Public Offering Registration - PORTEC RAIL PRODUCTS INC - 11-6-2003

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Public Offering Registration - PORTEC RAIL PRODUCTS INC - 11-6-2003 Powered By Docstoc
					As filed with the Securities and Exchange Commission on November 6, 2003 Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

PORTEC RAIL PRODUCTS, INC.
(Exact Name of Registrant as Specified in its Certificate of Incorporation) West Virginia (State or Jurisdiction of Incorporation or Organization) 3743 (Primary Standard Industrial Classification Code Number) 55-0755271 (I.R.S. Employer Identification No.)

900 Old Freeport Road Pittsburgh, Pennsylvania 15238-8250 (412) 782-6000 (Address of Principal Place of Business or Intended Principal Place of Business) John S. Cooper President and Chief Executive Officer Portec Rail Products, Inc. 900 Old Freeport Road Pittsburgh, Pennsylvania 15238-8250 (412) 782-6000 (Name, Address and Telephone Number of Agent for Service) Copies to:

Alan Schick, Esq. Robert I. Lipsher, Esq. Luse Gorman Pomerenk & Schick, P.C. 5335 Wisconsin Avenue, N.W., Suite 400 Washington, D.C. 20015 (202) 274-2000

Thomas D. Washburne, Jr., Esq. Melissa Allison Warren, Esq. Venable, LLP Two Hopkins Plaza, Suite 1800 Baltimore, MD 21201-2978 (410) 244-7400

Approximate date of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933, check the following box:  ? If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:  If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: 

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered

Proposed maximum aggregate offering price

Amount of registration fee (1)
(1)

Common Stock, $1.00 par value per share

$

28,750,000

$

2,325.88

(1)

Estimated pursuant to Rule 457(o) of the Securities Act of 1933, as amended, solely for the purpose of computing the amount of the filing fee.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall be come effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. Subject to Completion, Dated November 6, 2003 _________ SHARES PORTEC RAIL PRODUCTS, INC. COMMON STOCK __________________ This is our initial public offering of common stock. No public market currently exists for the common stock. We expect the public offering price will be between $______and $______ per share. We have applied for listing of our common stock on The Nasdaq Stock Market’s National Market System (the ―Nasdaq National Market‖) under the symbol ―PRPX.‖ __________________ This investment involves a high degree of risk including the possible loss of your investment. Please read the “Risk Factors” beginning on page 6. __________________ 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 state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Per Share

Total

Public offering price Underwriting discounts and commissions (1) Proceeds to us, before expenses

$ $

$ $

(1)

Includes 0.50% of the gross offering proceeds, or $______in the aggregate, payable by us to Ferris, Baker Watts, Incorporated for financial advisory services.

The underwriters are offering shares of our common stock as described under ―Underwriting.‖ The underwriters may purchase up to ______shares of our common stock at the public offering price, less underwriting discounts and commissions, to cover over-allotments. The underwriters expect to deliver the shares on or about ______, 2004. __________________ Ferris, Baker Watts Incorporated The date of this prospectus is ______, 2004

[Insert graphics of products]

In connection with the offering, the underwriters may over-allot or effect transactions which stabilize, maintain, or otherwise affect the market price of Portec Rail Products, Inc. common stock at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. For description of the underwriting activities, see “Underwriting.” __________________ In connection with the offering, certain underwriters may engage in passive market making transactions in the common stock on Nasdaq in accordance with Rule 103 of Regulation M. See “Underwriting.”

SUMMARY This summary highlights selected information from this document and may not contain all of the information that is important to you. You should read this entire prospectus carefully, including the consolidated financial statements of Portec Rail Products, Inc. and the notes to the consolidated financial statements. Unless otherwise indicated, the information in this prospectus assumes no exercise of the underwriters’ over-allotment option and assumes a public offering price of $____ per share, which is the midpoint of the range. Portec Rail Products, Inc. Portec Rail Products, Inc. manufactures, supplies and distributes a broad range of railroad products, including rail joints, rail anchors, rail spikes, railway friction management products and systems and load securement devices. We also manufacture material handling equipment through our wholly-owned subsidiary, Portec Rail Products (UK) Ltd. In 1997, a group of private investors including several senior executives of Portec, Inc., our predecessor company, incorporated Portec Rail Products, Inc. and purchased the rail-related assets and selected material handling assets of, and assumed certain liabilities of, Portec, Inc. Since the buyout, we have reduced outstanding debt, improved our operating efficiency, introduced new products to address the changing trends in the industry and consolidated our market share in certain business segments in which we operate. We operate through four business units — the Railway Maintenance Products Division, the Shipping Systems Division, our Canadian operation and our United Kingdom operation. Our largest business unit, the Railway Maintenance Products Division, provides railroad track components and friction management products and services to railroads, transit systems and railroad contractors. This business unit is headquartered with our corporate office in Pittsburgh, Pennsylvania, and operates a manufacturing and assembly plant in Huntington, West Virginia. The Shipping Systems Division designs and sells load securement systems to the railroad freight car market. These systems secure a wide variety of products and lading onto freight cars. Although the Shipping Systems Division has some assembly work performed at our Huntington, West Virginia facility, most manufacturing is subcontracted to independent third parties. The Shipping Systems Division is headquartered in Oakbrook, near Chicago, Illinois. Our Canadian operation, Portec, Rail Products Ltd., produces rail anchors and spikes largely for Canadian railroads with some products exported to the United States and other international customers. The Canadian operation also engineers and sells friction management products and services. Portec, Rail Products Ltd., our wholly-owned Canadian subsidiary, is headquartered in Lachine, Quebec, a suburb of Montreal, and operates a manufacturing plant in St. Jean about 30 miles southeast of Montreal. Our United Kingdom operation, Portec Rail Products (UK) Ltd., provides railway friction management products and services, and material handling products and rack system components. In 1999, Portec Rail Products (UK) Ltd. acquired Conveyors International Ltd., a manufacturer of conveyor systems. Following the acquisition, railway products have accounted for on average

approximately 40% of Portec Rail Products (UK) Ltd.’s operations and material handling products constitute approximately 60% of its operations. Portec Rail Products (UK) Ltd. is a wholly-owned subsidiary with operations in Wrexham, Wales and Leicester, England. Portec Rail Products (UK) Ltd. uses the ―Conveyors International Ltd.‖ trade name for its materials handling business. Our principal executive office is located at 900 Old Freeport Road, Pittsburgh, Pennsylvania 15238-8250, and our telephone number is (412) 782-6000. Our internet address is www. portecrail.com. Market Opportunity and Business Strategy The railway and transit supply industry is highly fragmented and no single supplier dominates the industry. In North America alone, there are in excess of 200 suppliers. Internationally, management estimates that there are over 1,000 suppliers. Many of the North American suppliers provide specialty products, which do not compete with our current product line. The supply industry, like the rail industry, has experienced consolidation and management believes it will continue to undergo consolidation as smaller suppliers are acquired by larger, well-financed industry participants. We intend to be a consolidator in the industry. Following the offering, we intend to seek opportunities to expand our operations through acquisitions of small and medium size infrastructure and equipment suppliers to the rail industry. Generally, we will seek to acquire smaller companies that have complementary product lines or enhancements to our current products, and which can benefit from utilizing our existing operations, distribution and manufacturing platforms. We also intend to seek opportunities to acquire larger companies that will not only add complementary product lines and enhancements to our current products, but will also expand our market by extending our operations, distribution and manufacturing platforms into new geographic regions. Currently, we have no arrangements, understandings or agreements regarding any such potential transactions. Our business strategy includes the following: •

increasing our market share as a leading supplier of traditional track component products in our existing product categories and expand into complementary track component products, expanding the friction management products and services currently offered to railroads and transit system companies both in North America and the United Kingdom, and expanding our geographic footprint throughout Europe, Asia and globally.

•

•

We believe that we can accomplish these objectives through a combination of product line acquisitions, strategic mergers and acquisitions and internal growth. Increase market share in the track component products we offer . Portec Rail Products and its predecessors have been leading suppliers of track component products in the United 2

States and Canadian markets for decades. We have taken steps to improve and expand our products in order to grow our market share. Changes in rail transportation over recent years have necessitated the development of rail track components that can withstand heavier axle loads, higher train speeds and greater utilization of tracks. Our strategy is to continue to innovate our track component products in response to the evolving trends in the railroad industry. Advance the technology and expand the friction management products and services we offer to railroads and transit system customers . We are committed to the research and development of new products to manage the friction on rails and the application of lubricant and friction modifiers. We have developed a number of relationships through our formation of ―The Friction Force SM Alliance‖ program to expand our offering of friction management products and services. In addition, we are utilizing Portec Rail Products (UK) Ltd. as a platform for the introduction of our friction management technology in the United Kingdom and Europe. Expand our geographic reach throughout Europe, Asia and globally. While we have historically generated sales in a number of countries in Europe and Asia through partnerships and independent sales representatives, we are increasing our focus on building operating platforms to more aggressively take advantage of our recognized brand identity and to participate more fully in the anticipated growth in these markets. Our geographic expansion will most likely occur through strategic mergers or acquisitions. Increase our offering of load securement systems to the railroad industry . We intend to increase our revenue from the sale of load securement systems. We have recently introduced newly designed load securement systems for the rail transportation of vehicles and equipment traditionally transported over the highways. We intend to opportunistically pursue acquisitions with a view toward broadening this product line. Increase sales and profitability of materials handling products . We intend to continue to review this business segment for potential market opportunities to increase sales and profitability. However, it is not part of our core business strategy. We will evaluate this business on an ongoing basis. By pursuing our business strategy, our goal is to be able to provide and sell to our existing railroad and transit system customers a more complete complement of infrastructure products and services, to expand our customer base to include new railroad and transit system customers outside the United States and Canada, and to expand our leadership in friction management globally. 3

The Offering

Common stock offered Common stock outstanding after the offering Use of proceeds

______shares __________shares We may use the offering proceeds for repayment of certain indebtedness, future acquisitions and expansion and general corporate purposes. See ―How We Intend to Use the Proceeds From the Offering.‖ ―PRPX‖

Proposed Nasdaq National Market symbol

The number of shares of common stock offered and the number of shares of common stock outstanding after the offering assumes the underwriters’ over-allotment option is not exercised. See ―Underwriting‖ for more information about the option.

4

Summary Consolidated Financial Information The summary information presented below at or for each of the periods presented is derived in part from the consolidated financial statements of Portec Rail Products. The information presented as of September 30, 2003 and for the nine months ended September 30, 2003 and 2002 is unaudited, but in the opinion of management, contains all adjustments (none of which were other than normal recurring entries) necessary for a fair presentation of the results for these periods. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of results that may be expected for the full year ending December 31, 2003. The following information is only a summary and should be read in conjunction with the consolidated financial statements and notes beginning on page F-1.

For the Nine Months Ended September 30, 2003 Income Statement Data: 2002 2002 2001

For the Year Ended December 31, 2000 1999 1998

(Dollars in thousands, except share and per share data)

Net sales Cost of sales Gross profit Selling, general and administrative Amortization expense Operating income Interest expense Other expense/(income), net Income before income taxes Provision for income tax Net income

$

44,737 31,753 12,984 8,150 53 4,781 278 48

$

39,787 29,113 10,674 6,946 118 3,610 422 130

$

50,081 36,357 13,724 9,345 229 4,150 530 122

$

43,839 31,798 12,041 9,008 340 2,693 1,007 51

$

47,150 34,603 12,547 9,204 342 3,001 1,465 (120 )

$

54,264 38,042 16,222 10,205 350 5,667 1,507 (351 )

$

44,904 32,250 12,654 8,093 248 4,313 1,665 (842 )

4,455 1,651 $ 2,804 $

3,058 1,192 1,866 $

3,498 1,312 2,186 $

1,635 782 853 $

1,656 993 663 $

4,511 1,769 2,742 $

3,490 1,419 2,071

Earnings per share (1): Basic Diluted Weighted average shares outstanding (1): Basic Diluted

$ $

0.43 0.43

$ $

0.30 0.29

$ $

0.35 0.34

$ $

0.14 0.13

$ $

0.10 0.10

$ $

0.43 0.42

$ $

0.34 0.34

6,524,335 6,524,335

6,288,226 6,484,802

6,309,160 6,484,760

6,293,924 6,502,403
At December 31,

6,410,667 6,625,948

6,333,333 6,518,686

6,100,000 6,100,000

At September 30, 2003 Balance Sheet Data:

2002

2001

2000

1999

1998

(Dollars in thousands)

Working capital (2) Total assets Short-term debt Long-term debt and capital lease obligations, net of current portion Total shareholders’ equity

$ 11,615 38,101 2,034 6,790 18,933

$

8,937 34,854 2,193 7,338 15,943

$

9,650 35,297 2,239 10,998 14,533

$ 11,489 40,059 2,413 14,661 14,241

$ 11,079 38,004 2,084 13,771 14,342

$

7,824 37,709 2,451 16,777 8,465

(1) (2)

Adjusted for a 4-for-1 stock split effective June 29, 1999 and a 2-for-1 stock split, in the form of a 100% stock dividend, effective July 1, 2003. Working capital represents total current assets less total current liabilities. 5

RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors together with all the other information in this prospectus before you decide to purchase our shares. Risk Factors Relating to Our Business Our ability to grow our revenues from the marketing and sale of friction management products and services depends on the development and retention of sales representation and distribution arrangements with third parties. The termination of our existing sales representation and distribution arrangements would adversely impact our ability to develop this part of our business. A key component of our business strategy is the future growth of our friction management products and services. In this regard, we have a number of sales representation and distribution arrangements with other companies to market and sell friction management products. These sales representation and distribution arrangements may be terminated by us or the other party without cause on little or no notice. Should the agreements terminate, our ability to expand the friction management products and services we offer to our customers would be adversely affected. Currency fluctuations between the U.S. dollar, Canadian dollar and British pound sterling can adversely affect our reported financial results. Substantially all of our products and services are sold in the United States, Canada and the United Kingdom. Fluctuations in the relative values of the U.S. dollar, Canadian dollar and British pound sterling could significantly increase the cost of our products to the ultimate purchaser. Under such circumstances our sales may decrease or we may have to reduce the prices for our products and services, thereby reducing our income. We report our financial condition and results of operations in U.S. dollars. Fluctuations in the relative values of the U.S. dollar, Canadian dollar and British pound sterling will require adjustments in our reported earnings and operations to reflect exchange rate translation in our Canadian and United Kingdom sales and operations. Our reported financial results will be impacted in response to such currency fluctuations. If the U.S. dollar strengthens in value as compared to the value of the Canadian dollar or British pound sterling, our reported earnings in dollars from sales in those currencies will be unfavorable. We have limited international protection of our intellectual property. We own a number of patents and trademarks under the intellectual property laws of the United States, Canada and the United Kingdom. Our patent protections begin expiring in 2014. However, we have not perfected patent and trademark protection of our proprietary intellectual property in other countries. The failure to obtain patent and trademark protection in other countries may result in other companies copying and marketing products that are based upon our 6

proprietary intellectual property. This could impede our growth into new markets where we do not have such protections and result in greater supplies of similar products, which in turn could result in a loss of pricing power and reduced revenue. We are one of several defendants in an environmental lawsuit. If we are found to be liable, we may have to pay damages which would adversely affect our financial condition and operations. Portec, Inc., the predecessor of Portec Rail Products, was named as a defendant in Niagara Mohawk Power Corporation v. Consolidated Rail Corporation et al . Niagara Mohawk Power Corporation is seeking contribution from nine named defendants for substantial costs it has incurred, and is expected to incur, in connection with the environmental remediation of property located in Troy, New York and of portions of the Hudson River. In the event that Niagara Mohawk Power Corporation prevails and we are required to contribute to the remediation efforts of Niagara Mohawk Power Corporation such costs may be material to our financial condition and results of operations. In addition, we expect to incur ongoing legal expenses associated with the defense of this matter, which may materially affect our results of operations. See ―Legal Proceedings.‖ We may not achieve benefits from future acquisitions. Our business strategy includes the potential acquisition of businesses that we expect would complement and expand our existing products and services. We may not be able to successfully identify suitable acquisition opportunities or complete any particular acquisition, combination or other transaction on acceptable terms. In addition, the timing and success of our efforts to acquire any particular business and integrate the acquired business into our existing operations cannot be predicted. Acquisitions involve a number of risks and challenges, including: • • • • •

diversion of management’s attention; the need to integrate acquired operations, internal controls and operational functions; potential loss of key employees and customers of the acquired companies; an increase in our expenses and working capital requirements; and increased debt or dilution from issuance of common stock.

Any of these and other factors could adversely affect our ability to achieve anticipated benefits from an acquisition. We currently have no specific arrangements or understandings regarding any such acquisitions. Disruption of our relationships with key suppliers would adversely affect our business. We rely upon third party steel mills to manufacture steel for our railroad track products based upon precise specifications we provide. We do not have binding contracts with these suppliers. In the event our steel suppliers for railroad track products were to go out of business, refuse to continue their business relationship with us or become subject to work stoppages, our 7

business would be disrupted. While management believes that it could secure alternative manufacturing sources, there can be no assurance that we would not incur substantial delays and significant expense in securing such alternative suppliers. Furthermore, alternative suppliers might charge significantly higher prices than we currently pay. Under such circumstances, the disruption to our business may have a material adverse impact on our financial condition and results of operations. If we lose key personnel or qualified technical staff, our ability to manage the day-to-day aspects of our business will be adversely affected. We believe that the attraction and retention of qualified personnel is critical to our success. If we lose key personnel or are unable to recruit qualified personnel, our ability to manage the day-to-day aspects of our business will be adversely affected. Our operations and prospects depend in large part on the performance of our senior management team, consisting of our president and chief executive officer, John S. Cooper, and the heads of our principal operating divisions, Richard Jarosinski, president of our Railway Maintenance Products Division, Lucian J. Sieja, president of our Shipping Systems Division, Konstantinos Papazoglou, president of Portec, Rail Products Ltd. and Gary Bale, managing director of Portec Rail Products (UK) Ltd. The loss of the services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. Because our senior management team has many years experience with our company and within the rail products, securement and material handling industries, it would be difficult to replace them without adversely affecting our business operations. We do not have employment or non-competition agreements with any members of our senior management team. As we expand our sales of products and services internationally, we will increase our exposure to international economic and political risks. Historically, substantially all of our business was conducted in the United States, Canada and the United Kingdom. International revenues outside of our core United States, Canada and United Kingdom markets accounted for 7%, 4% and 10% of our revenues for the nine months ended September 30, 2003, and years ended December 31, 2002 and 2001, respectively. We are placing increased emphasis on the expansion of our international sales opportunities. Doing business outside the United States subjects us to various risks, including changing economic and political conditions, work stoppages, exchange controls, currency fluctuations, armed conflicts and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments and taxation. Increasing sales to foreign countries will expose us to increased risk of loss from foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles. We have no control over most of these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, unable to alter our business practices in time to avoid the adverse effect of any of these possible changes. 8

Due to declines in the stock market, we have a significant pension liability, which negatively impacts our retained earnings and may significantly increase our funding requirements under ERISA and other applicable regulations. We maintain a noncontributory defined benefit pension plan that covers substantially all of our United States employees, former employees and retirees. In addition, we also maintain a contributory defined benefit pension plan in the United Kingdom for certain employees. Both of these defined benefit pension plans will be frozen effective December 31, 2003. The defined benefit pension plan assets are primarily invested in equity securities that have declined in value. Consequently, our actuaries project that our obligations to the pension plan’s beneficiaries exceed the plan’s assets. The shortfall in plan assets may also cause us to fund significant amounts of cash into these plans to cover any minimum funding requirements under regulatory requirements. As a result, at December 31, 2002 and 2001, our shareholders’ equity was reduced by $1.4 million and $260,000, respectively, in order to reflect our minimum pension liability. Further declines in the market value of these defined benefit pension plan assets will have an adverse impact on our retained earnings and uses of cash for other investment opportunities. Risk Factors Relating to Our Industry A decrease in rail traffic or rail capital expenditures due to weakness in the general economy or other factors would adversely affect our revenues and operating results. A decrease in rail transportation resulting from general economic conditions or other factors such as work stoppage or competition from other modes of transportation would adversely affect demand for our services and products, and have an adverse impact on our financial condition and results of operations. Railroads directly compete with the trucking industry in the transportation of freight. In the event that the transportation of freight by truck becomes preferable as a result of pricing, legislative developments or other factors, the profitability of railroads would be adversely affected resulting in a decrease in capital spending. A decrease in capital spending by our railroad customers would result in lower sales of our products and decreased revenue. Competition and innovation by our competitors may adversely affect our business. The markets for our products are highly competitive. Competition is based on price, product performance, technological leadership, customer service and other factors. Technological innovation in the railroad and railroad supply industry has evolved and continues to evolve. Technological innovation by any of our existing competitors, or new competitors entering any of the markets in which we do business, could put us at a competitive disadvantage. In particular, our business would be adversely affected if any existing or new competitors developed improved or less expensive products. 9

New or existing competitors may import track component products for sale in the North American market at reduced prices. Our rail joint, rail anchor, rail spike and other track component market share could be reduced by new or existing competitors importing either raw material steel for these products or finished products from lower cost foreign sources. Standard rail joints are currently available, imported from Asia, and have been approved for use and are being purchased by Class I and short line railroads. Further consolidation of the railroad industry may adversely affect our business. Over the past 10 years there has been a consolidation of railroad carriers operating in North America. Currently, seven Class I railroads operate in the United States, along with two major railroads in Canada and two major railroads in Mexico. Future consolidation of the railroad industry may affect our sales and result in reduced income because the loss of a major Class I account to competitors would have greater significance. Risk Factors Relating to Our Structure Potential voting control by directors, management and employees could make a takeover attempt more difficult to achieve. Following the offering our directors, management and employees will continue to control a significant percentage of our common stock. It is expected that the executive officers and directors as a group will own 4,145,370 shares, or ______% of the outstanding shares following the offering (______% of our outstanding shares if the underwriters exercise the over-allotment option in full). If these individuals were to act together, they could have significant influence over or control the outcome of any shareholder vote. This voting power may discourage takeover attempts that other shareholders may desire. Shares owned by our affiliates that are eligible for future sale may have an adverse impact on our stock price. After the completion of this offering ______shares (______if the underwriters exercise their over-allotment option in full) of common stock will be outstanding. Persons who are deemed to be ―affiliates‖ of Portec Rail Products pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, own 4,145,370 shares of common stock. The remaining 2,377,632 shares of common stock owned by the existing shareholders of Portec Rail Products are ―restricted securities‖ within the meaning of Rule 144 and may not be publicly resold, except in compliance with the registration requirements of the Securities Act of 1933 or pursuant to an exemption from registration, including that provided by Rule 144. Virtually all the existing shareholders who are not affiliates have held their shares for more than one year and such shares are eligible to be resold pursuant to an exemption from registration, including that provided by Rule 144. In addition, sales of shares held by affiliates may be made within the limitations prescribed by Rule 144. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of common stock, or the 10

perception that such sales could occur, could adversely affect the prevailing market price of the common stock. Portec Rail Products, its directors and executive officers and certain other shareholders prior to this offering have agreed that, for a period of 180 days after the date of this prospectus, they will not, without prior written consent of Ferris, Baker Watts, Incorporated, offer, sell, contract to sell or otherwise dispose of any common stock or any securities convertible, exercisable or exchangeable for any common stock or grant any options or warrants to purchase any common stock, subject to certain limited exceptions. These agreements affect approximately 4,888,690 shares of common stock. Risk Factors Relating to Our Offering We have broad discretion in using the proceeds of the offering. Our failure to effectively utilize such proceeds could reduce our profits. We may use the proceeds we receive to reduce our outstanding debt (which at September 30, 2003 totaled $8.8 million), to fund future acquisitions or expansion and for general corporate purposes. We may use a portion of the offering proceeds to acquire other businesses, expand our existing facilities or enhance our technology and delivery channels. We have not, however, allocated specific amounts of proceeds for any of these purposes and we will have significant flexibility in determining the amount of net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively could reduce our profits. There is no guarantee that an active trading market for our common stock will develop, which may hinder your ability to sell your stock. Our common stock is not publicly traded and there is no current active trading market for our common stock. Consequently, we cannot assure or guarantee that an active trading market for our common stock will develop or that, if developed, will continue. An active and orderly trading market will depend on the existence and individual decisions of willing buyers and sellers at any given time. We will not have any control over these factors. If an active trading market does not develop or is sporadic, this may hurt the market value of our common stock and make it difficult to buy or sell shares on short notice. We cannot assure you that if you purchase common stock in the offering you will later be able to sell it at or above the purchase price. Purchasers of common stock will suffer substantial dilution. The initial public offering price of the common stock is substantially in excess of the net tangible book value per share, which results in a benefit to current shareholders. As a result, purchasers of common stock in this offering will experience immediate and substantial dilution of $____ per share of the common stock from the public offering. See ―Dilution.‖ 11

FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements may be found throughout this prospectus, particularly under the headings ―Summary,‖ ―Risk Factors,‖ ―How We Intend to Use the Proceeds From the Offering,‖ ―Our Policy Regarding Dividends,‖ ―Management’s Discussion and Analysis of Financial Condition and Results of Operations‖ and ―Business,‖ among others. Forward-looking statements typically are identified by the use of terms, such as ―may,‖ ―will,‖ ―plan,‖ ―should,‖ ―expect,‖ ―anticipate,‖ ―believe,‖ ―if,‖ ―estimate,‖ ―intend,‖ and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these and similar words carefully because they describe our expectations, plans, strategies, goals and beliefs concerning future business conditions, our results of operations, our financial position, and our business outlook, or state other ―forward-looking‖ information based on currently available information. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks outlined under ―Risk Factors‖ and elsewhere in this prospectus. We undertake no obligation to update publicly or revise any forward-looking statements. You should not place undue reliance on the forward-looking statements.

