PENN ENGINEERING & MANUFACTURING CORP, 424B1, 1996-06-28

PENN ENGINEERING & MANUFACTURING CORP
424B1, 1996-06-28
BOLTS, NUTS, SCREWS, RIVETS & WASHERS

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(LOGO) 2,850,000 SHARES

PENN ENGINEERING & MANUFACTURING CORP.

COMMON STOCK

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

Of the 2,850,000 shares of Common Stock of the Company offered hereby,
1,850,000 shares are being issued and sold by the Company and 1,000,000 shares
are being sold by the Selling Stockholders. The Company will not receive any of
the proceeds from the sale of shares offered by the Selling Stockholders. See
'Principal and Selling Stockholders' and 'Underwriting.'

The Company's authorized capital stock, par value $.01 per share, consists
of Common Stock and Class A Common Stock. The voting power of the Company is
vested in the Class A Common Stock, and the Common Stock has no voting rights,
except as required by Delaware law. The Common Stock and the Class A Common
Stock have the same economic rights. See 'Description of Capital Stock.'

The Common Stock is traded on the New York Stock Exchange under the symbol
'PNN.' Prior to the date of this Prospectus, the Common Stock was traded on the
American Stock Exchange. On June 27, 1996, the last reported sale price of the
Common Stock on the American Stock Exchange was $20.125 per share. See 'Price
Range of Capital Stock and Dividends.'

FOR INFORMATION CONCERNING CERTAIN FACTORS RELATING TO THIS OFFERING, SEE
'RISK FACTORS' ON PAGE 8 OF THIS PROSPECTUS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==============================================================================================================
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Stockholders
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............................. $19.00 $1.00 $18.00 $18.00
- --------------------------------------------------------------------------------------------------------------
Total.................................. $54,150,000 $2,850,000 $33,300,000 $18,000,000
- --------------------------------------------------------------------------------------------------------------
Total Assuming Full Exercise of Over-
Allotment Option(3).................. $59,565,000 $3,135,000 $38,430,000 $18,000,000
==============================================================================================================
</TABLE>

(1) See 'Underwriting.'
(2) Before deducting expenses estimated at $370,000, which are payable by the
Company.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 285,000 shares, solely to cover
over-allotments. See 'Underwriting.'

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

The Shares are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to their right
to reject orders in whole or in part. It is expected that delivery of the Common
Stock will be made in New York City on or about July 3, 1996.

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

PAINEWEBBER INCORPORATED

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

THE DATE OF THIS PROSPECTUS IS JUNE 28, 1996.

<PAGE>

In the printed version graphics appear here.

Graphic -- Photo showing Pittman DC Motors

Graphic -- Photo showing self-clinching fasteners

Graphic -- Photo showing PEM(R) fasteners used automotive

Graphic -- Photo showing PEM(R) fasteners used to mount electronic connectors

<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto set forth
elsewhere in this Prospectus or incorporated by reference in this Prospectus.
Unless otherwise indicated, all share amounts and financial information
presented in this Prospectus, other than the Consolidated Financial Statements
and Notes thereto, have been adjusted to reflect the reclassification of the
Company's capital stock outstanding prior to May 23, 1996 (the 'Prior Common
Stock') into Class A Common Stock, the authorization of the new Common Stock,
and the issuance of a dividend on May 23, 1996 of three shares of Common Stock
for each outstanding share of Prior Common Stock (the 'Stock Dividend'). See
'Reclassification' and 'Description of Capital Stock.' The Stock Dividend had
the same effect on the total number of shares of Prior Common Stock outstanding
as a four-for-one stock split. The Common Stock and the Class A Common Stock are
sometimes referred to collectively in this Prospectus as the 'Capital Stock.'
Unless otherwise indicated, the information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.

THE COMPANY

Penn Engineering & Manufacturing Corp. (the 'Company') is the world's
leading manufacturer of self-clinching fasteners used by the computer,
datacommunications, telecommunications, general electronics, automotive, and
avionics industries. PEM(Registered) self-clinching fasteners, which accounted
for 80% of the Company's sales in 1995, were first developed by the Company's
founder in 1942. Self-clinching fasteners become an integral part of the
material in which they are installed and provide a reliable means of attaching
components to sheet metal or plastic. Typical applications for the Company's
fastener products include personal computers, computer cabinetry, power
supplies, instrumentation, telecommunications equipment, and certain automobile
parts, such as air bags and windshield wipers. The Company's Pittman(Registered)
division manufactures high-performance, permanent magnet, direct current (dc)
motors used in factory and office automation and instrumentation applications.

The Company's fasteners are primarily used by sheet metal fabricators to
produce sub-assemblies for original equipment manufacturers ('OEMs'). Both OEMs
and their subcontractors seek fastening solutions which provide lower total
installed cost and are highly reliable, thereby lowering production and service
costs. The Company's applications engineers and independent distributors
continually work in close collaboration with OEMs and their subcontractors to
determine appropriate fastener applications, which often results in OEMs
specifying the Company's fasteners. Self-clinching fasteners generally compete
against loose hardware, such as nuts and bolts. The Company's fasteners
typically sell at a premium to loose hardware. However, the Company's fasteners
generally result in lower overall manufacturing costs.

The Company has built a strong track record of growth and profitability.
From 1991 to 1995, sales have doubled and operating profits have increased from
$5.7 million to $21.0 million. The Company believes its success has been
primarily driven by the following strengths:

Strong Market Share. The Company has significantly increased its market
share over the past five years and estimates that it holds approximately 50% of
the worldwide market for self-clinching fasteners. The Company believes its
domestic market share is approximately 70%. In Europe and in the Asia Pacific
market, the Company's market share for self-clinching fasteners is approximately
38% and 14%, respectively. The Company believes it has an advantage over its
competitors based on its: (i) manufacturing capabilities, (ii) quality raw
material sourcing, (iii) high standards of internal manufacturing controls, (iv)
inventories maintained at Company warehouses in North America, Europe, and Asia,
and (v) breadth of product line.

<PAGE>

Long-standing Customer Relationships. The Company's strong relationships
with a diverse base of customers continually allow for the identification of new
business opportunities. The Company has been a long-term supplier of fasteners
to many of its customers. For example, the Company has supplied IBM,
Hewlett-Packard, Pitney Bowes, and Xerox for more than 25 years. The Company
believes that it has earned its position with such customers by virtue of its
design engineering capabilities, timely delivery, excellent quality, and
customer service.

Well-Positioned in Rapidly Growing Computer/Electronics Markets. The
Company's fasteners are on the preferred or designated vendor list of computer
manufacturers which currently comprise approximately 33% of the worldwide
personal computer market. The Company's fasteners are used by many of the
world's largest electronics and telecommunications OEMs, including Alcatel, AMP,
AT&T, Ericsson, Philips, and Siemens. As a result, the Company expects to
increase its sales as these markets continue to grow domestically and
internationally.

Broad Product Application Across a Diverse Group of Industries. The
Company believes it benefits from the diversity of applications for its
self-clinching fasteners across a broad range of industries. The Company shipped
fasteners to over 12,000 customers in 1995, and no single market segment
accounted for more than 15% of the Company's total sales in 1995.

Recognized Leader in Fastening Solutions. The Company believes its
commitment to working with OEMs early in the design process places it at the
forefront in providing fastening solutions. The Company's success and reputation
for consistently developing such solutions often results in customers specifying
PEM fasteners for their products.

Successful Management Team. The Company believes an important element of
its success is its highly experienced senior management team. Kenneth A.
Swanstrom, the Company's Chief Executive Officer, has been with the Company
since 1960. The Company's Chief Financial Officer has been with the Company for
nearly 20 years. Since 1990, the Company has added management with significant
industry experience in key marketing, manufacturing, and engineering positions.

BUSINESS STRATEGY

The Company believes that the current worldwide market for self-clinching
fasteners is approximately $240 million. The Company estimates that the current
total market for all forms of fasteners which potentially could be replaced by
PEM fasteners is approximately $600 million. The Company believes it is well
positioned to achieve continued growth and intends to continue to build
upon its success by relying on a strategy which emphasizes the following key
elements: (i) focus on new customer applications and product development, (ii)
expand production capacity, (iii) continue to improve productivity, (iv)
implement cost reduction initiatives, and (v) increase sales to foreign markets.

Focus on New Customer Applications and Product Development. The Company is
committed to growing with its customers both domestically and abroad. By working
with OEMs early in the design process, the Company's fasteners are often
selected for use when new products or new markets are addressed. The Company
believes considerable opportunities are available in Europe and the Asia Pacific
market given the growth of the computer and electronics markets in these
regions. With over 3,000 readily available proprietary catalog products, the
Company is well positioned to meet the needs of its customers. In addition, the
Company engages in the continuous development of new products and product
extensions.

Expand Production Capacity. From 1991 to 1995, demand for the Company's
fasteners has increased more rapidly than the Company's capacity. In spite of
the Company's capacity constraints, fastener units shipped have more than
doubled over this period from 896 million to 1.8 billion annually. In 1995, the
Company spent $17.2 million for capital expenditures in response to the
continuing demand for the Company's products. These expenditures included
construction of a 43,000 square foot addition to the Company's Danboro,
Pennsylvania facility, which was substantially completed in May 1996. The
Company intends to utilize its credit lines and the proceeds of this Offering to
supplement cash flow from operations to finance capital expenditures of
approximately $25 million in 1996, including a new 120,000 square foot facility
to replace the Company's 58,000 square foot facility in Winston-Salem, North
Carolina. These capital expenditures are expected to increase fastener
production capacity by 27%, allowing the Company to ship 2.3 billion fastener
units annually by early 1997. The Company's five-year plan includes
approximately $100 million in capital expenditures, and an increase in capacity
to 3.0 billion fasteners annually by 2000.

4
<PAGE>

Continue to Improve Productivity. To increase efficient utilization of its
manufacturing facilities, the Company will continue to implement programs which
include cell manufacturing and focused work centers, demand flow production, new
tooling, and new heat treating methods and washing procedures. The Company has
realized a decrease in the cost of goods sold as a percentage of sales from
72.1% in 1991 to 68.1% in 1995. The Company targets 5% annual increases in
productivity. The Company intends to continue to attract and retain
highly-qualified employees by providing an environment which promotes
creativity.

Implement Cost Reduction Initiatives. Gross margins have increased from
27.9% in 1991 to 31.9% in 1995 despite a doubling of sales over this period. In
addition, the Company has improved operating margins from 8.1% in 1991 to 14.9%
in 1995 by controlling SG&A expenses. The Company intends to continue to reduce
costs through initiatives which monitor raw material sourcing, encourage
manufacturing innovations, and preserve a stable and productive work force.

Increase Sales to Foreign Markets. Since 1991, foreign sales have
increased approximately 119% from $16.2 million to $35.4 million in 1995 and
currently represent 25.1% of total sales. The Company has recently acquired its
previously independent distributor in Singapore, which affords the Company a hub
from which to enhance service to customers in the Asia Pacific market. The
Company is also establishing an applications engineering center at its facility
in Doncaster, England and plans to establish a similar center in Singapore.

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

The Company's stock became publicly traded in 1966. Since then, the Company
has reported net income in every year and has paid cash dividends in each
quarter.

On May 23, 1996, the Company reclassified its outstanding capital stock
into Class A Common Stock and issued a dividend of three shares of Common Stock
for each outstanding share of Prior Common Stock. This dividend had the same
effect on the total number of shares outstanding as a four-for-one stock split.

In this Prospectus, the terms 'Penn Engineering' and the 'Company' include
Penn Engineering & Manufacturing Corp. and its subsidiaries. The Company was
incorporated in Delaware in 1942. The Company's corporate headquarters are
located at P.O. Box 1000, Old Easton Road, Danboro, Pennsylvania 18916-1000, and
its telephone number is (215) 766-8853. PEM(Registered), SI(Registered),
PEMSERTER(Registered), PITTMAN(Registered), LO-COG(Registered), and
ELCOM(Registered) are registered trademarks of Penn Engineering. The Company's
Internet address is http://www.pemnet.com.

5
<PAGE>

THE OFFERING

Common Stock Offered by:

The Company....................................... 1,850,000 shares

The Selling Stockholders.......................... 1,000,000 shares
-----------

Total..................................... 2,850,000 shares
-----------
-----------

Capital Stock to be Outstanding
After the Offering(1):

Class A Common Stock.............................. 1,707,082 shares

Common Stock...................................... 6,971,246 shares
-----------

Total Capital Stock....................... 8,678,328 shares
-----------
-----------

Voting Rights..................................... Holders of Common Stock have no voting rights, except as
required by Delaware law. Holders of Class A Common Stock have
one vote per share. See 'Description of Capital Stock.'

Use of Proceeds................................... The net proceeds of the Offering will be used to repay certain
indebtedness of the Company incurred as part of the Company's
capital investment program, to expand the Company's production
capacity, and for working capital and general corporate
purposes. See 'Use of Proceeds.'

New York Stock Exchange Symbol
for the Common Stock............................ PNN
</TABLE>

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

(1) Based on 5,121,246 shares of Common Stock outstanding as of March 31, 1996
after giving effect to the Reclassification and the Stock Dividend, and the
issuance of the Common Stock offered hereby by the Company, but excluding
650,000 shares of Common Stock available for issuance under the Company's
Equity Incentive and Employee Stock Purchase Plans. See 'Description of
Capital Stock.'

6
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth certain summary consolidated financial data
of the Company and its subsidiaries. This data should be read in conjunction
with the Consolidated Financial Statements of the Company and Notes thereto, the
Selected Consolidated Financial Data and the information contained in
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
Net sales......................... $ 70,845 $ 88,328 $ 100,665 $ 121,470 $ 141,268 $ 35,298 $ 39,029
Income before income taxes and
cumulative effect of 1992 and
1993 accounting changes......... 6,306 10,546 11,477 17,127 22,121 5,000 4,574
Net income........................ $ 3,912 $ 8,127(1) $ 7,352(2) $ 10,441 $ 13,798 $ 3,023 $ 2,869
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share(3)........... $ 0.57 $ 1.19 $ 1.08 $ 1.53 $ 2.02 $ 0.44 $ 0.42
--------- --------- --------- --------- --------- --------- ---------
Average number of common shares
outstanding(3).................. 6,828 6,828 6,828 6,828 6,828 6,828 6,828

OTHER FINANCIAL AND OPERATING DATA:
Number of fasteners shipped (in
millions)....................... 896 1,259 1,267 1,569 1,836 429 513
Average price per thousand........ $ 52.55 $ 52.59 $ 56.11 $ 57.70 $ 57.86 $ 60.00 $ 56.81
Number of motors shipped (in
thousands)...................... 565 579 664 673 680 167 188
Average price per motor........... $ 31.80 $ 32.46 $ 35.47 $ 37.76 $ 41.12 $ 42.01 $ 40.22
Gross margin...................... 27.9% 30.8% 29.5% 31.6% 31.9% 30.2% 29.6%
Capital expenditures (in
thousands)...................... $ 2,435 $ 3,395 $ 8,354 $ 3,833 $ 17,213 $ 2,932 $ 6,518
Depreciation (in thousands)....... $ 2,819 $ 2,855 $ 3,180 $ 3,425 $ 4,165 $ 1,030 $ 1,181
EBITDA (in thousands)(4).......... $ 9,158 $ 13,412 $ 14,849 $ 20,629 $ 26,307 $ 6,041 $ 5,779
Number of employees
(at period end)................. 806 978 1,008 1,088 1,211 1,111 1,291
Sales per employee (average) (in
thousands)...................... $ 85 $ 99 $ 101 $ 116 $ 123 $ 128 $ 125
</TABLE>

MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
--------- ---------------
BALANCE SHEET DATA:
(IN THOUSANDS)
<S> <C> <C>
Working capital.................................................................... $ 35,952 $ 68,882
Property, plant, and equipment, net................................................ 47,228 47,228
Total assets....................................................................... 109,945 131,875
Total debt......................................................................... 11,000
Stockholders' equity............................................................... 78,367 111,297
</TABLE>

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

(1) In 1992, the Company changed its method of accounting to include production
tooling not consumed in production during the year in inventory at year end,
resulting in an increase in that year's net income of $1.8 million.

(2) In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, 'Accounting for Income Taxes,' resulting in an increase in that year's
net income of $423,000.

(3) The per share data and the average number of common shares outstanding have
been adjusted to give pro forma effect to the Reclassification and the Stock
Dividend. See 'Reclassification.'

(4) EBITDA represents earnings before interest expense, income taxes,
depreciation, and amortization. EBITDA represents supplemental information
only and should not be construed as an alternative to operating income or to
cash flow from operating activities as defined by U.S. generally accepted
accounting principles.

(5) Adjusted to give effect to the sale of 1,850,000 shares of Common Stock
offered by the Company in this Offering and the application of the net
proceeds therefrom, after deducting estimated underwriting discounts and
commissions and estimated offering expenses. See 'Capitalization' and 'Use
of Proceeds.'

7
<PAGE>

RISK FACTORS

In addition to other information in this Prospectus, the following factors
should be considered carefully in evaluating an investment in the Common Stock.

LIMITED TRADING HISTORY AND MARKET FOR COMMON STOCK

The first date on which the Common Stock traded on the American Stock
Exchange was May 23, 1996. Prior to that date, there was no public market for
the Common Stock. The public offering price for the Common Stock offered hereby
has been determined by negotiations between the Underwriters, the Company and
the Selling Stockholders in light of recent sale prices of the Common Stock as
reported on the American Stock Exchange. There can be no assurance that an
active public market for the Common Stock will develop or be sustained after the
Offering or that the public offering price corresponds to the price at which the
Common Stock will trade in the public market subsequent to the Offering.

While the Company's Prior Common Stock has been traded on the American
Stock Exchange since 1966, the average volume of such trading in the 12 months
ended April 30, 1996 was approximately 500 shares per day. Accordingly, the
prices at which such trades have been made may not reflect the prices that would
have prevailed had there been a more active market. Furthermore, there can be no
assurance that the trading price for the Common Stock will approximate either
the price of the Class A Common Stock or the historical prices of the Prior
Common Stock as adjusted for the Reclassification. See 'Price Range of Capital
Stock and Dividends.'

CONTROLLING STOCKHOLDERS; IMPEDIMENTS TO CHANGE OF CONTROL

Voting control of the Company is vested in the holders of the Class A
Common Stock. The Swanstrom Family (as defined in 'Principal and Selling
Stockholders') beneficially owns, and after consummation of the Offering will
continue to own, approximately 52.4% of the Class A Common Stock. In addition,
one member of the Swanstrom Family serves as Chairman of the Board of Directors
and as Chief Executive Officer of the Company and another member of the
Swanstrom Family serves on the Company's Board of Directors and owns one of the
Company's independent distributors that was responsible for 5.6% of the
Company's sales in 1995. As long as the Swanstrom Family holds a majority of the
Class A Common Stock, they will be able to elect or remove all of the Company's
Board of Directors and, except as otherwise required by Delaware law, will be
able to determine the outcome of substantially any matter submitted for
consideration by the Company's stockholders. Moreover, control by the Swanstrom
Family may have the effect of discouraging certain types of transactions
involving an actual or potential change of control of the Company, including
transactions in which the holders of Common Stock might otherwise receive a
premium for their shares over then-current market prices. See 'Principal and
Selling Stockholders' and 'Description of Capital Stock.'

