . . . . A

10.2 1988 Stock Option Plan as amended . . . . . . . . . . . . . B

10.3 1993 Stock and Incentive Plan . . . . . . . . . . . . . . . C

10.4 Executive Employment Agreement with Ray A. Fortney
dated August 1, 1993 . . . . . . . . . . . . . . . . . . . . C

10.5 Stock Purchase Agreement dated as of June 30, 1995,
by and among VECTRA Technologies, Inc., VECTRA Services,
Inc. and Westinghouse Electric Corporation, through its
Nuclear Products Division . . . . . . . . . . . . . . . . . D

10.6 Asset Purchase Agreement dated as of May 23, 1996, as
amended, by and among VECTRA Technologies, Inc., VECTRA
Government Services, Inc. and Duke Engineering & Services,
Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . E

10.7 Asset purchase Agreement dated as of January 29, 1997,
by and among VECTRA Technologies, Inc. and MMT of
Tennessee, Inc.. . . . . . . . . . . . . . . . . . . . . . . F

11 Statement regarding computation of per share earnings. . . . 62

21 Subsidiaries of the Company . . . . . . . . . . . . . . . . 63

23 Consent of Ernst & Young LLP, Independent Auditors . . . . . 64

27 Financial Data Schedule. . . . . . . . . . . . . . . . . . . 21

Exhibits in the preceding Exhibit Index designated by an alphabetical reference
were filed in the report with the same alphabetical reference as indicated
below:

(A) Incorporated herein by reference from the Company's Annual Report for
1987 on Form 10-K, filed March 23, 1988.

(B) Incorporated herein by reference from the Company's Annual Report for
1992 on Form 10-K, filed March 30, 1993.

(D) Incorporated herein by reference from the Company's Current Report on
Form 8K, filed July 12, 1995.

(E) Incorporated herein by reference from the Company's Current Report on
Form 8K, filed August 19, 1996.

58
<PAGE>

(F) Incorporated herein by reference from the Company's Current Report on
Form 8K, filed January 29, 1997.

Except as otherwise set forth herein, all exhibits incorporated by reference
bear the same exhibit numbers as in the documents from which they are
incorporated.

Copies of Exhibits will be furnished upon written request to Vice President,
Finance, VECTRA Technologies, Inc., 6203 San Ignacio Avenue, Suite 100, San
Jose, CA 95119. The cost of all copies is $0.25 per page.

59
<PAGE>

VECTRA TECHNOLOGIES, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED DECEMBER 31, 1996, DECEMBER 31, 1995, AND
JANUARY 1, 1995

<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT (DEDUCTIONS) DUE TO
BEGINNING OF PERIOD ACQUISITIONS / ADDITIONS CHARGED BALANCE AT END OF
DIVESTITURES TO OPERATIONS DEDUCTIONS PERIOD
------------------- ------------------- ----------------- ---------- -----------------

Allowance for contract adjustments:
- -----------------------------------
<S> <C> <C> <C> <C> <C>
1996 $ 785,048 $ -- $ 80,000 $ 781,048 $ 84,000

1995 $ 384,343 $ -- $ 650,775 $ 250,070 $ 785,048

1994 $ 34,349 $ 413,734 $ 178,681 $ 242,421 $ 384,343
</TABLE>

60
<PAGE>

SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

VECTRA TECHNOLOGIES, INC.

March 31, 1996 By /s/ Ray A. Fortney
-----------------------------------
Ray A. Fortney
President, Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities indicated on
March 31, 1996.

/s/ Ray A. Fortney President, Chief Executive Officer and
- ----------------------------------- Director (Principal Executive Officer)
(Ray A. Fortney)

/s/ Thomas B. Pfeil Vice President, Chief Financial Officer
- ----------------------------------- and Secretary (Principal Financial
(Thomas B. Pfeil) and Accounting Officer)

/s/ Edward J. Keith Chairman of the Board and Director
- -----------------------------------
(Edward J. Keith)

/s/ Roy Kirkorian Vice Chairman of the Board and Director
- -----------------------------------
(Roy Kirkorian)

/s/ J. E. Ardell, III Director
- -----------------------------------
(J. E. Ardell, III)

/s/ Fruzsina Harsanyi Director
- -----------------------------------
(Fruzsina Harsanyi)

<PAGE>
EXHIBIT 11

VECTRA TECHNOLOGIES, INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>

FISCAL YEARS ENDED
--------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995 JANUARY 1, 1995
----------------- ----------------- ---------------
<S> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 7,833,527 7,840,038 7,801,802
Net effect of dilutive stock options - based on
the treasury method using average market
price -- -- --
----------- ---------- -----------
Total 7,833,527 7,840,038 7,801,802
----------- ---------- -----------
----------- ---------- -----------

Net loss $(7,032) $(12,213) $(5,325)
----------- ---------- -----------
----------- ---------- -----------
Net loss per share $(0.90) $(1.56) $(0.68)
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
62

<PAGE>
EXHIBIT 21

VECTRA TECHNOLOGIES, INC.
SUBSIDIARIES OF THE COMPANY

Nuclear Packaging, Inc., a Washington corporation

Pacific Nuclear Storage Systems, Inc., a Washington corporation

Provident Union Insurance Company Limited, a Bermuda corporation

VECTRA Fuel Services, LLC, a Delaware corporation

VECTRA Government Services Inc., a Delaware corporation

VECTRA Nevada, Inc., a Nevada corporation

<PAGE>
EXHIBIT 23

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-4208, No. 33-15204, No. 33-21655, No. 33-28842, and
No. 33-58194) pertaining to the VECTRA Technologies, Inc. 1988 Stock Option
Plan and the VECTRA Technologies, Inc. Stock Option Plan of our report dated
March 24, 1997, with respect to the consolidated financial statements and
schedule of VECTRA Technologies, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 1996.

ERNST & YOUNG LLP

San Francisco, California
March 28, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FORM 10-K WHICH PRECEDES THIS EXHIBIT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,741
<SECURITIES> 1,330
<RECEIVABLES> 8,319
<ALLOWANCES> 84
<INVENTORY> 251
<CURRENT-ASSETS> 16,284
<PP&E> 4,937
<DEPRECIATION> 2,093
<TOTAL-ASSETS> 23,163
<CURRENT-LIABILITIES> 11,407
<BONDS> 0
0
0
<COMMON> 44,960
<OTHER-SE> (34,586)
<TOTAL-LIABILITY-AND-EQUITY> 23,163
<SALES> 68,005
<TOTAL-REVENUES> 68,005
<CGS> 47,864
<TOTAL-COSTS> 47,864
<OTHER-EXPENSES> 23,715
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,090
<INCOME-PRETAX> (7,107)
<INCOME-TAX> (75)
<INCOME-CONTINUING> (7,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,032)
<EPS-PRIMARY> (.90)
<EPS-DILUTED> 0

</TABLE>