12

HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING The net proceeds from the sale of ______ shares of common stock sold in the offering, are estimated to be between $______, or $______ if the underwriters’ over-allotment option is exercised in full, after deducting underwriting discounts and commissions, financial advisory fees and offering expenses payable by us. The net proceeds may vary because total expenses relating to the offering may be more or less than our estimates. We are undertaking the offering to have the capital resources available to expand and diversify our business. The offering proceeds will increase our capital, permit us to reduce our outstanding indebtedness (which at September 30, 2003 totaled $8.8 million) and provide funds for working capital and other general corporate purposes. We may use the net proceeds for capital expenditures to expand our operations and for strategic acquisitions of businesses, products or technologies complimentary to our business. We do not currently have any definite acquisition or expansion plans, although we intend to actively pursue such opportunities. Pending such uses, the net proceeds may be invested in short-term investments and investment grade debt securities. OUR POLICY REGARDING DIVIDENDS We began paying a quarterly cash dividend in the amount of $0.05 per share on June 30, 2003, and we paid another quarterly dividend of $0.05 per share on September 30, 2003. Our board of directors intends to continue the payment of regular quarterly cash dividends on the common stock, subject to availability of capital surplus, our need for those funds and other factors. The payment of dividends, if any, and the amount of any such dividend, will be subject to the determination of our board of directors, which will take into account, among other factors, our financial condition, results of operations, tax considerations and economic conditions. We cannot guarantee that we will not reduce or eliminate dividends in the future. Currently, our ability to pay dividends is subject to restrictions pursuant to certain of our financing arrangements. Specifically, our ability to pay dividends is dependent upon the absence of any default, as well as our satisfying a cash flow coverage ratio, as set forth in the loan agreement. At the present time, we are not in default under the loan agreement, and we exceed the cash flow coverage ratio. Under West Virginia law, we may pay dividends and make other capital distributions to our shareholders provided that no distribution may be made if, after giving it effect: (i) we would not be able to pay our debts as they become due in the usual course of business; or (ii) our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, or to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those of our common stockholders. MARKET FOR THE COMMON STOCK Prior to this offering, there has been no established trading market in our common stock. We have applied to have our common stock listed on The Nasdaq National Market under the 13

symbol ―PRPX,‖ subject to the completion of the offering and compliance with certain conditions. The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control. The number of active buyers and sellers of the common stock at any particular time may be limited. Under such circumstances, you could have difficulty selling your shares on short notice and, therefore, you should not view the common stock as a short-term investment. We cannot assure you that an active trading market for the common stock will develop or that, if it develops, it will continue. Nor can we assure you that, if you purchase shares, you will be able to sell them at or above the offering price. At September 30, 2003, we had 198 holders of our common stock. At that date we did not have any outstanding options, warrants to purchase or securities convertible into our common stock. Furthermore, at September 30, 2003, 2,377,632 shares of our outstanding common stock held by non-affiliates were eligible for resale pursuant to Rule 144 of the Securities Act. CAPITALIZATION The following table sets forth our capitalization at September 30, 2003, and as adjusted to give effect to the sale by us of ______shares of common stock in the offering at a price to the public of $ per share, and the application of the net proceeds therefrom, as if such transactions had occurred as of September 30, 2003. This table should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this prospectus.

As of September 30, 2003 Actual As Adjusted

(In thousands)

Long-term debt and capital lease obligations, net of current portion Shareholder’s equity: Common stock, par value $1.00 per share, 10,000,000 shares authorized, 6,523,002 shares issued and outstanding, actual; _______ shares issued and outstanding, as adjusted Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total capitalization

$

6,790

$

6,523 2,756 10,953 (1,299 ) 18,933 $ 25,723 $

14

DILUTION At September 30, 2003, the net tangible book value of Portec Rail Products was approximately $13.8 million, or $2.11 per share. Net tangible book value per share of common stock is determined by dividing the net tangible book value of Portec Rail Products (total tangible assets less total liabilities) by the 6,523,002 shares of common stock outstanding at September 30, 2003. After giving effect to the offering and the application of net proceeds therefrom as set forth in ―How We Intend to Use the Proceeds From the Offering,‖ the net tangible book value at such date would have been $ million, or $____ per share, representing an immediate increase in net tangible book value of $____ per share. Accordingly, purchasers of the common stock in the offering would sustain an immediate dilution of $____ per share. The following table illustrates such per share dilution:

Assumed initial public offering price Net tangible book value as of September 30, 2003 Net tangible book value after the offering Dilution to new investors in the offering

$ $ $ $

The following table summarizes, on the pro forma basis described above, as of September 30, 2003, the number of shares of common stock purchased from us, the total cash consideration paid to us, and the average purchase price per share paid by our current shareholders and by the investors purchasing shares of common stock in this offering.

Shares Purchased Number Percent

Total Consideration Amount Percent

Average Price Per Share

Current shareholders New investors Total

% %

$ $

% %

$

15

SELECTED CONSOLIDATED FINANCIAL INFORMATION The summary information presented below at or for each of the periods presented is derived in part from the consolidated financial statements of Portec Rail Products. The information presented as of September 30, 2003 and for the nine months ended September 30, 2003 and 2002 is unaudited, but in the opinion of management, contains all adjustments (none of which were other than normal recurring entries) necessary for a fair presentation of the results for these periods. The results of operations for the nine months ended September 30, 2003 are not necessarily indicative of results that may be expected for the full year ending December 31, 2003. The following information is only a summary and should be read in conjunction with the consolidated financial statements and notes beginning on page F-1.

For the Nine Months Ended September 30, 2003 Income Statement Data: 2002 2002 2001

For the Year Ended December 31, 2000 1999 1998

(Dollars in thousands, except share and per share data)

Net sales Cost of sales Gross profit Selling, general and administrative Amortization expense Operating income Interest expense Other expense/(income), net Income before income taxes Provision for income tax Net income

$

44,737 31,753 12,984 8,150 53 4,781 278 48

$

39,787 29,113 10,674 6,946 118 3,610 422 130

$

50,081 36,357 13,724 9,345 229 4,150 530 122

$

43,839 31,798 12,041 9,008 340 2,693 1,007 51

$

47,150 34,603 12,547 9,204 342 3,001 1,465 (120 )

$

54,264 38,042 16,222 10,205 350 5,667 1,507 (351 )

$

44,904 32,250 12,654 8,093 248 4,313 1,665 (842 )

4,455 1,651 $ 2,804 $

3,058 1,192 1,866 $

3,498 1,312 2,186 $

1,635 782 853 $

1,656 993 663 $

4,511 1,769 2,742 $

3,490 1,419 2,071

Earnings per share (1): Basic Diluted Weighted average shares outstanding (1): Basic Diluted

$ $

0.43 0.43

$ $

0.30 0.29

$ $

0.35 0.34

$ $

0.14 0.13

$ $

0.10 0.10

$ $

0.43 0.42

$ $

0.34 0.34

6,524,335 6,524,335

6,288,226 6,484,802

6,309,160 6,484,760

6,293,924 6,502,403

6,410,667 6,625,948

6,333,333 6,518,686

6,100,000 6,100,000

At December 31, At September 30, 2003 Balance Sheet Data:

2002

2001

2000

1999

1998

(Dollars in thousands)

Working capital (2) Total assets Short-term debt Long-term debt and capital lease obligations, net of current portion Total shareholders’ equity

$ 11,615 38,101 2,034 6,790 18,933

$

8,937 34,854 2,193 7,338 15,943

$

9,650 35,297 2,239 10,998 14,533

$ 11,489 40,059 2,413 14,661 14,241

$ 11,079 38,004 2,084 13,771 14,342

$

7,824 37,709 2,451 16,777 8,465

(1) (2)

Adjusted for a 4-for-1 stock split effective June 29, 1999 and a 2-for-1 stock split, in the form of a 100% stock dividend, effective July 1, 2003. Working capital represents total current assets less total current liabilities. 16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements of Portec Rail Products, Inc. and the related notes beginning on page F-1. Unless otherwise specified, any reference to a ―year‖ is to a year ended December 31. Additionally, when used in this prospectus, unless the context requires otherwise, the terms ―we,‖ ―our‖ and ―us‖ refer to Portec Rail Products, Inc. and its business segments. Overview In the United States, Canada and the United Kingdom, we are a manufacturer, supplier and distributor of a broad range of rail products, including rail joints, rail anchors, rail spikes, railway friction management systems and products and securement devices. End users of our rail products include Class I railroads, short-line and regional railroads and transit systems. Our three North American business segments along with the rail division of our United Kingdom business segment serve these end users. In addition, our United Kingdom business segment also manufactures and supplies material handling products primarily to end users within the United Kingdom. These products include overhead and floor conveyor systems, racking systems and mezzanine flooring systems. The end users of our material handling products are primarily in the manufacturing, distribution, garment and food industries. Results of Operations Nine Months Ended September 30, 2003 compared to Nine Months Ended September 30, 2002 Net Sales. Our net sales increased to $44.7 million for the nine months ended September 30, 2003, an increase of $4.9 million or 12.4%, from $39.8 million for the comparable period in the prior year. The increase in the dollar value of net sales is primarily due to a $1.8 million favorable exchange rate translation of our Canadian and United Kingdom sales to U.S. dollars. Additionally, total material handling sales increased by $1.1 million, reflecting a broader product line offering to our customers following the acquisition of the Quodeck product line in December 2002 by Portec Rail Products (UK) Ltd. Sales of securement system products increased by $1.1 million at our Shipping Systems Division. Lastly, the increase in our net sales reflects two large international orders for track components at our Railway Maintenance Products Division in the amount of $834,000. Gross Profit. Our gross profit increased to $13.0 million for the nine months ended September 30, 2003, an increase of $2.3 million or 21.6%, from $10.7 million for the comparable period in the prior year. The increase in gross profit during the first nine months of 2003 is a result of a shift in demand from our lower margin to our higher margin products and services, which increased gross profit by approximately $690,000. In addition, as a result of the Quodeck acquisition, an increase in total material handling gross profit of approximately $570,000 was realized on the additional sales volume. Also, our Shipping Systems Division experienced greater sales activity as the market for new freight cars continued to improve during 2003, which resulted in approximately $440,000 additional gross profit for the nine months 17

ended September 30, 2003, compared to the same prior year period. Finally, favorable exchange rate translations also contributed approximately $360,000 to the overall increase in gross profit. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $8.1 million for the nine months ended September 30, 2003, an increase of $1.2 million or 17.3%, from $6.9 million for the comparable period in the prior year. The increase in selling, general, and administrative expenses during the first nine months of 2003 is attributable to the addition of four key management positions along with certain other integration costs related to the Quodeck acquisition that resulted in approximately $480,000 of additional expense over 2002. In addition, we incurred approximately $400,000 of additional expense at our North American business segments and our corporate office due to other general salary and benefit increases, employee additions and increases in accrued incentive compensation. Lastly, a preferential treatment claim at our Railway Maintenance Products Division related to a former customer’s bankruptcy filing in 2001 resulted in additional accrued expenses of approximately $85,000. Amortization Expense. Our amortization expense decreased 55.1% to $53,000 for the nine months ended September 30, 2003 from $118,000 in the comparable period in the prior year due primarily to certain deferred financing costs becoming fully amortized in 2002. Interest Expense. Our interest expense decreased 34.1% to $278,000 for the nine months ended September 30, 2003 from $422,000 in the comparable period in 2002 primarily due to reduced debt levels and lower interest rates. Our long-term debt decreased to $8.8 million at September 30, 2003 from $10.9 million at September 30, 2002. Our lower cost of borrowings also reflects declining market interest rates in 2003 and 2002. Other Expense. Other expense decreased 63.1% to $48,000 for the nine months ended September 30, 2003 from $130,000 in the comparable period in 2002, due primarily to maintenance expenses on our Troy, New York rental property that were incurred during 2002. Provision for Income Taxes. Our provision for income taxes increased to $1.7 million for the nine months ended September 30, 2003 from $1.2 million in the comparable period in the prior year, reflecting an increase in income before taxes to $4.5 million for the nine months ended September 30, 2003 from $3.1 million for the nine months ended September 30, 2002. The effective tax rates on reported taxable income were 37.1% and 39.0% in each of the respective periods. Net Income. Our net income increased to $2.8 million for the nine months ended September 30, 2003, an increase of $938,000 or 50.3%, from $1.9 million for the comparable period in the prior year. Our basic and diluted net income per share increased to $0.43 for the nine months ended September 30, 2003, from $0.30 (basic) and $0.29 (diluted) for the prior year. 18

Year Ended December 31, 2002 compared to Year Ended December 31, 2001 Net Sales. Our net sales increased to $50.0 million for the year ended December 31, 2002, an increase of $6.2 million or 14.2%, from $43.8 million in 2001. The increase in 2002 net sales is primarily due to increased net sales of approximately $4.4 million at Portec, Rail Products Ltd. that primarily resulted from improved production capacity in 2002. The higher production levels allowed us to increase sales to our major Canadian railroad customers and increase spike sales in the northeastern portion of the United States. In addition, a major Canadian railroad customer instituted a two-year friction management capital spending program that increased demand for our friction management products. This same major Canadian capital spending program also benefited the Railway Maintenance Products Division as sales to this customer increased by approximately $900,000 in 2002. In addition, net sales increased as a result of a slight improvement in the new freight car building market served by our Shipping Systems Division as sales increased by approximately $430,000 in 2002. Favorable exchange rate translations of approximately $540,000 on conversion of United Kingdom sales into U.S. dollars further enhanced these results. Gross Profit. Our gross profit increased to $13.7 million for the year ended December 31, 2002, an increase of $1.7 million or 14.0% from $12.0 million in 2001. The increase in gross profit is primarily a result of a net increase of $1.2 million in gross profit at Portec, Rail Products Ltd. resulting from improved spike line operating performance along with increased sales volume of other product lines. In addition, our gross profit increased by approximately $500,000 due to improved sales volumes at both our Railway Maintenance Products and Shipping Systems Divisions. Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $9.3 million for the year ended December 31, 2002, an increase of $337,000 or 3.7% from $9.0 million in 2001. The increase in selling, general and administrative expenses is primarily attributable to general salary and benefit increases, employee additions, and increases in accrued incentive expenses of approximately $500,000, partially offset by decreases in a number of other administrative costs. Amortization Expense. Amortization expense decreased 32.6% to $229,000 for the year ended December 31, 2002 from $340,000 in 2001. This decrease in amortization expense reflects our adoption of SFAS No. 142, ―Goodwill and Other Intangible Assets‖, on January 1, 2002, after which we were no longer permitted to amortize goodwill. Interest Expense. Our overall interest expense decreased 47.4% to $530,000 for the year ended December 31, 2002 from $1.0 million in 2001 due primarily to reduced debt levels and lower interest rates. Our long-term debt decreased to $9.5 million at December 31, 2002 from $13.2 million at December 31, 2001. Our lower borrowing costs reflect declining market interest rates in 2002. Other Expense. Other expense increased to $122,000 for the year ended December 31, 2002, an increase of $71,000 or 139% from $51,000 in 2001. This increase is primarily due to maintenance costs incurred at our Troy, New York rental property. 19

Provision for Income Taxes. Our provision for income taxes increased to $1.3 million for the year ended December 31, 2002 from $782,000 in 2001, reflecting an increase in income before taxes to $3.5 million in 2002 from $1.6 million in 2001. The effective tax rate on reported taxable income was 37.5% and 47.8% in each of the two periods, respectively. During 2001, we restructured our United States and Canadian credit facilities to remove our Canadian loan guarantees and pledges of collateral securing our long-term debt obligations with a United States financial institution. This measure eliminated United States taxes on our Canadian income. As a result of this debt restructuring, Portec, Rail Products Ltd. borrowed funds on its Canadian facility and repatriated the funds to the United States in the form of a dividend to reduce our U.S. debt obligations. This dividend was subject to a withholding tax of $89,400, and increased our 2001 effective tax rate by 5.5%. Net Income. Our net income increased to $2.2 million for the year ended December 31, 2002, an increase of $1.3 million or 156%, from $853,000 in the comparable period in the prior year. Net income per share increased to $0.35 (basic) and $0.34 (diluted) for the year ended December 31, 2002, an increase from $0.14 (basic) and $0.13 (diluted) for the prior year. Year Ended December 31, 2001 compared to Year Ended December 31, 2000 Net Sales. Our net sales decreased to $43.8 million for the year ended December 31, 2001, a decrease of $3.4 million or 7.0%, from $47.2 million in 2000. The decrease in net sales was primarily due to a weak North American economy that negatively impacted railroad capital and maintenance spending programs, along with a sharp decline in new freight cars being built. The impact of the economic downturn in these sectors contributed to a decline in net sales at both the Railway Maintenance Products and Shipping Systems Divisions in the amounts of $3.0 million and $3.1 million, respectively. The sales decreases in these segments were partially offset by the first full year of rail spike production at our Canadian operating unit that increased sales by $1.0 million over 2000. Additionally, friction management product sales by Portec Rail Products (UK) Ltd., which resulted from a major capital-spending program by Network Rail, the United Kingdom national railway infrastructure system, increased rail sales by approximately $1.8 million in 2001 compared to 2000. Gross Profit. Our gross profit decreased to $12.0 million for the year ended December 31, 2001, a decrease of $506,000 or 4.0% from $12.5 million in 2000. The decrease in gross profit is primarily a result of the lower sales levels for the Railway Maintenance Products and Shipping Systems Divisions and operating inefficiencies as a result of the start-up in 2001 of the new Canadian spike line, which resulted in a negative gross profit on spike sales of approximately $300,000 and $75,000 for 2001 and 2000, respectively. These decreases were partially offset by the increased volume in higher margin friction management product sales at Portec Rail Products (UK) Ltd. Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased to $9.0 million for the year ended December 31, 2001, a decrease of $196,000 or 2.1% from $9.2 million in 2000. The decrease is primarily attributable to cost containment efforts in the North American business segments due to unfavorable economic conditions and reduced manpower in the United Kingdom reflecting a workforce reduction in 2000. 20

Amortization Expense. Amortization expense decreased to $340,000 for the year ended December 31, 2001 from $342,000 in 2000. Interest Expense. Our overall interest expense decreased 31.3% to $1.0 million for the year ended December 31, 2001 from $1.5 million in 2000 due primarily to reduced debt levels and lower interest rates. Our long-term debt decreased to $13.2 million at December 31, 2001 from $17.1 million at December 31, 2000. Other Expense (Income). Other expense (income) changed by $171,000 for the year ended December 31, 2001, from other income of $120,000 in 2000, to expense of $51,000 in 2001. Other income in 2000 reflects a non-recurring refund of Canadian research and development tax credits for periods prior to our 1997 ownership of the company along with maintenance expenses incurred in 2001 on the Troy, New York property. Provision for Income Taxes. Our provision for income taxes decreased to $782,000 for the year ended December 31, 2001 from $993,000 in 2000, representing effective tax rates on reported taxable income of 47.8% and 60.0% in 2001 and 2000, respectively. Due to the Canadian loan guarantees and pledges of collateral securing our long-term debt obligation with a United States financial institution, the Canadian income for 2000 was treated as repatriated earnings for United States tax purposes and was taxed at the United States level, as well as at the foreign level. This resulted in an incremental United States tax on repatriated earnings of $182,000, which increased our 2000 effective tax rate by 11.0%. In addition, in May 2000, we changed the Portec Rail Products (UK) Ltd. organization structure from a foreign United States branch to a foreign subsidiary for income tax purposes. Portec Rail Products (UK) Ltd. subsequently incurred a substantial operating loss in 2000 for which no United States tax benefit could be realized. This reduction in tax benefit, from losses at this foreign operation, amounted to $103,000, which increased our 2000 effective tax rate by 6.2%. Net Income. Our net income increased to $853,000 for the year ended December 31, 2001, an increase of $190,000 or 28.7%, from $663,000 in the comparable period in the prior year. Our net income per share increased to $0.14 (basic) and $0.13 (diluted) for the year ended December 31, 2001, from $0.10 (basic and diluted) for the prior year. Business Segment Review Our operations are organized into four business segments consisting of the Railway Maintenance Products Division, the Shipping Systems Division, Portec, Rail Products Ltd. and Portec Rail Products (UK) Ltd., along with a corporate functional shared service. The presentation of segment information reflects the manner in which we organize segments for making operating decisions, assessing performance and allocating resources. Intersegment sales do not have an impact on our consolidated financial condition or results of operations. Railway Maintenance Products Division. In the Railway Maintenance Products Division segment, we manufacture and assemble track components and related products, friction management products and also provide services to railroads, transit systems and railroad 21

contractors. We are also a distributor and reseller of purchased track components, lubricants and friction modifiers manufactured by third parties. Our manufactured and assembled track component and friction management products consist primarily of standard and insulated rail joints and friction management systems. Our purchased and distributed products consist primarily of various lubricants and friction modifiers. This division’s largest customers are Class I railroads in North America. For the nine months ended September 30, 2003 and 2002, the Railway Maintenance Products Division’s two largest customers represented 29% and 33% of total external sales, respectively. For the years ended December 31, 2002, 2001 and 2000, the Railway Maintenance Products Division’s two largest customers represented 30%, 37%, and 30% of total external sales, respectively.

Nine Months Ended September 30, 2003 2002 2002 (In thousands)

Year Ended December 31, 2001 2000

External sales Intersegment sales Operating income Sales by product line (1) Rail joints and related products Friction management products and services Other products and services

$ 20,366 1,298 2,782

$ 19,313 1,252 2,765

$ 24,645 1,586 3,365

$ 23,431 1,502 2,963

$ 26,448 896 3,542

$ 11,199 9,297 1,168

$ 11,938 7,489 1,138

$ 15,257 9,469 1,505

$ 14,143 9,585 1,205

$ 17,096 8,488 1,760

Total product and service sales

$ 21,664

$ 20,565

$ 26,231

$ 24,933

$ 27,344

(1)

Includes intersegment sales.

For the nine months ended September 30, 2003, the Railway Maintenance Products Division’s external sales increased by $1.1 million or 5.5%, to $20.4 million from $19.3 million during the same 2002 period. The increase in external customer sales is primarily related to two large international orders for $834,000 for track component products, while spending by North American railroads, transit systems and railroad contractors during the first nine months of 2003 remained comparable to spending during the same period in 2002. Operating income of $2.8 million for the nine months ended September 30, 2003 was comparable with the $2.8 million for the same 2002 period as the gross profit realized from the increased sales volume was partially offset by general increases in employee wages, benefits and accrued incentive expenses of $143,000 and increased accrued expenses of $85,000 for a preferential treatment bankruptcy claim. For the year ended December 31, 2002, Railway Maintenance Products Division external sales increased by $1.2 million or 5.2%, from 2001. The increase in external sales is primarily attributable to a two-year friction management capital spending program along with increased demand for our other products by a major Canadian railroad of approximately $900,000. Operating income increased to $3.4 million in 2002 from $3.0 million in 2001, representing an increase of $402,000 or 13.6%. The increase in operating income is primarily attributable to the increased sales volume partially offset by general increases in employee wages, benefits and accrued incentive expenses of approximately $235,000. 22

For the year ended December 31, 2001, Railway Maintenance Products Division external sales decreased by $3.0 million or 11.4%, from 2000. In 2001, the decrease in external sales over 2000 levels is primarily related to a weak North American economy that adversely impacted demand for our rail joint products and other product lines as our railroad customers reduced their capital and maintenance spending programs; however, an increase in our friction management product and service sales of $1.1 million, or 12.9%, partially offset this decrease. Operating income totaled $3.0 million in 2001, a decline of $579,000 compared to 2000. The decline is due primarily to the lower sales level. Shipping Systems Division. Our Shipping Systems Division engineers and sells load securement systems to the railroad freight car market. These systems are used to secure a wide variety of products and lading onto freight cars. Independent subcontractors had previously produced all of our manufactured products. However, beginning in 2002, the Railway Maintenance Products Division began to perform some of the assembly work related to this product line. This division’s largest customer, TTX, is owned by the Class I railroads and has a large fleet of railroad flat cars, intermodal railcar platforms, boxcars and gondolas. For the nine months ended September 30, 2003 and 2002, the Shipping Systems Division’s two largest customers represented 76% and 57% of total external sales, respectively. For the years ended December 31, 2002, 2001 and 2000, the Shipping Systems Division’s two largest customers represented 61%, 61% and 53% of total external sales, respectively.