TECHNOLOGICAL CHANGES

The Company's principal end-user customers are engaged in the computer,
datacommunications, telecommunications, and electronics industries, all of which
industries are rapidly changing. Although the Company seeks to remain abreast of
the latest developments and available technologies in these industries, the
Company could be adversely affected by such developments and technological
advances and the introduction of new products in these industries. The Company
could also be adversely affected in the future by the development of alternative
fastener technologies.

RISK OF FOREIGN OPERATIONS

Foreign sales accounted for approximately 25% of the Company's 1995 net
sales. Because not all of the Company's sales and expenses are incurred in U.S.
dollars, the Company's operations have been and may continue to be affected by
fluctuations in currency exchange rates. Currency fluctuations may result in
variations in the Company's other income and consequently its results of
operations, but do not affect the Company's gross margins from sales.
Furthermore, currency fluctuations may cause

8
<PAGE>

reported sales to fluctuate from period to period regardless of the fluctuation
in the volume of such sales in foreign currencies. The Company purchases forward
foreign currency exchange contracts to attempt to insulate the Company from the
impact of foreign currency exchange rate fluctuations.

Foreign sales are subject to numerous other risks, including political and
economic instability in foreign markets, restrictive trade policies of foreign
governments, economic conditions in local markets, the imposition of product
tariffs, and the burdens of complying with a wide variety of international and
U.S. export laws.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

All statements contained herein that are not historical facts, including
but not limited to, the Company's plans for future expansion, are based on
current expectations. These statements are forward looking in nature and involve
a number of risks and uncertainties. Actual results may vary materially. The
factors that could cause actual results to vary materially include: the
availability of sufficient capital to finance the Company's expansion plans on
terms satisfactory to the Company; technological changes in the industries
served by the Company which could affect the demand for the Company's products;
increases in raw material costs; general business and economic conditions; and
other risks described from time to time in the Company's reports filed with the
Securities and Exchange Commission (the 'Commission'). The Company cautions
potential investors not to place undue reliance on any such forward looking
statements, which statements are made pursuant to the Private Securities
Litigation Reform Act of 1995, and as such, speak only as of the date made.

RECLASSIFICATION

On May 22, 1996, the Company filed an amendment to its Certificate of
Incorporation with the Delaware Secretary of State, which (i) increased the
number of authorized shares of Capital Stock of the Company from 3,000,000
shares to 23,000,000 shares, consisting of 20,000,000 shares of Common Stock and
3,000,000 shares of Class A Common Stock, (ii) reclassified the Prior Common
Stock as Class A Common Stock, (iii) authorized a new class of non-voting
capital stock designated as Common Stock, and (iv) established the rights,
powers, and limitations of the Common Stock and the Class A Common Stock. On May
23, 1996, the Company issued the Stock Dividend. The Stock Dividend had the same
effect on the total number of shares of Capital Stock outstanding as a four-for-
one stock split. The reclassification of the Prior Common Stock and the issuance
of the Stock Dividend are collectively referred to herein as the
'Reclassification.'

The Class A Common Stock has the same rights, powers, and limitations as
that of the Prior Common Stock. The Common Stock is non-voting, except as
required by Delaware law. The other rights of the Common Stock and the Class A
Common Stock, including rights with respect to stock splits, the consideration
payable in a merger or consolidation and distributions upon liquidation, are the
same. See 'Description of Capital Stock.'

The first date on which the Common Stock traded separately on the American
Stock Exchange was May 23, 1996. There can be no assurance that the trading
price of the Common Stock will approximate either the offering price of the
Class A Common Stock or the historical prices of the Prior Common Stock as
adjusted to reflect the Reclassification. See 'Risk Factors' and 'Price Range of
Capital Stock and Dividends.'

9
<PAGE>

PRICE RANGE OF CAPITAL STOCK AND DIVIDENDS

The Company's Prior Common Stock has traded publicly on the American Stock
Exchange under the trading symbol PNN since 1966. The first date on which the
Common Stock and the Class A Common Stock traded separately on the American
Stock Exchange under the symbols PNN and PNNA, respectively, was May 23, 1996.
Prior to that date, there had been no public market for the Common Stock. See
'Risk Factors' and 'Reclassification.' The Common Stock and the Class A Common
Stock began trading on the New York Stock Exchange under symbols 'PNN' and
'PNN.A,' respectively, on June 28, 1996.

The following table sets forth, for the periods indicated, (i) the actual
high and low sales prices per share of the Prior Common Stock as reported by the
American Stock Exchange divided by four to give pro forma effect to the
Reclassification (which will have the same effect on the total number of shares
of Prior Common Stock outstanding as a four-for-one stock split) based on the
assumption that the Reclassification would have resulted in a proportionate
reduction in historical sales prices and (ii) the actual dividends paid per
share of Prior Common Stock divided by four to reflect the Reclassification
based on the assumption that dividends would have been paid at the same rate per
share on the Common Stock and the Class A Common Stock.

<TABLE>
<CAPTION>
PRIOR COMMON STOCK
---------------------------------
ADJUSTED
STOCK PRICE
-------------------- ADJUSTED
HIGH LOW DIVIDEND
--------- --------- -----------
<S> <C> <C> <C>
Year ended December 31, 1994
First Quarter.............................................................. $ 13.13 $ 11.75 $ .0625
Second Quarter............................................................. 13.03 11.78 .0625
Third Quarter.............................................................. 11.75 10.63 .0625
Fourth Quarter............................................................. 10.75 10.16 .1938(1)

Year ended December 31, 1995
First Quarter.............................................................. $ 14.75 $ 10.63 $ .0688
Second Quarter............................................................. 18.88 13.50 .0688
Third Quarter.............................................................. 25.13 18.38 .0688
Fourth Quarter............................................................. 24.25 19.25 .2938(2)

Year ending December 31, 1996
First Quarter.............................................................. $ 24.00 $ 21.25 $ .0688
Second Quarter (through May 22, 1996)...................................... 22.75 18.13 .1000(3)
</TABLE>

- ------------------
(1) Includes a regular quarterly dividend of $.0688 per share and an extra
dividend of $.125 per share. The regular quarterly dividend per share was
increased from $.0625 to $.0688 in the fourth quarter of 1994.
(2) Includes a regular dividend of $.0688 per share and an extra dividend of
$.225 per share.
(3) Payable on July 9, 1996 to stockholders of record on June 14, 1996.

The Common Stock and the Class A Common Stock began trading separately on
the American Stock Exchange on May 23, 1996. For the period May 23, 1996 through
June 27, 1996, the actual high and low sales prices per share of the Common
Stock as reported on the American Stock Exchange were $27.125 and $20.125,
respectively. On June 27, 1996, the last reported sale prices for the Common
Stock and the Class A Common Stock, as reported on the American Stock Exchange,
were $20.125 and $22.375 per share, respectively. As of June 27, 1996, there
were approximately 524 and 527 holders of record of each of the Common Stock and
the Class A Common Stock, respectively.

10
<PAGE>

DIVIDEND POLICY

The Company has paid quarterly cash dividends on the Prior Common Stock
since 1966. Any future determination as to the payment of dividends will be made
at the discretion of the Company's Board of Directors and will depend upon the
Company's results of operations, financial condition, capital requirements,
general business conditions, and such other factors as the Board of Directors
deems relevant. It is the current intention of the Board of Directors that,
following the Reclassification, the Company will pay quarterly cash dividends of
$.10 per share on the Common Stock and the Class A Common Stock and that the
Company will not pay additional year-end dividends in the future.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock by the
Company are estimated at approximately $32.9 million (or approximately $38.1
million if the over-allotment option is exercised in full), after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. The Company intends to use such net proceeds to repay all
borrowings outstanding under the Company's short-term lines of credit and
accrued interest thereon, to expand the Company's production capacity, and for
working capital and general corporate purposes.

The Company's indebtedness under its short-term lines of credit (the
'Credit Facilities') was incurred for the purchase of capital equipment. At
March 31, 1996, the Company had approximately $26.5 million available under the
Credit Facilities. Interest on outstanding borrowings under the Credit
Facilities is payable based on money market rates of interest as offered from
time to time by the lenders. At March 31, 1996, $11.0 million was outstanding
under the Credit Facilities at a weighted average interest rate of 6.44%. At
April 30, 1996, the Company's line of credit with one bank in the amount of
$10.0 million expired and was not renewed by the Company.

The Company will not receive any of the proceeds from the sale of 1,000,000
shares of Common Stock by the Selling Stockholders. The Company will pay all
expenses incurred in the Offering other than the underwriting discounts and
commissions applicable to the shares being sold by the Selling Stockholders.

11
<PAGE>
CAPITALIZATION

The following table sets forth the cash and cash equivalents, short-term
investments, and the actual capitalization of the Company as of March 31, 1996,
after giving effect to the Reclassification and as adjusted to give effect to
the receipt and application by the Company of the estimated proceeds from the
sale of 1,850,000 shares of Common Stock by the Company in this Offering after
deducting underwriting discounts and commissions and estimated Offering
expenses. See 'Use of Proceeds.'

MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................................... $ 3,402 $ 25,332
Short-term investments.............................................................. 5,606 5,606

Short-term debt..................................................................... 11,000
Stockholders' equity:
Common Stock, $.01 par value,
20,000,000 shares authorized, 5,316,075 shares issued and 5,121,246 shares
outstanding, and 7,166,075 shares issued and 6,971,246 shares outstanding as
adjusted (1)................................................................... 53 72
Class A Common Stock, $.01 par value,
3,000,000 shares authorized, 1,772,025 shares issued, and 1,707,082
outstanding.................................................................... 18 18
Additional paid-in capital.......................................................... 2,686 35,597
Retained earnings................................................................... 77,251 77,251
Unrealized (loss) on investments (net of tax)....................................... (64) (64)
Cumulative foreign currency translation adjustment.................................. (625) (625)
----------- ----------
79,319 112,249
Less cost of treasury stock......................................................... 952 952
----------- ----------
Total stockholders' equity........................................................ 78,367 111,297
----------- ----------
Total capitalization.............................................................. $ 89,367 $ 111,297
----------- ----------
----------- ----------
</TABLE>

- ------------------
(1) Based upon 5,121,246 shares of Common Stock outstanding as of March 31, 1996
after giving pro forma effect to the Reclassification and the issuance of
the Common Stock offered hereby by the Company, but excluding 650,000 shares
of Common Stock available for issuance under the Company's Equity Incentive
and Employee Stock Purchase Plans.

12
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth in the following table
are derived from the Consolidated Financial Statements of the Company. The
Company's Consolidated Financial Statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 are included
elsewhere in this Prospectus and have been audited by Deloitte & Touche LLP,
independent auditors, whose report thereon is also included elsewhere in this
Prospectus. The Company's unaudited consolidated financial statements as of
March 31, 1995 and 1996 are also included elsewhere in this Prospectus. The
selected consolidated financial data should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto included elsewhere
in this Prospectus and the information contained in 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' appearing elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales................................................ $ 70,845 $ 88,328 $ 100,665 $ 121,470 $ 141,268 $ 35,298
Cost of goods sold....................................... 51,045 61,127 70,979 83,128 96,190 24,630
--------- --------- --------- --------- --------- ---------
Gross profit............................................. 19,800 27,201 29,686 38,342 45,078 10,668
Selling, general, and administrative expenses............ 14,077 16,765 18,596 21,842 24,056 6,017
--------- --------- --------- --------- --------- ---------
Operating profit......................................... 5,723 10,436 11,090 16,500 21,022 4,651
Other income............................................. 583 110 387 627 1,099 349
--------- --------- --------- --------- --------- ---------
Income before income taxes and cumulative effect of 1992
and 1993 accounting changes............................ 6,306 10,546 11,477 17,127 22,121 5,000
Cumulative effect of 1992 and 1993 accounting changes.... 1,800 423
Provision for income taxes............................... 2,394 4,219 4,548 6,686 8,323 1,977
--------- --------- --------- --------- --------- ---------
Net income............................................... $ 3,912 $ 8,127(1) $ 7,352(2) $ 10,441 $ 13,798 $ 3,023
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Per share information:
Income before cumulative effect of 1992 and 1993
accounting changes................................... $ 0.57 $ 0.93 $ 1.01 $ 1.53 $ 2.02 $ 0.44
Net income (3)......................................... 0.57 1.19 1.08 1.53 2.02 0.44
Average number of common shares outstanding (3)........ 6,828 6,828 6,828 6,828 6,828 6,828

OTHER FINANCIAL AND OPERATING DATA:
Number of fasteners shipped (in millions)................ 896 1,259 1,267 1,569 1,836 429
Average price per thousand............................... $ 52.55 $ 52.59 $ 56.11 $ 57.70 $ 57.86 $ 60.00
Number of motors shipped (in thousands).................. 565 579 664 673 680 167
Average price per motor.................................. $ 31.80 $ 32.46 $ 35.47 $ 37.76 $ 41.12 $ 42.01
Gross margin............................................. 27.9% 30.8% 29.5% 31.6% 31.9% 30.2%
Capital expenditures (in thousands)...................... $ 2,435 $ 3,395 $ 8,354 $ 3,833 $ 17,213 $ 2,932
Depreciation (in thousands).............................. $ 2,819 $ 2,855 $ 3,180 $ 3,425 $ 4,165 $ 1,030
EBITDA (in thousands) (4)................................ $ 9,158 $ 13,412 $ 14,849 $ 20,629 $ 26,307 $ 6,041
Number of employees (at period end)...................... 806 978 1,008 1,088 1,211 1,111
Sales per employee (average) (in thousands).............. $ 85 $ 99 $ 101 $ 116 $ 123 $ 128

BALANCE SHEET DATA (AT PERIOD END):
(IN THOUSANDS)
Working capital.......................................... $ 29,665 $ 35,112 $ 34,953 $ 41,612 $ 38,881 $ 44,101
Property, plant, and equipment, net...................... 23,078 23,341 28,495 28,920 41,941 30,838
Total assets............................................. 57,486 67,132 73,542 82,127 96,074 88,855
Total debt............................................... 1,152 1,500
Stockholders' equity..................................... 46,939 52,498 57,819 65,910 76,091 68,726

1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales................................................ $ 39,029
Cost of goods sold....................................... 27,477
---------
Gross profit............................................. 11,552
Selling, general, and administrative expenses............ 7,113
---------
Operating profit......................................... 4,439
Other income............................................. 135
---------
Income before income taxes and cumulative effect of 1992
and 1993 accounting changes............................ 4,574
Cumulative effect of 1992 and 1993 accounting changes....
Provision for income taxes............................... 1,705
---------
Net income............................................... $ 2,869
---------
---------
Per share information:
Income before cumulative effect of 1992 and 1993
accounting changes................................... $ 0.42
Net income (3)......................................... 0.42
Average number of common shares outstanding (3)........ 6,828

OTHER FINANCIAL AND OPERATING DATA:
Number of fasteners shipped (in millions)................ 513
Average price per thousand............................... $ 56.81
Number of motors shipped (in thousands).................. 188
Average price per motor.................................. $ 40.22
Gross margin............................................. 29.6%
Capital expenditures (in thousands)...................... $ 6,518
Depreciation (in thousands).............................. $ 1,181
EBITDA (in thousands) (4)................................ $ 5,779
Number of employees (at period end)...................... 1,291
Sales per employee (average) (in thousands).............. $ 125

BALANCE SHEET DATA (AT PERIOD END):
(IN THOUSANDS)
Working capital.......................................... $ 35,952
Property, plant, and equipment, net...................... 47,228
Total assets............................................. 109,945
Total debt............................................... 11,000
Stockholders' equity..................................... 78,367

</TABLE>

- ------------------
(1) In 1992, the Company changed its method of accounting to include production
tooling not consumed in production during the year in inventory at year end,
resulting in an increase in that year's net income of $1.8 million.
(2) In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, 'Accounting for Income Taxes,' resulting in an increase in that year's
net income of $423,000.
(3) The per share data and the average number of common shares outstanding have
been adjusted to give pro forma effect to the Reclassification. See
'Reclassification.'
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation, and amortization. EBITDA represents supplemental information
only and should not be construed as an alternative to operating income or to
cash flow from operating activities as defined by U.S. generally accepted
accounting principles.

13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the 'Selected
Consolidated Financial Data' and the Consolidated Financial Statements of the
Company and the Notes thereto and other financial information included elsewhere
in this Prospectus.

Overview

The Company's operations consist of two business segments: PEM brand
self-clinching fasteners, including fastener insertion machines, and Pittman
permanent magnet, dc motors. Self-clinching fasteners, which accounted for
approximately 80% of the Company's consolidated sales in 1995 compared to 75% in
1991, are marketed through a worldwide network of distributors. In 1995, sales
to the computer/electronics and automotive industries accounted for
approximately 88% and 5% of fastener sales, respectively, with the balance
distributed among other industries, such as recreational equipment, commercial
appliances, and gaming machines.

Motors accounted for approximately 20% of the Company's consolidated sales
in 1995 compared to 25% in 1991, and are marketed in the United States and
Europe through regional sales representatives. The Company primarily designs and
manufactures its motors on a custom basis. End users of the Company's motors
include manufacturers of factory/office automation equipment and
instrumentation.

The Company's consolidated net sales increased from $70.8 million in 1991
to $141.3 million in 1995 and were $39.0 million for the first three months of
1996. Fastener unit sales increased 100.9% from 896 million in 1991 to 1.8
billion in 1995. Motor unit sales increased 20.4% from 565,000 in 1991 to
680,000 in 1995. In the first three months of 1996, the Company sold 513 million
fastener units and 188,000 motor units. This sales increase reflects the growth
of the personal computer and electronics markets, combined with increased
applications for the Company's products in other industries.

Historically, the Company has been able to achieve steady improvements in
profitability largely as a result of (i) increased customer demand for its
products, (ii) its focus on cost containment and improved productivity, and
(iii) the general ability to provide the right product at the right time and at
the right location to support customer applications. The Company's gross margins
increased from 27.9% in 1991 to 31.9% in 1995 primarily due to the ability to
increase the production and shipment of fasteners without a proportionate
increase in fixed costs and overhead. As an example, the fixed manufacturing
cost of fasteners (i.e., depreciation and supervisory expenses) as a percentage
of sales declined from 11.9% in 1991 to 8.4% in 1995. In addition, process
improvement techniques, including focused work centers and product cells in
which fasteners are essentially completed before they leave the work center,
have led to manufacturing cost reductions. The Company is not always able to
pass raw material price increases along to its customers. However, through cost
reduction programs and by controlling the indirect and fixed costs of
operations, the Company increased the operating profit margins of its fastener
operations from 7.6% in 1991 to 16.2% in 1995. Annual price increases on the
Company's fastener products since 1991 have ranged from 2.0% to 2.5%.