Nine Months Ended September 30, 2003 2002 2002 (In thousands)

Year Ended December 31, 2001 2000

External sales Intersegment sales Operating income (loss) Sales by product line (1) Heavy duty load securement systems All other load securement systems

$ 3,687 — 488

$ 2,548 — 142

$ 3,441 — 144

$ 3,007 10 (26 )

$ 6,120 1 733

$ 2,170 1,517

$ 1,196 1,352

$ 1,645 1,796

$ 1,254 1,763

$ 2,807 3,314

Total product and service sales

$ 3,687

$ 2,548

$ 3,441

$ 3,017

$ 6,121

(1)

Includes intersegment sales.

For the nine months ended September 30, 2003, Shipping Systems Division external sales of $3.7 million increased by $1.2 million or 44.7%, from $2.5 million during the same 2002 period. The increase in external sales is primarily related to improved spending in the freight car market, in particular for refurbishment of military flat cars as a result of the war in Iraq and our largest customer upgrading their fleet of flat cars. Operating income increased by $346,000 to $488,000 during the nine months ended September 30, 2003 compared to the same 2002 period. The increase is primarily related to the improved sales volume for the first nine months of 2003 compared to the same period in the prior year. For the year ended December 31, 2002, Shipping Systems Division external sales of $3.4 million increased by $434,000 or 14.4%, from $3.0 million in 2001. The increase in external sales is primarily related to a slight improvement in the North American freight car market after a relatively weak period in 2001 as a result of a low demand for new freight cars. 23

Operating income increased from an operating loss of $26,000 in 2001 to operating income of $144,000 in 2002, representing an increase of $170,000. The increase in operating income is primarily attributable to the increased sales volume and lower employee salaries as a result of a cost saving initiative that began in the fourth quarter of 2001. This initiative included salary reductions and the elimination of one full-time salaried position that resulted in total cost reductions of approximately $70,000. For the year ended December 31, 2001, Shipping Systems Division external sales of $3.0 million decreased by $3.1 million or 50.9%, from $6.1 million in 2000. The decrease in our external sales during 2001 is primarily related to a sharp decline in the new freight car market as new freight car orders fell by 56.6% from 2000 to 2001, along with reduced demand for our product as a result of a weaker North American economy. As a result of the sharp decline in sales volume, we experienced an operating loss of $26,000 in 2001 compared to operating income of $733,000 during 2000. Portec, Rail Products Ltd. In the Portec, Rail Products Ltd. segment, we manufacture rail anchors and rail spikes and assemble friction management products primarily for the two largest Canadian railroads. Rail anchors and spikes are devices to secure rails to the ties to restrain the movement of the rail tracks. For the nine months ended September 30, 2003 and 2002, Portec, Rail Products Ltd.’s largest two customers represented 63% and 59% of total external sales, respectively. For the years ended December 31, 2002, 2001 and 2000, Portec, Rail Products Ltd.’s two largest customers represented 56%, 65% and 63% of total external sales, respectively.

Nine Months Ended September 30, 2003 2002 2002 (In thousands)

Year Ended December 31, 2001 2000

External sales Intersegment sales Operating income Average translation rate of Canadian dollar to United States dollar Sales by product line (1) Rail anchors and spikes Friction management products and services Other products and services

$ 10,216 1,507 1,635 0.7059

$

9,498 1,085 1,316 0.6372

$ 10,596 1,345 1,204 0.6377

$

6,214 1,461 399 0.6448

$

5,186 1,292 465 0.6737

$

8,534 2,790 399

$

8,033 2,201 349

$

8,622 2,854 465

$

5,012 2,149 514

$

4,095 1,743 640

Total product and service sales

$ 11,723

$ 10,583

$ 11,941

$

7,675

$

6,478

(1)

Includes intersegment sales.

For the nine months ended September 30, 2003, Portec, Rail Products Ltd. external sales of $10.2 million increased by $718,000 or 7.6%, from $9.5 million during the same 2002 period. The increase in external sales is primarily related to foreign currency translation of Canadian dollar sales to U.S. dollars of approximately $1.0 million. Operating income of $1.6 million for the nine months ended September 30, 2003 increased by $319,000 or 24.2%, over the same 2002 period. The increase in operating income during the first nine months of 2003 is primarily related to increased sales of higher margin friction management products and services that 24

resulted in increased gross profit of approximately $190,000 and favorable foreign currency translations of approximately $160,000 compared to the same 2002 period. These increases were partially offset by increased employee salaries and benefits of approximately $40,000. For the year ended December 31, 2002, Portec, Rail Products Ltd. external sales of $10.6 million increased by $4.4 million, or 70.5% from $6.2 million in 2001. The increase in external sales is primarily related to an increase in rail anchors and spike sales of approximately $3.7 million as the spike line that was installed in late 2000 had its first year of uninterrupted production. As a result of the increased supply of anchors and spikes, we were able to increase sales to Portec, Rail Products Ltd.’s two largest Canadian railroad customers along with being able to sell spikes in the Northeastern portion of the United States. In addition, the increase in external sales was also favorably impacted by a two-year friction management capital spending program along with increased demand for Portec, Rail Products Ltd.’s other products by a major Canadian railroad which increased sales to that customer by approximately $1.6 million. Operating income increased to $1.2 million in 2002 from $399,000 in 2001, representing an increase of approximately $805,000 or 202%. The increase in operating income is primarily attributable to increased margins as a result of the increase in sales volume of rail anchors and higher margin friction management products and services. In addition, the spike line operating efficiencies improved in 2002, and contributed approximately $400,000 of additional operating income over 2001. For the year ended December 31, 2001, Portec, Rail Products Ltd. external sales of $6.2 million increased by $1.0 million, or 19.8% from $5.2 million in 2000. The increase in external sales is primarily related to an increase in rail spike sales of approximately $1.3 million as the spike line that was installed in late 2000 had its first full year of production during 2001. Operating income of $399,000 in 2001 decreased by $66,000 or 14.2% compared to $465,000 in 2000 on the increased sales volume as a result of operating inefficiencies during the first year of spike production. Portec Rail Products (UK) Ltd. In the Portec Rail Products (UK) Ltd. segment, we operate and serve our customers in two distinctly different markets. Portec Rail Products (UK) Ltd.’s rail business, which comprised approximately 40% of total sales over the first nine months of 2003 and the years ended 2002 and 2001, is primarily driven by sales of friction management products and services to the United Kingdom passenger rail network. For the nine months ended September 30, 2003 and 2002, Portec Rail Products (UK) Ltd.’s two largest rail customers represented 12% and 20% of total external sales, respectively. For the years ended December 31, 2002, 2001 and 2000, Portec Rail Products (UK) Ltd.’s two largest rail customers represented 20%, 17% and 9% of total external sales, respectively. Over the same time period described above, our material handling business represented approximately 60% of the total sales generated by Portec Rail Products (UK) Ltd. Our major product lines in this market include overhead and floor conveyor systems, racking systems and mezzanine flooring systems. The end users of our products are primarily United Kingdom based companies in the manufacturing, distribution, garment and food industries. As our material handling products are primarily dependent upon the capital spending plans of manufacturers, Portec Rail Products (UK) Ltd.’s largest customers vary each year depending upon the contracts 25

that are secured. For the nine months ended September 30, 2003 and 2002, Portec Rail Products (UK) Ltd.’s two largest material handling customers represented 11% and 21% of total external sales, respectively. For the year ended December 31, 2002, 2001 and 2000, Portec Rail Products (UK) Ltd.’s two largest material handling customers represented 18%, 11% and 18% of total external sales, respectively. In December 2002, we acquired the Quodeck product line from Quodeck Ltd. in order to broaden our material handling product offerings. The primary customers utilizing this product line are in the garment industry.

Nine Months Ended September 30, 2003 2002 2002 (In thousands)

Year Ended December 31, 2001 2000

External sales Intersegment sales Operating income (loss) Average translation rate of British pound sterling to United States dollar Sales by product line (1) Material handling products sales Friction management products and services

$ 10,468 51 756 1.6157

$

8,428 25 295 1.4884

$ 11,399 27 618 1.5106

$ 11,187 24 867 1.4398

$

9,396 120 (560 ) 1.5125

$

6,501 4,018

$

4,886 3,567

$

6,490 4,936

$

6,682 4,529

$

6,851 2,665

Total product sales

$ 10,519

$

8,453

$ 11,426

$ 11,211

$

9,516

(1)

Includes intersegment sales.

For the nine months ended September 30, 2003, Portec Rail Products (UK) Ltd. external sales of $10.5 million increased by $2.1 million or 24.2%, from $8.4 million for the same 2002 period. The increase in external sales is primarily attributable to an incremental increase in total material handling sales of $1.1 million as a result of the Quodeck acquisition and favorable foreign exchange translations of approximately $830,000 for sales in British pounds sterling to U.S. dollars. Operating income of $756,000 for the nine months ended September 30, 2003 increased by $461,000 or 156%, from $295,000 during the same 2002 period. This increase in operating income is primarily attributable to the Quodeck acquisition, which increased incremental operating income by approximately $280,000 for the nine months ended September 30, 2003, along with increased gross profit on rail sales of approximately $230,000. For the year ended December 31, 2002, Portec Rail Products (UK) Ltd. external sales of $11.4 million increased by $212,000 or 1.9%, from $11.2 million in 2001. The increase in external sales is primarily related to favorable exchange rate translations of approximately $540,000 in 2002 as our actual foreign currency sales level declined by approximately 2.1% from 2001 levels. Operating income decreased to $618,000 in 2002 from $867,000 in 2001, representing a decrease of $249,000 or 28.7%. The decrease in operating income is primarily attributable to a significant material handling contract with a large original equipment manufacturer that realized a low gross profit during 2002 along with increased employee wages and benefits of approximately $160,000 and advertising costs of approximately $80,000 for promotion of the material handling business. For the year ended December 31, 2001, Portec Rail Products (UK) Ltd. external sales of $11.2 million increased by $1.8 million or 19.1% from $9.4 million in 2000. The increase in 26

external sales is primarily related to an increase in friction management product sales as a result of a major capital-spending program by Network Rail, the United Kingdom national railway infrastructure system. Operating income of $867,000 in 2001 was an improvement of $1.4 million over the operating loss of $560,000 in 2000. The 2001 increase in operating profit is primarily due to the higher margin friction management sales and a workforce reduction during 2000 that reduced costs by approximately $270,000. Liquidity and Capital Resources Our cash flow from operations is the primary source of financing for internal growth, capital expenditures, and repayments of long-term contractual obligations and other commercial commitments. The most significant risk associated with our ability to generate sufficient cash flow from operations is the overall level of demand for our products. However, we believe we can manage our working capital and control costs to meet our cash flow needs for the next twelve months. In addition to cash generated from operations, we have three primary revolving and overdraft credit facilities in place to support the working capital needs of each of our business segments. We believe that cash flow from operations and the availability under our credit lines will be sufficient to meet our cash flow requirements over the next twelve months. Cash Flow Analysis. During the first nine months of 2003, we generated $1.3 million in cash flow from operations, a 58.5% decrease compared to $3.2 million in the first nine months of 2002. The primary reasons for the decrease in cash provided from operations during the first nine months of 2003 are due to increased finished goods inventory levels of approximately $1.0 million at Railway Maintenance Products Division to meet anticipated customer demands during the fourth quarter of 2003 and increased inventory levels of $1.3 million at Portec, Rail Products Ltd. as overall inventory levels were artificially low at the end of 2002 as a result of a work stoppage at our primary raw material supplier. In addition, our accounts receivable levels increased approximately $550,000 on higher sales volumes during 2003. These uses of working capital were partially offset by operating income of $4.8 million during the first nine months of 2003, an increase of $1.2 million, or 32.4%, compared to operating income of $3.6 million in the same 2002 period. Net cash used in investing activities was $486,000 for the first nine months of 2003, compared to $375,000 for the same prior year period. The primary reason for the increase in capital expenditures for the first nine months of 2003 is the purchase of a new computer system for the Railway Maintenance Products Division to improve workflow productivity. Approximately $191,000 has been spent on the system through the first nine months of 2003, with anticipated total expenditures of another $100,000 over the fourth quarter of 2003 and the first quarter of 2004. Installation of the new computer system is expected to occur in the first half of 2004. Total capital expenditures for 2003 are estimated to be $600,000 to $800,000 and will be used primarily to support new strategic initiatives, develop new products, and upgrade machinery and equipment, almost all of which are discretionary. We believe the overall level of capital spending for all our business segments is sufficient to remain competitive. Net cash used in financing activities was $1.3 million through the first nine months of 2003. This compares to net cash used in financing activities of $2.6 million during the first nine 27

months of 2002. Cash used in financing activities during the first nine months of 2003 is related to the net repayments and borrowings of our long-term debt obligations in the amount of $2.0 million and cash dividends paid of $489,000. These uses of cash were partially offset by increased borrowings of $1.2 million on our U.S. revolving credit and United Kingdom overdraft facilities. These increased borrowings were used to support working capital needs due to the increased demand for our products at our Railway Maintenance Products and Shipping Systems Divisions and our United Kingdom operation. During 2002, we generated $5.6 million in cash flow from operations, a 45.9% increase compared to $3.8 million in 2001. The primary reasons for the increase in cash provided from operations over 2001 levels were an increase in operating income of 54.1% along with significantly reduced inventory levels as a result of a labor strike in Canada at our primary raw material supplier. Net cash used in investing activities was $716,000 in 2002. Compared to 2001, net cash used for investing activities increased by $408,000 primarily due to the Quodeck acquisition that amounted to approximately $344,000. Net cash flow used in financing activities was $3.7 million in 2002, compared to $3.8 million used in 2001. Our primary objective in 2002 was to continue to aggressively pay down our long-term debt obligations, minimize borrowings under our revolving and overdraft credit facilities and lower our debt to equity ratios. During 2001, we generated $3.8 million in cash flow from operations, a 251% increase compared to $1.1 million in 2000. The increase is primarily a result of a reduction in accounts receivable of $2.7 million due to the lower sales volumes in the fourth quarter of 2001 at our Railway Maintenance Products and Shipping Systems divisions. Net cash used for investing activities was $308,000 in 2001, compared to $2.3 million in 2000. In 2000, approximately $1.5 million was spent on a building addition and machinery and equipment to add a spike production line to our Canadian operation. Net cash flow used for financing activities was $3.8 million in 2001, compared to $1.0 million provided by financing activities in 2000. Our primary objective in 2001 was to aggressively pay down our long-term debt obligations as well as to minimize borrowings under our revolving and overdraft credit facilities and lower our debt to equity ratios. Credit Facilities. Our working capital, revolving credit and overdraft facilities are summarized as follows: In the United States, we have a $6.25 million revolving credit facility with a financial institution that provides for the working capital needs of our Railway Maintenance Products Division and Shipping Systems Division. Borrowings under this facility can be in an amount up to 80% of the outstanding combined accounts receivable plus 50% of the combined inventory of both Railway Maintenance Products Division and Shipping Systems Division. Advances against inventory are limited to $3.75 million. As of September 30, 2003, borrowings under this facility 28

amounted to $5.2 million and we had the ability to borrow an additional $835,000 under this facility. This agreement contains certain financial covenants that require us to maintain current, leverage and fixed charge coverage ratios as well as maintaining minimum amounts of tangible net worth. We were in compliance with all of these financial covenants as of September 30, 2003. In Canada, we have a $2.8 million ($3.75 million Canadian dollars) revolving credit facility with the Canadian branch of a United States financial institution that provides for the working capital needs of our Canadian operation. Borrowings under this credit facility can be in the amount up to 80% of the outstanding accounts receivable plus 50% of the aggregate value of inventory. Advances against inventory are limited to $1.875 million Canadian dollars. As of September 30, 2003, there were no outstanding borrowings under this facility and we had the ability to borrow up to $3.173 million Canadian dollars under this facility. This agreement contains the same financial covenants as the United States facility. We were in compliance with all financial covenants related to this facility as of September 30, 2003. In the United Kingdom, we have a $666,000 (£400,000) overdraft facility with a local financial institution to support the working capital needs of our United Kingdom operation. As of September 30, 2003, borrowings under this facility amounted to $181,000 and we had the ability to borrow up to the remaining maximum value of the facility. The overdraft facility is reviewed on an annual basis and has a current maturity date of March 27, 2004. We intend to renew this facility upon its maturity. In addition to these credit facilities, we have a $1.6 million line of credit with a United States financial institution to fund capital expenditures for our Railway Maintenance Products Division and Shipping Systems Division. See ―Certain Relationships and Related Transactions.‖ Any advances on this line are made in term notes and the line availability is reduced by that amount. As of September 30, 2003, such borrowings under term notes amounted to $111,000, and we had the ability to borrow up to the remaining maximum value of the facility. This facility is reviewed on an annual basis and has a current maturity date of December 31, 2003. We intend to renew this facility upon its maturity. We also maintain various local financing arrangements in Canada and the United Kingdom. 29

Summary of Contractual Obligations The following is a summary of our contractual obligations as of September 30, 2003:

Contractual Obligations

3 Months Ending 12/31/2003

2004

2005

2006

2007 and Thereafter

Total

(In thousands)

Long term debt Revolving credit facilities Capital leases and equipment loans Operating leases Total contractual obligations

$ 446 $ — 34 191 $ 671

$ 1,807 181 46 626 $ 2,660

$ 583 — 39 372 $ 994

$

252 5,200 8 304

$ 226 — 2 224 $ 452

$

3,314 5,381 129 1,717

$ 5,764

$ 10,541

Financial Condition At September 30, 2003, total assets were $38.1 million, an increase of 9.3% from December 31, 2002. The increase at September 30, 2003 is primarily due to increased inventory levels of $2.4 million to meet demand for our products along with an increase in accounts receivable of approximately $550,000 as a result of our higher sales levels. At September 30, 2003, net working capital (defined as current assets minus current liabilities) was $11.6 million, an increase of 30.0%, from $8.9 million at December 31, 2002. The increase in working capital is directly related to the increased inventory and accounts receivable levels. Total outstanding debt obligations decreased approximately $700,000 or 7.4%, to $8.8 million as of September 30, 2003 as net repayments and borrowings of long-term debt of approximately $2.0 million were partially offset by borrowings on our working capital facilities of $1.2 million. Our ratio of debt to equity was 46.6% at September 30, 2003 compared with 59.8% at December 31, 2002. The decrease in debt to equity at September 30, 2003 is primarily related to reduced debt levels coupled with increased earnings and favorable foreign exchange translation adjustments that reduced our other comprehensive loss by approximately $700,000 net of tax from December 31, 2002, partially offset by dividend payments of $489,000. Cash from operations and our working capital facilities are expected to continue to be sufficient to fund capital expenditures, retire our debt service obligations, pay dividends and meet operating requirements over the next twelve months. Discussion of Critical Accounting Policies Management’s discussion and analysis of our financial condition and results of operations is based upon our audited and unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We evaluate the appropriateness of these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying value of assets and 30

liabilities that are not readily apparent from other sources. Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition . Revenue from product sales is recognized at the time products are delivered and title has passed or when service is performed. Delivery is determined by our shipping terms, which are primarily FOB shipping point. Shipments are made only under a valid contract or purchase order where the sales price is fixed or determinable and collectability of the resulting receivable is reasonably assured. Revenue is recognized net of returns, discounts and other allowances. Revenue from installation of material handling equipment is generally recognized by applying percentages of completion for each contract to the total estimated profits for the respective contracts. The length of each contract varies, but is typically about two to four months. The percentages of completion are determined by relating the actual costs of work performed to date, to the current estimated total costs of the respective contracts. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, repairs and depreciation costs. When the estimate on a contract indicates a loss, the entire loss is immediately recorded in the accounting period that the loss is determined. The cumulative effect of revisions in estimates of total costs or revenue during the course of the work is reflected in the accounting period in which the facts that caused the revision first become known. Allowances for Doubtful Accounts . We maintain a reserve to absorb probable losses relating to bad debts arising from uncollectible accounts receivable. The allowance for doubtful accounts is maintained at a level that management considers adequate to absorb probable bad debts inherent in the accounts receivable balance and is based on ongoing assessments and evaluations of the collectability, historical loss experience of accounts receivable and the financial status of customers with accounts receivable balances. Bad debts are charged and recoveries are credited to the reserve when incurred. We believe the accounting estimate related to the allowance for doubtful accounts is a ―critical accounting estimate‖ because we have a significant concentration of accounts receivable in the rail industry. The economic conditions could affect our customers’ ability to pay and changes in the estimate could have a material effect on net income. Inventories. We establish obsolescence reserves for slow-moving and obsolete inventories. Obsolescence reserves reduce the carrying value of slow moving and obsolete inventories to their estimated net realizable value, which generally approximates the recoverable scrap value. We utilize historical usage, management’s experience, current backlog and forecasted usage to evaluate our reserve amounts. We also periodically evaluate our inventory carrying value to ensure that the amounts are stated at the lower of cost or market. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required. 31

Goodwill . We assess the impairment of goodwill at least annually and whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable. We evaluate the goodwill of each of our reporting units for impairment as required under SFAS No. 142 ―Goodwill and Other Intangible Assets‖. SFAS No. 142 requires that goodwill be tested for impairment using a two-step process. The first step is to identify a potential impairment and the second step measures the amount of an impairment loss, if any. Goodwill is deemed to be impaired if the carrying amount of a reporting unit’s goodwill exceeds its estimated fair value. The fair values of our reporting units are determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s judgment. Factors that could change the result of our goodwill impairment test include, but are not limited to, different assumptions used to forecast future revenue, expenses, capital expenditures and working capital requirements used in our cash flow models. In addition, selection of a risk adjusted discount rate on the estimated undiscounted cash flow is susceptible to future changes in market conditions and when unfavorable, can adversely affect our original estimates of fair values. Since adoption of SFAS 142, we have not recognized any impairment of goodwill. Defined Benefit Pension Plans . We sponsor defined benefit pension plans for certain of our employees and retirees. We account for these plans as required under SFAS No. 87, ―Employers’ Accounting for Pensions.‖ The liabilities and expenses for pensions require significant judgments and estimates. These amounts are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, inflation, the long-term rate of return on plan assets and mortality tables. Management has mitigated the future liability of active employees by freezing the plans effective December 31, 2003. The rate used to discount future estimated liabilities is determined considering the rates available at year-end on AA rated corporate long term bonds that could be used to settle obligations of the plan. Our inflation assumption is based on an evaluation of external market indicators. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations. The effects of actual results that differ from these assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligations in future periods. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our obligations and future expense. As interest rates decline, the actuarially calculated pension plan liability increases. Conversely, as interest rates increase, the actuarially calculated pension liability decreases. The recent declines in interest rates and equity markets have had a negative impact on the pension plan liability and fair value of our plan assets. As a result, the accumulated benefit obligation exceeded the fair value of plan assets at the end of 2002 and 2001, which resulted in a $1.4 million and $260,000, net of tax, respectively, charge to other comprehensive loss. Income Taxes . Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded against net deferred tax assets. As a company with international operations, we record an estimated liability or benefit for our current income tax provision and other taxes 32

based on what we determine will likely be paid in various jurisdictions in which we operate. Management uses its best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent on various matters including the resolution of the tax audits in the various affected tax jurisdictions and may differ from the amounts recorded. An adjustment to the estimated liability would be recorded through income in the period in which it becomes probable that the amount of the actual liability differs from the recorded amount. We do not believe that such a charge would be material. The process of recording deferred tax assets and liabilities involves summarizing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. Management must then assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent that management believes that recovery is not likely, a valuation allowance is established. If a valuation allowance is established in a period, an expense is recorded. The valuation allowance is based on our experience, current economic situation and budgets. Management believes that operations will provide taxable income levels to recover the deferred tax assets. Quantitative and Qualitative Disclosures about Market Risk We are exposed to interest rate risk as almost all of our contractual long-term debt obligations and working capital facilities are exposed to floating interest rates; however, we have determined that the risk is not significant enough to warrant hedging programs. In addition, we are exposed to foreign currency translation fluctuations with its two international operations. BUSINESS Portec Rail Products manufactures, supplies and distributes a broad range of railroad products, including rail joints, rail anchors, rail spikes, railway friction management products and systems and freight car securement devices. We also manufacture material handling equipment through our United Kingdom operation. We serve both domestic and international markets. Portec Rail Products’ consolidated sales for the nine months ended September 30, 2003 and the year ended December 31, 2002 were $44.7 million and $50.0 million, respectively. As of September 30, 2003, we have 201 employees at our facilities in the United States, Canada and the United Kingdom. Portec Rail Products and its predecessors have served the railroad industry since 1906. In 1997, a group of private investors including several senior executives of Portec, Inc., our predecessor company, incorporated Portec Rail Products and purchased the rail-related assets and selected material handling assets of, and assumed certain liabilities of, Portec, Inc. Since the buyout, we have reduced outstanding debt, improved our operating efficiency, introduced new products to address the changing trends in the industry and consolidated our market share in certain business segments in which we operate. We operate through four business units: • the Railway Maintenance Products Division in Pittsburgh, Pennsylvania; 33

• the Shipping Systems Division in Oak Brook, Illinois; • the Canadian operation, consisting of Portec, Rail Products Ltd., our wholly-owned Canadian subsidiary located in Quebec, Canada; and • the United Kingdom operation, consisting of Portec Rail Products (UK) Ltd., our wholly-owned British subsidiary located in Wales and England, in the United Kingdom. Industry Overview We provide products and services primarily for the railway industry, which includes freight railroads and transit systems. Rail traffic is a key factor underlying the demand for our products and services. Deregulation and consolidation in the railroad industry, market competition between railroads and trucking and the impact of the global economy continue to impact the railway industry, including the railway supply market. We believe the railway industry is in a long-term growth trend. In North America and Europe, the industry is being driven by economic growth as well as highway traffic congestion. In developing countries, the growth is being driven by economic growth and development and modernization. The railway industry in the United States and Canada has improved significantly since deregulation in 1979. Revenue ton miles, a main indicator of rail activity, have increased steadily since 1979. Revenue ton miles is defined as the weight of freight carried times distance traveled by Class I railroads. Revenue ton miles increased from 572 million in 1960, to 919 million in 1980, to 1,481 million in 2002. Accompanying this increase in revenue ton miles, productivity and reductions in miles of track have driven up track and equipment utilization. United States freight railroads fall into several classifications. ―Class I‖ railroads are defined as those with operating revenue of at least $272 million in 2003. ―Regional‖ railroads are defined as line-haul railroads that operate at least 350 miles of road and/or earned revenue between $40 million and the Class I threshold. Lastly, ―Local‖ railroads include freight railroads, which are not Class I or regional. Local railroads operate less than 350 miles of road and earn less than $40 million annually. Since 1979, consolidation in the railroad industry has resulted in 36 Class I railroads being reduced to seven. In addition, two Canadian railroads and two Mexican railroads have enough revenue that they would be Class I railroads if they were U.S. companies. In particular, several mergers of large U.S. railroads have occurred in the last 15 years. Management believes that the improved efficiency and service capabilities of the new larger railroads ultimately tends to boost rail traffic. This is the underlying source of demand for our products. Relative to trucks, railroads have advantages in fuel efficiency, lower pollution and higher public safety. Railroads traditionally have hauled most of the bulk commodities such as coal, however, due to highway congestion and fuel cost, intermodal railroads carrying trucks and containers has been the largest growing segment in the industry. In 2002, the North American railroad freight industry generated an estimated $34.1 billion in revenue, representing almost 42% of intercity revenue ton miles. To a large degree, market conditions in the United States freight railroad industry are dependent on the United States economy. With the United States economy experiencing a recession in 2001 and slow growth in 2002, railroads have faced difficult market conditions. This level of activity resulted in some railroads deferring maintenance on their track and infrastructure, which, in turn, reduced sales for our company. 34

Management expects that railroads may return to a higher pattern of maintenance spending as the United States economy strengthens and the level of activity in the industry begins to show consistent increases. Economic growth and development, population growth and rising standards of living are stimulating increased capacity for transit operations on a global basis. Highway congestion and the time, space and expense to build additional highway capacity is driving the transit expansion. In the United States, the extension of the Transportation Equity Act (TEA-21) was recently extended through February 29, 2004. This legislation is under consideration to be extended for six years at the level of $375 billion to fund transit and highway projects. For fiscal year 2004, $7.3 billion is being considered for federal transit funding. Large projects such as the Midwest Rail Initiative integrating rail lines among eight mid-west states for high speed passenger traffic and the Chicago Project to provide suburb-to-suburb service by improving and sharing existing freight and commuter lines and improving speeds by eliminating grade crossings. The European Community is proposing to fund 220 billion euro-dollars for 28 high priority transport infrastructure projects. The railway industry in North America and worldwide is a capital intensive industry, and our sales activity depends in significant part upon the industry’s capital expenditures, for railroad maintenance and for programs designed to increase the efficiency and productivity of rail operations. In North America, the spending on infrastructure, both roadway and structures, has averaged approximately $4.5 billion per year over the five year period from 1997 to 2001, compared to average spending of approximately $1.8 billion per year over the same five year period on equipment, freight cars and locomotives. The railway and transit supply industry is highly fragmented and no single supplier dominates the industry. In North America alone, there are in excess of 200 suppliers, many of which provide niche products that are not currently in our product line. The supply industry, consistent with the rail industry, has experienced consolidation and management believes it will continue to undergo consolidation as smaller suppliers are acquired by larger, well-financed industry participants. We believe that this consolidation will provide acquisition opportunities to strengthen and broaden our product lines. Business Strategy Our business strategy is to (i) increase market share in the track component products that serve as the foundation for our railway business, (ii) advance the technology and expand the friction management products and services we offer to railroads and transit system companies both in North America and the United Kingdom and expand our geographic footprint throughout Europe, Asia and globally, (iii) increase our offering of products and services to assist businesses in loading, securing and transporting materials on railcars, and (iv) increase sales and profitability of our material handling products. Following the offering, we intend to seek opportunities to expand our operations through acquisitions of small and medium size infrastructure and equipment suppliers to the rail industry. Generally, we will seek to acquire smaller companies that have complementary product lines or 35

enhancements to our current products and which can benefit from utilizing our existing operations, distribution and manufacturing platforms. With respect to the acquisition of larger companies, we intend to seek opportunities that will not only add complementary product lines and enhancements to our current products, but that will also expand our market by extending our operations, distribution and manufacturing platforms into new geographic regions. Currently, we have no arrangements, understandings or agreements regarding any such potential transactions. Increase market share in the track component products we offer. We continue to emphasize our commodity type railroad track components (e.g., rail joints, rail anchors and spikes). Our strategy is to be the leader in developing rail joint products to meet the railroad industry’s requirement for heavier axle loads, higher track speeds and greater utilization of tracks. In addition, we have expanded our product line by adding rail spikes which are used at the same time and place as our traditional rail anchor products. In 2000, we acquired rights to a rail spike line from one of our primary steel providers, Stelco Inc. Our goal is to have our customers identify Portec Rail Products as a company that offers a comprehensive product line for the replacement and maintenance of rail track components. Advance the technology and expand the friction management products and services we offer to railroads and transit system companies . We are committed to being a solutions provider, not just an equipment supplier, to the railroad industry in the area of friction management. In this regard we have developed and manufactured advanced systems for the application of both lubricants and friction modifiers. In addition, we are distributors of SoyTrakTM, a new environmentally safe soybean based rail lubricant, as well as KELTRACKTM, a new friction modifier product. To support our efforts to be a solutions provider to our customers in the area of friction management we have developed a number of strategic alliances through our formation of ―The Friction ForceSM Alliance‖ program. The Friction ForceSM Alliance is a series of distributorships, sales representation agreements and informal agreements, which we have entered into with other companies to partner our technology and relationships within the rail services industry with companies that have complementary products and services. Through our partnering arrangements we are able to offer a wider range of lubrication and friction management products and services. Following the offering we intend to continue to build our network of alliances. We have also taken advantage of the name recognition of Portec Rail Products (UK) Ltd. to increase our sales of friction management products and services in the United Kingdom and Europe. We intend to continue this strategy following the offering. Expand our geographic reach throughout Europe, Asia and globally. While we have historically generated sales in a number of countries in Europe and Asia through partnerships and independent sales representatives, we are increasing our focus on building operating platforms to more aggressively take advantage of our recognized brand identity and to participate more fully in the anticipated growth in these markets. Our geographic expansion will most likely occur through strategic mergers or acquisitions. Increase our offering of load securement systems to the railroad industry . We believe that load securement systems are complementary to our core track component and friction management business. We intend to increase our revenue from the sale of load securement systems. Our strategy is to continue to innovate and engineer new securement designs to meet 36

the needs of the railroad industry and its customers. In this regard, in consultation with our customers, we have developed load securement systems to accommodate a variety of products transported by rail. For example, we recently partnered with one of our customers, Trinity Rail Group, to develop a securement system for the transportation of heavy-duty highway tractors, fire trucks, school buses, farm tractors and other similar vehicles. Increase sales and profitability of our material handling products. In an effort to diversify our revenue and increase profitability we have sought to increase our sales of material handling products and services. We have expanded our United Kingdom subsidiary’s material handling business through acquisitions. In this regard, in 1999 we acquired Conveyors International Ltd., which increased our capability to provide material handling products within the United Kingdom. In 2002, we acquired the product lines of Quodeck, a manufacturer of floor and racking systems for the fashion and garment industry. As a result of our acquisitions of Conveyors International Ltd. and the assets of Quodeck, we have increased our revenues from the sales of materials handling products to $6.5 million and $6.5 million for the nine months ended September 30, 2003 and the year ended December 31, 2002, from $4.0 million for the year ended December 31, 1998, the year prior to the acquisition of Conveyors International Ltd. Business Units and Products Our four business units are described in more detail below. Railway Maintenance Products Division Our largest division, the Railway Maintenance Products Division, provides track components and friction management products and services to railroads, transit systems, and railroad contractors. Approximately 90% to 95% of the Railway Maintenance Products Division sales are to United States and Canadian customers and 5% to 10% of our sales from this division are to other customers. This division is headquartered in our executive office in Pittsburgh, Pennsylvania and operates a manufacturing and assembly plant in Huntington, West Virginia. Track and Related Products . The Railway Maintenance Products Division sells a variety of products to support track work repair and installation. The primary customers for these products are the major Class I railroads, regional railroads, local railroads and transit systems. These products include standard and insulated rail joints, gauge plates, track mats, curve blocks and jacking systems. The Railway Maintenance Products Division is a major supplier of rail joints in the North American market. Rail joints are high strength bars, designed to join rails together while maintaining rail strength and continuity. Many joints are designed to be insulated from the rail to facilitate the railway signal system. Low voltage current is transmitted through the rail and segments of the track are electrically isolated through the use of insulated rail joints. The Railway Maintenance Products Division furnishes epoxy-bonded insulated joints, polyurethane-coated insulated joints, and epoxy fiberglass insulated joints. 37

As railroads have increased axle loads, train speeds and utilization of main lines, the demands placed upon the rail joint also have increased. Consequently, we have expanded and improved our product line of standard joints, bonded insulated joints, polyurethane-coated insulated joints and fiberglass epoxy insulated joints, in order to satisfy the demands of the railroad industry. Continued technological advancements in metallurgy and adhesives in addition to engineering tools such as computer aided design analysis and advanced product testing processes are enabling us to provide a higher level of product performance. Friction Management Products and Services . Our friction management products and services improve train operating efficiency and reduce track stresses and related maintenance costs for our customers. Rail lubrication involves placing a film of grease or other lubricant between the flanges of locomotive or railcar wheels and the inside of the rail head (the gauge face). Friction modifiers are applied to the top-of-rail (the running surface) between the rail head and the tread of the wheel. The friction modifier is designed to reduce friction, but not below the level needed for braking and traction. These products can be applied by a fixed station at the side of the track (wayside application), by a specifically equipped truck as it moves along the rails (hi-rail application), or by units mounted on a locomotive or transit system car (on-board application). The dominant technology is a wayside tank and pump with special distribution bars fastened to the rail. As railroads increase axle loads and utilization of main lines, friction management becomes increasingly important. If done effectively, friction management reduces noise, and may provide large savings to the customer through reduced rail wear, wheel wear, road bed maintenance and reduced fuel consumption. The Railway Maintenance Products Division designs, manufactures and sells the equipment for the application of lubricants and friction modifiers. Together with our predecessors, we have supplied rail lubrication products for decades. However, our position in this market was enhanced considerably in 1996 when we acquired the railway lubrication product line of one of our major United States competitors for rail lubrication systems. Following this acquisition, we developed improved lubrication and friction management products by combining the best design characteristics of each company’s products. We believe we now offer our customers the widest choice of railway lubrication products and services for most applications. We believe we presently have a dominant share of the United States market for railway friction management products. In recent years, new and improved products and alliances with independent strategic partners within our industry have broadened the scope, impact and effectiveness of the friction management solutions we provide, and have driven sales of our friction management products and services. In August 2000, we began producing and selling the Protector® IV, our most advanced electronic wayside friction management system. This transit system and freight railroad solution is now in service in Japan, Europe, the United States and Canada, reducing rail wear, lateral forces and noise. The Protector® IV is the first Portec Rail Products wayside system developed to function in the wide array of operating conditions found in all of these diverse markets. It is the result of cooperative development with Kelsan Technologies Corp. and is marketed by our railroad related business units. 38

In 2000, the Railway Maintenance Products Division formed an alliance of technology companies to enhance friction management solutions for the wheel/rail interface. Under the Friction Force SM service marked brand of products and services, the alliance strengthens our market dominance in lubrication and friction management and enables us to deliver improved solutions with enhanced value to customers. The other members of the Friction Force SM Alliance are: • Kelsan Technologies Corp. • Environmental Lubricants Manufacturing, Inc. (ELM) • Diversified Metal Fabricators Corporation • CH&I Technologies, Inc. • National Research Council of Canada • Zeta-Tech Associates, Inc. In some cases, we are a distributor for, or a sales representative of, another alliance member. For example: • We are the exclusive North American distributor, and a non-exclusive distributor elsewhere, for KELTRACK TM , a friction modifier produced by Kelsan Technologies Corp. • We are the exclusive North American distributor for the SoyTrak TM Rail Curve Lubricant a biodegradable, environmentally-friendly soy-based lubricant developed and manufactured by ELM. • We are the exclusive worldwide sales and service representative for a high speed rail tribometer manufactured by Diversified Metal Fabricators Corporation. With some members of the alliance, such as the National Research Council of Canada and Zeta-Tech Associates, Inc., we have informal arrangements to provide mutual support for customer solutions. The Port Authority of Allegheny County, a Pittsburgh area transit system authority, was our first customer to use the system developed by Portec Rail Products and Kelsan Technologies Corp., an independent member of the Friction Force Alliance, to dramatically reduce top-of-rail wheel squeal. The innovative Portec Rail Protector® IV application system applies Kelsan Technologies Corp.’s patented friction modifier KELTRACK TM to the top of the railhead. The Protector® IV system reduced the transit system authority’s severe noise problem in the downtown Pittsburgh subway. The Protector® IV application system now ameliorates noise problems on several transit systems in the United States and abroad, including systems in New York, Chicago and Tokyo. The system is designed to apply grease or friction modifiers, and thereby also reduce track stresses and maintenance costs in freight applications. 39

Shipping Systems Division The Shipping Systems Division engineers and sells load securement systems to the railroad industry. These systems secure a wide variety of products and lading onto freight cars. Although the Shipping Systems Division has some assembly work performed at the Railway Maintenance Products Division’s Huntington, West Virginia plant, most manufacturing is subcontracted to independent third parties. Management believes that the Shipping Systems Division possesses a significant share of the combined United States and Canadian railroad load securement systems market. The Shipping Systems Division has recently secured major orders for heavy-duty chain tie-downs for transporting military equipment on flat cars and tie-down restraints for transporting pickup truck and sport utility vehicle frames by railcar. The Shipping Systems Division’s customers include railroads, railcar builders, railcar repair shops and railcar lessors. Its largest customer is TTX Company, which also is headquartered in Chicago and is owned by certain Class I railroads. TTX Company leases to the railroads its large fleet of railroad flat cars, intermodal railcar platforms, boxcars and gondolas. Many of these cars are outfitted with fastening systems designed and manufactured by the Shipping Systems Division to haul specific products such as lumber, pipe, farm equipment, construction equipment and military vehicles. The Shipping Systems Division is currently testing a new design for railroads to haul highway truck tractors, and other large over-the-road heavy equipment. Specifically, the Shipping System Division recently teamed up with a major railcar manufacturer, Trinity Rail Group (TRG), to develop specifically for TRG a load securement system, the WinChock TM Securement System, which Portec Rail Products has patented. In October 2003, Portec Rail Products signed a five year distribution agreement granting exclusive distribution rights in North America to TRG. This system is designed to carry heavy-duty highway tractors, fire trucks, school buses, and farm tractors as well as other similar vehicles in fully enclosed railcars. The Shipping Systems Division has also worked with TTX Company to install this system for rail transport of similar vehicles. Traditionally, these very large vehicles have been transported from assembly plants to sales distribution sites and end-user facilities via highways. In addition, we are testing new railcar load securement systems for the transport of large diameter pipe. In past years, the Shipping Systems Division had developed the Constant Tension Device, or CTD, in response to the railroad’s need to safely and more effectively secure lumber on bulkhead flat cars with steel bands. The Constant Tension Device helps to prevent lading band fatigue and the hazards of loose steel bands, thus preventing load shifting as well as the potential danger of spilled loads. The CTD is now a field-proven product for the transport of lumber. The CTD concept has recently been applied to the securement of gas pipes on railcars. The CTD gas pipe application has successfully completed field-testing and we believe it delivers a more stable, safer environment for transporting gas pipes than other load securement systems. Portec, Rail Products Ltd., our wholly-owned Canadian subsidiary Our Canadian operation’s business is similar to the Railway Maintenance Products Division in that its business also is comprised of track components and friction management 40

products and services. The Canadian operation produces rail anchors and spikes largely for the Canadian railroads with some products exported to the United States and other international customers. Rail anchors and rail spikes are devices used to secure rails to ties to restrain the movement of the rail tracks. In addition, this business unit manufactures and sells friction management products. We continue to refine our manufacturing processes to maintain our market position in Canada. The Canadian operation is headquartered in Lachine, Quebec, a suburb of Montreal, and operates a manufacturing plant in St. Jean located about 30 miles southeast of Montreal. We believe that the Canadian operation has been successful over the years in maintaining dominant market shares with the Canadian railroads. There are two major Canadian transcontinental railroads, the Canadian Pacific and the Canadian National, and a number of regional railroads. In 2000, we acquired the rights to and installed a rail spike line from the Canadian operation’s primary steel supplier, Stelco Inc. The move strengthened our position with Stelco Inc., adding tonnage to their rolling mill and giving us favorable pricing on both rail anchor and spike steel. The Canadian operation was instrumental in designing the electronic Protector® IV friction management system. Over the last 15 years, the Canadian railroads preferred our electronic friction management designs because they afforded better performance during extreme winter weather conditions. Historically, the United States railroad industry preferred less expensive hydraulic powered units. However, during the last five years, the United States railroads increasingly have moved to the electronic Protector® IV design. Management believes that the Canadian operation possesses a dominant share of the friction management market in Canada. Management also believes that the Canadian operation possesses a substantial share of the Canadian market for rail anchors and rail spikes. In August 2003, the Canadian operation entered into a pilot service agreement with Canadian Pacific Railway, pursuant to which the Canadian operation will supervise Canadian Pacific maintenance employees and take over the maintenance and management of the Canadian Pacific lubrication equipment covering a 513-mile section of their railroad. This represents our first ongoing service maintenance contract with a major railroad. We are pursuing similar opportunities with other North American railroads. Portec Rail Products (UK) Ltd., our wholly-owned United Kingdom subsidiary Our United Kingdom operation’s Wrexham, Wales facility primarily produces railway lubrication products. Over the past three years, there has been heightened interest at Network Rail, the United Kingdom national railway infrastructure system, in the rail/wheel interface due to several accidents involving broken rail. Proper rail grinding to profile the rail and friction management are seen as preventative measures and this has stimulated additional business. We recently have introduced our Protector® IV system and the KELTRACK TM product to the United Kingdom operation. Management believes that the United Kingdom operation possesses a dominant share of the wayside lubrication market in the United Kingdom. 41

The Wrexham operation also produces material handling products and rack system components. In 1999, we expanded the material handling business when we acquired Conveyors International Ltd. located in Leicester, England. The material handling business is conducted under the trade name ―Conveyors International Ltd.‖, as a result of an agreement with Portec, Inc. which prohibits our use of the Portec name in the materials handling industry. Conveyors International Ltd. has approximately 21 years of experience in designing overhead conveyor systems and products that provide solutions for a wide variety of industries internationally. In December 2002, we acquired the Quodeck product line from Quodeck Ltd. Quodeck is a line of conveyors, racking systems, mezzanine floor systems and turnkey equipment mainly used in the garment distribution industry. The Quodeck acquisition expanded our client base and provided new opportunities to serve the growing warehouse and distribution market. Sales and Marketing Our business units initiate their individual sales programs, which vary due to the different product lines and geographic locations. Our marketing efforts include promoting our business through trade show presentations, through trade magazine advertising and through our website. In addition, our managers and engineers participate in industry conferences and industry professional organizations to interface with customer engineers and end users of our products. The business units use an inside sales department to sell small orders and replacement parts and a combination of employee sales managers, third party sales representatives and distributors to call on customer purchasing managers, engineers and operations managers. Sources and Availability of Raw Materials and Supplies The products we manufacture and sell require a supply of raw materials, including steel and steel fabrications and numerous specialty components, such as pumps, distribution bars and electronic controls. There are at least two suppliers for most components. Inventory levels are continually monitored to ensure adequate supplies for our production. Advance purchases are made periodically to avoid possible shortages of material due to capacity limitations of component suppliers and possible price increases. Portec Rail Products relies on established relationships with major suppliers to ensure the availability of raw materials and specialty items rather than long term supply contracts. Fluctuations in the price of components and raw materials have not had a material effect on earnings and we do not anticipate that they will have a material effect in the foreseeable future. Although there are a large number of domestic and foreign suppliers of steel and steel fabricators, the Railway Maintenance Products Division for many years has relied upon a supply relationship with Steel of West Virginia, Inc. for a substantial majority of its joint bar steel. Joint bar steel is rolled to various profiles and sizes requiring proprietary steel mill rolls that are not transferable from mill to mill. Steel of West Virginia, Inc. maintains the rolls for us after we purchase them. We have fourteen such roll sets that management estimates would cost approximately $150,000 per set to replace. It would be time consuming and expensive to switch suppliers. Similarly, our Canadian operation has had a single source supply relationship with Stelco Inc. for rail spike and rail anchor steel. In the case of rail anchor steel, there are two steel 42

mill roll sets at Stelco Inc., that management estimates would cost approximately $150,000 per set to replace. In 2002, approximately 85% of domestic requirements for steel were purchased from Steel of West Virginia, Inc. and approximately 100% of the Canadian requirements were purchased from Stelco Inc. The disruption of supplies from either of these suppliers could have a significant negative effect on us. See ―Risk Factors.‖ We maintain good relationships with our suppliers and have not experienced any significant interruptions in recent years in the supply of raw materials or specialty components except as noted below. In late 2002 a labor strike at Stelco Inc. caused a temporary shortage of spike and anchor steel. The strike ended in January 2003, and to our knowledge we did not lose any business as a result of the strike. Raw materials for the Shipping Systems Division and Portec Rail Products (UK) Ltd. are readily available from various suppliers. Principal Customers Our business depends largely upon sales to United States and Canadian railroads. For the nine months ended September 30, 2003, sales to our two largest customers, Canadian Pacific Railway and CSX Corporation, accounted for approximately 16% and 7% of our total sales, respectively. For the year ended December 31, 2002, sales to Canadian Pacific Railway and Burlington Northern Santa Fe Railway accounted for approximately 15% and 8% of our total sales, respectively. For additional information on our principal customers, see ―Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Segment Review.‖ Backlog The following table sets forth the dollar amount of backlog for each of our business segments at the dates indicated.

At September 30, 2003 (1) (2) 2002 (1)

At December 31, 2002 (1) 2001 (1)

(Dollars in Thousands)

Railway Maintenance Products Division Shipping Systems Division Canadian operation United Kingdom operation Total

$ 2,670 470 636 1,510 $ 5,286

$ 2,587 369 951 2,026 $ 5,933

$ 2,776 648 1,162 1,854 $ 6,440

$ 2,931 141 842 2,113 $ 6,027

(1)

Includes intra-company backlog amounts.