The Company's brushless motors have an average price of approximately $220
per unit, reflecting more expensive materials and higher labor content, and are
used in equipment requiring a high degree of reliability. Brush-commutated
motors have an average price of $33 per unit and are typically used in less
expensive volume-related equipment. The percentage of total motor sales
represented by brushless motors was 8.1% in 1991 compared to 21.7% in 1995.

The motor operation's gross margins were 30.4% in 1991 compared to 28.0% in
1995. Continued emphasis on demand-flow technology has allowed Pittman to shift
from batch size manufacturing to lot size manufacturing, and reduce
work-in-process inventory as a percentage of sales by approximately 57% since
August 1992. Several of Pittman's key productivity and cycle time reduction
projects have also helped to increase some component assembly productivity.

14
<PAGE>

The Company's export sales increased 119% from $16.2 million in 1991 to
$35.4 million in 1995. Foreign customers accounted for 22.9% of the Company's
sales in 1991 compared to 25.1% in 1995 and 25.0% in the first quarter of 1996.
The Company's export sales have benefitted from the ability to serve large
multi-national computer and electronics manufacturers which have shifted product
fabrication to offshore labor markets. The Company has maintained distribution
channels and inventories in Europe and the Asia Pacific market for more than 25
years and 10 years, respectively. Between 1991 and 1995, the Company's
distributors increased their inventories of the Company's fasteners nearly 300%
in Europe and more than 200% in the Asia Pacific market. In addition, the
Company currently maintains an inventory of more than 100 million fasteners at
its Danboro, Pennsylvania facility. By increasing product availability, the
Company has better positioned itself to meet the needs of its customers in the
North American, European and Asia Pacific markets, thereby supporting the
significant sales growth.

The Company has continued to improve its ability to provide products in
regions strategic to the world's major electronics and computer manufacturers.
As part of increasing the worldwide availability of its products, the Company
recently established a subsidiary in Singapore through the acquisition of the
assets of the Company's previously independent distributor in Singapore. To
better meet the Asia Pacific market demand for its fasteners, the Company
created a master warehouse in Singapore that will serve the same function as the
Company's warehouse in England. The maintenance of significant warehouse
facilities in England and Singapore allows the Company to ship product in bulk
via ocean freight rather than more costly air shipments directly to the end
user. In addition, the Company plans to establish applications engineering
capabilities in England and Singapore. While the Company's international pricing
is consistent with its domestic pricing, the Company's profits from export sales
may be affected to some extent by freight costs, currency fluctuations, duties,
and local administrative costs. The Company has not experienced any material
impact from these factors to date.

Currently, the Company's fastener operation is working at near full
capacity to meet strong demand. Overtime and higher than planned outside
supplemental screw machine support have impacted negatively the costs of the
Company's fastener operation recently. The Company has invested approximately
$21 million in aggregate capital expenditures over the past two years primarily
to increase production capacity and efficiency. The Company's objective is to
reduce current overtime levels and delivery lead times and enhance its ability
to respond to new growth opportunities. The Company typically experiences a
period of six to nine months between the purchase of equipment and its full
inclusion into the manufacturing process because of equipment manufacturers'
lead times. The Company's capital expenditure program is expected to affect
negatively the Company's margins in 1996 and part of 1997. However, by mid-year
1997 the Company's production capacity is expected to increase by 27% over its
1995 production capacity.

In the past, the Company has experienced a surge in order volume during the
first two months of the calendar year as distributors built inventory to meet
customer demand. In addition, the first quarter of the year is often impacted
negatively by relatively higher payroll costs which precede the effect of price
increases. The Company's profits in the fourth quarter are typically affected
negatively by holiday-related labor inefficiencies. Contracts with major
customers are generally negotiated on an annual basis and as a result there is
no guarantee that the Company's product pricing will support historical profit
margins. As a result, the Company targets 5% annual gains in productivity and
also targets, at a minimum, a 15% return on equity. In 1994 and 1995, the
Company achieved a return on equity of 16.9% and 19.4%, respectively.

Results of Operations

The following table sets forth for the periods indicated net sales by
segment, domestic and foreign sales and their percentage of total net sales,
gross margin by segment and as a percentage of segment sales, and other data
derived from the Company's consolidated statements of income. There can be no
assurance that the trends in operating results will continue in the future.

15
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------------- -------------------------------
1993 1994 1995 1995 1996
-------------------- -------------------- -------------------- -------------------- ---------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES:
Fasteners............. $ 77,192 76.7% $ 96,067 79.1% $ 113,323 80.2% $ 28,302 80.2% $ 31,475
Motors................ 23,473 23.3 25,403 20.9 27,945 19.8 6,996 19.8 7,554
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total............... $ 100,665 100.0% $ 121,470 100.0% $ 141,268 100.0% $ 35,298 100.0% $ 39,029
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Domestic.............. $ 80,106 79.6% $ 93,979 77.4% $ 105,831 74.9% $ 25,705 72.8% $ 29,262
Foreign............... 20,559 20.4 27,491 22.6 35,437 25.1 9,593 27.2 9,767
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total............... $ 100,665 100.0% $ 121,470 100.0% $ 141,268 100.0% $ 35,298 100.0% $ 39,029
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
GROSS MARGIN:
Fasteners............. $ 23,350 30.3% $ 31,428 32.7% $ 37,258 32.9% $ 8,818 31.2% $ 9,553
Motors................ 6,336 27.0 6,914 27.2 7,820 28.0 1,850 26.5 1,999
TOTAL COMPANY:
Gross margin.......... $ 29,686 29.5% $ 38,342 31.6% $ 45,078 31.9% $ 10,668 30.2% $ 11,552
Selling, general, and
administrative
('SG&A') expenses... 18,596 18.5 21,842 18.0 24,056 17.0 6,017 17.0 7,113
Operating profit...... 11,090 11.0 16,500 13.6 21,022 14.9 4,651 13.2 4,439
Net income............ 7,352 7.3 10,441 8.6 13,798 9.8 3,023 8.6 2,869

%
---------

<S> <C>
NET SALES:
Fasteners............. 80.6%
Motors................ 19.4
---------
Total............... 100.0%
---------
---------
Domestic.............. 75.0%
Foreign............... 25.0
---------
Total............... 100.0%
---------
---------
GROSS MARGIN:
Fasteners............. 30.4%
Motors................ 26.5
TOTAL COMPANY:
Gross margin.......... 29.6%
Selling, general, and
administrative
('SG&A') expenses... 18.2
Operating profit...... 11.4
Net income............ 7.4

</TABLE>

Three Months ended March 31, 1996 compared to Three Months ended March 31,
1995

Consolidated net sales for the quarter ended March 31, 1996 were $39.0
million, versus $35.3 million for the three months ended March 31, 1995, a 10.5%
increase. Sales to customers outside the United States for the three months
ended March 31, 1996 were $9.8 million, versus $9.6 million for the three months
ended March 31, 1995, a 2.1% increase.

Net sales of the fastener operation for the three months ended March 31,
1996 were $31.5 million, versus $28.3 million for the three months ended March
31, 1995, an 11.3% increase. The number of fastener units shipped within North
America increased 20.6% from the first three months of 1995 to the first three
months of 1996, and represented 71.9% of total fasteners shipped in the first
three months of 1996. The number of fastener units shipped to Europe increased
approximately 19.6% from the first three months of 1995 to the first three
months of 1996, while the number of fastener units shipped to the Asia Pacific
market decreased 16.9% from the first three months of 1995 to the first three
months of 1996. The continued strong demand for personal computers as well as
other electronic equipment, which accounted for 84.0% of fastener sales in the
first three months of 1995 and 1996, were the main cause of the increased
shipment volume in North America and Europe. However, this increase was offset
by the decline in the Asia Pacific market which was caused by high retail
personal computer inventory levels resulting from a sales surge after the
release of 'Windows 95'. Unsold computer and peripherals inventory at the end of
1995 resulted in a slowdown in personal computer orders which impacted
negatively fastener sales in the Asia Pacific market in the first three months
of 1996. Average selling prices for fasteners shipped in the first three months
of 1996 decreased 5.3% compared to the first three months of 1995 because of a
change in product mix.

Net sales of the motor operation for the first three months of 1996 were
$7.6 million, versus $7.0 million for the first three months of 1995, an 8.6%
increase. The number of motors sold increased 12.6% from the first three months
of 1995 to the first three months of 1996, while the average selling price
declined 3.6% from the first three months of 1995 as a result of a change in
product mix toward lower margin motors.

Consolidated gross margins for the first three months of 1996 was $11.6
million, versus $10.7 million for the first three months of 1995, an 8.3%
increase. Fastener gross margins increased 8.3% from the first three months of
1995 to the first three months of 1996 as a result of the increased number of
units sold without a proportionate increase in cost. As a percentage of sales,
however, fastener gross

16
<PAGE>

margins decreased from 31.2% in the first three months of 1995 to 30.4% in the
first three months of 1996 because costs increases incurred for raw material,
outside screw machine services, and tooling were not offset by price increases,
production efficiencies, and cost containment. The Company's price increase of
approximately 2.8% announced on January 1, 1996, which became effective April 1,
1996, will partially offset these cost increases for the remainder of 1996.
Motor gross margins increased approximately 8.0% from the first three months of
1995 to the first three months of 1996 and remained constant at 26.5% of sales
for both periods.

SG&A expenses for the first three months of 1996 were $7.1 million, versus
$6.0 million for the first three months of 1995, an 18.2% increase. SG&A
expenses, as a percentage of sales, increased from 17.0% in the first three
months of 1995 to 18.2% in the first three months of 1996. Additional SG&A
staff, wage increases for current staff, and the establishment of a Singapore
distribution center all contributed to the increased SG&A expense.

Consolidated net income for the first three months of 1996 was $2.9
million, versus $3.0 million for the first three months of 1995, a 3.3%
decrease. Other income decreased 61.1% as a result of decreased investment
income. This decrease as well as the increased cost of sales and SG&A expenses
were partially offset by a Pennsylvania income tax rate reduction that lowered
the Company's overall effective tax rate from 39.5% in 1995 to 37.3% in 1996.

Year ended December 31, 1995 compared to Year ended December 31, 1994

Consolidated net sales for 1995 were $141.3 million, versus $121.5 million
for 1994, a 16.3% increase. Sales to customers outside the United States for
1995 were $35.4 million, versus $27.5 million for 1994, a 28.9% increase.

Net sales of the fastener operation for 1995 were $113.3 million, versus
$96.1 million for 1994, a 17.9% increase. The number of fasteners sold increased
17.7% from 1994 to 1995. The number of fastener units shipped within North
America increased 12.2% from 1994 to 1995, and represented 72.1% of total
fasteners shipped in 1995. The number of fastener units shipped to Europe and
the Asia Pacific market increased 37.2% and 26.4%, respectively, from 1994 to
1995, and represented 21.9% and 6.0%, respectively, of total fastener units
shipped in 1995. The continued strong demand for personal computers as well as
other electronic equipment, which accounted for 90.0% of fastener sales in 1994
and 1995, has been the main cause of the increased shipment volume. Average
selling prices for fasteners shipped in 1995 increased less than 1% from 1994 to
1995 as a result of selective price increases effective in the second quarter of
1995.

Net sales of the motor operation for 1995 were $27.9 million, versus $25.4
million for 1994, a 10.0% increase. The number of motors sold increased 1.0%
from 1994 to 1995, while the average selling price increased 8.9% due to a shift
in product mix toward higher-priced brushless motors and motors with additional
features and options. During 1995, brushless motor sales, which carry higher
margins, comprised 21.8% of total motor sales compared to 16.9% in 1994.

Consolidated gross margins for 1995 were $45.1 million, versus $38.3
million for 1994, a 17.8% increase. Fastener gross margins increased 18.6% from
1994 to 1995 as a result of the increased number of units sold without a
proportionate increase in costs. As a result of the continuing increase in
demand for the Company's fasteners, manufacturing operations were nearly at full
capacity, allowing the Company to realize economies of scale with regard to its
fixed expenses. In addition, increases in raw material costs were offset by cost
reductions within the manufacturing departments.

SG&A expenses for 1995 were $24.1 million, versus $21.8 million for 1994, a
10.1% increase. However, as a percentage of sales, SG&A expenses improved from
18.0% in 1994 to 17.0% in 1995. Selling expenses, as a percentage of sales,
declined because sales on which the Company does not pay commissions increased
in 1995 compared to 1994. The Company's sales to Europe and to the Asia Pacific
market are made through subsidiaries and distributors and consequently carry no
commission-related expenses. These sales increased 28.9% in 1995 compared to
1994. In addition, the increase in

17
<PAGE>

the Company's general and administrative expenses was also less than the
increase in the Company's sales.

Consolidated net income for 1995 was $13.8 million, versus $10.4 million
for 1994, a 32.7% increase. Increased investment income and favorable exchange
rates in 1995 contributed $.5 million to other income in 1995. The Company's
effective tax rate decreased from 39.0% in 1994 to 37.6% in 1995. This reduction
was caused primarily by a Pennsylvania state income tax rate reduction that was
retroactive to the beginning of 1995. These factors, combined with the operating
efficiencies associated with increased capacity utilization, and the increased
sales volume, all contributed to the increase in net income in 1995.

Year ended December 31, 1994 compared to Year ended December 31, 1993

Consolidated net sales for 1994 were $121.5 million, versus $100.7 million
for 1993, a 20.7% increase. Sales to customers outside the United States were
$27.5 million for 1994, versus $20.6 million for 1993, a 33.7% increase.

Net sales of the fastener operation for 1994 were $96.1 million, versus
$77.2 million for 1993, a 24.5% increase. The number of fasteners sold increased
22.3% from 1993 to 1994. The number of fastener units shipped within North
America increased 17.7% from 1993 to 1994, while the number of fastener units
shipped to Europe and the Asia Pacific market increased 37.5% and 43.5%,
respectively, from 1993 to 1994. This volume increase resulted from the
continuing demand for telecommunications and data communications equipment and
personal computers. The remainder of the fastener revenue increase was due to an
effective selling price increase of approximately 3% implemented during the
second quarter of 1994.

Net sales of the motor operation for 1994 were $25.4 million, versus $23.5
million for 1993, an 8.2% increase. The number of motors sold increased 1.4%
from 1993 to 1994, while the average selling price increased 6.8% from 1993 to
1994 due to a shift in product mix towards higher-priced brushless motors.
Domestic motor sales increased 12.1% from 1993 to 1994, while foreign sales
decreased 17.5% due to a product phase-out by an overseas customer. During 1994,
brushless motor sales, which carry higher margins, comprised 16.9% of total
motor net sales compared to 14.3% in 1993.

Consolidated gross margins for 1994 were $38.3 million, versus $29.7
million for 1993, a 29.3% increase. Fastener gross margins increased 34.6% from
1993 to 1994 as a result of the increased number of units sold without a
proportionate increase in costs. As a result of the continuing increase in
demand for the Company's fasteners, manufacturing operations were nearly at full
capacity, allowing the Company to realize economies of scale with regard to its
fixed expenses. In addition, increases in raw material costs were offset by cost
reductions within the manufacturing departments.

SG&A expenses for 1994 were $21.8 million, versus $18.6 million for 1993, a
17.5% increase. However, as a percentage of sales, SG&A expenses declined from
18.5% in 1993 to 18.0% in 1994 as sales volume increases more than offset the
labor and benefit increases included in SG&A. Cost of products sold, as a
percentage of sales, also decreased from 70.5% in 1993 to 68.4% in 1994 due to
economies of scale resulting from increased production volume, better factory
utilization, and continued emphasis on cost containment.

Consolidated net income for 1994 was $10.4 million, versus $7.4 million for
1993, a 40.5% increase. Adoption of Statement of Financial Accounting Standards
No. 109, 'Accounting for Income Taxes' resulted in an increase in net income of
$.4 million in 1993. Other income totaled $.6 million in 1994, an increase of
62.2% over 1993. This increase was primarily caused by favorable currency
exchange rates as well as an increase in investment income.

18
<PAGE>

Liquidity and Capital Resources

The Company's liquidity needs are primarily for capital expenditures and
working capital. Cash flow from operations continues to be the primary source of
financing for the Company's growth. The Company generated cash from operations
of $14.7 million in 1995 compared to $12.3 million in 1994 and $9.0 million in
1993. Working capital decreased in 1995 to $38.9 million from $41.6 million in
1994 primarily due to the increase in notes and accounts payable needed to
finance capital expenditures and raw material inventory. Working capital
increased to $41.6 million in 1994 from $35.0 million in 1993 primarily due to
increased receivables resulting from increased sales volume.

The Company annually invests in capital assets primarily to increase
production capacity and efficiency. In 1995, the Company spent $17.2 million for
capital expenditures in response to the continuing demand for the Company's
products. These expenditures included construction of a 43,000 square foot
addition to the Company's Danboro, Pennsylvania facility, which was
substantially completed in May 1996. Capital expenditures in 1993 and 1994 were
$8.4 million and $3.8 million, respectively. In addition to the working capital
described above, the Company had available credit under the Credit Facilities
totaling $36.0 million as of December 31, 1995. The Company expects to utilize
these credit lines, together with the proceeds of the Offering, to supplement
cash flow from operations to finance capital expenditures of approximately $25
million in 1996, including a new 120,000 square foot facility to replace the
Company's 58,000 square foot facility in Winston-Salem, North Carolina. The
Company's five-year plan includes approximately $100 million in capital
expenditures, and an increase in capacity to 3.0 billion fasteners annually by
2000. The Company expects to use internally generated earnings and external
financing to fund these expenditures.

The Company's total dividends paid increased 31.1% from $2.6 million in
1994 to $3.4 million in 1995 after having increased 32.6% from $2.0 million in
1993 to $2.6 million in 1994. On April 17, 1996, the Company declared a
quarterly cash dividend of $.10 per share, on total shares outstanding after the
Stock Dividend, payable on July 9, 1996, to stockholders of record on June 14,
1996.

<PAGE>
BUSINESS

THE COMPANY

The Company is the world's leading manufacturer of self-clinching fasteners
used by the computer, datacommunications, telecommunications, general
electronics, automotive, and avionics industries. PEM self-clinching fasteners,
which accounted for 80% of the Company's sales in 1995, were first developed by
the Company's founder in 1942. Self-clinching fasteners become an integral part
of the material in which they are installed and provide a reliable means of
attaching components to sheet metal or plastic. Typical applications for the
Company's fastener products include personal computers, computer cabinetry,
power supplies, instrumentation, telecommunications equipment, and certain
automobile parts, such as air bags and windshield wipers. The Company's Pittman
division manufactures high performance permanent magnet dc motors used in
electronics, medical, and manufacturing applications.