(2)

During September 2003, we began tracking intra-company backlog separately . At September 30, 2003, the total backlog includes approximately $600,000 of intra-company backlog. 43

The backlog is based on customer purchase orders that we believe are firm. Customer orders, however, may be subject to cancellation and other customary industry terms and conditions. Historically, little variation has been experienced between the number of products ordered and the number of products actually sold. A significant portion of our sales have very short lead terms of 30 to 60 days, that may not be recorded on any quarter end backlog summary. The backlog is not necessarily indicative of future results of operations. The railroad industry, in general, has historically been subject to fluctuations due to overall economic conditions. We estimate that at September 30, 2003, approximately 15% of our backlog will not be filled by the end of the current fiscal year ending December 31, 2003. Seasonality of Business The demand for certain of our products is subject to seasonal fluctuations. Our railroad product lines normally experience strong sales during the second quarter as a result of seasonal pick-up in construction and trackwork due to favorable weather conditions. In contrast, our railroad product lines experience normal downturns in sales during the fourth quarter due in large part to reductions in construction and trackwork during the cold weather months, particularly in the northern United States and Canada. This reduction in sales generally has a negative impact on our fourth quarter results. Patents and Trademarks We own a number of United States and Canadian patents and trademarks. We have several patents on our friction management products, such as the Protector® IV application system and related products, which we believe are of material importance to the business as a whole. Our patents on such products expire in the year 2014 and thereafter. We believe that, in the aggregate, our patents and trademarks give us a competitive advantage. We also rely on a combination of trade secrets and other intellectual property laws, non-disclosure agreements and other protective measures to establish and protect our proprietary rights in intellectual property. Research and Development Our engineering resources are used in two major ways, sales support and research and development. Approximately 35% of our engineering personnel are engaged in sales support such as providing input into sales proposals, providing drawings and bills of materials for processing customer orders and doing design work on customer project orders. Approximately 65% of our engineering personnel are used in research and development to improve the effectiveness of existing products and to innovate new products and technologies. In recent years, we have spent approximately 1% of net sales on these research and development programs. The largest portion of our research and development efforts have been devoted to developing friction management products, particularly the Protector® IV electronic lubricator, as well as the associated distribution bars for both gauge face lubrication and top-of-rail friction modifiers. In addition to the wayside Protector® IV system, we have devoted resources to the 44

high-rail spray system for applying friction management products and to a lesser extent investigations into the on-board locomotive mounted spray system. Rail joints represent a more mature product line and therefore use fewer research and development resources. The exception is an ongoing research and development program to develop rail joint products to facilitate heavier axle loads as the railroads move toward higher capacity freight cars. The Shipping Systems Division depends upon the flow of new load securement designs to support the business. Most of the Shipping Systems Division’s engineering resources go toward research and development and current projects, including the WinChock TM securement system and the constant tension device, or CTD, discussed above. Our United Kingdom material handling business requires strong engineering support for sales proposals and for designs and drawings relative to customer project orders. We have been meeting the needs for research and development by using consulting services and by acquiring product lines such as Quodeck. Competitors We operate in a competitive marketplace. Price competition is strong, customers are cost-conscious and the number of significant customers is limited, particularly with respect to our track component product lines. Therefore, our ability to increase prices has been limited. In addition to price, competition is based on product performance and technological leadership, quality, reliability of delivery and customer service and support. Our principal competitors vary to some extent across our principal product lines. A number of our competitors are larger and have greater financial resources. Our significant competitors for rail joint production in North America are Cleveland Track Material, Inc., L.B. Foster Company and Seneca Railroad and Mining, Inc. Our principal competitor in rail spike production in North America is Gerdau Ameristeel, followed by four smaller producers. We believe we possess a dominant share of the rail anchor market in Canada. We believe that Unit Rail Anchor Company, Inc., owned by Amsted Industries Incorporated, is our only major competitor for rail anchors in North America and the dominant supplier of rail anchors in the United States. Because of its high volume and low cost structure, Unit Rail Anchor remains a competitive threat as the North American market leader. We believe we have a dominant share of the wayside rail lubrication market in North America. At present, we are aware of one company, Lincoln Industrial Corporation, that is trying to penetrate this market. We believe that our only competitor for wayside lubrication products in the United Kingdom is Queyhead Industries Limited, and we further believe this competitor has a significantly smaller market share than Portec Rail Products (UK) Ltd. 45

We believe that the Shipping Systems Division possesses a significant share of the combined United States and Canadian railroad load securement systems market. The Shipping Systems Division competes with a number of other companies. The most significant competitor is the HOTT division of Holland Corporation. The United Kingdom material handling industry has numerous competitors ranging from small component suppliers to large system integrators. Many of the competitors of our material handling division are larger and have greater resources than our United Kingdom operation. Environmental Matters We are subject to foreign, national, state, provincial, and local environmental laws and regulations concerning, among other matters, air emissions, wastewater discharge, solid and hazardous waste disposal, and employee health and safety. We maintain an active program of environmental compliance and believe that our current operations are in material compliance with all applicable environmental laws and regulations. See ―Legal Proceedings‖ for information relating to a proceeding in which we are involved, regarding environmental matters. Regulation In the course of our operations we furnish products and services which are required to meet industry specifications. The American Railway Engineering and Maintenance of Way Association (AREMA) publishes standards and recommends practices applicable to our track component product line. Our customers use the AREMA standards and from time to time include their own specifications for the products and services that they purchase. The Association of American Railroads (AAR) promulgates a wide variety of rules and regulations governing the safety and design of equipment. Our securement system designs require AAR approval as well as our customer’s approval and often the approval of the shipper. In the United Kingdom, our products must gain approval and meet the specifications of Network Rail, the national United Kingdom rail infrastructure system. We maintain quality assurance programs at all of our locations. The Railway Maintenance Products Division follows the standards of the National Association of Purchasing Managers and the AAR’s M1003 Quality Assurance requirements. Our plant in St. Jean, Quebec, Canada has attained ISO 9001:2000 certification and our United Kingdom locations are certified under ISO 9001:2000. Employees As of September 30, 2003, we had 195 full-time and 6 part-time employees. We consider our relationship with our employees to be good. Our employees in the United States and the United Kingdom are not subject to any collective bargaining agreement. Approximately 8% of our employees, all of whom are employed at our Canadian operation, are subject to a collective bargaining agreement. This agreement is effective through August 31, 2006. 46

Properties We conduct our business through our corporate office, which is also one of our business unit offices, three other offices and through our manufacturing facilities. Our offices and manufacturing facilities are adequate to meet our current and future production requirements. The following tables sets forth information about our offices and manufacturing facilities as of September 30, 2003.

Corporate Office 900 Old Freeport Road Box 38250 Pittsburgh, Pennsylvania 15238-3987 Business Unit Offices Railway Maintenance Products Division 900 Old Freeport Road Box 38250 Pittsburgh, Pennsylvania 15238-3987 Shipping Systems Division 122 West 22nd Street Oak Brook, Illinois 60523 Portec, Rail Products Ltd. 2044 32nd Avenue Lachine, Quebec H8T 3H7 Canada

Owned or Leased Leased

Leased

Leased

Leased

47

Manufacturing Facilities Portec Rail Products, Inc. 900 Ninth Avenue West Huntington, West Virginia 25701 Portec, Rail Products Ltd. 350 Industrial Boulevard St. Jean, Quebec, J3B 4S6 Canada Portec Rail Products (UK) Ltd. Vauxhall Industrial Estate Ruabon, Wrexham, LL146UY, Wales United Kingdom (1) (2) Portec Rail Products (UK) Ltd. 43 Wenlock Way Troon Industrial Area Leicester LE4 9HU United Kingdom (1) Additional property Portec Rail Products, Inc. 799 Burden Avenue Troy, New York 12181 Owned Leased

Owned

Owned

Leased

(1)

Serves as a business unit office, in addition to a manufacturing facility. This property is subject to several encumbrances under credit facilities of Portec Rail Products (UK) Ltd.

(2)

Legal Proceedings We are involved periodically in various claims and lawsuits that arise in connection with our business. Other than as set forth below, these are routine legal proceedings that, in the aggregate, are not material to our financial condition and results of operations. Portec, Inc., the predecessor of Portec Rail Products, was named as a defendant in Niagara Mohawk Power Corporation v. Consolidated Rail Corporation, et al . In July 1999, the action was filed in the United States District Court, Northern District of New York. Niagara Mohawk Power Corporation (―Niagara Mohawk‖) is seeking contribution from nine named defendants for costs it has incurred, and is expected to incur, in connection with the environmental remediation of property located in Troy, New York. Niagara Mohawk’s claim against the named defendants under the Comprehensive Environmental Responsive Comprehensive and Liability Act, also known as ―CERCLA‖ or ―Superfund,‖ alleges several, but not joint liability. The basis of the action stems from Niagara Mohawk’s agreement with the New York State Department of Environmental Conservation, pursuant to an Order on Consent, 48

to environmentally remediate property identified as the Troy Water Street Site. The defendants consist of companies that at the time were industrial in nature, or owners of companies industrial in nature, and who owned or operated their businesses on portions of the Troy Water Street site or on properties contiguous, or otherwise in close proximity, to the Troy Water Street Site. Niagara Mohawk alleges that the defendants either released hazardous materials directly to the Troy Water Street site or released hazardous materials that migrated onto the Troy Water Street Site, and therefore the defendants should be responsible for a portion of the costs of remediation. In September 1999, we filed our answer to Niagara Mohawk’s action, denying responsibility for Niagara Mohawk’s allegations. In November 2001, we filed a motion for summary judgment, seeking to have Portec, Inc. removed as a defendant or, in the alternative, to have the court limit the claims that may be asserted against Portec, Inc. To date, the court has not set forth its ruling on our motion for summary judgment. We believe Niagara Mohawk’s case against Portec, Inc. is without merit and we intend to vigorously defend against Niagara Mohawk’s claims. Because Niagara Mohawk is seeking unspecified monetary contribution from the defendants, we are unable to determine, if Niagara Mohawk were to prevail, the extent to which we would have to make contribution, or whether such contribution would have a material adverse effect on our financial condition or results of operations. However, total clean up costs are expected to be substantial and will likely exceed $50 million. If liability for a portion of these costs is attributed to us, such liability could be material. Furthermore, ongoing litigation may be protracted, and legal expenses may be material to our results of operations. 49

MANAGEMENT Directors And Executive Officers The following table sets forth certain information regarding the directors and executive officers of Portec Rail Products as of September 30, 2003.

Name

Age

Position

Marshall T. Reynolds John S. Cooper

66 69

Chairman of the Board President and Chief Executive Officer, Director Chief Financial Officer Director, Managing Director, Portec Rail Products (UK) Ltd. Director Director Director Director Director, President and General Manager, Railway Maintenance Products Division Director, President, Portec, Rail Products Ltd. Director Director Director Director, President, Shipping Systems Division Director and Corporate Secretary 50

Michael D. Bornak Gary Bale

41 44

Philip E. Cline Howard Darrel Darby Daniel P. Harrington Charles R. Hooten, Jr. Richard J. Jarosinski

70 75 47 76 49

Konstantinos Papazoglou

51

Douglas V. Reynolds Neal W. Scaggs Robert L. Shell, Jr. Lucian J. Sieja

27 67 59 61

Kirby J. Taylor

58

The principal occupation during the past five years of each director and executive officer of Portec Rail Products is set forth below. All directors and executive officers have held their present positions for five years unless otherwise stated. Marshall T. Reynolds has served as chairman of the board of Portec Rail Products since December 1997. Mr. Reynolds has served as chief executive officer and chairman of the board of Champion Industries, Inc., a commercial printer, business form manufacturer and supplier of office products and furniture, from 1992 to the present, and sole shareholder from 1972 to 1993; president and general manager of The Harrah & Reynolds Corporation, from 1964 and sole shareholder since 1972; chairman of the board of the Radisson Hotel in Huntington, West Virginia; and chairman of McCorkle Machine and Engineering Company in Huntington, West Virginia. Mr. Reynolds also serves as a director of the Abigail Adams National Bancorp, Inc. in Washington, D.C.; chairman of the board of First Guaranty Bank in Hammond, Louisiana; and chairman of the board of Premier Financial Bancorp in Huntington, West Virginia. Mr. Reynolds is the father of Douglas V. Reynolds, a director of Portec Rail Products. John S. Cooper was hired by Portec Rail Products’ predecessor in July 1979 as division vice president of operations of the company’s Railcar Division. Mr. Cooper became division vice president and general manager of the Railcar Division in August 1980, vice president and group executive in June 1983, vice president and general manager of the Railway Maintenance Products Division in April 1985, senior vice president and group executive of the Railroad Group in February 1987 and president and chief executive officer of Portec Rail Products, Inc. in December 1997. Prior to Portec Rail Products, he worked for the American Bridge Division of U.S. Steel for 23 years. Mr. Cooper received his degree in civil engineering from Penn State University. Michael D. Bornak has served as the chief financial officer of Portec Rail Products since January 1998. Prior to joining Portec Rail Products, Mr. Bornak was controller of Precise Technology, Inc. Prior to joining Precise Technology, Inc. in 1992, Mr. Bornak was employed in the accounting and treasury departments of National Steel Corporation. Prior to joining National Steel Corporation in 1986, Mr. Bornak was a senior auditor with Ernst & Young. Mr. Bornak is a certified public accountant. Gary Bale has served as a member of the board of directors of Portec Rail Products since February 2003. Mr. Bale has been the managing director of Portec Rail Products (UK) Ltd. since December 2001. Prior to becoming managing director, Mr. Bale was a senior product engineer, and was previously employed by Conveyors International Ltd. since November 1983. Philip E. Cline has served as a member of the board of directors of Portec Rail Products since January 1998. Mr. Cline has served as president of River City Associates, Inc and general manager of the Radisson Hotel in Huntington, West Virginia since June 2000. He served as president of Monumental Concrete from June 1999 to June 2000. Mr. Cline served as president and chief executive officer of Broughton Foods Company from November 1996 to June 1999. He was employed in various capacities, including vice president and treasurer, executive vice president and consultant, by J. H. Fletcher & Co., a manufacturer of underground mining equipment in Huntington, West Virginia from 1968 to 1996. 51

Howard Darrel Darby has served as a member of the board of directors of Portec Rail Products since May 2003. Mr. Darby is the president and chairman of the board of Darco International, a manufacturer of orthopedic soft goods. Daniel P. Harrington has served as a member of the board of directors of Portec Rail Products since January 1998. Since 1991, Mr. Harrington has served as the president, chief executive officer and a director of HTV Industries, Inc., a privately held company engaged in manufacturing and investments in various industries. Mr. Harrington is president of TVI Corporation, which is a wholly-owned subsidiary of HTV Industries, Inc. Mr. Harrington is a director of Biopure Corporation in Boston, Massachusetts, Churchill Downs, Inc. in Louisville, Kentucky, First Guaranty Bank in Hammond, Louisiana and First State Financial Corporation, Inc. in Sarasota, Florida. Charles R. Hooten, Jr . has served as a member of the board of directors of Portec Rail Products since January 1998. Since 1948, Mr. Hooten has held various senior management positions at the Hooten Equipment Company, including that of president since 1976. Mr. Hooten is a member of the board of directors of Premier Financial Bancorp and C. J. Hughes Construction Company, and is also a member of the Natural Resource Commission of the State of West Virginia. Mr. Hooten is also the president of Empire Investors, Inc., Tyler Plaza, Inc. and Virginia Street Corporation. Richard J. Jarosinski has served as a member of the board of directors since January 1998. Mr. Jarosinski has been employed by Portec Rail Products’ predecessor since 1975. Mr. Jarosinski is the president and general manager of Portec Rail Products, Railway Maintenance Products Division. Konstantinos Papazoglou has served as a member of the board of directors since January 1998. Mr. Papazoglou has been employed by Portec Rail Products’ predecessor since 1978. Mr. Papazoglou is the president of Portec, Rail Products Ltd. Douglas V. Reynolds has served as a member of the board of directors of Portec Rail Products since January 1998. Mr. Reynolds has been engaged in the private practice of law since June 2003. He previously served as an attorney for the public defenders office of Cabell County from May 2001 to June 2003. Mr. Reynolds attended West Virginia University Law School from September 1999 to May 2002, and Duke University from September 1995 to May 1999. Mr. Reynolds is the president of the Transylvania Corporation and is a director of C. J. Hughes Construction Company, The Harrah & Reynolds Corporation, and Abigail Adams National Bank. Mr. Reynolds is a graduate of Duke University and holds a law degree from West Virginia University. Mr. Reynolds is the son of Marshall T. Reynolds, Portec Rail Products’ Chairman of the Board. Neal W. Scaggs has served as a member of the board of directors of Portec Rail Products since January 1998. Since 1961, Mr. Scaggs has served as the president of Baisden Brothers, Inc. Mr. Scaggs is also a director of Champion Industries, Inc., Premier Financial Bancorp and Logan Corporation, and serves as chairman of the board of First State Financial Corp. and Bucane, Inc. 52

Robert L. Shell, Jr . has served as a member of the board of directors of Portec Rail Products since January 1998. Mr. Shell is the chairman and chief executive officer of Guyan International, a privately held holding company for manufacturing and service companies, a position he has held since 1985. Mr. Shell is a director of First Guaranty Bank, Hammond, Louisiana; of First State Financial Corporation, Inc., and of First Sentry Bank, Huntington, West Virginia. Mr. Shell has been a member of the board of directors of the Huntington Boys and Girls Club, and the governing board of Marshall University, since 2002. He previously served on the boards of the Cabell Huntington Hospital Foundation and the West Virginia Foundation for Independent Colleges and as the chairman of the Marshall Artists Series of Marshall University. Lucian J. Sieja has served as a member of the board of directors since January 1998. Mr. Sieja has been employed by Portec Rail Products’ predecessor since 1994. Mr. Sieja has served as president of the Shipping Systems Division since June 1994. Previously, he worked for National Castings Inc. for 27 years. Mr. Sieja received his BSME/IE degree from The University of Toledo. Kirby J. Taylor has served as a member of the board of directors of Portec Rail Products since December 1997. He has served as president and chief operating officer of Champion Industries, Inc. since September 2000. Mr. Taylor was president and chief executive officer of Action Business Consulting, a management consulting firm, from November 1997 to September 2000. He previously spent four years with General Electric, 22 years with Tenneco Inc., two years with Outboard Marine Corp. and two years with Addington Resources, Inc. Portec Rail Products’ bylaws provide that the number of directors shall be fixed from time to time by the board of directors. All of our directors are elected annually by the shareholders of Portec Rail Products and hold office until the next annual meeting of shareholders or until their successors have been elected and qualified, or until their earlier resignation or removal. The board of directors elects the officers of Portec Rail Products who hold office until their successors have been elected and qualified or until their earlier resignation or removal. Meetings of the Board of Directors and Committees The board of directors meets quarterly and may hold additional special meetings as needed. The board of directors has established various committees to assist in the governance of Portec Rail Products. Currently, we have an executive committee and an audit committee. The board of directors may, by resolution, designate one or more additional committees. We do not have a separate nominating committee at this time, but we intend to establish a nominating committee in connection with the 2004 annual meeting of shareholders. The board of directors of Portec Rail Products currently maintains an executive committee that also acts as our compensation committee. The executive committee is comprised of directors Marshall T. Reynolds (Chairman), Douglas V. Reynolds, Kirby J. Taylor and John S. Cooper. 53

The audit committee is comprised of Directors Philip E. Cline (Chairman), Neal W. Scaggs and Charles R. Hooten, Jr., all of whom are non-employee directors. As of the date of this prospectus, a majority of the audit committee members are deemed ―independent‖ within the meaning set forth in rules promulgated under the Sarbanes-Oxley Act of 2002. As permitted by the Securities and Exchange Commission, we expect to have a fully independent audit committee within one year of the listing of our shares on the Nasdaq National Market. The audit committee oversees the engagement of our independent auditors and, together with our auditors, reviews our accounting practices, internal accounting controls and financial results. The audit committee has adopted an audit committee charter. Directors’ Compensation Non-employees of the board of directors are paid $500 for each meeting of the board of directors that they attend. All directors are entitled to be reimbursed for their expenses incurred while attending meetings of the board of directors. Executive Officer Compensation Summary Compensation Table. The following table sets forth for the year ended December 31, 2002, certain information as to the total remuneration paid by Portec Rail Products to its chief executive officer, as well as to the four most highly compensated executive officers of Portec Rail Products, other than the chief executive officer, who received total annual compensation in excess of $100,000. Summary compensation information is excluded for the years ended December 31, 2001 and 2000, as Portec Rail Products was not a public company. Each of the individuals listed in the table below are referred to as a named executive officer.

Annual Compensation Other Annual Compensation LTIP Payouts All Other Compensation (3)

Name and Principal Position

Year

Salary

Bonus (1)

John S. Cooper President and Chief Executive Officer Lucian J. Sieja President and General Manager, Shipping Systems Division Richard J. Jarosinski President and General Manager, Railway Maintenance Products Division Michael D. Bornak Chief Financial Officer Konstantinos Papazoglou President, Portec, Rail Products Ltd.

2002

$ 140,000

$ 63,000

$ 52,400 (2)

—

$ 2,300 (4)

2002

110,600

5,400

—

—

1,800 (4)

2002

107,000

48,000

—

—

1,800 (4)

2002

93,000

42,000

—

—

1,500 (4)

2002

87,500

38,900

—

—

6,000 (5)

(1)

Bonus earned in 2002, paid in January 2003.

54

(2) (3)

Represents taxable pension payments from the Portec Rail Products, Inc. Retirement Plan, a defined benefit plan sponsored by the company. Portec Rail Products provides certain of its executive officers with non-cash benefits and perquisites, such as the use of employer-owned or leased automobiles. Management believes that the aggregate value of these benefits for fiscal 2002 did not, in the case of any executive officer, exceed $50,000 or 10% of the aggregate salary and annual bonus reported for him in the Summary Compensation Table. Amount represents an employer matching contribution under our 401(k) Retirement Plan. Amount represents an employer contribution under a defined contribution plan.

(4) (5)

Benefits Incentive Compensation Portec Rail Products provides its employees with incentive compensation based on a percentage of the operating profits of Portec Rail Products and its business units, although incentive compensation is not made pursuant to a formal written plan. The formula for determining the amount of bonus for each of our business units is determined annually by the compensation committee of Portec Rail Products. The incentive bonus payable to the employees of the Shipping Systems Division, Portec, Rail Products Ltd. and Portec Rail Products (UK) Ltd. has historically been based on a discretionary percentage of operating profits for each business unit, ranging from 8 to 15%, depending on the performance level of the business unit and as approved by the compensation committee. The specific amount of the bonus pool awarded to a division president is approved by the compensation committee and the remainder of the bonus pool is distributed to division employees at the discretion of the division president, after an informal review by the chief executive officer of Portec Rail Products. With respect to the Railway Maintenance Products Division, the bonus is determined as a percentage of the division’s operating profits in excess of certain performance criteria which may change from year to year. The aggregate bonus pool is then divided by the total payroll for this division and the resulting percentage is paid as a bonus to each employee. Defined Benefit Pension Plans. Portec Rail Products maintains the Portec Rail Products, Inc. Retirement Plan (the ―Retirement Plan‖), which is a qualified, tax-exempt defined benefit plan that covers substantially all United States employees . Salaried employees age 21 or older who have worked at Portec Rail Products for a period of one year in which they have 1,000 or more hours of service are eligible for participation in the Retirement Plan. Hourly employees become immediately eligible to participate in the Retirement Plan For salaried employees, the normal retirement benefit, payable at or after age 65, is a monthly payment equal to 1/12 of the sum of (1) and (2), where (1) is the participant’s accrued benefit under the predecessor plan, if any, and (2) is the product of (A) and (B), where (A) is 1.4% of ―final average earnings‖ (average compensation based on the average of the five consecutive years providing the highest average in the ten-year period prior to retirement) plus 0.4% of final average earnings in excess of the participant’s ―covered compensation‖ (average of the Social Security wage bases for the 35 years prior to normal retirement age), and (B) is the participant’s years of credited service. With respect to hourly employees who terminate service on or after January 1, 2001, the normal retirement benefit is a monthly payment equal to the participant’s credited service multiplied by $30. 55

No new participants are permitted in the Railway Products Division-Memphis Hourly Participating Group, the Railway Products Division-Troy Hourly Participating Group, and the RMC Hourly Participating Group, effective as of December 10, 1997. In August 2003, the Retirement Plan was amended to freeze additional benefit accruals and credited service as of December 31, 2003. No employee will be eligible to become a new or rehired participant in the Retirement Plan after that date. The normal form of benefit from the Retirement Plan for a single participant is a life annuity, or for a married participant, a qualified joint and survivor annuity. The following table indicates the annual retirement benefit that would be payable under the Retirement Plan upon retirement at age 65 in calendar year 2003, expressed in the form of a single life annuity for the average salary and benefit classifications specified below.