The Company's fasteners are primarily used by sheet metal fabricators which
utilize the Company's fasteners to produce sub-assemblies for OEMs. Both OEMs
and their subcontractors seek fastening solutions which provide lower total
installed cost and are highly reliable, thereby lowering production and service
costs. The Company's applications engineers and independent distributors
continually work in close collaboration with OEMs and their subcontractors to
determine appropriate fastener applications, which often results in OEMs
specifying the Company's fasteners. Self-clinching fasteners generally compete
against loose hardware, such as nuts and bolts. The Company's fasteners
typically sell at a premium to loose hardware. However, the Company's fasteners
generally result in lower overall manufacturing costs.

The Company also manufactures and sells manual and automated presses for
fastener installation under the PEMSERTER trademark. The rapid and accurate
installation provided by PEMSERTER presses, together with the Company's broad
range of fastener products, provides the Company's customers with a complete
fastening system.

The Company's Pittman division produces high-quality, high-performance,
permanent magnet dc motors used in light-weight precision applications such as
archival storage, printing, copying, robotics, and medical diagnostic equipment
and centrifuges. Pittman's broad range of products are typically adapted to the
specific requirements of individual customers.

Long-standing Customer Relationships. The Company's strong relationships
with a diverse base of customers continually allows for the identification of
new business opportunities. The Company has been a long-term supplier of
fasteners to many of its customers. For example, the Company has supplied IBM,
Hewlett-Packard, Pitney-Bowes, and Xerox for more than 25 years. The Company
believes that it has earned its position with such customers by virtue of its
design engineering capabilities, timely delivery, excellent quality, and
customer service.

20
<PAGE>

many of the world's largest electronics and telecommunications OEMs, including
Alcatel, AMP, AT&T, Ericsson, Philips, and Siemens. As a result, the Company
expects to increase its sales as these markets continue to grow domestically and
internationally.

BUSINESS STRATEGY

The Company believes that the current worldwide market for self-clinching
fasteners is approximately $240 million. The Company estimates that the current
total market for all forms of fasteners which potentially could be replaced by
PEM fasteners is approximately $600 million. The Company believes it is well
positioned to achieve continued growth and intends to build upon its success by
relying on a strategy which emphasizes the following key elements: (i) focus on
new customer applications and product development, (ii) expand production
capacity, (iii) continue to improve productivity, (iv) implement cost reduction
initiatives, and (v) increase sales to foreign markets.

Expand Production Capacity. From 1991 to 1995, demand for the Company's
fasteners has increased more rapidly than the Company's capacity. In spite of
the Company's capacity constraints, fastener units shipped have more than
doubled over this period from 896 million to 1.8 billion annually. In 1995, the
Company spent $17.2 million for capital expenditures in response to the
continuing demand for the Company's products. These expenditures included
construction of a 43,000 square foot addition to the Company's Danboro,
Pennsylvania facility, which was substantially completed in May 1996. The
Company intends to utilize its credit lines and the proceeds of this Offering to
supplement cash flow from operations to finance capital expenditures of
approximately $25 million in 1996 including a new 120,000 square foot facility
to replace the Company's 58,000 square foot facility in Winston-Salem, North
Carolina. These capital expenditures are expected to increase fastener
production capacity by approximately 27%, allowing the Company to ship 2.3
billion fastener units annually by early 1997. The Company's five-year plan
includes approximately $100 million in capital expenditures, and an increase in
capacity to 3.0 billion fasteners annually by 2000.

21
<PAGE>

washing equipment. The Company has realized a decrease in the cost of fastener
products sold as a percentage of sales from 72.1% by 1991 to 68.1% in 1995. The
Company targets 5% annual increases in productivity. The Company will continue
to attract and retain highly-qualified employees by providing an environment
which promotes creativity.

Implement Cost Reduction Initiatives. Gross margins have increased from
27.9% in 1991 to 31.9% in 1995 despite a doubling of sales during this period.
In addition, the Company has improved operating margins from 8.1% in 1991 to
14.9% in 1995 by controlling SG&A expenses. The Company intends to continue to
reduce costs through initiatives which monitor raw material sourcing, encourage
manufacturing innovations, and preserve a stable and productive work force.

Increase Sales to Foreign Markets. Since 1991, the Company's foreign sales
have increased approximately 119% from $16.2 million to $35.4 million in 1995
and currently represent 25.1% of total sales. The Company has recently acquired
its previously independent distributor in Singapore, which affords the Company a
hub from which to enhance service to customers in the Asia Pacific market. The
Company is also establishing an applications engineering center at its facility
in Doncaster, England and plans to establish a similar center in Singapore.

PEM FASTENER PRODUCTS

PRODUCTS AND MARKETS

The Company's fastener products include self-clinching studs, nuts,
standoffs, panel fasteners, inserts, and other specialty fastener and insert
products. The Company believes that it has an advantage over other manufacturers
of self-clinching fasteners based on the reputation it enjoys for its
manufacturing capabilities, quality raw material sourcing, high standards of
internal manufacturing controls, inventories maintained at Company warehouses in
North America, Europe, and Asia, and breadth of product line. The Company is
continuously pursuing the creation of new markets for its products by developing
new applications, products, and product extensions for the industries the
Company serves. However, by providing a general methodology for the assembly of
products using sheet metal or plastic, the Company's fastener business is not
dependent upon the continued existence of any particular product application and
is highly adaptable to technological changes.

The Company believes that one of its primary strengths is the use of its
fasteners in an extremely diverse group of products and across a wide range of
industries. Although the computer industry is the largest single market sector
which uses the Company's fasteners, computer manufacturers accounted for less
than 15% of the Company's total fastener shipments in 1995. The Company shipped
fasteners to over 12,000 customers in 1995, and no single end-user of the
Company's products accounted for more than 10% of the Company's total sales.

PRODUCT SEGMENTS

The table below highlights some of the major markets and products which use
the Company's fasteners.

<TABLE>
<CAPTION>
ELECTRONICS MARKETS (88%) AUTOMOTIVE MARKETS (5%) OTHER MARKETS (7%)
- ------------------------- ----------------------- ------------------
<S> <C> <C>
Personal computers Air bags Test equipment
Computer peripherals Wiper blades Garage door openers
Telecommunications equipment Engine brackets Vending machines
Datacommunications equipment Muffler hangers Gas meters
TV set-top boxes Bumper fasteners Snowmobiles
ATM machines After-market trim Gaming machines
</TABLE>

22
<PAGE>

Electronics Markets

The Company's marketing and engineering efforts are closely aligned with
one another. As a result, the Company is able to identify potential new
applications and markets for fasteners on a continuous basis and provide
innovative solutions to a wide variety of customers' fastening problems. This
approach has led the Company to focus on many of the rapidly growing companies
within the computer, electronics, and telecommunications industries. Fleck
Research Institute estimates that the computer, telecommunications, and
datacommunications sectors will grow annually by 8.3%, 5.8%, and 15.2%,
respectively, through the year 2000. The Company tracks computer chip shipments,
a barometer for growth of the electronics industry, which have increased by 30%
to 40% annually over the last five years and are expected to grow at a rate of
20% annually through 2000. Continued strong demand for telecommunications and
information technology worldwide and specifically in emerging market countries
should fuel growth of these sectors well into the next century.

Use of the Company's fasteners has also increased in telecommunications
equipment applications, including telephone switching equipment, cellular
transmission equipment, and base equipment. The increasing need for high quality
fasteners in datacommunications equipment, such as net servers and data storage
equipment, has also expanded the markets for the Company's products.

The electronics markets have historically accounted for a significant
portion of the Company's fastener sales. Self-clinching fasteners provide a
strong and reliable means of attachment of components in materials, such as
sheet metal or plastic, that are too thin to support load-bearing threads. Once
a fastener has been installed in such sheet material, an ordinary bolt or
machine screw can be inserted into the threaded hole of the fastener, thereby
permitting attachment to the sheet material of an item which would otherwise
have to be permanently riveted or welded to the sheet. Computer and electronics
manufacturers have increasingly shifted to the Company's self-clinching
fasteners to provide an improved product at a lower overall manufacturing cost.
The Company's fasteners, primarily because of an extremely low parts per million
defect rate, are currently on the preferred or designated supplier list for
computer manufacturers which currently comprise 33% of the worldwide personal
computer market. Such designation provides significant opportunities for the
Company while it increases capacity domestically and distribution on a global
scale.

The Company has established its position within the computer and
electronics markets by successfully identifying and meeting the needs of the
fastest growing OEMs. The Company believes its ability to provide effective
fastener solutions in a variety of electronics applications differentiates it
from many of its competitors. Since 1991, the Company has met the high volume
demand for self-clinching fasteners of Compaq, one of the world's largest
computer manufacturers, and has increased shipments to Compaq's subcontractors
from approximately six million units in 1991 to approximately 100 million units
in 1995.

The Company believes its designation as a lowest cost supplier by AMP, a
major international electronics manufacturer, positions the Company to benefit
from continued demand for existing products, and affords a significant advantage
for new product introductions by that manufacturer. Internationally, the Company
has benefited also from increasing its distribution capacity to serve growing
demand from its facilities in England and Singapore.

In addition to gaining new business through its preferred supplier status
with certain customers, the Company constantly strives to provide manufacturers
with fastening solutions for both new products and new applications and with
replacements to less effective fastening systems, such as loose

23
<PAGE>

hardware, in existing products. Below is a list of recent new applications for
the Company's fasteners and the advantages provided thereby.

<TABLE>
<CAPTION>
PRODUCT PEM FASTENER ADVANTAGES
------- -----------------------

<S> <C>
Supercomputers The Company's double sided pin replaces two more costly pins that require
hand attachment

Home computers Larger body size of the Company's standoff resolves critical grounding
issues

Connector housing for high speed The Company's nut replaces four pieces of loose hardware
data exchange equipment

Global positioning systems The Company's standoffs meet stringent durability tests and replace loose
hardware

Cover plate for compact cellular The Company's stud eliminates costs and steps involved with tapping and
transmitter combiner soldering, and provides more consistent torque-out and push-out values

Printed circuit boards for mobile The Company's panel fastener eliminates loose hardware, speeds assembly,
telephone terminals and allows quicker access to boards for field service
</TABLE>

Automotive Markets

The Company has a long history of supplying major automotive OEM and
aftermarket suppliers, and sales to the automotive industry constituted
approximately 5% of the Company's sales in 1995. The Company has built its
position in the automotive industry by supplying customers' needs for
highly-engineered fastening solutions. The Company's fasteners are used in the
manufacture of windshield wiper systems, exterior and interior trim systems such
as door handles, instrument panels, and bumpers, and automotive electronic
systems for sunroofs, global positioning systems, and vehicle security systems.

The Company's engineers work in close collaboration with automotive
suppliers to identify trends and future opportunities. For example, the
Company's fasteners were among the first used in air bags in 1980. Today, the
Company's fasteners are used by the five suppliers which hold over 90% of the
worldwide automotive air bag market. The Company has been able to consistently
meet the stringent quality, delivery, and service requirements of the world's
leading automotive air bag suppliers. Accordingly, the Company expects to
continue to benefit from increasing air bag demand as regulatory and consumer
pressures make multiple air bags standard for most vehicles.

COMPETITIVE ADVANTAGES

The Company's applications engineers work in collaboration with OEMs to
develop innovative solutions to fastening needs, which often results in the OEM
including the Company's fasteners in production specifications. The Company's
engineering representatives and its independent distributors work with
subassembly fabricators and OEMs to develop fastening solutions which will
reduce overall manufacturing costs.

The Company's fastener products compete on the basis of product quality,
breadth of product line and reliability of delivery, and to a lesser extent, on
price. Just-in-time manufacturing and designed-for-assembly or
designed-for-manufacturing methodologies adopted by many electronics
manufacturers place increased demands on subcontractors and assemblers to
produce high volumes of products within short lead times. The Company believes
that its manufacturing capabilities, quality raw material sourcing, maintenance
of inventories in Danboro, Pennsylvania, England, and Singapore, and breadth of
product line provide a competitive advantage. The Company's products typically
sell at a

24
<PAGE>

premium compared to loose hardware; however, the speed and cost of installation
and low rejection rate of the Company's fasteners usually result in lower
overall assembly costs. The Company maintains a catalog of more than 3,000
readily available proprietary fastener products.

FUTURE GROWTH OPPORTUNITIES

The Company believes that the current worldwide market for self-clinching
fasteners is approximately $240 million. If all other forms of fasteners are
included that could potentially be replaced with PEM brand self-clinching
fasteners, the Company estimates a current total market of approximately $600
million. For example, self-clinching fasteners are finding increasing
applications as replacements for weld nuts and weld studs that have historically
been used in large volumes in the appliance and automotive industries due in
part to the increased use of electronic components in automobiles and
appliances.

The Company originated the market for self-clinching fasteners and believes
it manufactures more self-clinching fasteners than any other company. The
Company further believes that it offers a broader range of self-clinching,
broaching, and insert fasteners than any of its competitors. Both the Company's
fastener and motor divisions have been awarded IS0 9001 certification. This
recognition of the Company's compliance and adherence to international quality
standards also provides the Company with a competitive advantage.

Sales of fasteners to customers in the United States and Canada accounted
for 72% of total fastener sales in 1995. Export shipments in terms of units
increased from 19.5% of total fastener shipments in 1991 to 28% of total
fastener shipments in 1995. The Company's sales of fasteners to customers in
Europe, where the Company has maintained a presence for over 25 years, have
increased 192% since 1991. The Company owns and maintains warehouse facilities
in England and Singapore to ensure that adequate supplies of the Company's
products are available to its customers. In addition to the inventory of
fasteners located in those facilities, the Company's Danboro, Pennsylvania
facility maintains significant supplies of inventory for its domestic
distributors that can also be used for export sales. While the design and
process engineering activities have historically been concentrated in the United
States, the Company has experienced a shift toward increased design activities
overseas. To address this change and to strategically position itself in these
growing markets, the Company is developing an applications engineering center at
its facility in England to serve the European market and plans to establish a
similar center in Singapore to serve the Asia Pacific market.

MANUFACTURING

All fastener products produced by the Company are fabricated from metal bar
stock of various shapes and sizes, and coiled (wire) stock of various diameters.
The materials used include brass, low carbon steels, free machining steels,
aluminum, and various stainless steel alloys. The Company purchases
approximately 70% of its fastener raw material from domestic sources.

The fastener manufacturing process involves machining, including single and
multiple-spindle screw machines, multi-station cold forming machines, and cold
heading equipment to produce both internally and externally threaded fasteners.
Secondary equipment (such as thread rolling, tapping, and assembly) and other
finishing processes are involved in producing the completed fastener. Heat
treating is required on approximately 50% of the Company's fastener products to
produce a hardness greater than the sheet in which the part is installed, and
approximately 60% of the Company's products also require some type of plating,
primarily zinc, for surface protection. The Company performs substantially all
of its heat treating requirements, but all of its plating requirements are
provided by subcontractors.

The Company has an advantage over its competitors due to its raw material
purchasing power, its substantial capital expenditure program, its extensive
installed machine base, and its over 50 years of manufacturing experience. The
Company designs and manufactures much of its own production tooling because
equivalent tools are not available in the marketplace. All manufacturing
equipment purchased by the Company is first analyzed in depth to evaluate its
potential for increased speed,

25
<PAGE>

improved quality, compatibility with existing tooling and product flow, and
operator friendliness. Typically, an equipment purchase is expected to produce a
full return on investment within two years.

The Company has realized a decrease in the cost of fastener products sold
as a percentage of sales from 72.6% in 1991 to 67.1% in 1995. This improvement
has resulted from economies of scale due to increased production volume, more
efficient factory utilization, and process improvements such as cell
manufacturing and focused work centers.

The Company's fastener production capacity increased by approximately 24%
during 1995 through the expansion of facilities, addition of equipment, and
refinements in production processes. The Company is currently involved in
efforts to expand its fastener production capacity which the Company anticipates
will increase such capacity by approximately 27% by early 1997. Several other
projects are underway to improve labor-intensive operations such as labor
reporting, inventory control, production reporting, job tracking, and raw
material management. The Company's continuing objective is to increase efficient
utilization of its human resources as well as its physical resources. The
Company targets annual productivity increases of 5%.

PITTMAN DIVISION MOTOR PRODUCTS

PRODUCTS AND MARKETS

The Company's Pittman division develops, manufactures, and sells permanent
magnet dc motors including LO-COG brush-commutated 'servo' motors, which provide
precise control of speed and torque, and ELCOM brushless servo motors, which
feature slotless stator construction and dramatically increased life span due to
the elimination of brush commutation and its associated dust, mechanical noise,
and electrical noise problems. Pittman's applications engineers and technical
sales representatives work closely with its over 2,800 active customers to
develop the exact motor configuration to meet the customers' needs. Pittman was
among the first motor manufacturers to develop motor components which could be
used in assembling a multitude of motor products. By combining shaft lengths,
motor housing lengths, winding characteristics, brush chemistry, lubricant
chemistry, gear combinations, and other customized features, thousands of motor
combinations are readily available to solve a particular customer's needs.

Founded in 1934, Pittman rapidly gained recognition as one of the
pioneering motor manufacturers in the hobby field. After its acquisition by the
Company in 1970, and an infusion of new capital, Pittman began to expand its
product line substantially to address office automation and instrumentation.

The total electric motor market in North America in 1995 had revenues in
excess of $8.7 billion with over 758 million units shipped by over 100
manufacturers. Pittman currently competes in a segment of this market which is
comprised of approximately 20 motor manufacturers in the factory/office
automation, and instrumentation markets. These markets, which currently have
approximately $330 million in revenues and shipments of approximately 4.9
million units, are expected to grow to $460 million in revenues, and shipments
of 7.0 million units by the year 2000.

PRODUCT SEGMENTS

The following table sets forth some of the applications that use Pittman
motors.

<TABLE>
<CAPTION>
FACTORY/OFFICE AUTOMATION (80%) INSTRUMENTATION (11%) OTHER (9%)
- ------------------------------- --------------------- ----------
<S> <C> <C>
Robotics Centrifuges Photographic equipment
Archival storage equipment Lab micropositioners Hobby
Printers Analog recorders Vending machines
Packaging equipment Medical diagnostics Gaming machines
Blood analyzers Test equipment
</TABLE>

Customers range from multi-national computer companies to semiconductor
processing equipment manufacturers. While Pittman's top 25 customers represent
approximately 50% of its sales,

26
<PAGE>

no single customer accounts for more than 10% of sales. The Company believes
that Pittman's long history of quality products and engineering expertise will
enable it to compete effectively and to expand its market share and markets.

Pittman's brush-commutated motors are often found in factory/office
automation applications and have an average price of $33. Pittman's brushless
motors, having an average price of $220, are favored where a significantly
increased life span is required, such as semiconductor manufacturers' processing
equipment and medical equipment. Pittman has more than 5,000 documented design
permutations of its seven modular product families.

The following table presents the amount and percentage of Pittman sales of
brush-commutated and brushless motors for 1993, 1994, and 1995.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1993 1994 1995
-------------------- -------------------- --------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Brush-commutated.................................. $ 19,764 85.5% $ 20,923 83.1% $ 21,671 78.2%
Brushless......................................... 3,362 14.5 4,254 16.9 6,055 21.8
--------- --------- --------- --------- --------- ---------
$ 23,126 100.0% $ 25,177 100.0% $ 27,726 100.0%
========= ========= ========= ========= ========= =========

</TABLE>

MANUFACTURING

All Pittman motors are manufactured to customer order. As a result,
finished goods inventories are minimal. The primary manufacturing operation
performed at Pittman is the assembly of brush commutated and brushless motors.
Pittman maintains basic manufacturing capabilities such as turning, milling,
drilling, and tapping operations, but these processes are primarily used to
facilitate the modification of sub-level components. Four main sub-assembly
components and seven modular product families are involved in the basic brush
and brushless products. This manufacturing strategy supports the value-added
marketing strategy employed by Pittman over the past six years. The strengths of
Pittman's manufacturing operations are a highly dedicated and motivated work
force and a flexible, modular manufacturing methodology.

Pittman utilizes just-in-time and demand-flow manufacturing technology
whereby quantities of motors are assembled in lots of one, thus reducing
work-in-process and lead times and increasing manufacturing flexibility to
customers' changes and quality. As a result of the implementation of these
processes beginning in 1990, manufacturing lead time has been reduced from
twelve weeks to four weeks. Work-in-process inventory as a percentage of sales
has been reduced by 58% and component inventory as a percentage of sales has
been reduced by approximately 20% since August 1992. The implementation of these
strategies aided in the award of ISO 9001 certification to Pittman. Pittman has
focused its manufacturing efforts toward value-added assembly, and currently
more than 55% of all products receive at least one value-added assembly
operation.

Pittman has several key productivity and cycle time reduction projects
currently in various stages of completion for 1996. The first project will allow
the production rate of one of Pittman's key sub-assembly components (magnet and
housing) to increase by 50%. The second project utilizes a state-of-the-art
custom manufactured computer numerically controlled (CNC) lathe that allows the
reduction of final assembly rework by as much as 90% in most cases. The third
project is the development of a proprietary process that has the potential to
improve the productivity of the final assembly and test operations by up to 25%.

Pittman has established a goal of reducing its manufacturing lead time to
one week by the year 2000. Pittman has committed to achieving continuous cycle
time reduction, continuous product improvement, and continuous quality
improvement through the utilization of advanced manufacturing strategies and
technologies.

27
<PAGE>

SALES AND MARKETING

Fasteners. The Company's fastener products are sold through a worldwide
network of 40 authorized distributors located in 30 countries and the Company's
subsidiaries in Singapore and England. Many of the distributors and engineering
representative organizations have been affiliated with the Company for more than
20 years. The Company's independent distributors, which maintain their own
inventories of the Company's products, may sell other industrial components, but
are not allowed to carry fasteners which compete with the Company's products.
The Company's return allowances, which are made through the exchange of
inventory, have generally averaged less than 1% of sales. Customers receive
technical support from the Company's worldwide network of independent
engineering representatives. The Company's engineers work in collaboration with
individual manufacturers early in the design process to engineer fastening
solutions that often result in the specification of PEM fasteners in new
products. The Company supplies its customers and distributors through warehouses
in Doncaster, England and Singapore, in addition to maintaining a significant
inventory at its Danboro, Pennsylvania facility.

Motors. Domestic sales of Pittman motors are handled by technical sales
representatives who have the expertise to combine Pittman's motor products with
available motion system components and deliver a complete motion control system
to the customer. European sales are conducted through an exclusive agreement
with a Swiss manufacturer of precision motors that utilize a different
technology from and are complementary to Pittman's motors.

EMPLOYEES

At December 31, 1995, the Company had 1,211 full time employees. Of this
total, 1,018 persons were employed in the Company's fastener operations, of whom
11% were salaried and 89% were paid hourly, and 193 persons were engaged in the
manufacture of Pittman motor products, of whom 17% were salaried and 83% were
paid hourly. None of the Company's personnel are governed by collective
bargaining agreements, and the Company has never experienced a strike. The
Company believes that its labor rates are comparable to those of its competitors
and that the Company's relations with its employees are good.

TRADEMARKS

The Company owns all of the rights to the principal trademarks used by it
in the domestic and international markets in which it operates. The Company's
principal trademarks are registered in the U.S. and in many other countries, and
the Company considers protection of such trademarks to be important to its
business.

28
<PAGE>

PROPERTIES

As of December 31, 1995, the Company's principal plants and offices, all of
which were owned by it, were as follows:

<TABLE>
<CAPTION>
LOCATION SIZE OF FACILITY USE OF FACILITY
-------- ---------------- ---------------
<S> <C> <C>
Danboro, 183,442 square feet Executive offices and manufacture of
Pennsylvania fasteners

Winston-Salem, 58,280 square feet Manufacture of components for fasteners
North Carolina

Harleysville, 54,000 square feet Manufacture of electric motors
Pennsylvania

Suffolk, 50,000 square feet Manufacture of components for fasteners
Virginia

Doncaster, 10,500 square feet Office and warehouse for the
South Yorkshire, distribution of fasteners
England
</TABLE>

The Company considers all of its plants and equipment to be modern and well
maintained. The Company substantially completed a 43,000 square foot addition to
its Danboro, Pennsylvania facility for increased manufacturing capacity and
office space in May 1996. The Company purchased 16.3 acres in Winston-Salem,
North Carolina where it is building a 120,000 square foot building. Upon the
completion of this new facility, which is scheduled for October 1996, the
Company intends to sell its existing North Carolina facility.

Since March 1, 1996, the Company has leased approximately 3,700 square feet
in Singapore which is used by the Company as a warehouse for the distribution of
fasteners in the Asia Pacific market.

The Company carries fire, casualty, business interruption, and public
liability insurance for all of its facilities in amounts which are deemed
adequate.

29
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

NAME AGE POSITION
---- --- --------

<S> <C> <C>
Kenneth A. Swanstrom................. 56 Chairman of the Board, President, Chief
Executive Officer, and Director

Mark W. Simon........................ 57 Vice President - Finance, Chief Financial Officer, Corporate
Secretary, and Director

Martin Bidart........................ 59 Vice President - Manufacturing

Raymond L. Bievenour................. 53 Vice President - Sales/Marketing

Richard B. Ernest.................... 61 Vice President - Quality

Joseph F. Lopes...................... 62 Vice President - Engineering

Kent R. Fretz........................ 58 Vice President and General Manager - Pittman

Willard S. Boothby, Jr............... 74 Director

Frank S. Hermance.................... 47 Director

Lewis W. Hull........................ 79 Director

Thomas M. Hyndman, Jr................ 71 Director

Maurice D. Oaks...................... 62 Director

Daryl L. Swanstrom................... 49 Director
</TABLE>

Kenneth A. Swanstrom has been associated with the Company, which was
founded by his parents, since 1960. Mr. Swanstrom has served as Chairman of the
Board and Chief Executive Officer since August 1993, as President and Chief
Operating Officer since 1979, and as a director since 1970.

Mark W. Simon has served as Vice President - Finance and Chief Financial
Officer since 1981, as a director since 1983, and has been an employee of the
Company since 1977.

Martin Bidart has served as Vice President - Manufacturing since 1990.
Prior to 1990, Mr. Bidart was employed by SPS Technologies, Inc. for 32 years
holding various positions, including Vice President - Operations.

Raymond L. Bievenour has served as Vice President - Sales/Marketing since
1990. Prior to 1990, Mr. Bievenour was employed by AMP, Inc. for 18 years
holding various positions, including National Field Sales Manager.

Richard B. Ernest has served as Vice President - Quality since 1993, was
Vice President - Engineering from 1970 to 1993, and has been an employee of the
Company since 1961.

Joseph F. Lopes has served as Vice President - Engineering since 1993.
Prior to 1993, Mr. Lopes was employed by SPS Technologies, Inc. for 30 years
holding various positions, including Manager of Aerospace Operations.

Kent R. Fretz has served as Vice President and General Manager of the
Company's Pittman division since 1991. Prior to 1991, Mr. Fretz held various
positions at Pittman, and has been an employee of the Company since 1975.

30
<PAGE>

Willard S. Boothby, Jr., a director since 1984, served as Chairman and
Chief Executive Officer of the investment banking firm of Blyth Eastman Dillon.
Upon its merger with PaineWebber Incorporated, the Representative of the
Underwriters, Mr. Boothby served as a Managing Director until his retirement in
1988. Mr. Boothby serves as a director of Glenmede Fund, and previously served
as a director of The Georgia-Pacific Corporation, Burlington Industries, Inc.,
Getty Oil, The Insurance Company of North America, and Sperry-Rand Corporation.

Frank S. Hermance, a director since January 1996, is Executive Vice
President and Chief Operating Officer of Ametek, Inc., and President of its
Precision Instrument Group.

Lewis W. Hull, a director since 1974, has been Chairman of Hull Corporation
since 1952, a manufacturer of freeze-drying and injection molding equipment. Mr.
Hull is also a director of Willow Grove Bank.

Thomas M. Hyndman, Jr., a director since 1974, has been Of Counsel to
Duane, Morris & Heckscher, counsel to the Company, since 1993 and was a senior
partner of that firm for many years prior thereto. Mr. Hyndman is also a
director of Rochester & Pittsburgh Coal Company.

Maurice D. Oaks, a director since 1994, was Vice President of Worldwide
Operations Planning of Bristol-Myers Squibb from October 1990 until his
retirement in October 1992 and, from July 1989 to September 1990, was Executive
Vice President of Squibb Pharmaceutical Group, U.S.

Daryl L. Swanstrom, a director since 1987, is President of Engineered
Components, Inc., a distributor of electronic components and of the Company's
fastener products. Mrs. Swanstrom is the widow of Kenneth A. Swanstrom's
brother.

31
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information as of April 17, 1996, as
adjusted to reflect the Reclassification and the completion of the Offering,
with respect to (i) each person who is known by the Company to own beneficially
5% or more of each class of Capital Stock, and (ii) all executive officers and
directors of the Company as a group:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENT
NUMBER OF SHARES OF SHARES OF
CLASS OF SHARES PERCENT COMMON BENEFICIALLY CLASS
NAME OF INDIVIDUAL CAPITAL BENEFICIALLY OF STOCK TO OWNED AFTER AFTER
OR IDENTITY OF GROUP STOCK OWNED (1) CLASS BE SOLD OFFERING (1) OFFERING
- ---------------------------------- ------------ ----------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>

Kenneth A. Swanstrom
P.O. Box 1000
Danboro, PA 18916

Individually (2) Common 733,923 14.3% 100,000 633,923 9.1%
Class A 244,641 14.3% -- 244,641 14.3%

Trust under the Will of Common 188,925 3.7% 97,500 91,425 1.3%
Gladys Swanstrom (2) Class A 62,975 3.7% -- 62,975 3.7%

Trusts under the Will of Common 295,416 5.8% 97,500 197,916 2.8%
Klas A. Swanstrom (3) Class A 98,472 5.8% -- 98,472 5.8%

Daryl L. Swanstrom
P.O. Box 2249
Peachtree City, GA 30269

Individually (4) Common 547,077 10.7% 250,000 297,077 4.3%
Class A 182,359 10.7% -- 182,359 10.7%

Trust under Item Fourth Common 162,720 3.2% 100,000 62,720 *
of the Will of Lawrence Class A 54,240 3.2% -- 54,240 3.2%
W. Swanstrom (5)

Trust under Item Fifth Common 416,649 8.1% 200,000 216,649 3.1%
of the Will of Lawrence Class A 138,883 8.1% -- 138,883 8.1%
W. Swanstrom (5)

Thomas M. Hyndman, Jr. (6)
c/o Duane, Morris & Heckscher
4200 One Liberty Place
Philadelphia, PA 19103-7396

Individually Common 1,710 * -- 1,710 *
Class A 570 * -- 570 *

Trust under the Will of Common 188,925 3.67% 97,500 91,425 1.3%
Gladys Swanstrom (6) Class A 62,975 3.67% -- 62,975 3.7%

Trusts under the Will of Common 295,416 5.8% 97,500 197,916 2.8%
Klas A. Swanstrom (3) Class A 98,472 5.8% -- 98,472 5.8%

Trust under Item Fourth Common 162,720 3.2% 100,000 62,720 *
of the Will of Lawrence Class A 54,240 3.2% -- 54,240 3.2%
W. Swanstrom (5)
</TABLE>

32
<PAGE>

NUMBER OF NUMBER OF PERCENT
NUMBER OF SHARES OF SHARES OF
CLASS OF SHARES PERCENT COMMON BENEFICIALLY CLASS
NAME OF INDIVIDUAL CAPITAL BENEFICIALLY OF STOCK TO OWNED AFTER AFTER
OR IDENTITY OF GROUP STOCK OWNED (1) CLASS BE SOLD OFFERING (1) OFFERING
- ---------------------------------- ------------ ----------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Trust under Item Fifth Common 416,649 8.1% 200,000 216,649 3.1%
of the Will of Lawrence Class A 138,883 8.1% -- 138,883 8.1%
W. Swanstrom (5)

Trust under Deed of Common 173,250 3.4% 77,500 95,750 1.4%
Klas A. Swanstrom Class A 57,750 3.4% -- 57,750 3.4%
dated 1/12/73 (7)

First Union National Bank,
as Trustee (8)
550 Broad Street
Newark, NJ 07102

Trust under Deed of Common 173,250 3.4% 77,500 95,750 1.4%
Klas A. Swanstrom Class A 57,750 3.4% -- 57,750 3.4%
dated 1/12/73

Trust under Deed of Common 115,500 1.7% 54,250 61,250 *
Klas A. Swanstrom Class A 38,500 2.3% -- 38,500 2.3%
dated 9/26/66

Trust under Deed of Common 49,500 * 23,250 26,250 *
Gladys Swanstrom Class A 16,500 * -- 16,500 *
dated 9/26/66

Quest Advisory Corp. (9) Common 524,550 10.2% -- 524,550 7.5%
Quest Management Company Class A 174,850 10.2% -- 174,850 10.2%
1414 Avenue of the Americas
New York, NY 10019

Lazard Freres & Co. (10) Common 348,000 6.8% -- 348,000 5.0%
30 Rockefeller Plaza Class A 116,000 6.8% -- 116,000 6.8%
New York, NY 10020

Dimensional Fund Common 258,900 5.1% -- 258,900 3.7%
Advisors Inc. (11) Class A 86,300 5.1% -- 86,300 5.1%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401

All Executive Officers and Common 2,705,760 52.9% 1,000,000 1,705,760 24.5%
Directors as a group Class A 901,920 52.9% -- 901,920 52.9%
(13 persons)
</TABLE>

- ------------------
* Less than 1%.

(1) Under the rules of the Commission, a person is deemed to be the beneficial
owner of securities if such person has, or shares, 'voting power' which
includes the power to vote, or to direct the voting of, such securities or
'investment power' which includes the power to dispose, or to direct the
disposition, of such securities. Under these rules, more than one person may
be deemed the beneficial owner of the same securities. The information set
forth in the above table includes all shares of Common Stock and Class A
Common Stock of the Company over which the above-named persons individually
or together share voting power or investment power.

33
<PAGE>

(2) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which Kenneth A. Swanstrom could be
deemed to have is 23.8%. Of these shares, Mr. Swanstrom has sole voting and
dispositive power with respect to 733,923 shares of Common Stock and 244,641
shares of Class A Common Stock of which totals 11,301 shares of Common Stock
and 3,767 shares of Class A Common Stock are owned by Mr. Swanstrom's wife
and 2,100 shares of Common Stock and 700 shares of Class A Common Stock are
owned by their daughters. Mr. Swanstrom disclaims beneficial ownership of
the shares held by his wife and daughters. Mr. Swanstrom has shared voting
and dispositive power with respect to 188,925 shares of Common Stock and
62,975 shares of Class A Common Stock held by the Trust under the Will of
Gladys Swanstrom and 295,416 shares of Common Stock and 98,472 shares of
Class A Common Stock held by the Trusts under the Will of Klas A. Swanstrom.

(3) The Trustees are Kenneth A. Swanstrom, Thomas M. Hyndman, Jr., and PNC Bank,
National Association.

(4) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which Daryl L. Swanstrom could be deemed
to have is 22.0%. Of this total, Mrs. Swanstrom has sole voting and
dispositive power with respect to 547,077 shares of Common Stock and 182,359
shares of Class A Common Stock and shared voting and dispositive power with
respect to 162,720 shares of Common Stock and 54,240 shares of Class A
Common Stock held by the Trust under Item Fourth of the Will of Lawrence W.
Swanstrom and 416,649 shares of Common Stock and 138,883 shares of Class A
Common Stock held by the Trust under Item Fifth of the Will of Lawrence W.
Swanstrom. Pursuant to an agreement between Mrs. Swanstrom and the Company,
which expires December 31, 2006, Mrs. Swanstrom has agreed not to sell or
otherwise transfer or dispose of any shares of the Company's Class A Common
Stock owned by her or that she may acquire without first offering to sell
such shares to the Company. The purchase price upon exercise of the
Company's option to purchase such shares is the higher of the market price
of such shares on the day prior to the day such shares are offered to the
Company or the price offered by a third party for such shares.

(5) The Trustees are Daryl L. Swanstrom, Thomas M. Hyndman, Jr., and NationsBank
of Georgia, N.A.

(6) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which Thomas M. Hyndman, Jr. could be
deemed to have is 24.2%. Of these shares, Mr. Hyndman has sole voting and
dispositive power with respect to 1,710 shares of Common Stock and 570
shares of Class A Common Stock and shared voting and dispositive power with
respect to the 162,720 shares of Common Stock and 54,240 shares of Class A
Common Stock held by the Trust under Item Fourth of the Will of Lawrence W.
Swanstrom, 416,649 shares of Common Stock and 138,883 shares of Class A
Common Stock held by the Trust under Item Fifth of the Will of Lawrence W.
Swanstrom, 188,925 shares of Common Stock and 62,975 shares of Class A
Common Stock held by the Trust under the Will of Gladys Swanstrom, 173,250
shares of Common Stock and 57,750 shares of Class A Common Stock held by the
Trust under the Deed of Klas A. Swanstrom dated 1/12/73, and 295,416 shares
of Common Stock and 98,472 shares of Class A Common Stock held by the Trusts
under the Will of Klas A. Swanstrom.