Year of Benefit Service Salary Benefit: Average Salary

5 Years

10 years

15 Years

20 years

25 years

30 Years

$20,000 $30,000 $40,000 $50,000 $60,000 $75,000 $100,000 $150,000

$ 1,400 $ 2,100 $ 2,800 $ 3,621 $ 4,521 $ 5,871 $ 8,121 $ 12,621

$ 2,800 $ 4,200 $ 5,600 $ 7,241 $ 9,041 $ 11,741 $ 16,241 $ 25,241

$ $ $ $ $ $ $ $

4,200 6,300 8,400 10,862 13,562 17,612 24,362 37,862

$ $ $ $ $ $ $ $

5,600 8,400 11,200 14,483 18,083 23,483 32,483 50,483

$ $ $ $ $ $ $ $

7,000 10,500 14,000 18,103 22,603 29,353 40,603 63,103

$ $ $ $ $ $ $ $

8,400 12,600 16,800 21,724 27,124 35,224 48,724 75,724

For the plan year ending December 31, 2003, Portec Rail Products, Inc. is obligated to make a minimum contribution of $147,000 to the Retirement Plan on or before September 2004. As of September 30, 2003, Messrs. Cooper, Sieja, Jarosinski and Bornak had 24, 10, 27 and 6 years of service, respectively. Portec Rail Products (UK) Ltd. maintains the Portec Rail Products (UK) Limited Retirement Benefits Scheme in the United Kingdom (the ―UK Retirement Plan‖). The UK Retirement Plan is a contributory defined benefit pension plan covering approximately 21 active employees, as well as former employees and retirees. The UK Retirement Plan has generally been frozen to new entrants since April 1, 1997. Benefits under the UK Retirement Plan are based on a combination of eligible service and pensionable salary during defined periods of service. For these purposes, eligible service includes complete years and months of service up to a participant’s normal retirement date, subject to a maximum of 40 years for salaried employee members. Pensionable salary is the greater of basic annual salary and the total taxable earnings in the previous tax year, including bonuses. A participant’s final pensionable salary is determined to be the highest average of the highest 3 consecutive pensionable salaries in the 10 years ending on the normal retirement date or other termination date. Salaried employees receive as a retirement provision, 1/60th of their final pensionable salary for each complete year of pensionable service (and a proportionate amount of each additional month of pensionable service. Hourly employees receive, as a retirement pension 1/80th of their final pensionable salary for each complete year of pensionable service with a proportionate amount for each additional month of service.) The maximum annual pension is two-thirds of a participant’s final pensionable salary, as determined under the plan; however, pension benefits will increase annually by a cost-of-living factor. Portec Rail Products (UK) Ltd. annually contributes 10% of 56

each active employee’s eligible compensation to the plan and each active employee is required to contribute 3% of eligible compensation. In September 2003, the UK Retirement Plan was amended to freeze all future benefit accruals for all participants, effective as of December 31, 2003. As a result of the amendment, no further employee contributions will be made to the plan and Portec Rail Products (UK) Ltd. will be solely responsible for meeting minimum funding requirements to maintain the plan. Future pension costs and plan funding will be solely dependent upon the performance of plan assets. The following table indicates the annual retirement benefit that would be payable under the UK Retirement Plan to a salaried employee upon retirement at age 65 in calendar year 2003, expressed in the form of a single life annuity for the average salary and benefit classifications specified below.

Salaried Employees Year of Pensionable Service Average Pensionable Salary

5 Years

10 years

15 Years

20 years

25 years

30 Years

£ 10,000 £ 20,000 £ 30,000 £ 40,000 £ 50,000 £ 60,000 £ 70,000 £ 80,000

£ 833 £ 1,667 £ 2,500 £ 3,333 £ 4,167 £ 5,000 £ 5,833 £ 6,667

£ 1,667 £ 3,333 £ 5,000 £ 6,667 £ 8,333 £ 10,000 £ 11,667 £ 13,333

(In Pounds) £ 2,500 £ 5,000 £ 7,500 £ 10,000 £ 12,500 £ 15,000 £ 17,500 £ 20,000

£ 3,333 £ 6,667 £ 10,000 £ 13,333 £ 16,667 £ 20,000 £ 23,333 £ 26,667

£ 4,167 £ 8,333 £ 12,50 £ 16,667 £ 20,833 £ 25,000 £ 29,167 £ 33,333

£ 5,000 £ 10,000 £ 15,000 £ 20,000 £ 25,000 £ 30,000 £ 35,000 £ 40,000

The following table indicates the annual retirement benefit that would be payable under the UK Retirement Plan to a hourly employee upon retirement at age 65 in calendar year 2003, expressed in the form of a single life annuity for the average salary and benefit classifications specified below.

Hourly Employees Year of Pensionable Service Average Pensionable Salary

5 Years

10 years

15 Years

20 years

25 years

30 Years

£ 10,000 £ 20,000 £ 30,000 £ 40,000 £ 50,000 £ 60,000 £ 70,000 £ 80,000

£ 625 £ 1,250 £ 1,875 £ 2,500 £ 3,125 £ 3,750 £ 4,375 £ 5,000

£ 1,250 £ 2,500 £ 3,750 £ 5,000 £ 6,250 £ 7,500 £ 8,750 £ 10,000

(In Pounds) £ 1,875 £ 3,750 £ 5,625 £ 7,500 £ 9,375 £ 11,250 £ 13,125 £ 15,000

£ 2,500 £ 5,000 £ 7,500 £ 10,000 £ 12,500 £ 15,000 £ 17,500 £ 20,000

£ 3,125 £ 6,250 £ 9,375 £ 12,500 £ 15,625 £ 18,750 £ 21,875 £ 25,000

£ 3,750 £ 7,500 £ 11,250 £ 15,000 £ 18,750 £ 22,500 £ 26,250 £ 30,000

As of September 30, 2003, Gary Bale, a director and managing director of Portec Rail Products (UK) Ltd. had 20 years of service credited under the UK Retirement Plan. Stock Option Plan. During the fiscal year ended December 31, 1998, Portec Rail Products adopted the Portec Rail Products, Inc. 1998 Stock Option Plan. No options were granted under the stock option plan to the named executive officers during the fiscal year ended December 31, 2002. 57

No options were outstanding to the named executive officers at December 31, 2002. Set forth below is certain information concerning the options exercised by the named executive officers during 2002.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR Value Shares Acquired Upon Exercise Realized ($) (1)

Name

John S. Cooper Lucian J. Sieja Richard J. Jarosinski Michael D. Bornak Konstantinos Papazoglou

100,000 40,00 8,000 4,000 32,000

N/A N/A N/A N/A N/A

(1) Prior to this offering, there has been no established trading market for our common stock and no readily ascertainable market value for our stock. Certain Relationships and Related Transactions Except as noted below, since January 1, 2002, the beginning of our last fiscal year, we and our subsidiaries have not had any transaction or series of transactions, or business relationships, nor are any such transactions or relationships proposed, in which the amount involved exceeds $60,000 and in which our directors, executive officers or 5% or more shareholders have a direct or indirect material interest. Portec Rail Products is a lending customer of Boone County Bank, Inc., a wholly-owned subsidiary of Premier Financial Bancorp, Inc., located in Madison, West Virginia. Marshall T. Reynolds, our chairman of the board, is the chairman of the board and a principal stockholder of Premier Financial Bancorp, Inc. The largest amount of indebtedness to Boone County Bank, Inc. at any time since January 1, 2002 was $427,000, and the amount of such indebtedness at September 30, 2003 was $111,000. Interest on the loans accrues at the prime rate. The loans were obtained in the ordinary course of business and were on comparable terms to loans available from other lenders. Portec Rail Products is a customer of McGinnis Bros., Inc., d/b/a McCorkle Machine & Engineering. During the nine months ended September 30, 2003, Portec Rail Products paid $106,000 to McCorkle Machine & Engineering for machining services used at its Huntington, West Virginia operations. Marshall T. Reynolds owns 100% of the outstanding shares of The Harrah & Reynolds Corporation, which owns 100% of the outstanding shares of McGinnis Bros., Inc. 58

SECURITY OWNERSHIP OF MANAGEMENT The table below sets forth information regarding the beneficial ownership of Portec Rail Products common stock on September 30, 2003 by each director, by each executive officer named in the Summary Compensation Table above, by all of our directors and executive officers as a group and by each person known by us to beneficially own more than 5% of the outstanding shares of our common stock. Except as otherwise indicated, each person listed in the table has informed Portec Rail Products that such person has sole voting and investment power with respect to such person’s shares of common stock. None of these persons intend to purchase any shares of common stock in the offering. The business address of each director and executive officer is 900 Old Freeport Road, Pittsburgh, Pennsylvania.

Shares Beneficially Owned Prior to the Offering (1) Name of Beneficial Owner Number Percent

Percent of Shares Beneficially Owned After the Offering (l)

Directors and Officers: Marshall T. Reynolds (2) John S. Cooper Michael D. Bornak (3) Gary Bale Philip E. Cline Howard Darrel Darby Daniel P. Harrington (4) Charles R. Hooten, Jr. (5) Richard J. Jarosinski Konstantinos Papazoglou (6) Douglas V. Reynolds (7) Neal W. Scaggs Robert L. Shell, Jr. (8) Lucian J. Sieja Kirby J. Taylor (9) All directors and executive officers as a group (14 persons) Beneficial owners of more than 5% of our outstanding common stock: Wright Family Partnership
(1)

1,166,318 194,100 13,400 — 247,446 40,000 745,446 269,646 51,200 80,000 529,646 247,246 349,000 88,900 123,022

17.9% 3.0 0.2 — 3.8 0.6 11.4 4.1 0.8 1.2 8.1 3.8 5.4 1.4 1.9

4,145,370

63.6%

682,200

10.5%

In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a person is deemed to be the beneficial owner for purposes of this table of any shares of common stock if he has sole or shared voting or investment power with respect to such security, or has a right to acquire beneficial ownership at any time within 60 days from the date as of which beneficial ownership is being determined. As used herein, ―voting power‖ is the power to vote or direct the voting of shares and ―investment power‖ is the power to dispose or direct the disposition of shares. Includes all shares held directly as well as by spouses and minor children, in trust and other indirect ownership, over which shares the named individuals effectively exercise sole or shared voting and investment power.

(2)

Mr. Reynolds has sole voting and investment power over all reported shares, except for 12,246 shares that are beneficially owned by Mr. Reynolds’ spouse.

(3)

Mr. Bornak has shared voting and investment power over all reported shares.

(4)

Mr. Harrington’s beneficial ownership includes 699,446 shares held by TVI Corp., of which Mr. Harrington is president. Mr. Harrington has shared voting and investment power over such shares, and sole voting and investment power over 46,000 shares.

(5)

Mr. Hooten has sole voting and investment power over all reported shares, except for 2,400 shares that are beneficially owned by Mr. Hooten’s spouse.

(6)

Mr. Papazoglou has sole voting and investment power over all reported shares, except for 32,000 shares beneficially owned by Mr. Papazoglou’s spouse. 59

(7)

Mr. Reynolds has sole voting and investment power over all reported shares, except for 24,000 shares held in an irrevocable trust, as to which Mr. Reynolds has shared voting and investment power.

(8)

Mr. Shell has sole voting and investment power over all reported shares, except 1,000 shares beneficially owned by his minor children and 30,000 shares beneficially owned by Mr. Shell’s spouse.

(9)

Mr. Taylor has sole voting and investment power over all reported shares, except for 16,158 shares beneficially owed by Mr. Taylor’s spouse. DESCRIPTION OF CAPITAL STOCK

General The authorized stock of Portec Rail Products consists of 10,000,000 shares of common stock, par value $1.00 per share. As of September 30, 2003, 6,523,002 shares of common stock were outstanding. The rights of holders of Portec Rail Product’s common stock are defined by Portec Rail Products’ articles of incorporation, as amended, as well as by Portec Rail Products’ bylaws and the West Virginia Corporation Act, as amended from time to time. The following summary of certain provisions of the common stock of Portec Rail Products does not purport to be complete and is subject to, and qualified in its entirety by reference to the provisions of the articles of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by provisions of applicable law, including the West Virginia Corporation Act. Common Stock Upon completion of the offering, shares of common stock will be issued and outstanding.

Holders of common stock have no preemptive or other rights to subscribe for additional shares of Portec Rail Product’s common stock. If Portec Rail Products should decide to issue any or all of its authorized but unissued shares of common stock, the effect would be to dilute the percentage of ownership of then current shareholders of Portec Rail Products who do not purchase a pro rata portion of shares issued. The common stock is not convertible into any other securities of Portec Rail Products. Under the West Virginia Corporation Act, in the election of directors, holders of common stock possess cumulative voting rights. They have as many votes as the number of shares owned, multiplied by the number of directors to be elected, and may either accumulate all votes for one candidate or distribute those votes among as many candidates as the shareholder may choose. For all other purposes, each share of common stock is entitled to one vote. Cumulative voting is a form of proportional representation which can provide a significant group of shareholders, though a minority, the ability to elect one or more directors. Under straight voting, a majority shareholder owning more than 50% of the outstanding shares can elect all directors. Because cumulative voting applies to the election of Portec Rail Products directors, depending upon the total number of shares represented at a shareholders meeting and the number of directors to be elected, despite the beneficial ownership, after giving effect to the offering, of over 50% of the outstanding common stock of Portec Rail Products, Mr. Reynolds and his family, or the Board of Directors cannot be assured of electing all directors (currently 14) of Portec Rail Products. 60

Holders of common stock are entitled to such dividends as may be declared by the board of directors out of funds legally available therefor. See ―Our Policy Regarding Dividends.‖ Upon liquidation, dissolution or winding up of Portec Rail Products, the holders of common stock are entitled to receive pro rata the net assets of Portec Rail Products remaining after the payment of all creditors. Transfer Agent National City Bank, Cleveland, Ohio will act as the transfer agent and registrar for the common stock. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering we will have shares ( shares if the underwriters exercise their over-allotment option in full) of common stock outstanding. Persons who are deemed to be ―affiliates‖ of Portec Rail Products pursuant to Rule 144 promulgated under the Securities Act of 1933 own 4,145,370 shares of common stock. The remaining 2,377,632 shares of common stock owned by the existing shareholders of Portec Rail Products are ―restricted securities‖ within the meaning of Rule 144 and may not be publicly resold, except in compliance with the registration requirements of the Securities Act of 1933 or pursuant to an exemption from registration, including that provided by Rule 144. Virtually all the existing shareholders who are not affiliates have held their shares for more than one year and such shares are eligible to be resold pursuant to an exemption from registration, including that provided by Rule 144. In addition, sales of shares held by affiliates may be made within the limitations prescribed by Rule 144. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the common stock prevailing from time to time. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect the prevailing market price of the common stock. In general, under Rule 144 as currently in effect, if one year has elapsed since the later of the date of acquisition of restricted shares of common stock from Portec Rail Products or an affiliate of Portec Rail Products, a person, or persons whose shares are aggregated, may sell, within any three-month period commencing 90 days after the effective date of the registration statement of which this prospectus forms a part, a number of shares that does not exceed the greater of (i) 1% of the outstanding shares of common stock of Portec Rail Products ( shares immediately after this offering) or (ii) the average weekly trading volume of the common stock during the four calendar weeks preceding the date on which a notice of sale is filed with the Securities and Exchange Commission. Sales under Rule 144 are subject to certain other restrictions relating to the manner of sale, notice and the availability of current public information about Portec Rail Products. If a period of one year has elapsed since the later of the date of the acquisition of restricted shares of common stock from Portec Rail Products or from any affiliate of Portec Rail Products, a person, or persons whose shares are aggregated, who is not at any time during the 90 days preceding a sale an ―affiliate‖ is entitled to sell such shares under Rule 144 without regard to the volume and other limitations of Rule 144 described above. 61

Portec Rail Products, its directors and executive officers and certain other shareholders prior to this offering have agreed that, for a period of 180 days after the date of this prospectus, they will not, without prior written consent of Ferris, Baker Watts, Incorporated, offer, sell, contract to sell or otherwise dispose of any common stock or any securities convertible, exercisable or exchangeable for any common stock or grant any options or warrants to purchase any common stock, subject to certain limited exceptions. These agreements affect approximately 4,888,690 shares of common stock. Prior to this offering, there has been no public market for the common stock of Portec Rail Products and no prediction can be made as to the effect, if any, that the sale of available for sale of shares of common stock will have on the market price of the common stock. Nevertheless, sales of significant amounts of such shares in the public market, or the perception that such sales may occur, could adversely affect the market price of common stock and could impair Portec Rail Products future ability to raise capital through an offering of its equity securities. UNDERWRITING Subject to the terms and conditions of an underwriting agreement dated , 2003, the underwriters named below have severally agreed to purchase from us the number of shares of common stock indicated in the following table. Ferris, Baker Watts, Incorporated is acting as the lead managing underwriter of this offering and as the representative of the underwriters.

Underwriters

Number of Shares

Ferris, Baker Watts, Incorporated

__________________________ This offering will be underwritten on a firm commitment basis. The underwriters propose to offer shares of our common stock, directly to the public at the public offering price set forth on the cover page of this prospectus. Any shares sold by the underwriters to securities dealers will be sold at the public offering price less a selling concession not in excess of $ per share. The underwriters may allow, and these selected dealers may re-allow, a concession of not more than $ per share to other brokers and dealers. After the shares of common stock are released for sale to the public, the offering price and other selling terms may, from time to time, be changed by the underwriters. The underwriters’ obligations to purchase shares of our common stock are subject to conditions contained in the underwriting agreement. The underwriters are obligated to purchase all of the shares of common stock that they have agreed to purchase under the underwriting agreement, other than those covered by the over-allotment option, if they purchase any shares. The offering of the shares of common stock is made for delivery when, as and if accepted by the underwriters and subject to prior sale and to withdrawal, cancellation and modification of the offering without notice. The underwriters reserve the right to reject any order for the purchase of shares of common stock. 62

The representatives of the underwriters have advised us that the underwriters do not intend to confirm sales to any account over which they exercise discretionary authority. Underwriting Discount and Expenses The following table summarizes the underwriting discount to be paid to the underwriters by us, and a financial advisory fee to be paid to Ferris, Baker Watts, Incorporated by us.

Per Share

Total, With No Exercise of Overallotment Option

Total, With Full Exercise of OverallotmentOption

Underwriting discount Financial advisory fee

$ $

$— $—

$— $—

We have agreed to pay the expenses incurred by Ferris, Baker Watts, Incorporated in connection with its services as managing underwriter, whether or not the public offering is consummated. Directed Share Program At our request, the underwriters have allotted of the common shares being offered by this prospectus for sale to our employees, business associates and related persons. The sales will be made by Ferris, Baker Watts, Incorporated through a directed share program. A purchaser participating in the directed share program will purchase shares at the initial public offering price set forth on the cover page of this prospectus, and will be responsible for payment of the underwriters’ discounts and commissions as reflected in the table above. We do not know if these persons will choose to purchase all or any portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. These persons must commit to purchase the shares no later than the close of business on the day following the date of this prospectus and must open accounts at Ferris, Baker Watts, Incorporated if they do not already have such an account. The common shares issued in connection with the directed share program will be issued as a part of the underwritten public offering. All shares sold pursuant to the directed share program will be restricted from resale for a period of 180 days from the date of this prospectus. We will receive the same amount of cash per share from the sale of the shares pursuant to the directed share program as we will receive from the sale of the shares to the general public. Accordingly, the investors in the offering will not experience any additional dilution by virtue of the directed share program. Over-allotment Option We have granted to the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to additional shares of our common stock at the public offering price, less the underwriting discount, set forth on the cover page of this prospectus. The underwriters may exercise the option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the underwriters exercise the option, each underwriter will become obligated, as long as the conditions of the underwriting agreement 63

are satisfied, to purchase a number of additional shares of common stock approximately proportionate to that underwriter’s initial commitment as indicated in the table above. We will be obligated, pursuant to the option, to sell these additional shares of common stock to the underwriters to the extent the option is exercised. If any additional shares of common stock are purchased pursuant to the option, the underwriters will offer the additional shares on the same terms as those on which the other shares are being offered hereby. Indemnification We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or to contribute to payments the underwriters may be required to make in respect of any of these liabilities. Lockup Agreements We and each of our officers, directors and other stockholders have agreed not to offer, sell, contract to sell or otherwise dispose of, or enter into any transaction that is designed to, or could reasonably be expected to, result in the disposition of any shares of our common stock or other securities convertible into or exchangeable or exercisable for shares of our common stock for a period of 180 days after the date of this prospectus, without the prior written consent of the representative of the underwriters. This consent may be given at any time without public notice. There are no present agreements between the representative of the underwriters and us or any of our executive officers, directors or stockholders releasing us or them from these lock-up agreements prior to the expiration of the 180-day period other than with respect to our issuance of shares of common stock upon exercise by the underwriters of their over-allotment option. Stabilization, Short Positions and Penalty Bids In connection with the offering, the underwriters may engage in over-allotment, syndicate covering transactions, stabilizing transactions and penalty bids or purchases for the purpose of stabilizing, maintaining or otherwise affecting the price of our common stock: • Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option, in whole or in part, or purchasing shares in the open market. • Syndicate covering transactions involve purchases of our common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available 64

for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, resulting in a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. • Stabilizing transactions consist of various bids for or purchases of common stock in the open market prior to completion of the offering. • Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. These syndicate covering transactions, stabilizing transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock above that which might otherwise prevail in the open market or preventing or retarding a decline in the market price of our common stock. The imposition of a penalty bid may also affect the price of the common stock to the extent that it discourages resales. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. Neither we nor any of the underwriters make any representation or prediction as to the magnitude or effect of any such transaction. In addition, neither we nor any of the underwriters make any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice. Pricing of the Offering Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for our common stock has been determined by negotiations between us and the representatives of the underwriters. Among the primary factors considered in determining the initial public offering price were: • prevailing market and economic conditions; • our capital structure; • the present stage of our development; • the present state of the railroad industry; • the valuation multiples of publicly traded companies that the representative of the underwriters believes to be comparable to us; and • estimates of our business potential and earning prospects. 65

Our common stock is not publicly traded. Accordingly, there is no current active trading market for our common stock. Consequently, we cannot assure or guarantee that an active trading market for our common stock will develop or that, if developed, will continue. An active and orderly trading market will depend on the existence, and individual decisions, of willing buyers and sellers at any given time. We will not have any control over these factors. If an active trading market does not develop or is sporadic, this may hurt the market value of our common stock and make it difficult to buy or sell shares on short notice. We cannot assure you that if you purchase common stock in the offering you will later be able to sell it at or above the purchase price. Listing of Shares We have applied to list our common stock on the Nasdaq National Market under the symbol ―PRPX.‖ LEGAL MATTERS Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., will issue its opinion to us regarding the legality of the issuance of the common stock. Certain legal matters will be passed upon for Ferris, Baker Watts, Incorporated by Venable, LLP, Baltimore, Maryland. CHANGE IN ACCOUNTANTS On August 26, 2003, we appointed BKD, LLP as our independent auditors and dismissed Deloitte & Touche LLP. The board of directors participated in and approved the decision to change independent accountants. The decision to change auditing firms was made in connection with our decision to conduct this offering. Deloitte & Touche LLP had previously been engaged to audit the financial statements for the year ended December 31, 2002 (however, they have not reported on the financial statements included herein for the year ended December 31, 2002 as such financial statements were subsequently re-audited by BKD, LLP). Our financial statements for the years ended December 31, 2001 and 2000 were audited by Ernst & Young LLP (however, they have not reported on the financial statements included herein for the years ended December 31, 2001 and 2000 as such financial statements were subsequently re-audited by BKD, LLP. Each of the reports of Deloitte & Touche LLP for the year ended December 31, 2002 and of Ernst & Young LLP for the years ended December 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. During the fiscal year ended December 31, 2002 and through August 26, 2003, there were no disagreements with Deloitte & Touche LLP and for the years ended December 31, 2001 and 2000, there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, which disagreements if not resolved to the satisfaction of Deloitte & Touche LLP or Ernst & Young LLP would have caused them to make reference thereto in their reports on the financial statements for such years. Portec Rail Products has requested that each of Deloitte & Touche LLP and Ernst & Young LLP furnish it with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with the above statements. A copy of such letters, dated November 6, 66

2003, with respect to Deloitte & Touche, LLP and November 3, 2003, with respect to Ernst & Young, LLP are filed as exhibits to the registration statement. During the two years ended December 31, 2002, and from December 31, 2002 through the engagement of BKD, LLP as our independent accountant, neither we nor anyone on its behalf had consulted BKD, LLP with respect to any accounting, auditing or financial reporting issues involving us. In particular, there was no discussion with us regarding the application of accounting principles to a specified transaction, the type of audit opinion that might be rendered on the financial statement, or any related item. EXPERTS The consolidated financial statements of Portec Rail Products, Inc. as of December 31, 2002, 2001 and 2000 and for the years then ended, have been audited by BKD, LLP, independent auditors, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report. WHERE YOU CAN OBTAIN INFORMATION We have filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933 with respect to the common stock offered through this prospectus. As permitted by the rules and regulations of the Securities and Exchange Commission, this prospectus does not contain all of the information set forth in the registration statement. You may examine this information without charge at the public reference facilities of the Securities and Exchange Commission located at 450 Fifth Street, NW, Washington, D.C. 20549. You may obtain copies of the material from the Securities and Exchange Commission at the prescribed rates. The registration statement is also available through the Securities and Exchange Commission’s world wide web site on the internet at http://www.sec.gov. Our common stock will be registered under Section 12(g) of the Securities Exchange Act of 1934. We will be subject to the information, proxy solicitation, insider trading restrictions, tender offer rules, periodic reporting and other requirements of the Securities and Exchange Commission under the Securities Exchange Act of 1934. 67

Portec Rail Products, Inc. Consolidated Financial Statements Nine-Month Periods Ended September 30, 2003 and 2002 Years Ended December 31, 2002, 2001 and 2000 Index to Consolidated Financial Statements