(7) The Trustees are Thomas M. Hyndman, Jr. and First Union National Bank.

(8) Under the rules of the Commission, the maximum beneficial ownership of the
Company's outstanding Capital Stock which First Union National Bank, as
Trustee, could be deemed to have is 6.7%, of which 173,250 shares of Common
Stock and 57,750 shares of Class A Common Stock are held by the Trust under
the Deed of Klas A. Swanstrom dated 1/12/73 with voting power shared with
Mr. Hyndman, 115,500 shares of Common Stock and 38,500 shares of Class A
Common Stock are held by the Trust under Deed of Klas A. Swanstrom dated
9/26/66 and 49,500 shares of Common Stock and 16,500 shares of Class A
Common Stock are held by the Trust under Deed of Gladys Swanstrom dated
9/26/66. First Union National Bank is a wholly owned subsidiary of First
Union Corporation of New Jersey which is wholly owned by First Union
Corporation.

34
<PAGE>
(9) According to Amendment No. 7 to a Schedule 13G dated February 4, 1996, filed
by Quest Advisory Corp., a New York corporation ('Quest'), Quest Management
Company ('QMC') and Charles M. Royce, Quest, QMC, and Mr. Royce reported as
a 'group' pursuant to Rule 13d-1(b)(ii)(H) of the Securities Exchange Act of
1934 (the 'Exchange Act') with respect to these shares. According to such
Amendment, and after giving effect to the Reclassification, Quest has sole
voting and dispositive power with respect to 496,950 shares of Common Stock
and 165,650 shares of Class A Common Stock, and QMC has sole voting and
dispositive power with respect to 27,600 shares of Common Stock and 9,200
shares of Class A Common Stock. Mr. Royce may be deemed to be a controlling
person of Quest and QMC and as such may be deemed to beneficially own the
shares of Capital Stock beneficially owned by Quest and QMC. Mr. Royce does
not own any shares outside of Quest and QMC and disclaims beneficial
ownership of the shares held by Quest and QMC.

(10) According to Amendment No. 1 to a Schedule 13G dated February 14, 1996, and
after giving effect to the Reclassification, Lazard Freres & Co., a
registered investment advisor, is deemed to have beneficial ownership of
348,000 shares of Common Stock and 116,000 shares of Class A Common Stock
as of December 31, 1994.

(11) According to Amendment No. 2 to a Schedule 13G dated January 31, 1995, and
after giving effect to the Reclassification, Dimensional Fund Advisors Inc.
('Dimensional'), a registered investment advisor, is deemed to have
beneficial ownership of 258,900 shares of Common Stock and 86,300 shares of
Class A Common Stock as of December 31, 1994, all of which shares are held
in portfolios of DFA Investment Dimensions Group Inc., a registered
open-end investment company, or in series of DFA Investment Trust Company,
a Delaware business trust, or the DFA Group Trust and DFA Participation
Group Trust, investment vehicles for qualified employee benefit plans, for
all of which Dimensional serves as investment manager. Dimensional
disclaims beneficial ownership of all such shares.

As of May 22, 1996, members of the Swanstrom Family owned approximately
3,579,560 shares of Capital Stock as adjusted to reflect the Reclassification,
or approximately 52.4% of the Capital Stock outstanding prior to the Offering.
Upon completion of the Offering, the Swanstrom Family will still have sole or
shared voting power with respect to approximately 52.4% of the Class A Common
Stock and consequently will continue to have effective control of the election
of the Company's Board of Directors and any other vote of the holders of the
Class A Common Stock that does not require super majority approval. Members of
the Swanstrom Family will be able to sell shares of Common Stock in the future
without adversely affecting their voting percentage. See 'Risk Factors' and
'Description of Capital Stock.'

The Company and its directors, certain officers and the Swanstrom Family
have agreed that, for a period of 120 days after the date of this Prospectus,
they will not, directly or indirectly, assign, transfer, offer, sell,
hypothecate or otherwise dispose of any shares of Capital Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Capital Stock, except pursuant to the Underwriting Agreement or the
granting of stock options or the issuance of shares pursuant to the Company's
stock option and stock purchase plans and bona fide gifts of shares by
directors, officers or members of the Swanstrom Family to family members or to
charities, without the prior written consent of the Representative. See
'Underwriting.'

The term 'Swanstrom Family' as used herein means Kenneth A. Swanstrom,
Daryl L. Swanstrom, the Trust under the Will of Gladys Swanstrom, the Trusts
under the Will of Klas A. Swanstrom, the Trust under Item Fourth of the Will of
Lawrence W. Swanstrom, the Trust under Item Fifth of the Will of Lawrence W.
Swanstrom, the Trust under Deed of Klas A. Swanstrom, and the Trust under Deed
of Gladys Swanstrom.

35
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The following summary description is subject to the detailed provisions of
the Company's Certificate of Incorporation, as amended, and the Company's
By-laws, as amended, and does not purport to be complete and is qualified in its
entirety by reference thereto.

The authorized Capital Stock of the Company consists of 20,000,000 shares
of Common Stock, par value $.01 per share, and 3,000,000 shares of Class A
Common Stock, par value $.01 per share. See 'Capitalization' for information on
the number of shares of Capital Stock outstanding prior to and after the
completion of the Offering.

VOTING

The holders of shares of Class A Common Stock are entitled to one vote per
share on any matter to be voted on by the stockholders of the Company. There is
no provision in the Company's Certificate of Incorporation permitting cumulative
voting. The holders of shares of Common Stock are not entitled to vote on any
matter to be voted on by the stockholders of the Company, except as required
under the Delaware General Corporation Law (the 'DGCL').

Under the Certificate of Incorporation of the Company and the DGCL, only
the affirmative vote of the holders of a majority of the outstanding shares of
Class A Common Stock entitled to vote is required to amend the Certificate of
Incorporation or to authorize additional shares of Common Stock or Class A
Common Stock; and the affirmative vote of the holders of a majority of the Class
A Common Stock is required to approve any merger or consolidation of the Company
with or into any other corporation or sale of substantially all of its assets or
to approve the dissolution of the Company, subject to certain existing
anti-takeover provisions of the Company's Certificate of Incorporation that
require the vote of the holders of at least 80% of the outstanding Class A
Common Stock if such transaction is with a related person and is not approved by
the requisite vote of the Company's Board of Directors.

The holders of the Class A Common Stock will elect the entire Board of
Directors. In addition, as permitted under the DGCL, the Certificate of
Incorporation provides that the number of authorized shares of either class may
be increased or decreased, but not below the number of shares then outstanding,
by the affirmative vote of the holders of a majority of the Class A Common
Stock.

Under the DGCL, the holders of Common Stock are entitled to vote on
proposals to change the par value of the Common Stock or to alter or change the
powers, preferences or special rights of the shares of Common Stock, which may
affect them adversely.

DIVIDENDS AND DISTRIBUTIONS

Each share of Common Stock and Class A Common Stock is equal in respect to
dividends and other distributions in cash, stock or property, including
distributions in connection with any reclassification and upon liquidation,
dissolution, or winding up of the Company, except that (i) a dividend or
distribution in cash or property on a share of Common Stock may be greater than
any dividend or distribution in cash or property on a share of Class A Common
Stock, and (ii) dividends or other distributions payable on the Common Stock and
Class A Common Stock in shares of capital stock shall be made to all holders of
the Common Stock and Class A Common Stock and may be made (a) in shares of
Common Stock to the holders of Common Stock and to the holders of Class A Common
Stock, (b) in shares of Class A Common Stock to the holders of Class A Common
Stock and in shares of Common Stock to the holders of Common Stock, or (c) in
any other authorized class or series of capital stock to the holders of Common
Stock and Class A Common Stock. In no event will either Common Stock or Class A
Common Stock be split, subdivided or combined unless the other is
proportionately split, subdivided or combined.

Although the Board of Directors has authority to pay dividends and make
distributions on the Common Stock in amounts greater than on the Class A Common
Stock, the Board of Directors currently intends to pay dividends on an equal per
share basis.

36
<PAGE>

There are no redemption or sinking fund provisions applicable to the Common
Stock or the Class A Common Stock. Holders of Common Stock and Class A Common
Stock are not subject to further calls or assessments by the Company. All
outstanding shares of Common Stock and Class A Common Stock are, and the shares
of Common Stock to be offered by the Company in this Offering when validly
issued, will be, fully paid and non-assessable.

Except as otherwise required by the DGCL or as otherwise provided in the
Company's Certificate of Incorporation, each share of Common Stock and each
share of Class A Common Stock have identical powers, preferences, and rights in
all respects.

MERGERS AND CONSOLIDATIONS

Each holder of Common Stock and Class A Common Stock is entitled to receive
the same per share consideration in a merger or consolidation of the Company.

CONVERTIBILITY

Neither the Common Stock nor the Class A Common Stock will be convertible
into another class of capital stock or any other security of the Company, except
that in the event that a change of control occurs, (i) all of the then issued
shares of Common Stock will automatically convert into an equal number of shares
of Class A Common Stock, and (ii) all rights, warrants, or options to purchase
shares of Common Stock, or other securities convertible into shares of Common
Stock, will be converted into similar rights, warrants, or options to purchase,
or other securities convertible into, an equal number of shares of Class A
Common Stock. A change of control shall be deemed to have occurred if: (i) any
person or group of persons, other than members of the Swanstrom Family (as
defined below), directly or indirectly, purchases, or otherwise becomes the
beneficial owner of, or has the right to acquire such beneficial ownership of,
or, either solely or with others, acquires the right to vote or direct the
disposition of voting securities of the Company representing more than 50% of
the combined voting power of all outstanding voting securities of the Company,
or (ii) during any period of two consecutive years, the individuals who at the
beginning of such period constituted the Board of Directors (together with any
new director whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least two-thirds of the directors
then still in office who either were directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute at least a majority of the members of the Board of
Directors then in office. For purposes of this change of control provision, the
'Swanstrom Family' means Kenneth A. Swanstrom, Daryl L. Swanstrom, their
respective spouses, descendants, heirs, estates, trusts in which any such person
has a beneficial interest, and any partnership, corporation or other entity in
which any such person has a controlling interest.

CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS;
DELAWARE ANTI-TAKEOVER PROVISIONS

The Certificate of Incorporation and By-laws of the Company and Delaware
law contain certain provisions that may enhance the likelihood of continuity and
stability in the composition of the Board of Directors and may discourage a
future unsolicited takeover of the Company. These provisions could have the
effect of discouraging certain attempts to acquire the Company or remove
incumbent management, including incumbent members of the Board of Directors,
even if some or a majority of the Company's stockholders deemed such an attempt
to be in their best interests.

Article VIII of the Company's Certificate of Incorporation provides that
the Board of Directors may consider any and all of the following in connection
with its determination whether to oppose a tender or other offer for the
Company's securities: (i) whether the offer price is acceptable based upon the
historical and present operating results or financial condition of the Company;
(ii) whether a more favorable price could be obtained for the Company's
securities in the future; (iii) the impact that an acquisition of the Company
would have on the employees and customers of the Company and the communities in
which the Company operates; (iv) the reputation and business practices of the
offeror

37
<PAGE>

and its management and affiliates as they would affect the employees and
customers of the Company and the future value of the Company's securities; (v)
the value of the securities, if any, which the offeror is offering in exchange
for the Company's securities; and (vi) any antitrust or other legal and
regulatory issues that are raised by the offer. If the Board of Directors
determines that an offer should be rejected, Article VIII authorizes the Board
of Directors to take any lawful action to accomplish that purpose, including,
but not limited to, advising stockholders not to accept the offer, acquiring the
Company's securities, instituting litigation, selling or otherwise issuing
authorized but unissued securities or treasury stock, acquiring a company to
create antitrust or other regulatory problems, or soliciting a more favorable
offer.

Article IX of the Company's Certificate of Incorporation provides that the
Company shall not become a party to a business combination with a related person
unless: (i) the business combination is approved by a majority vote of the Board
of Directors of the Company either at a time prior to the time the related
person became a related person or after such time if the related person obtains
the affirmative vote of at least 80% of the Board of Directors of the
acquisition of the shares that caused such person to become a related person;
(ii) the business combination is approved by the affirmative vote of 80% of the
continuing directors and (a) the ratio of the amount of the consideration to be
received per share of Class A Common Stock of the Company to the market price
thereof immediately prior to the announcement of the business combination is at
least as great as the ratio of the highest per share price that the related
person paid in acquiring any shares prior to such business combination to the
market price per share immediately prior to the initial acquisition by the
related person of any shares of Class A Common Stock, (b) the amount of the
consideration to be received per share in the business combination is not less
than the highest price per share paid by the related person in acquiring any
shares of Class A Common Stock and is not less than the book value per share as
reflected on the Company's balance sheet for the immediately preceding fiscal
quarter, and (c) the consideration to be received per share other than by the
related person is in the same form and same kind as the consideration paid by
the related person in acquiring Class A Common Stock already owned by the
related person; and (iii) if there is not full compliance with the provisions as
described in clauses (i) and (ii) of this paragraph, the business combination
must be approved by the affirmative vote of the holders of 80% of the issued and
outstanding Class A Common Stock of the Company.

For purposes of Article IX, a 'business combination' includes a sale of all
or substantially all of the assets of the Company to the related person, a
merger or consolidation of the Company with the related person or any affiliate
of the related person, any reclassification of securities or other transaction
or series of transactions that has the effect of increasing the proportionate
amount of the shares beneficially owned by the related person or the acquisition
by the Company of all of the assets or business of the related person. A
'related person' includes any person who beneficially owns 10% or more of the
Class A Common Stock of the Company or who had been the beneficial owner of 10%
or more of the Class A Common Stock of the Company at any time within five years
preceding the business combination. A 'continuing director' is defined as an
individual who was first elected a director prior to May 1985, who was first
elected a director prior to the time that the related person became a 10%
beneficial owner or who was elected as a continuing director by a majority of
the then continuing directors.

The By-laws of the Company provide for a classified Board of Directors
consisting of three classes as nearly equal in size as possible. The
classification of the Board of Directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.

The Company is a Delaware corporation and consequently is subject to
certain anti-takeover provisions of the DGCL. The business combination provision
contained in Section 203 of the DGCL ('Section 203') defines an interested
stockholder of a corporation as any person that (i) owns, directly or
indirectly, or has the right to acquire, 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder, and

38
<PAGE>

the affiliates and the associates of such person. Under Section 203, a Delaware
corporation may not engage in any business combination with any interested
stockholder for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding, for determining the number of shares
outstanding, (a) shares owned by persons who are directors and officers and (b)
employee stock plans, in certain instances), or (iii) on or subsequent to such
date the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders by at least 66-2/3%
of the outstanding voting stock that is not owned by the interested stockholder.
The restrictions imposed by Section 203 will not apply to a corporation if the
corporation, by the action of its stockholders holding a majority of the
outstanding stock, adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203 (such amendment
will not be effective until 12 months after adoption and shall not apply to any
business combination between such corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption).

The Company has not elected to opt out of Section 203, and the restrictions
imposed by Section 203 apply to the Company. Section 203 could, under certain
circumstances, make it more difficult for a third party to gain control of the
Company, deny stockholders the receipt of a premium on their Common Stock and
Class A Common Stock and have a depressive effect on the market price of the
Common Stock and Class A Common Stock.

TRANSFERABILITY; TRADING MARKET

The Class A Common Stock and the Common Stock are freely transferable and
listed on the New York Stock Exchange.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Capital Stock is Chase Mellon
Shareholder Services, L.L.C. Its address for such purposes is P.O. Box 590,
Ridgefield Park, New Jersey 07660, and its telephone number at that address is
800-851-9677.

39
<PAGE>

UNDERWRITING

The Underwriters named below, for whom PaineWebber Incorporated is acting
as Representative (the 'Representative'), have severally agreed, subject to the
terms and conditions set forth in the Underwriting Agreement by and among the
Company, the Selling Stockholders and the Representative (the 'Underwriting
Agreement'), to purchase from the Company and the Selling Stockholders, and the
Company and the Selling Stockholders have agreed to sell to the Underwriters,
the respective number of shares of Common Stock set forth opposite their
respective names below:

<TABLE>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
PaineWebber Incorporated................................................................. 1,890,000
Dean Witter Reynolds Inc. ............................................................... 80,000
A. G. Edwards & Sons, Inc................................................................ 80,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated....................................... 80,000
Salomon Brothers Inc..................................................................... 80,000
Schroder Wertheim & Co. Incorporated..................................................... 80,000
Smith Barney Inc. ....................................................................... 80,000
Robert W. Baird & Co. Incorporated....................................................... 40,000
Cleary Gull Reiland & McDevitt Inc. ..................................................... 40,000
Dain Bosworth Incorporated............................................................... 40,000
Fahnestock & Co. Inc. ................................................................... 40,000
Janney Montgomery Scott Inc. ............................................................ 40,000
C. L. King & Associates.................................................................. 40,000
Ladenburg, Thalmann & Co., Inc........................................................... 40,000
Mesirow Financial........................................................................ 40,000
Pennsylvania Merchant Group, Ltd. ....................................................... 40,000
Ragen MacKenzie Inc...................................................................... 40,000
Unterberg Harris......................................................................... 40,000
Wheat, First Securities, Inc. ........................................................... 40,000
---------
Total.................................................................................. 2,850,000
=========
</TABLE>

In the Underwriting Agreement, the several Underwriters have agreed,
subject to certain conditions, to purchase all of the shares of Common Stock
being sold pursuant to the Underwriting Agreement (other than those covered by
the over-allotment option described below), if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances, the purchase commitments of
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.

The Company and the Selling Stockholders have been advised by the
Representative that the Underwriters propose to offer the Common Stock to the
public initially at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $.60 per share and that the Underwriters may allow and such dealers
may reallow, a concession not in excess of $.10 per share to other dealers. The
public offering price and other selling terms may be changed by the
Representative.

The Company has granted to the Underwriters an over-allotment option
exercisable during the 30-day period after the date of this Prospectus to
purchase up to 285,000 additional shares of Common Stock at the offering price
to the public less the underwriting discounts and commissions shown on the cover
page of this Prospectus. If the Underwriters exercise their over-allotment
option, the Underwriters have severally agreed, subject to certain conditions,
to purchase approximately the same percentage thereof that the number of shares
to be purchased by each of them, as shown in the foregoing table, bears to the
2,850,000 shares of Common Stock offered hereby. The Underwriters may exercise
the option only to cover over-allotments made in connection with the sale of the
shares of Common Stock offered hereby.

40
<PAGE>

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and any person who controls the Underwriters against certain
liabilities, including certain liabilities under the Securities Act.

The Underwriters have undertaken to satisfy the distribution standards of
the New York Stock Exchange with respect to the Offering.

The Company and its directors, certain officers, and the Swanstrom Family
have agreed that, for a period of 120 days after the date of this Prospectus,
they will not, directly or indirectly, assign, transfer, offer, sell,
hypothecate, or otherwise dispose of any shares of Capital Stock or any
securities convertible into or exchangeable for, or any rights to purchase or
acquire, Capital Stock, except pursuant to the Underwriting Agreement or the
granting of stock options and the issuance of shares pursuant to the Company's
stock option and stock purchase plans and bona fide gifts of shares by
directors, officers, or members of the Swanstrom Family to family members or to
charities, without the prior written consent of the Representative.

LEGAL MATTERS

Certain legal matters in connection with this Offering, including the
validity of the shares of Common Stock offered hereby, will be passed upon for
the Company and the Selling Stockholders by Duane, Morris & Heckscher, 4200 One
Liberty Place, Philadelphia, Pennsylvania 19103-7396. Certain legal matters
relating to this Offering will be passed upon for the Underwriters by McDermott,
Will & Emery, 227 West Monroe Street, Chicago, Illinois 60606-5096. Thomas M.
Hyndman, Jr., a director of the Company, is Of Counsel to the firm of Duane,
Morris & Heckscher and owns 1,710 shares of Common Stock and 570 shares of Class
A Common Stock. Mr. Hyndman also holds in various fiduciary capacities for
members of the Swanstrom Family an aggregate of 1,262,670 shares of Common Stock
and an aggregate of 420,890 shares of Class A Common Stock.

EXPERTS

The Company's financial statements as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement (which reports express an unqualified opinion and include an
explanatory paragraph referring to a change in the method of accounting for
income taxes), and have been so included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the year ended December 31,
1995, the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996, and the Company's Proxy Statement dated April 29, 1996, with the
exception of the Compensation Committee Report and Performance Graph included
therein, filed with the Commission are hereby incorporated by reference in this
Prospectus except as superseded or modified herein. Any statement contained in
any document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person, including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the documents that have been or may be incorporated by reference herein (other
than exhibits to such documents which are not specifically incorporated by
reference into such documents). Such requests should be directed to the
Company's Corporate Secretary at its principal executive offices at P.O. Box
1000, Danboro, Pennsylvania 18916, or by telephone at (215) 766-8853.

41
<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements, and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington D.C. 20549, and at the Commission's
following Regional Offices: New York Regional Office, 7 World Trade Center, New
York, New York 10048; and Chicago Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material may also be obtained at prescribed rates from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549-1004. Quotations relating to the Company's Capital Stock appear on
the American Stock Exchange and such reports and other information concerning
the Company can also be inspected at the offices of the American Stock Exchange,
86 Trinity Place, New York, New York 10006.

The Company has filed with the Commission a Registration Statement on Form
S-2 under the Securities Act of 1933 (the 'Securities Act') with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete; and with respect to each such contract or document
filed as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matters involved, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement and exhibits thereto. The information so omitted,
including exhibits, may be obtained from the Commission at its principal office
in Washington, D.C. upon payment of the prescribed fees, or may be inspected
without charge at the public reference facilities of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549-1004.

<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------

<S> <C>
Independent Auditors' Report........................................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and
(unaudited) March 31, 1996........................................................................... F-3
Statements of Consolidated Income and Retained Earnings
for the years ended December 31, 1993, 1994 and 1995 and
(unaudited) for the three-month periods ended March 31, 1995 and 1996................................ F-4
Statements of Consolidated Cash Flows for the years ended December 31, 1993,
1994 and 1995 and (unaudited) for the three-month periods ended March 31, 1995 and 1996.............. F-5
Notes to Consolidated Financial Statements............................................................. F-6
</TABLE>

F-1

<PAGE>

To the Stockholders and Board of Directors
of Penn Engineering & Manufacturing Corp.

We have audited the accompanying consolidated balance sheets of Penn
Engineering & Manufacturing Corp. and subsidiaries (the 'Company') as of
December 31, 1994 and 1995 and the related statements of consolidated income and
retained earnings and of consolidated cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1994 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

As discussed in Note 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective January 1,
1993 to conform with Statement of Financial Accounting Standards No. 109.

Deloitte & Touche LLP
Philadelphia, Pennsylvania

February 6, 1996
(April 17, 1996 as to Note 11)

F-2

<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1994 1995 1996
--------- --------- -----------
(DOLLARS IN THOUSANDS EXCEPT
SHARE AMOUNTS)
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 6,106 $ 1,459 $ 3,402
Short-term investments............................................. 5,303 5,988 5,606
Accounts receivable (less allowance for doubtful accounts-
1994, $800; 1995, $900; March 31, 1996, $900)................... 20,059 20,845 22,154
Inventories........................................................ 17,637 20,275 25,146
Deferred income taxes.............................................. 897 959 961
Other current assets............................................... 1,107 2,557 3,262
--------- --------- -----------
Total current assets......................................... 51,109 52,083 60,531
--------- --------- -----------
PROPERTY-At cost:
Land and improvements.............................................. 2,247 3,699 3,702
Buildings and improvements......................................... 14,089 15,843 17,095
Machinery and equipment............................................ 43,416 57,295 62,283
--------- --------- -----------
Total........................................................ 59,752 76,837 83,080
Less accumulated depreciation...................................... 30,832 34,896 35,852
--------- --------- -----------
Total property-net........................................... 28,920 41,941 47,228
--------- --------- -----------
OTHER ASSETS......................................................... 2,098 2,050 2,186
--------- --------- -----------
TOTAL........................................................ $ 82,127 $ 96,074 $ 109,945
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................................... $ 2,750 $ 4,303 $ 5,538
Notes payable...................................................... 1,500 11,000
Dividend payable................................................... 470
Accrued expenses:
Pension and profit sharing...................................... 2,736 3,984 1,586
Income taxes.................................................... 813 468 1,773
Payroll and commissions......................................... 2,654 2,426 3,512
Other........................................................... 544 521 700
--------- --------- -----------
Total current liabilities.................................... 9,497 13,202 24,579
--------- --------- -----------
ACCRUED PENSION COST................................................. 5,370 4,715 4,715
--------- --------- -----------
DEFERRED INCOME TAXES................................................ 1,350 2,066 2,284
--------- --------- -----------
STOCKHOLDERS' EQUITY (See Note 11):
Common stock -- authorized 3,000,000 shares of $1.00 par value
each; issued 1,772,025 shares................................... 1,772 1,772 1,772
Additional paid-in capital......................................... 932 932 932
Retained earnings.................................................. 64,521 74,905 77,304
Unrealized (loss) on investments (net of tax)...................... (140) (60) (64)
Cumulative foreign currency translation adjustment.............. (223) (506) (625)
--------- --------- -----------
Total........................................................ 66,862 77,043 79,319
--------- --------- -----------
Less cost of treasury stock -- 64,943 shares....................... 952 952 952
--------- --------- -----------
Total stockholders' equity................................... 65,910 76,091 78,367
--------- --------- -----------
TOTAL........................................................ $ 82,127 $ 96,074 $ 109,945
--------- --------- -----------
--------- --------- -----------
</TABLE>

See the accompanying notes to the consolidated financial statements.

F-3

<PAGE>

STATEMENTS OF CONSOLIDATED INCOME AND RETAINED EARNINGS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

<S> <C> <C> <C> <C> <C>
NET SALES........................................ $ 100,665 $ 121,470 $ 141,268 $ 35,298 $ 39,029
OTHER INCOME -- Net.............................. 387 627 1,099 349 135
----------- ----------- ----------- ----------- -----------
Total...................................... 101,052 122,097 142,367 35,647 39,164
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold.......................... 70,979 83,128 96,190 24,630 27,477
Selling expenses............................... 10,885 13,634 14,867 3,504 4,109
General and administrative expenses............ 7,711 8,208 9,189 2,513 3,004
----------- ----------- ----------- ----------- -----------
Total...................................... 89,575 104,970 120,246 30,647 34,590
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF 1993 ACCOUNTING CHANGE...................... 11,477 17,127 22,121 5,000 4,574
PROVISION FOR INCOME TAXES....................... 4,548 6,686 8,323 1,977 1,705
----------- ----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF 1993
ACCOUNTING CHANGE.............................. 6,929 10,441 13,798 3,023 2,869
CUMULATIVE EFFECT OF 1993 ACCOUNTING CHANGE...... 423
----------- ----------- ----------- ----------- -----------
NET INCOME....................................... 7,352 10,441 13,798 3,023 2,869
RETAINED EARNINGS AT BEGINNING OF PERIOD ........ 51,294 56,683 64,521 64,521 74,905
DIVIDENDS ON COMMON STOCK
(Historical per share -- 1993, $1.15; 1994,
$1.525; 1995, $2.00; March 31, 1995, $.275;
March 31, 1996, $.275) (Pro forma per share
-- 1993, $.2875; 1994, $.38125; 1995, $.50;
March 31, 1995, $.069; March 31, 1996,
$.069) (See Note 11)......................... (1,963) (2,603) (3,414) (470) (470)
----------- ----------- ----------- ----------- -----------
RETAINED EARNINGS AT END OF PERIOD............... $ 56,683 $ 64,521 $ 74,905 $ 67,074 $ 77,304
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
INCOME PER SHARE -- Historical
Weighted average number of shares of common
stock outstanding during the period.......... 1,707,082 1,707,082 1,707,082 1,707,082 1,707,082
Income before cumulative effect of 1993
accounting change.......................... $ 4.06 $ 6.12 $ 8.08 $ 1.77 $ 1.68
Cumulative effect of 1993 accounting change.. .25
----------- ----------- ----------- ----------- -----------
Net income................................... $ 4.31 $ 6.12 $ 8.08 $ 1.77 $ 1.68
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
INCOME PER SHARE -- Pro forma (See Note 11)
Weighted average number of shares of common
stock outstanding during the period.......... 6,828,328 6,828,328 6,828,328 6,828,328 6,828,328
Income before cumulative effect of 1993
accounting change.......................... $ 1.01 $ 1.53 $ 2.02 $ 0.44 $ 0.42
Cumulative effect of 1993 accounting change.. .07
----------- ----------- ----------- ----------- -----------
Net income................................. $ 1.08 $ 1.53 $ 2.02 $ 0.44 $ 0.42
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>

See the accompanying notes to the consolidated financial statements.

F-4

<PAGE>

STATEMENTS OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 7,352 $ 10,441 $ 13,798 $ 3,023 $ 2,869
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation....................................... 3,180 3,425 4,165 1,030 1,181
Loss (gain) on disposal of property................ 5 (2) 17 2 27
Loss (gain) on disposal of investments............. (6) 34 (41)
Reserve for impairment on short-term investments... (100)
Changes in assets and liabilities:
(Increase) in receivables.......................... (792) (4,718) (786) (401) (1,309)
(Increase) decrease in inventories................. (1,150) 3,496 (2,638) (440) (4,871)
(Increase) decrease in other current assets........ 646 (523) (1,450) (78) (705)
(Increase) decrease in deferred income
taxes-current................................... (31) 1 (62) (49) (2)
(Increase) in other assets......................... (1,490) (560) (232) (136)
Increase (decrease) in accounts payable............ (1,119) 385 1,553 1,188 1,235
Increase in accrued expenses....................... 701 852 652 2,182 172
Increase (decrease) in accrued pension costs....... 896 201 (655) 127
Increase (decrease) in deferred income taxes-
noncurrent...................................... (541) 208 716 (54) 218
--------- --------- --------- --------- ---------
Net cash provided (used) by operating activities... 9,041 12,310 14,709 6,298 (1,321)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions..................................... (8,354) (3,833) (17,213) (2,932) (6,518)
Additions to available-for-sale and held-to-maturity
investments.......................................... (13,266) (28,343) (7,353) (829)
Additions to investments............................... (1,400)
Proceeds from disposal of available-for-sale and
held-to-maturity investments......................... 12,079 28,440 1,998 1,205
Proceeds from disposal of investments.................. 714
Proceeds from disposal of property..................... 6 13 3 7
--------- --------- --------- --------- ---------
Net cash (used) in investing activities............ (9,034) (5,007) (17,113) (8,287) (6,135)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (repayments)................. 1,152 (1,152) 1,500 9,500
Dividends paid......................................... (1,963) (2,603) (3,414)
--------- --------- --------- --------- ---------
Net cash provided (used) in financing activities... (811) (3,755) (1,914) 9,500
--------- --------- --------- --------- ---------
Effect of exchange rate changes on cash................ (58) 358 (329) 174 (101)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents... (862) 3,906 (4,647) (1,815) 1,943
Cash and cash equivalents at beginning of period....... 3,062 2,200 6,106 6,106 1,459
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............. $ 2,200 $ 6,106 $ 1,459 $ 4,291 $ 3,402
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Income taxes......................................... $ 5,230 $ 6,008 $ 8,062 $ 322 $ 181
Interest............................................. 181 66 10 13
</TABLE>

See the accompanying notes to the consolidated financial statements.

F-5
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company include the accounts
of Penn Engineering & Manufacturing Corp. and its wholly owned subsidiaries, PEM
International Ltd., PEM International (Singapore) Pte Ltd., PEM Investment,
Inc., PEM Management, Inc., and PEM World Sales Limited. All significant
intercompany transactions and balances are eliminated in consolidation.

INVESTMENTS

The Company adopted as of January 1, 1994, the accounting and disclosure
requirements of the Statement of Financial Accounting Standards No. 115 (SFAS
No. 115), 'Accounting for Certain Investments in Debt and Equity Securities'
(Note 2). For years prior to 1994, the Company accounted for investments under
the provisions of SFAS No. 12. Investments are classified as short-term if the
maturities at December 31 are less than one year.

INVENTORIES

The Company's domestic fastener inventories are priced on the last-in,
first-out (LIFO) method, at the lower of cost or market. Other inventories,
representing approximately 72%, 70%, and 67% of total inventories at December
31, 1994, 1995, and March 31, 1996, respectively, are priced on the first-in,
first-out (FIFO) method, at the lower of cost or market.

PROPERTY

Depreciation is calculated under the straight-line method over the
estimated useful lives of the respective assets, generally 3-5 years for tooling
and computer equipment, 10 years for furniture, fixtures and machinery, and
25-40 years for buildings. Maintenance and repairs are charged to income and
major renewals and betterments are capitalized. At the time properties are
retired or sold, the cost and related accumulated depreciation are eliminated
and any gain or loss is included in income.

INCOME TAXES

The Company adopted as of January 1, 1993, the accounting and disclosure
requirements of the Statement of Financial Accounting Standards No. 109 (SFAS
No. 109), 'Accounting for Income Taxes'. Under SFAS No. 109, the deferred tax
provision is determined using the liability method. Under this method, deferred
tax assets and liabilities are recognized based on differences between financial
statement and tax bases of assets and liabilities using presently enacted tax
rates.

STATEMENT OF CONSOLIDATED CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include
cash on deposit, cash in excess of daily requirements which is invested in
overnight repurchase agreements, and other interest bearing accounts
withdrawable on a daily basis.

RESEARCH AND DEVELOPMENT COSTS

The Company expenses all research and development costs as incurred.

FOREIGN CURRENCY TRANSACTIONS

The effects of translating the financial statements of PEM International
Ltd. and, in 1996, PEM International (Singapore) Pte Ltd. are recorded as a
separate component of Stockholders' Equity in the consolidated financial
statements. All assets and liabilities are translated at the year-end or
quarter-end exchange rate while all income and expense accounts are translated
at the weighted average rate for the year-to-date.

Gains and losses resulting from transactions of the Company and its
subsidiaries which are made in currency different from their own are included in
income as they occur. Total foreign currency transaction gains (losses) of
($104,000), $109,000, and $174,000 were recorded in 1993, 1994, and

F-6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

1. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

1995, respectively. Total foreign currency transaction gains (losses) for the
three months ended March 31, 1995 and 1996 were $150,000 and ($7,000),
respectively.

Forward foreign currency exchange contracts are purchased to insulate
revenue streams from the impact of foreign currency fluctuations. The effect of
this practice is to minimize variability in the Company's operating results
arising from foreign exchange rate movements. Gains and losses on forward
exchange contracts are recognized currently in income. These contracts have
maturities that do not exceed one year and require the Company to exchange
foreign currency for U.S. dollars at maturity. The Company had foreign exchange
contracts of $9.4 million outstanding at both December 31, 1994 and 1995 and
$13.2 million outstanding at March 31, 1996, which approximated their fair
value. The fair value of these foreign exchange contracts is the amount the
Company would receive or pay to terminate the contracts using quoted market
rates.

USE OF ESTIMATES

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

RECLASSIFICATIONS

Certain reclassifications have been made to prior year amounts and balances
to conform with the 1995 presentation.

2. INVESTMENTS

In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 115, 'Accounting for Certain Investments
in Debt and Equity Securities' (SFAS No. 115). As discussed in Note 1 (b), the
Company elected to adopt SFAS No. 115 effective January 1, 1994. The cumulative
and current year effect of the accounting change is not considered to be
significant. SFAS No. 115 requires the Company to account for debt and equity
securities as follows:

Trading -- The Company holds no investments that were designated as trading
securities.

Held-to-Maturity -- Securities that management has the positive intent and
ability to hold until maturity. These investments are carried at their remaining
unpaid principal balance net of any unamortized premiums or discounts. The
following is a summary of the net unpaid principal value of held-to-maturity
securities at December 31, 1994 and 1995 and March 31, 1996.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities and securities of U.S. Government
agencies:
Short-Term Investments...................................... $ 2,712 $ 4,466 $ 4,090
Long-Term Investments....................................... 608
------------- ------------- -----------
TOTAL................................................. $ 3,320 $ 4,466 $ 4,090
------------- ------------- -----------
------------- ------------- -----------
</TABLE>

Available-for-Sale -- Securities that will be held for indefinite periods
of time. These investments are carried at market value which is determined using
published quotes as of the close of business on December 31, 1994 and 1995 and
March 31, 1996. Unrealized gains and losses are excluded from earnings and are
reported net of tax as a separate component of equity until realized. Unrealized
losses

F-7

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

2. INVESTMENTS -- CONTINUED

were $140,000, net of taxes of $93,000 at December 31, 1994, $60,000, net of
taxes of $39,000 at December 31, 1995, and $64,000, net of taxes of $41,000 at
March 31, 1996. The following is a summary of the estimated fair value of
short-term available-for-sale securities at December 31, 1994 and 1995 and March
31, 1996:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Mutual Common Stock Funds..................................... $ 1,075 $ 571 $ 564
U.S. Government Security Income Fund.......................... 939 759 764
State and Municipal Bond Funds................................ 577 192 188
------------- ------------- -----------
TOTAL.................................................... $ 2,591 $ 1,522 $ 1,516
------------- ------------- -----------
------------- ------------- -----------
</TABLE>

3. INVENTORIES

At December 31, 1994 and 1995 and March 31, 1996 inventories comprised:

<TABLE>
<S> <C> <C> <C>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
Raw material.................................................. $ 3,585 $ 4,570 $ 4,806
Tooling....................................................... 2,741 3,610 3,851
Work-in-process............................................... 5,099 6,512 7,970
Finished goods................................................ 6,212 5,583 8,519
------------ ------------ -----------
TOTAL.................................................... $ 17,637 $ 20,275 $ 25,146
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

If the FIFO method of inventory valuation had been used for all inventories
by the Company, inventories at December 31, 1993, 1994, 1995, and March 31,
1996, would have been $7.5 million, $7.6 million, $8.0 million, and $8.3 million
higher and net income would have been $487,000, $77,000, and $240,000 higher
than reported for the years ended December 31, 1993, 1994 and 1995, respectively
and would have been $55,000 and $192,000 higher than reported for the three
months ended March 31, 1995 and 1996, respectively.