Independent Accountants’ Report Consolidated Financial Statements Balance Sheets Statements of Income Statements of Shareholders’ Equity Statements of Cash Flows Notes to Financial Statements F–1

F–2 F– 4 F– 5 F– 6 F– 7 F– 8

400 Cross Pointe Boulevard P.O Box 628 Evansville, IN 47704-0626 812 428-6500 Fax 812 428-6545 bkd.com Independent Accountants’ Report Board of Directors Portec Rail Products, Inc. Pittsburgh, Pennsylvania We have reviewed the accompanying consolidated balance sheet of Portec Rail Products, Inc. (Company) as of September 30, 2003, and the related consolidated statements of income, shareholders’ equity and cash flows for the nine-month periods ended September 30, 2003 and 2002. All information included in these financial statements is the representation of the management of the Company. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying September 30, 2003 and 2002, financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America. We have audited the accompanying consolidated balance sheets of Portec Rail Products, Inc. as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2002. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements described above present fairly, in all material respects, the financial position of the Company at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. F–2

As discussed in Note 1 to the financial statements, in 2002 the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

October 10, 2003 F–3

Portec Rail Products, Inc. Consolidated Balance Sheets

September 30 2003 (Unaudited) 2002

December 31 2001

(In Thousands)

Assets Current assets Cash and cash equivalents Accounts receivable, net Inventories, net Prepaid expenses and other current assets Deferred income taxes Total current assets Property, plant and equipment, net Other assets Goodwill Total assets Liabilities and shareholders’ equity Current liabilities Current maturities of long-term debt Accounts payable Accrued income taxes Customer deposits Accrued compensation Other accrued liabilities Total current liabilities Long-term debt, less current maturities Accrued pension costs Deferred income taxes Other long-term liabilities Total liabilities Shareholders’ equity: Common stock, $1 par value, 10,000,000 shares authorized, 6,523,002, 6,527,002, and 6,298,698 shares issued and outstanding at September 30, 2003, December 31, 2002 and 2001, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders’ equity Total liabilities and shareholders’ equity

$

1,171 7,542 11,777 515 376 21,381 11,534 184 5,002

$

1,431 6,922 9,418 348 322 18,441 11,162 293 4,958

$

239 5,303 11,534 555 322 17,953 11,361 1,154 4,829

$ 38,101

$ 34,854

$ 35,297

$

2,034 4,364 1,109 199 910 1,150 9,766 6,790 1,300 1,078 234 19,168

$

2,193 4,025 833 376 862 1,215 9,504 7,338 1,304 539 226 18,911

$

2,239 3,839 270 452 616 887 8,303 10,998 70 1,213 180 20,764

6,523 2,756 10,953 (1,299 ) 18,933 $ 38,101

6,527 2,766 8,638 (1,988 ) 15,943 $ 34,854

6,299 2,808 6,452 (1,026 ) 14,533 $ 35,297

See Notes to Consolidated Financial Statements F–4

Portec Rail Products, Inc. Consolidated Statements of Income

Nine Months Ended September 30 2003 (Unaudited) (In Thousands) 2002 2002

Years Ended December 31 2001 2000

Net sales Cost of sales Gross profit Selling, general and administrative Amortization expense Operating income Interest expense Other expense (income), net Income before income taxes Provision for income taxes Net income Earnings per share Basic Diluted See Notes to Consolidated Financial Statements

$ 44,737 31,753 12,984 8,150 53 4,781 278 48 4,455 1,651 $ 2,804

$ 39,787 29,113 10,674 6,946 118 3,610 422 130 3,058 1,192 $ 1,866

$ 50,081 36,357 13,724 9,345 229 4,150 530 122 3,498 1,312 $ 2,186

$ 43,839 31,798 12,041 9,008 340 2,693 1,007 51 1,635 782 $ 853

$ 47,150 34,603 12,547 9,204 342 3,001 1,465 (120 ) 1,656 993 $ 663

$ $

.43 .43

$ $

.30 .29

$ $

.35 .34

$ $

.14 .13

$ $

.10 .10

F–5

Portec Rail Products, Inc. Consolidated Statements of Shareholders’ Equity (Dollars in Thousands)

Common Stock Retained Shares Amounts Paid-in Capital Earnings

Accumulated Other Comprehensive Income (Loss) Total

Balance at January 1, 2000 Purchase of common stock Issuance of common stock Comprehensive income: Net income Foreign currency translation adjustment, net of tax benefit of $230 Total comprehensive income Balance at December 31, 2000 Purchase of common stock Issuance of common stock Comprehensive income: Net income Minimum pension liability adjustment, net of tax benefit of $111 Foreign currency translation adjustment, net of tax benefit of $165 Total comprehensive income Balance at December 31, 2001 Purchase of common stock Issuance of common stock Options exercised Comprehensive income: Net income Minimum pension liability adjustment, net of tax benefit of $801 Foreign currency translation adjustment, net of tax of $224 Total comprehensive income Balance at December 31, 2002 Unaudited Information: Purchase of common stock Cash dividends on common stock paid to shareholders

6,420,000 (120,000 ) 8,000 —

$ 6,420 (120 ) 8 —

$ 3,105 (294 ) 20 —

$

4,936 — — 663

$

(119 ) — — —

$ 14,342 (414 ) 28 663

—

—

—

—

(378 )

(378 ) 285

6,308,000 (56,400 ) 47,098 —

6,308 (56 ) 47 —

2,831 (138 ) 115 —

5,599 — — 853

(497 ) — — —

14,241 (194 ) 162 853

—

—

—

—

(260 )

(260 )

—

—

—

—

(269 )

(269 ) 324

6,298,698 (52,216 ) 7,400 273,120 —

6,299 (52 ) 7 273 —

2,808 (128 ) 18 68 —

6,452 — — — 2,186

(1,026 ) — — — —

14,533 (180 ) 25 341 2,186

—

—

—

—

(1,356 )

(1,356 )

—

—

—

—

394

394 1,224

6,527,002 (4,000 ) —

6,527 (4 ) —

2,766 (10 ) —

8,638 — (489 )

(1,988 ) — —

15,943 (14 ) (489 )

Comprehensive income: Net income Minimum pension liability adjustment, net of tax benefit of $6 Foreign currency translation adjustment, net of tax of $447 Total comprehensive income Balance at September 30, 2003 (unaudited)

—

—

—

2,804

—

2,804

—

—

—

—

(14 )

(14 )

—

—

—

—

703

703 3,493

6,523,002

$ 6,523

$ 2,756

$ 10,953

$

(1,299 )

$ 18,933

See Notes to Consolidated Financial Statements F–6

Portec Rail Products, Inc. Consolidated Statements of Cash Flows

Nine Months Ended September 30 2003 (Unaudited) (In Thousands) 2002 2002

Years Ended December 31 2001 2000

Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Provision for doubtful accounts Deferred income taxes Loss (Gain) on sale of fixed assets Changes in operating assets and liabilities: Accounts receivable Inventories Prepaid expenses and other assets Accounts payable Income tax payable Accrued expenses Net cash provided by operating activities Investing Activities Purchases of property, plant and equipment Proceeds from sale of assets Net cash used in investing activities Financing Activities Borrowings under revolving credit agreement Payments under revolving credit agreement Proceeds from bank term loans Principal payments on bank term loans Borrowings from Boone County Bank, Inc. (related party) Principal payments to Boone County Bank, Inc. (related party) Principal payments on capital leases Cash dividends paid to shareholders Exercise of stock options Purchase of common stock Issuance of common stock Net cash provided by (used in) financing activities Effect of exchange rate changes on

$

2,804

$

1,866

$

2,186

$

853

$

663

1,036 100 15 4

1,127 57 (52 ) (2 )

1,567 18 (101 ) —

1,716 115 (3 ) 10

1,648 7 154 8

(552 ) (2,083 ) (151 ) 199 210 (242 )

(3,205 ) 2,617 (29 ) (613 ) 579 883

(1,338 ) 2,307 (20 ) 30 537 429

2,651 (572 ) (275 ) (49 ) 45 (642 )

(2,429 ) 29 (116 ) 838 (90 ) 385

1,340

3,228

5,615

3,849

1,097

(495 ) 9 (486 )

(380 ) 5 (375 )

(762 ) 46 (716 )

(332 ) 24 (308 )

(2,293 ) — (2,293 )

18,635 (17,443 ) — (1,869 ) 100 (193 ) (21 ) (489 ) — (14 ) —

20,998 (22,967 ) 1,250 (1,521 ) — (166 ) (35 ) — — (180 ) 25

21,515 (24,360 ) 1,721 (2,479 ) — (222 ) (45 ) — 341 (180 ) 25

32,095 (32,856 ) — (2,780 ) — (200 ) (47 ) — — (194 ) 162

28,824 (26,816 ) 1,475 (1,979 ) 100 (164 ) (25 ) — — (414 ) 28

(1,294 ) 180

(2,596 ) —

(3,684 ) (23 )

(3,820 ) (24 )

1,029 (55 )

cash and cash equivalents (Decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental Disclosures of Cash Flow Information Cash paid during the year for: Interest Income taxes Capital lease obligation incurred for equipment

(260 ) 1,431

257 239

1,192 239

(303 ) 542

(222 ) 764

$

1,171

$

496

$

1,431

$

239

$

542

$ $

275 1,460

$ $

426 835

$ $

532 938

$ $

1,064 368

$ $

1,461 969

$

7

$

0

$

0

$

87

$

0

See Notes to Consolidated Financial Statements F–7

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 1: Nature of Operations and Significant Accounting Policies Nature of Operations Portec Rail Products, Inc. (the Company) is a manufacturer of insulated rail joints, rail lubrication equipment, rail anchors, rail spikes, freight car and locomotive jacking systems, load securement equipment and material handling equipment, serving both domestic and international markets. The Company has four manufacturing facilities located in Huntington, West Virginia; St. Jean, Quebec Canada; Wrexham, Wales United Kingdom; and Leicester, England United Kingdom. The Company also has offices near Chicago, Illinois; Montreal, Quebec Canada and the corporate office is near Pittsburgh, Pennsylvania. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Portec Rail Products, Inc., its wholly-owned Canadian subsidiary, Portec, Rail Products Ltd. (Canada) and its wholly-owned United Kingdom subsidiary, Portec Rail Products (UK) Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation. Interim Unaudited Financial Information The interim financial information as of September 30, 2003 and 2002 has been prepared from the books and records of the Company and is not audited. In the opinion of management, all adjustments considered necessary for a fair presentation have been reflected in the interim unaudited financial information. Results of the unaudited interim periods are not necessarily indicative of results to be expected for the full year. The significant accounting policies followed by the Company and its wholly-owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. Accounts Receivable Accounts receivable are stated at the amount billed to customers. The Company provides an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information and existing economic conditions. Accounts receivable are ordinarily due between 30 and 60 days after the issuance of the invoice. Accounts past due more than 90 days are considered delinquent. Delinquent receivables are written-off based on individual credit evaluation and specific circumstances of the customer. F–8

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Inventories Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for all inventories. Inventory costs include material, labor and manufacturing overhead. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is recorded by the straight-line method based on estimated useful lives, as follows:

Buildings and improvements Machinery and equipment Office furniture and equipment

10-25 years 4-10 years 3-5 years

Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the lease. Expenses for repairs, maintenance and renewals are charged to operations as incurred. Expenditures that improve an asset or extend its useful life are capitalized. Goodwill In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 ceases the amortization of goodwill and other intangible assets with indefinite useful lives. SFAS No. 142 also requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives and will be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The Company adopted SFAS No. 142 effective January 1, 2002. The Company is required to test its goodwill for impairment using a two-step process described in SFAS No. 142 on an annual basis or whenever events or circumstances indicate that the fair value of the Company’s reporting units may have been affected. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The Company completed the transitional goodwill impairment test effective January 1, 2002 and determined no transition adjustment was required. The Company has established October 1 st as the annual measurement date for impairment of goodwill. During the fourth quarter of 2003, the Company will evaluate the impact of impairment on goodwill, if any. Prior to the adoption of SFAS No. 142 on January 1, 2002, goodwill arising from acquisitions completed before July 1, 2001 was amortized on a straight-line basis over a period of 40 years. In accordance with SFAS No. 142, the Company did not amortize goodwill arising from acquisitions initiated after June 30, 2001 and ceased amortization of all goodwill upon adoption of the standard. F–9

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Foreign Currency Translation The assets and liabilities of the Company’s foreign subsidiaries are measured using the local currency as the functional currency and are translated into U.S. dollars at exchange rates as of the balance sheet date. Income statement amounts are translated at the weighted-average rates of exchange during the year. The translation adjustment is accumulated as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses are included in determining net income. Such amounts have not been material. Revenue Recognition Revenue from product sales is recognized at the time products are delivered and title has passed or when service is performed. Delivery is determined by the Company’s shipping terms, which are primarily FOB shipping point. Revenue is recognized net of returns, discounts and other allowances. Revenue from installation of material handling equipment is generally recognized by applying percentages of completion for each contract to the total estimated profits for the respective contracts. The length of each contract varies, but is typically about two to four months. The percentages of completion are determined by relating the actual costs of work performed to date to the current estimated total costs of the respective contracts. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, repairs and depreciation costs. When the estimate on a contract indicates a loss, the Company’s policy is to record the entire loss immediately in the accounting period that the loss is determined. The cumulative effect of revisions in estimates of total costs or revenue during the course of the work is reflected in the accounting period in which the facts that caused the revision first become known. Related Party Transactions Related party transactions are conducted with companies under common control of the Company’s shareholders or directors. Transactions with related parties are conducted at arms length and are not material. Warranty Obligations The Company records liability for product warranty obligations based upon historical warranty claims experience. Product warranty accruals as of September 30, 2003, December 31, 2002 and 2001 were not significant. Income Taxes Deferred income taxes are provided for the tax consequences of temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Research and experimentation tax credits are accounted for under the flow-through method as a reduction of income tax expense in the year the credits are earned. F – 10

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 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 amounts in the prior year’s consolidated financial statements have been reclassified to conform with the current year presentation. These reclassifications had no effect on net earnings. Shipping and Handling Shipping and handling costs incurred by the Company are included in the cost of sales. Financial Instruments The carrying value of all of the Company’s financial instruments approximate their fair values. Recent Accounting Pronouncements In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations . This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. Adoption of this standard did not have a material effect on the Company. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement eliminates the allocation of goodwill to long-lived assets to be tested for impairment and details both a probability-weighted and ―primary-asset‖ approach to estimate cash flows in testing for impairment of a long-lived asset. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Adoption of this standard did not have a material effect on the Company. F – 11

Portec Rail Products, Inc. Notes to Consolidated Financial Statements In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring). This statement requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to being recognized at the date an entity commits to an exit plan. This statement also establishes that fair value is the objective for initial measurement of the liability. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. Adoption of this standard is not expected to have a material effect on the Company. In November 2002, the FASB issued Interpretation No. 45, (FIN 45), Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others, which elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of this Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this Interpretation are effective for periods ending after December 15, 2002. Adoption of the requirements of FIN 45 is not expected to have a material effect on the Company. In December 2002, the FASB issued SFAS No. 148, Accounting for Compensation-Transition and Disclosure, an Amendment of FASB Statement No. 123. This statement provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. As permitted by SFAS No. 148, the Company will continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock-Based Compensation, for all employee stock option grants and provide all disclosures required. In addition, the Company is awaiting further guidance and clarity that may result from current FASB stock compensation projects and will continue to evaluate any developments concerning mandated, as opposed to optional, fair-value based expense recognition. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures in its balance sheet certain financial instruments with characteristics of both liabilities and equity. The objective of this Statement is to require issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of a nonpublic company. For these instruments, this Statement is effective for existing or new contracts for fiscal periods beginning after December 15, 2003. Adoption of this Standard is not expected to have a material effect on the Company. F – 12

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Stock Options During 2002, the Company had a stock-based employee compensation plan, which is described more fully in Note 10. The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the grant date. All options vested in 1998. All unexercised options expired on December 10, 2002. Due to these facts there is no pro forma impact on net income per share had the Company applied the fair value provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation . Earnings Per Share Basic earnings per share (EPS) are computed as net income available to common shareholders divided by the weighted average common shares outstanding. Diluted earnings per share considers the potential dilutive effects of the exercise of the outstanding stock options under the Company’s stock option plan. All stock options were exercised prior to December 31, 2002.

Nine Months Ended September 30 2003 (Unaudited) 2002 2002

Years Ended December 31 2001 2000

(Dollars In Thousands)

Net income available to common shareholders Basic common shares: Weighted average shares outstanding Diluted potential common shares: Stock option equivalents Diluted average shares outstanding Basic earnings per share Diluted earnings per share

$

2,804

$

1,866

$

2,186

$

853

$

663

6,524,335

6,288,226

6,309,160

6,293,924

6,410,667

— 6,524,335 .43 .43

196,576 6,484,802 .30 .29

175,600 6,484,760 .35 .34

208,479 6,502,403 .14 .13

215,281 6,625,948 .10 .10

$ $

$ $

$ $

$ $

$ $

Note 2: Acquisition of Quodeck Limited Product Line On December 9, 2002, the Company’s wholly-owned subsidiary, Portec Rail Products (UK) Ltd., acquired certain assets and assumed certain liabilities of Quodeck Ltd. (Quodeck) for approximately $344,000 (£218,000). The Company made the acquisition to add a broader depth of new product lines targeted primarily at the garment industry for its material handling business in the United Kingdom. The acquisition was 100% financed with a bank term loan of approximately $471,000 (£300,000) which also provided working capital. Accordingly, the results of operations of Quodeck are included in the Company’s results since the acquisition date. The purchase price was allocated to assets acquired and liabilities assumed based on relative fair market values and no goodwill was recorded. F – 13

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 3: Accounts Receivable Accounts receivable are presented net of an allowance for doubtful accounts. The Company generally does not require collateral for its trade accounts receivable. Management continually evaluates its accounts receivable and adjusts its allowance for doubtful accounts for changes in potential credit risk. Accounts receivable consists of the following at September 30, 2003, December 31, 2002 and December 31, 2001:

September 30 2003 (Unaudited) 2002

December 31 2001

(In Thousands)

Accounts receivable Less allowance for doubtful accounts Net accounts receivable

$ 7,649 107 $ 7,542

$ 6,965 43 $ 6,922

$ 5,344 41 $ 5,303

Note 4: Inventories The major components of inventories are as follows:

September 30 2003 (Unaudited) 2002

December 31 2001

(In Thousands)

Raw materials Work in process Finished goods

$

4,781 387 6,834 12,002 225

$ 4,171 283 5,200 9,654 236 $ 9,418

$

4,961 371 6,420 11,752 218

Less reserve for slow-moving and obsolete inventory Net inventory F – 14

$ 11,777

$ 11,534

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 5: Property, Plant and Equipment Property, plant and equipment consists of the following:

September 30 2003 (Unaudited) 2002

December 31 2001

(In Thousands)

Land Buildings and improvements Machinery and equipment Office furniture and equipment

$

1,022 7,343 8,123 2,459 18,947 7,413

$

1,003 6,591 7,755 2,127 17,476 6,314

$

991 6,231 7,198 1,908 16,328 4,967

Less accumulated depreciation Net property and equipment

$ 11,534

$ 11,162

$ 11,361

Total depreciation expense was $983,000 and $1,009,000 for the nine months ended September 30, 2003 and 2002, respectively, and $1,338,000, $1,376,000 and $1,306,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Note 6: Goodwill The changes in the carrying amounts of goodwill attributable to each segment at December 31, 2001, 2002 and September 30, 2003 are as follows:

December 31 2000

Amortization Expense

Foreign Exchange

Other

December 31 2001

(In Thousands)

Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Total

$ 3,118 278 463 1,277 $ 5,136

$

(85 ) (7 ) (13 ) (79 ) (184 )

$ — — — (33 ) $ (33 )

$ (69 ) (6 ) (10 ) (5 ) $ (90 )

$ 2,964 265 440 1,160 $ 4,829

$ F – 15

Portec Rail Products, Inc. Notes to Consolidated Financial Statements

December 31 2001

Amortization Expense

Foreign Exchange

Other

December 31 2002

(In Thousands)

Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Total

$ 2,964 265 440 1,160 $ 4,829

$ — — — — $ 0

$ — — — 129 $ 129

$— — — — $0

$ 2,964 265 440 1,289 $ 4,958

December 31 2002

Amortization Expense

Foreign Exchange

Other

September 30 2003

(In Thousands)

Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Total

$ 2,964 265 440 1,289 $ 4,958

$ — — — — $ 0

$ — — — 44 $ 44

$— — — — $0

$ 2,964 265 440 1,333 $ 5,002

The following is the Company’s net income adjusted to exclude goodwill amortization expense (net of tax) for the nine months ended September 30, 2003 and 2002, and for the years ended December 31, 2002, 2001 and 2000.

Nine Months Ended September 30 2003 (Unaudited) 2002

Years Ended December 31 2002 2001 2000

(In Thousands)

Net income Add back goodwill amortization, net of tax Adjusted net income

$ 2,804 — $ 2,804

$ 1,866 — $ 1,866 F – 16

$ 2,186 — $ 2,186

$ 853 114 $ 967

$ 663 117 $ 780

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 7: Long-Term Debt Long-term debt consists of the following:

September 30 2003 (Unaudited) 2002

December 31 2001

(In Thousands)

Senior Credit Facility (a): Revolving credit facility Term loan 2002 Term loan Mortgage loan (Canada) (b) Revolving credit facility (Canada) (b) Term loan (UK) (c) Property loan (UK) (c) Conveyors acquisition loan (UK) (c) Quodeck acquisition loan (UK) (c) Overdraft credit facility (UK) (c) Boone County Bank, Inc. (related party) (d) Capitalized lease obligations

$ 5,200 1,525 700 — — 329 275 — 485 181 111 18 8,824 2,034 $ 6,790

$ 4,150 2,425 900 318 — 354 402 229 483 34 205 31 9,531 2,193 $ 7,338

$

5,512 3,675 — 668 1,339 364 422 606 — 150 427 74 13,237 2,239

Less current maturities

$ 10,998

(a) Senior Credit Facility On December 31, 1997, the Company entered into a $20,500,000 loan and security agreement (Agreement) with a financial institution that was comprised of a $9,500,000 revolving credit facility (later amended to $7,500,000 and then amended to $6,250,000), a $9,000,000 term loan and a $2,000,000 mortgage loan. The Agreement also provides for standby and commercial letters of credit not to exceed $1,000,000. As of September 30, 2003, no standby or commercial letters of credit have been issued. Borrowings under the revolving credit facility can be in an amount up to 80% of the outstanding eligible accounts receivable plus 50% of the aggregate value of eligible inventory. Advances against eligible inventory are limited to $3,750,000. The Company is required to pay a 0.25% fee on the average daily unused portion of the revolving credit facility. At September 30, 2003, $835,000 of additional borrowings were available under the revolving credit facility. Advances under the revolving credit facility accrue interest, at the option of the Company, at the Eurodollar rate plus 1.75% to 2.50% or the financial institution’s prime rate plus 0.00% to 0.50%. Borrowings on the revolving credit facility accrued interest at 2.87%, 3.17%, and 3.93% at September 30, 2003, December 31, 2002 and 2001, respectively. The revolving credit facility expires on December 31, 2006. The Company has classified its borrowings under the revolving credit facility as long-term as of September 30, 2003 due to its ability and intent to maintain such borrowings on a long-term basis. The term loan is payable in monthly installments of $100,000 through November 30, 2004 with a final payment of the remaining outstanding principal due on December 1, 2004. Monthly interest payments are F – 17