A reduction in inventory quantities for the year ended December 31, 1994
resulted in the liquidation of LIFO inventory quantities carried at lower
manufacturing costs prevailing in prior years compared with current year
manufacturing costs. The effect of such a reduction was to increase 1994 net
income by approximately $832,000.

Included in other assets is long-term tooling inventory totaling $1.5
million, $2.0 million, and $2.2 million at December 31, 1994 and 1995 and March
31, 1996, respectively.

4. LINES OF CREDIT

At December 31, 1995 and March 31, 1996, the Company had available unused
short-term lines of credit totaling approximately $36.0 million and $26.5
million, respectively. Borrowings under these lines totaled $1.5 million and
$11.0 million at an effective interest rate of 6.71% and 6.44% at December 31,
1995 and March 31, 1996, respectively.

5. PENSION AND PROFIT SHARING PLANS

The Company has a defined benefit pension plan covering substantially all
employees in the United States. The benefits are based on years of service and
the employee's earned compensation

F-8

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

5. PENSION AND PROFIT SHARING PLANS -- CONTINUED
during any period of the highest 60 consecutive months occurring during the last
ten years of employment. The Company's policy is to fund at least the minimum
pension payment required for federal income tax qualification purposes. Plan
provisions and funding meet the requirements of the Employee Retirement Income
Security Act of 1974.

The Company records pension costs in accordance with Statement of Financial
Accounting Standards No. 87. The total pension expense for the years ended
December 31, 1993, 1994, and 1995 was $1.9 million, $1.9 million, and $1.8
million, respectively. The total pension expense for the three months ended
March 31, 1995 and 1996 was $545,000 and $634,000, respectively. The following
table sets forth the plans' funded status and amounts recognized in the
Company's consolidated financial statements for the years ended December 31,
1994 and 1995:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested employees........................................................................ $ 9,897 $ 13,301
Non-vested employees.................................................................... 170 365
--------- ---------
Total................................................................................... $ 10,067 $ 13,666
--------- ---------
--------- ---------
Projected plan benefit obligation for services rendered to date......................... $ 17,313 $ 24,807
Plan assets at fair value (primarily listed stocks, bonds, and cash equivalents)........ (12,452) (17,230)
--------- ---------
Excess of projected benefit obligation over plan assets................................. 4,861 7,577
Unrecognized net (gain) loss from past experience different from that assumed and
effects of changes in assumptions..................................................... 762 (2,494)
Unrecognized net asset at January 1, 1987 being recognized over
15 years.............................................................................. 443 380
--------- ---------
Total accrued pension cost.............................................................. $ 6,066 $ 5,463
--------- ---------
--------- ---------
Current pension cost payable.................................................... $ 696 $ 748
Accrued pension cost -- noncurrent.............................................. $ 5,370 $ 4,715
</TABLE>

Net pension cost for 1993, 1994, and 1995 included the following
components:

<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period................................ $ 1,486 $ 1,586 $ 1,426
Interest cost on projected benefit obligation................................. 1,263 1,339 1,435
Actual return on plan assets.................................................. (877) 355 (3,261)
Net amortization and deferral................................................. (54) (1,450) 2,132
--------- --------- ---------
Net periodic pension cost..................................................... $ 1,818 $ 1,830 $ 1,732
--------- --------- ---------
--------- --------- ---------
</TABLE>

The assumed discount rate, rate of increase in long-term compensation
levels, and expected long-term rate of return on assets were 7% (7% in 1993 and
8% in 1994), 6%, and 8%, respectively. The increase in the discount rate from 7%
in 1993 to 8% in 1994 caused a decrease in the projected benefit obligation of
approximately $3.9 million. The decrease in the discount rate from 8% in 1994 to
7% in 1995 caused an increase in the projected benefit obligation of
approximately $4.6 million.

The Company has profit sharing plans covering all eligible employees in the
United States. Contributions and costs are determined as the lesser of 25% of
income before income taxes and profit sharing cost or 10% of each covered
employee's salary, and totaled $2.5 million, $3.0 million, and $3.2

F-9

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

5. PENSION AND PROFIT SHARING PLANS -- CONTINUED

million for the years ended December 31, 1993, 1994, and 1995, respectively, and
totaled $837,000 and $953,000 for the three months ended March 31, 1995 and
1996, respectively.

6. INCOME TAXES

As discussed in Note 1(e), effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes' (SFAS No. 109). The adoption of SFAS No. 109 resulted in an increase in
net income of $423,000, or $.25 per share, reflecting the cumulative effect of
the change for periods prior to January 1, 1993. The effect of the change on
1993 income before cumulative effect of accounting change is not considered to
be significant.

The income tax (benefit) provision consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
------------- ------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal..................................... $ 3,826 $ 5,234 $ 6,837 $ 1,751 $ 1,327
State....................................... 870 1,303 863 356 160
------------- ------------- ------------- ----------- -----------
Total current tax provision........... 4,696 6,537 $ 7,700 $ 2,107 $ 1,487
------------- ------------- ------------- ----------- -----------
Deferred:
Federal..................................... (131) 133 553 (116) 189
State....................................... (17) 16 70 (14) 29
------------- ------------- ------------- ----------- -----------
Total deferred tax (benefit).......... (148) 149 623 (130) 218
------------- ------------- ------------- ----------- -----------
Total income tax provision............ $ 4,548 $ 6,686 $ 8,323 $ 1,977 $ 1,705
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>

The significant components of the Company's net deferred tax assets and
liabilities are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Pension..................................................... $ 2,152 $ 1,854 $ 1,854
Allowance for doubtful accounts............................. 312 346 346
Inventory................................................... 312 343 343
Other....................................................... 278 290 292
------------- ------------- -----------
Total deferred tax asset.............................. 3,054 2,833 2,835
------------- ------------- -----------
Deferred tax liabilities:
Property.................................................... 3,437 3,847 3,971
Other....................................................... 70 93 187
------------- ------------- -----------
Total deferred tax liability............................. 3,507 3,940 4,158
------------- ------------- -----------
Net deferred tax liability.................................... $ 453 $ 1,107 $ 1,323
------------- ------------- -----------
------------- ------------- -----------
</TABLE>

F-10

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

6. INCOME TAXES -- CONTINUED

A reconciliation between the provision for income taxes, computed by
applying the statutory federal income tax rate to income before taxes, and the
actual provision for income taxes on such income is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
------------- ------------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Federal income tax provision at statutory
rate........................................ $ 3,902 $ 5,958 $ 7,742 $ 1,750 $ 1,601
State income taxes, after deducting federal
income tax benefit.......................... 574 860 606 222 123
Interest and dividend income excluded from
taxable income.............................. (34) (24) (23) (11) (3)
Other......................................... 106 (108) (2) 16 (16)
------------- ------------- ------------- ----------- -----------
Actual provision for income taxes............. $ 4,548 $ 6,686 $ 8,323 $ 1,977 $ 1,705
------------- ------------- ------------- ----------- -----------
------------- ------------- ------------- ----------- -----------
</TABLE>

7. CERTAIN TRANSACTIONS

The Company sold fasteners at standard authorized distributor prices to a
corporation, an officer and director of which is also a director of the Company,
in the amounts of $4.0 million, $7.1 million, and $7.9 million for the years
ended December 31, 1993, 1994, and 1995, respectively, and $2.6 million and $1.7
million for the three months ended March 31, 1995 and 1996, respectively. The
Company also made purchases from this party in the amounts of $323,000,
$356,000, and $320,000 for the years ended December 31, 1993, 1994, and 1995,
respectively, and $57,000 and $171,000 for the three months ended March 31, 1995
and 1996, respectively. At December 31, 1994 and 1995 and March 31, 1996, the
Company has trade receivables due from this party in the amounts of $821,000,
$778,000, and $1.1 million, respectively.

8. COMMITMENTS

The Company has operating leases covering certain automobiles and office
equipment. Rental and operating lease expense charged against earnings were
$416,000, $374,000, and $429,000 for the years ended December 31, 1993, 1994,
and 1995, respectively, and were $94,000 and $130,000 for the three months ended
March 31, 1995 and 1996, respectively.

9. CONTINGENCIES

The Company is exposed to asserted and unasserted potential claims
encountered in the normal course of business. Based on the advice of legal
counsel, management believes that the final resolution of these matters will not
materially affect the Company's consolidated financial position or results of
operations.

F-11

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

10. FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY

Information about the operations of the Company in different industry
segments for 1993, 1994, 1995, and for the three months ended March 31, 1995 and
1996 follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
--------------------------------------
FASTENERS MOTORS CONSOLIDATED
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................. $ 77,192 $ 23,473 $ 100,665
----------- ----------- ------------
Operating profit.......................................................... $ 9,346 $ 1,744 $ 11,090
Other income.............................................................. 387
------------
Income before income taxes................................................ $ 11,477
------------
------------
Identifiable assets....................................................... $ 54,215 $ 12,393 $ 66,608
Corporate assets.......................................................... 6,934
------------
Total assets at December 31, 1993......................................... $ 73,542
------------
------------
Depreciation.............................................................. $ 2,686 $ 494 $ 3,180
Capital expenditures...................................................... $ 7,815 $ 539 $ 8,354
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------
FASTENERS MOTORS CONSOLIDATED
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................. $ 96,067 $ 25,403 $ 121,470
----------- ----------- ------------
Operating profit.......................................................... $ 14,152 $ 2,348 $ 16,500
Other income.............................................................. 627
------------
Income before income taxes................................................ $ 17,127
------------
------------
Identifiable assets....................................................... $ 61,490 $ 12,684 $ 74,174
Corporate assets.......................................................... 7,953
------------
Total assets at December 31, 1994......................................... $ 82,127
------------
------------
Depreciation.............................................................. $ 2,932 $ 493 $ 3,425
Capital expenditures...................................................... $ 3,307 $ 526 $ 3,833
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
FASTENERS MOTORS CONSOLIDATED
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................. $ 113,323 $ 27,945 $ 141,268
----------- ----------- ------------
Operating profit.......................................................... $ 18,353 $ 2,669 $ 21,022
Other income.............................................................. 1,099
------------
Income before income taxes and cumulative effect of accounting change..... $ 22,121
------------
------------
Identifiable assets....................................................... $ 74,328 $ 13,654 $ 87,982
Corporate assets.......................................................... 8,092
------------
Total assets at December 31, 1995......................................... $ 96,074
------------
------------
Depreciation.............................................................. $ 3,686 $ 479 $ 4,165
Capital expenditures...................................................... $ 16,464 $ 749 $ 17,213
</TABLE>

F-12

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

10. FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY -- CONTINUED

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1995
----------------------------------
FASTENERS MOTORS CONSOLIDATED
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................... $ 28,301 $ 6,997 $ 35,298
--------- --------- ------------
Operating profit............................................................ $ 4,153 $ 498 $ 4,651
Other income................................................................ 349
------------
Income before income taxes.................................................. $ 5,000
------------
------------
Identifiable assets......................................................... $ 62,725 $ 13,282 $ 76,007
Corporate assets............................................................ 12,848
------------
Total assets at March 31, 1995.............................................. $ 88,855
------------
------------
Depreciation................................................................ $ 915 $ 115 $ 1,030
Capital expenditures........................................................ $ 2,835 $ 97 $ 2,932
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
----------------------------------
FASTENERS MOTORS CONSOLIDATED
--------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................................... $ 31,475 $ 7,554 $ 39,029
--------- --------- ------------
Operating profit............................................................ $ 3,937 $ 501 $ 4,438
Other income................................................................ 136
------------
Income before income taxes.................................................. $ 4,574
------------
------------
Identifiable assets......................................................... $ 87,778 $ 14,454 $ 102,232
Corporate assets............................................................ 7,713
------------
Total assets at March 31, 1996.............................................. $ 109,945
------------
------------
Depreciation................................................................ $ 1,057 $ 124 $ 1,181
Capital expenditures........................................................ $ 6,169 $ 349 $ 6,518
</TABLE>

The Company operates in two industries, fastener products and electric
motors. Operating profit is net sales less costs and expenses. Identifiable
assets by industry are those assets that are used in the Company's operations in
each industry. Sales of fasteners to one customer (an authorized distributor of
the Company) totaled approximately $14.3 million, $16.6 million, and $20.9
million for the years ended December 31, 1993, 1994, and 1995, respectively
(approximately 14% of consolidated net sales in 1993 and 1994 and 15% of
consolidated net sales in 1995). For the three months ended March 31, 1995 and
1996, sales to this customer totaled approximately $4.3 million and $4.9
million, respectively (approximately 12% and 13% of consolidated net sales for
the three months ended March 31, 1995 and 1996, respectively).

Sales of PEM International Ltd. totaled approximately $12.0 million, $17.4
million, and $22.9 million for the years ended December 31, 1993, 1994, and
1995, respectively (approximately 12%, 14%, and 16% of consolidated net sales in
1993, 1994, and 1995, respectively). Sales of PEM International Ltd. and PEM
International (Singapore) Pte Ltd. totaled approximately $6.4 million and $7.2
million for the three months ended March 31, 1995 and 1996, respectively
(approximately 18% and 19% of consolidated net sales for the three months ended
March 31, 1995 and 1996, respectively). Sales from the parent Company to PEM
International Ltd. and PEM International (Singapore) Pte Ltd. result in profit
margins which are representative of those obtained from sales to unaffiliated
distributors. PEM International Ltd.'s income (loss) before taxes totaled
$354,000, ($17,000), and

F-13

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)--(CONTINUED)

10. FINANCIAL REPORTING FOR SEGMENTS OF THE COMPANY -- CONTINUED

$605,000 for the years ended December 31, 1993, 1994, and 1995, respectively and
totaled $112,000 and $265,000 for the three months ended March 31, 1995 and
1996, respectively. PEM International (Singapore) Pte Ltd. began operations on
March 1, 1996 and had income of $10,000 for the period ended March 31, 1996. PEM
International Ltd.'s assets represented approximately 13% and 12% of
consolidated total assets as of December 31, 1994 and 1995, respectively, and
together with PEM International (Singapore) Pte Ltd. represented approximately
15% of consolidated total assets as of March 31, 1996. Export sales, other than
to PEM International Ltd. and PEM International (Singapore) Pte Ltd., totaled
approximately $8.6 million, $10.1 million, and $12.6 million for the years ended
December 31, 1993, 1994, and 1995, respectively, (approximately 8% of
consolidated net sales in 1993 and 1994 and 9% of consolidated net sales in
1995). For the three months ended March 31, 1995 and 1996 export sales totaled
$2.6 million and $1.8 million, respectively, (approximately 7% and 5% of
consolidated net sales for the three months ended March 31, 1995 and 1996,
respectively).

11. SUBSEQUENT EVENT

On April 17, 1996, the Board of Directors authorized a reclassification of
the Company's existing common stock whereby each share of existing $1.00 par
value voting common stock was exchanged for one share of new $.01 par value
Class A voting common stock (the 'Stock Reclassification'). Immediately after
the Stock Reclassification, the Board authorized a 4-for-1 stock split, effected
in the form of a stock dividend, payable in shares of $.01 par value non-voting
common stock to stockholders of record on May 3, 1996 (the 'Stock Dividend').
Stockholders' equity as of December 31, 1994 and 1995 and March 31, 1996,
adjusted to give pro forma effect to the Stock Reclassification and the Stock
Dividend, is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STOCKHOLDERS' EQUITY -- PRO FORMA:
Common stock class A -- authorized 3,000,000 shares of $.01 par
value each; issued 1,772,025 shares.............................. $ 18 $ 18 $ 18
Common stock -- authorized 20,000,000 shares of $.01 par value
each; issued 5,316,075 shares.................................... 53 53 53
Additional paid-in capital......................................... 2,686 2,686 2,686
Retained earnings.................................................. 64,468 74,852 77,251
Unrealized (loss) on investments (net of tax)...................... (140) (60) (64)
Cumulative foreign currency translation adjustment................. (223) (506) (625)
------------ ------------ -----------
Total......................................................... 66,862 77,043 79,319
Less cost of treasury stock -- 259,772 shares...................... 952 952 952
------------ ------------ -----------
Total stockholders' equity.................................... $ 65,910 $ 76,091 $ 78,367
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

Accordingly, all references in the financial statements to average numbers
of shares outstanding and per share amounts have been stated at their historical
amounts as well as adjusted to give pro forma effect to the Stock
Reclassification and the Stock Dividend.

F-14

In the Printed version Graphics
Appear Here:

Graphic -- Photo Of PEMSERTER(R) Series 2000 (TM)FASTENER

Installation Press

Graphic -- Photo Of PEM(R) Inserts For Plastics

Graphic -- Photo Of Fasteners Wire Formed With Customized Tooling

Graphic -- Photo Of A Machine With The Caption Of

A Worldwide Reputation For Rigorous Quality Control

Graphic -- Photo Of Fasteners Manufactured On Over 300

Screw Machines

F-15

<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.

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

TABLE OF CONTENTS

PAGE
---------
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Reclassification................................ 9
Price Range of Capital Stock and
Dividends..................................... 10
Dividend Policy................................. 11
Use of Proceeds................................. 11
Capitalization.................................. 12
Selected Consolidated Financial Data............ 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 14
Business........................................ 20
Management...................................... 30
Principal and Selling Stockholders.............. 32
Description of Capital Stock.................... 36
Underwriting.................................... 40
Legal Matters................................... 41
Experts......................................... 41
Incorporation of Certain Documents by
Reference..................................... 41
Available Information........................... 42
Index to Consolidated Financial Statements...... F-1

2,850,000 SHARES

[LOGO]

PENN ENGINEERING &
MANUFACTURING CORP.

COMMON STOCK

------------------------
PROSPECTUS
------------------------

PAINEWEBBER INCORPORATED

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

JUNE 28, 1996

<PAGE>