Portec Rail Products, Inc. Notes to Consolidated Financial Statements computed at the Eurodollar rate plus 1.75% to 2.50%. Borrowings on the term loan accrued interest at 2.87%, 3.17% and 3.93% at September 30, 2003, December 31, 2002 and 2001, respectively. The Senior Credit Facility is collateralized by substantially all of the Company’s assets in the United States. The Senior Credit Facility contains certain covenants which require the Company to maintain leverage ratios, current ratios, fixed charge coverage ratios and minimum amounts of tangible net worth. The Senior Credit Facility further limits capital expenditures, sales of assets, management bonuses, management fees and additional indebtedness. The Senior Credit Facility also restricts the sale of the capital stock of the Company’s wholly-owned subsidiaries. Effective March 1, 2002, the Senior Credit Facility debt agreement was amended whereby Portec Rail Products, Inc. executed a $1,250,000 term loan (2002 Term Loan). This new 2002 Term Loan effectively reduced the Company’s existing revolving credit facility from $7,500,000 to $6,250,000. The 2002 Term Loan is repayable in 35 equal monthly principal installments of $25,000 beginning March 31, 2003 and matures on February 28, 2006 with final payment due at that time. Monthly interest payments are computed at the U.S. prime rate plus .50% through March 31, 2003 and the Eurodollar rate plus 1.75% to 2.50% after March 31, 2003. Borrowings on the 2002 Term Loan accrued interest at 2.87% and 4.75% at September 30, 2003 and December 31, 2002, respectively. (b) Canada Loans On March 10, 2000, Portec, Rail Products Ltd. entered into a 2,000,000 Canadian dollar nonrevolving construction loan with a Canadian financial institution to finance a plant expansion for a new spike product line. On July 31, 2000, the construction loan was converted to a 1,425,000 Canadian dollar ($958,200) mortgage loan. The original amortization called for 59 equal monthly installments of principal plus interest based on a 15-year amortization schedule with a final principal and interest payment due on July 31, 2005. The interest rate is the Canadian prime rate plus 1.00%. Borrowings on the mortgage loan accrued interest at 5.50% and 5.00% at December 31, 2002 and 2001, respectively. The mortgage loan is secured by a first mortgage on the land and building located in St. Jean, Quebec. This loan was paid in full during July 2003. On March 30, 2001, Portec, Rail Products Ltd. entered into a 3,750,000 Canadian dollar revolving credit facility. Borrowings under the revolving credit facility can be in an amount up to 80% of the outstanding eligible accounts receivable plus 50% of the aggregate value of eligible inventory. Advances against eligible inventory are limited to 1,875,000 Canadian dollars. The interest rate is the Canadian prime rate plus 1.00%. Borrowings on the revolving line of credit accrued interest at 5.50%, 5.50% and 5.00% at September 30, 2003, December 31, 2002 and 2001, respectively. The credit facility is secured by specific pledges of land, building, equipment, accounts receivable and inventory. At September 30, 2003, additional borrowings of 3,173,000 Canadian dollars ($2,352,000) were available under the revolving credit facility. No borrowings were outstanding under this facility at September 30, 2003. F – 18

Portec Rail Products, Inc. Notes to Consolidated Financial Statements (c) United Kingdom Loans In connection with a plant expansion, Portec Rail Products (UK) Ltd. entered into a £300,000 ($466,000) term loan with a financial institution in the United Kingdom. The term loan is repayable in equal monthly installments and has a maturity date of July 31, 2010. The interest rate is the financial institution’s base rate plus 2.25%. Borrowings on the term loan accrued interest at 5.75%, 6.25% and 6.25% at September 30, 2003, December 2002 and 2001, respectively. In connection with the acquisition of Conveyors International Ltd., Torvale Fisher Limited, a wholly-owned subsidiary of Portec Rail Products (UK) Ltd., entered into a property loan and an acquisition loan with a financial institution in the United Kingdom. The £400,000 ($663,800) property loan is repayable in equal monthly installments and has a maturity date of March 31, 2009. The interest rate is the financial institution’s base rate plus 2.25%. Borrowings on the property loan accrued interest at 5.75%, 6.25% and 6.25% at September 30, 2003, December 31, 2002 and 2001, respectively. The £1,300,000 ($2,157,350) Conveyors acquisition loan is repayable in equal monthly installments and has a maturity date of March 31 2004. The interest rate is the financial institution’s base rate plus 2.25%. Borrowings on the Conveyors acquisition loan accrued interest at 6.25% at December 31, 2002 and 2001. This loan was paid in full during July 2003. In connection with the acquisition of the assets of Quodeck Ltd., Portec Rail Products (UK) Ltd., entered into a £300,000 ($471,000) Quodeck acquisition loan with a financial institution in the United Kingdom. The Quodeck acquisition loan is repayable in equal monthly installments beginning September 2003 and has a maturity date of September 10, 2006. The interest rate is the financial institution’s base rate plus 1.75%. Borrowings on the Quodeck acquisition loan accrued interest at 5.25% and 5.75% at September 30, 2003 and December 31, 2002, respectively. Portec Rail Products (UK) Ltd. has a £400,000 ($666,000) overdraft facility on its primary bank account with a financial institution in the United Kingdom. The purpose of the overdraft facility is to provide for working capital requirements. The interest rate on the overdraft facility is the financial institution’s base rate plus 1.625%. For any borrowings in excess of £400,000 ($666,000) that the financial institution approves, the interest rate is the financial institution’s base rate plus 6.75%. Borrowings under the overdraft credit facility accrued interest at 5.125%, 5.625%, and 5.625%, at September 30, 2003, December 31, 2002, and 2001, respectively. The overdraft credit facility expires on March 27, 2004. At September 30, 2003, $485,000 of additional borrowings were available under the revolving credit facility. The UK loans are collateralized by substantially all of the assets of Portec Rail Products (UK) Ltd. and its wholly-owned subsidiaries. In addition, the loans contain certain covenants which require Portec Rail Products (UK) Ltd. to maintain a minimum tangible net worth, profitability, cash generation and limits additional borrowings. The covenants also restrict any payments of dividends and limit capital expenditures. F – 19

Portec Rail Products, Inc. Notes to Consolidated Financial Statements (d) Boone County Bank, Inc. (Related Party) On November 30, 1999, the Company and Boone County Bank, Inc. (Boone), a related party, executed a note payable for $703,808 which is payable in 48 consecutive monthly installments of $17,388 and matures on November 30, 2003. Interest on the note accrues at the published prime rate, which was 4.00%, 4.25% and 4.75% at September 30, 2003, December 31, 2002 and 2001, respectively. The proceeds from the note were used to consolidate all prior Boone debt into one note and provide $100,000 of additional funding for capital expenditures. On April 27, 2000, the Company and Boone executed a note payable for $100,000 which is payable in 48 consecutive monthly installments of $2,497 and matures on April 30, 2004. Interest on the note accrues at the published prime rate. The proceeds from the note were used to fund capital expenditures. On February 28, 2003, the Company and Boone executed a note payable for $100,110 which is payable in 36 consecutive monthly installments of $2,973 and matures on February 28, 2006. Interest on the note accrues at the published prime rate. The proceeds from the note were used to provide additional funding for capital expenditures. These credit agreements are secured by certain equipment of the Company. Future Maturities of Long-Term Debt Future maturities of long-term debt are as follows:

(In Thousands)

Three months ending December 31, 2003 2004 2005 2006 2007 2008 Thereafter Total

$

480 2,034 622 5,460 110 51 67

$ 8,824

Note 8: Retirement Plans Defined Contribution Plans The Company maintains a qualified defined contribution 401(k) plan covering substantially all United States employees. Under the terms of the plan, the Company may contribute up to 30% of the first 6% of each employee’s compensation contributed. Total expense recorded by the Company for matching contributions was approximately $29,000 and $25,000 for the nine months ended September 30, 2003 and 2002, respectively, and $34,000, $33,000 and $34,000 for the years ended December 31, 2002, 2001 and 2000, respectively. F – 20

Portec Rail Products, Inc. Notes to Consolidated Financial Statements In August, 2003, in conjunction with freezing its defined benefit plan, the Company amended the defined contribution plan for all United States employees by providing a non-elective company contribution for all eligible employees and increasing its matching contribution that is tied to profits of its United States divisions. Under the terms of the amendment, the Company may contribute 3% of each employee’s compensation as a non-elective contribution and may also contribute up to 50% of the first 6% of each employee’s compensation contributed to the plan as an annual profit sharing match. The effective date of the amendment is January 1, 2004. The Company also maintains a defined contribution plan covering all non-union Canadian employees. Under the terms of the Canadian plan, the Company may contribute 4% of each employee’s compensation as a non-elective contribution and may also contribute 30% of the first 6% of each employee’s compensation contributed to the plan. Total expense recorded by the Company for non-elective and matching contributions for the Canadian defined contribution plan was $31,000 and $28,000 for the nine months ended September 30, 2003 and 2002, respectively, and $32,000, $31,000 and $34,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The Company also maintains a defined contribution pension plan covering all United Kingdom employees not participating in one of the United Kingdom defined benefit plans. These benefits are provided under no formal written agreement. Under the terms of the defined contribution plan, the Company may make non-elective contributions of between 3% and 7.5% of each employee’s compensation. There are no company matching contributions. Total expense recorded by the Company for the United Kingdom defined contribution pension plan contributions was $45,000 and $28,000 for the nine months ended September 30, 2003 and 2002, respectively, and $42,000, $29,000 and $7,000 for the years ended December 31, 2002, 2001 and 2000, respectively. In conjunction with freezing its defined benefit plan effective December 31, 2003, all eligible United Kingdom employees will now participate in the defined contribution plan at the non-elective contribution levels described above. Defined Benefit Plans The Company maintains a noncontributory defined benefit plan that covers substantially all United States employees, former employees and retirees of the Company. Benefits under the plan are based on years of service for hourly employees. For salaried employees, benefits under the plan are based on years of service and the employee’s average compensation during defined periods of service. The Company’s funding policy is to make minimum annual contributions required by applicable regulations. No contributions were made to the plan in 2002, 2001 or 2000. The Company has a required minimum contribution for 2003 in the amount of $147,000 that is payable by September 2004. In August, 2003, the Company amended its United States defined benefit plan by freezing the benefits accrued for all participants effective December 31, 2003, and preventing new enrollments after December 31, 2003. The Company’s future net periodic pension cost and plan funding will be dependent upon the performance of plan assets. F – 21

Portec Rail Products, Inc. Notes to Consolidated Financial Statements The Company maintains a contributory defined benefit plan in the United Kingdom, the Portec Rail Products (UK) Limited Pension Plan (Portec Rail plan). The Portec Rail plan covers 21 active employees along with former employees and retirees of the Company and has been frozen to new entrants since April 1, 1997. Benefits under the Portec Rail plan are based on years of service and eligible compensation during defined periods of service. The Company’s funding policy for the Portec Rail plan is to contribute approximately 10% of each active employee’s eligible compensation to the plan along with each active employee also contributing to the plan at 3% of eligible compensation. Total employer contributions into the Portec Rail plan amounted to $91,000, $100,000 and $105,000 for the years ended December 31, 2002, 2001 and 2000, respectively. In September 2003, the Company amended the Portec Rail plan by freezing the benefits accrued for all participants effective December 31, 2003. The Company’s future net periodic pension cost and plan funding will be dependent upon the performance of plan assets. Effective with this amendment, the Company will now be solely responsible for meeting the minimum funding requirements to maintain this plan. The Company also maintains another contributory defined benefit plan in the United Kingdom, the Conveyors International Limited Pension Plan (Conveyors plan). After January of 2002, the Conveyors plan covers only former employees of the company. Benefits under the Conveyors plan were based on years of service and eligible compensation during defined periods of service. The Company’s funding policy for the Conveyors plan is to make minimum annual contributions required by applicable regulations. Total employer contributions to the Conveyors plan amounted to $5,000, $29,000 and $40,000 for the years ended December 31, 2002, 2001 and 2000, respectively. The Company’s future net periodic pension cost and plan funding will be dependent upon the performance of plan assets. F – 22

Portec Rail Products, Inc. Notes to Consolidated Financial Statements The funded status of the Company’s United States defined benefit pension plan is as follows for the years ended December 31:

2002 (In Thousands)

2001

Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Actuarial loss (gain) Benefits paid Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Benefits paid Fair value of plan assets at end of year Funded status of the plan Unrecognized net actuarial loss Unrecognized prior service cost Prepaid benefit cost Amounts recognized in the balance sheets: Prepaid benefit cost Accrued benefit liability Intangible asset Accumulated other comprehensive loss Net amount recognized at December 31

$

7,786 159 546 617 (498 ) 8,610

$ 7,657 179 539 (138 ) (451 ) 7,786

8,373 (1,145 ) (498 ) 6,730 (1,880 ) 2,652 50 $ 822 $

9,180 (356 ) (451 ) 8,373 587 182 53 822

$

— (1,150 ) 50 1,922 822

$

822 — — — 822

$

$

The weighted-average assumptions used for determining net periodic pension cost are as follows for the years ended December 31:

2002

2001

2000

Discount rate Expected return on plan assets Rate of compensation increase F – 23

6.75 % 8.25 4.00

7.25 % 8.50 4.00

7.25 % 8.50 4.50

Portec Rail Products, Inc. Notes to Consolidated Financial Statements The components of net periodic pension cost (benefit) are as follows for the years ended December 31:

2002

2001 (In Thousands)

2000

Service cost Interest cost Expected return on plan assets Amortization of transition and prior service cost Pension cost (benefit)

$ 159 546 (708 ) 3 $ 0

$ 179 539 (743 ) 3 $ (22 )

$ 172 524 (710 ) 3 $ (11 )

At December 31, 2002, the United States defined benefit pension plan had an accumulated benefit obligation in excess of the fair value of assets. At December 31, 2001, the fair value of assets were in excess of the accumulated benefit obligation. The funded status of the Company’s United Kingdom defined benefit pension plans is as follows for the years ended December 31:

Portec Rail Plan 2002

Conveyors Plan 2002

Portec Rail Plan 2001

Conveyors Plan 2001

(In Thousands)

Change in benefit obligation: Benefit obligation at beginning of year Service cost Interest cost Actuarial (gain) loss Benefits paid Foreign currency translation adjustments Benefit obligation at end of year Change in plan assets: Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Employee contributions Benefits paid Foreign currency translation adjustments Fair value of plan assets at end of year Funded status of the plan Unrecognized net actuarial loss Unrecognized transition gain Prepaid benefit cost Amounts recognized in the balance sheets: Prepaid benefit cost Accrued benefit liability Accumulated other comprehensive loss Net amount recognized at December 31

$ 2,793 85 175 (396 ) (47 ) 283 2,893

$ 509 18 32 62 — 61 682

$ 2,243 132 149 362 (44 ) (49 ) 2,793

$ 514 27 34 (54 ) — (12 ) 509

2,536 (301 ) 91 27 (47 ) 253 2,559 (334 ) 1,238 (572 ) $ 332

643 (33 ) 5 1 — 66 682 — 226 (106 ) $ 120 $

2,915 (383 ) 100 24 (44 ) (76 ) 2,536 (257 ) 1,033 (561 ) 215 $

709 (85 ) 29 8 — (18 ) 643 134 57 (104 ) 87

$

— (274 ) 606 332

$ 120 — — $ 120

$

— (157 ) 372 215

$

87 — — 87

$ F – 24

$

$

Portec Rail Products, Inc. Notes to Consolidated Financial Statements The weighted-average assumptions used for determining net periodic pension cost are as follows for the years ended December 31:

2002

2001

2000

Discount rate Expected return on plan assets Rate of compensation increase

6.00 % 7.70 % 3.00 %

6.00 % 8.00 % 3.25 %

6.75 % 8.30 % 3.50 %

The components of net periodic pension cost are as follows for the years ended December 31:

Portec Rail Plan 2002

Conveyors Plan 2002

Portec Rail Plan 2001

Conveyors Plan 2001

Portec Rail & Conveyors Pension Plans 2000

Service cost Less employee contributions Interest cost Expected return on plan assets Amortization of transition amount Amortization of unrecognized loss (gain) Pension cost (benefit)

$

85 (27 ) 175 (212 ) (45 ) 25 1

$

18 (1 ) 32 (54 ) (8 ) (4 )

$ 132 (24 ) 149 (237 ) (42 ) — $ (22 )

$

27 (8 ) 34 (58 ) (8 ) (3 )

$ 175 (36 ) 166 (244 ) (53 ) — $ 8

$

$ (17 )

$ (16 )

At December 31, 2002 and 2001, the Portec Rail plan had an accumulated benefit obligation in excess of the fair value of assets. At December 31, 2002 and 2001, the Conveyors plan had fair value of assets in excess of its accumulated benefit obligation. F – 25

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 9: Accumulated Other Comprehensive Loss

Currency Translation Adjustment

Minimum Pension Liability (In Thousands)

Accumulated Other Comprehensive Income (Loss)

Balance at January 1, 2000 Net change Balance at December 31, 2000 Net change Balance at December 31, 2001 Net change Balance at December 31, 2002 Net change Balance at September 30, 2003

$ (119 ) (378 ) (497 ) (269 ) (766 ) 394 (372 ) 703 $ 331

$

— — — (260 ) (260 ) (1,356 ) (1,616 ) (14 )

$

(119 ) (378 ) (497 ) (529 ) (1,026 ) (962 ) (1,988 ) 689

$ (1,630 )

$

(1,299 )

The income tax benefit (expense) associated with the currency translation adjustment included in accumulated other comprehensive income for other non-U.S. subsidiaries was $(203,000), $244,000, $468,000 and $303,000 at September 30, 2003, December 31, 2002, 2001 and 2000, respectively. The income tax benefit associated with the minimum pension liability included in accumulated other comprehensive income was $919,000, $912,000 and $111,000 at September 30, 2003, December 31, 2002 and 2001, respectively. Note 10: Stock Option Plan On January 12, 1998, the Company granted 360,000 stock options to management employees. The options were required to be exercised over a five-year period from the date of grant at an exercise price of $1.25 per share. There were 309,600, 337,600 and 337,600 stock options available to be exercised during 2002, 2001 and 2000, respectively. No stock options were exercised during 2001 or 2000. During 2002, 273,120 options were exercised. All unexercised options expired on December 10, 2002. The Company has elected to follow Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for its stock options to management. Under APB Opinion No. 25, because the exercise price of the Company’s stock options is greater than the market price of the underlying common stock on the date of grant and the number of shares is fixed and known, no compensation expense was recognized. Since all the options vested in 1998, there is no pro forma effect on net income for the years ending December 31, 2002, 2001 or 2000. F – 26

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 11: Income Taxes Income tax expense (benefit) consists of the following:

Nine Months Ended September 30 2003 September 30 2002 (In Thousands)

Years Ended December 31

2002

2001

2000

Income taxes: Current: Federal State Foreign

$

692 119 825 1,636

$

639 81 524 1,244

$

666 86 661 1,413

$ 241 25 519 785

$ 600 62 177 839

Deferred: Federal State Foreign

13 2 — 15 $ 1,651

(45 ) (7 ) — (52 ) $ 1,192

(13 ) (2 ) (86 ) (101 ) $ 1,312

(3 ) — — (3 ) $ 782

170 15 (31 ) 154 $ 993

A reconciliation of U.S. income tax computed at the statutory rate and actual expense is as follows:

Nine Months Ended September 30 2003 September 30 2002

Years Ended December 31

2002

2001

2000

(In Thousands)

Amount computed at statutory rate State and local taxes less applicable federal income tax Incremental U.S. tax on repatriated earnings Foreign tax withheld on repatriated earnings Reduction in benefit from losses on foreign operations Incremental tax on foreign operations Tax (benefit) expense of foreign tax credit carryforwards Increase (decrease) in valuation reserve Other

$ 1,515 81 — — — 10 — — 45 $ 1,651 F – 27

$ 1,040 46 — — — (3 ) — — 109 $ 1,192

$ 1,189 55 — — — (51 ) — — 119 $ 1,312

$ 556 16 — 89 — 47 (93 ) 93 74 $ 782

$ 563 51 182 — 103 12 (102 ) 102 82 $ 993

Portec Rail Products, Inc. Notes to Consolidated Financial Statements The components of the net deferred tax assets and liabilities are as follows:

September 30 2003 2002 (In Thousands)

December 31 2001

Deferred tax liabilities: Property and equipment Goodwill Total deferred tax liabilities Deferred tax assets: Minimum pension liability Inventory reserves Accrued expenses Accounts receivable Uniform capitalization Foreign tax credit carryforward Foreign currency translation Other Total deferred tax assets Valuation allowance Net deferred tax assets Net deferred tax liabilities

$ 1,347 573 1,920

$ 1,312 500 1,812

$ 1,451 404 1,855

919 67 31 40 228 285 (203 ) 46 1,413 (195 ) 1,218 $ 702 $

912 65 18 6 224 285 244 36 1,790 (195 ) 1,595 217 $

111 71 8 8 162 285 468 46 1,159 (195 ) 964 891

The Company’s foreign tax credit carryforwards expire from 2003 to 2006. F – 28

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 12: Commitments and Contingencies Lease Contingencies The Company leases certain automobiles, office equipment and facilities. These leases are subject to renewal options for varying periods. Future minimum payments under noncancelable operating leases with initial or remaining terms of one year or more consist of the following:

Operating Leases (In Thousands)

Three months ending December 31, 2003 2004 2005 2006 2007 2008 Total minimum lease payments

$

191 626 372 304 193 31

$ 1,717

Operating lease expense under such arrangements was approximately $581,000 and $556,000 for the nine months ended September 30, 2003 and 2002, respectively, and $734,000, $707,000 and $664,000 for the years ended December 31, 2002, 2001 and 2000, respectively. Litigation The Company is involved from time to time in lawsuits that arise in the normal course of business. The Company actively and vigorously defends all lawsuits. The Company is named with numerous other defendants in an environmental lawsuit. The plaintiff seeks to recover costs which it has incurred to investigate and remediate its own property as required by the New York State Department of Environmental Conservation (NYSDEC). The Company has not been named as a liable party by the NYSDEC and management believes it has no liability to the plaintiff in the case, as the Company’s only connection with the property is as the owner of property in close proximity to the site being remediated by the plaintiff. The Company filed a motion of summary judgment seeking a ruling to have the Company dismissed from the case. Oral arguments on the motion were heard in April 2002 and a decision has not yet been issued. F – 29

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 13: Segments, Geographic and Major Customer Financial Information Segments The Company operates four business segments consisting of Railway Maintenance Products Division, Shipping Systems Division, Portec, Rail Products Ltd. and Portec Rail Products (UK) Ltd., along with a corporate functional shared service. The presentation of segment information reflects the manner in which the Company organizes its segments for making operating decisions, assessing performance and allocating resources. Intersegment sales are accounted for at arm’s-length prices, reflecting prevailing market conditions within the United States, Canada and the United Kingdom. Such sales and associated costs are eliminated in the consolidated financial statements. Railway Maintenance Products Division The Railway Maintenance Products Division segment manufactures and assembles track components and friction management products, along with providing service to railroads, transit systems and railroad contractors. This division is also a distributor and reseller of purchased track components, lubricants and friction modifiers manufactured by third parties. The manufactured and assembled track component and friction management products consist primarily of standard and insulated rail joints, friction management systems and gage plates. The purchased and distributed products consist primarily of various lubricants and friction modifiers. Friction modifiers are water-based liquids that contain a suspension of active friction modifier materials that help reduce friction and noise while being applied on top of the rail without impacting a train’s braking or traction capabilities. The friction management products are aimed at rail customers to help them achieve cost savings primarily through reduced rail wear, wheel wear and fuel usage in order to be more competitive. The manufactured and assembled track components, such as rail joints, are used for rail replacement or repair. Shipping Systems Division The Shipping Systems Division segment engineers and sells securement systems primarily to the railroad freight car market. These systems are used to secure a wide variety of products and lading onto freight cars. Independent subcontractors produce most of our manufactured products; however, beginning in 2002, the Railway Maintenance Products Division began to perform some of the assembly functions related to this product line. Portec, Rail Products Ltd. The Portec, Rail Products Ltd. segment manufactures rail anchors, rail spikes and assembles friction management products primarily for the two largest Canadian railroads. Rail anchors and rail spikes are devices to secure rails to the ties to restrain the movement of the rail. This segment is also a distributor and reseller of lubricants and friction modifiers manufactured by third parties. Portec Rail Products (UK) Ltd. The Portec Rail Products (UK) Ltd. segment operates and serves customers in two distinctly different markets. In the rail market, the major product line is friction management products and services that primarily serve the United Kingdom passenger rail network. In the material handling market, the major product lines are overhead and floor conveyor systems and racking and mezzanine flooring systems. The end users of the material handling products are primarily United Kingdom based customers in the manufacturing, distribution, garment and food industries. F – 30

Portec Rail Products, Inc. Notes to Consolidated Financial Statements

Nine Months Ended September 30 2003 (Unaudited) (In Thousands) 2002 2002

Years Ended December 31 2001 2000

External Sales Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Total Intersegment Sales Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Total Total Sales Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Total Operating Income (Loss) Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Corporate Total Interest Expense Other Expense (Income), net Income Before Income Taxes

$ 20,366 3,687 10,216 10,468 $ 44,737

$ 19,313 2,548 9,498 8,428 $ 39,787

$ 24,645 3,441 10,596 11,399 $ 50,081

$ 23,431 3,007 6,214 11,187 $ 43,839

$ 26,448 6,120 5,186 9,396 $ 47,150

$

1,298 — 1,507 51 2,856

$

1,252 — 1,085 25 2,362

$

1,586 — 1,345 27 2,958

$

1,502 10 1,461 24 2,997

$

896 1 1,292 120 2,309

$

$

$

$

$

$ 21,664 3,687 11,723 10,519 $ 47,593

$ 20,565 2,548 10,583 8,453 $ 42,149

$ 26,231 3,441 11,941 11,426 $ 53,039

$ 24,933 3,017 7,675 11,211 $ 46,836

$ 27,344 6,121 6,478 9,516 $ 49,459

$

2,782 488 1,635 756 (880 ) 4,781 278 48

$

2,765 142 1,316 295 (908 ) 3,610 422 130

$

3,365 144 1,204 618 (1,181 ) 4,150 530 122

$

2,963 (26 ) 399 867 (1,510 ) 2,693 1,007 51

$

3,542 733 465 (560 ) (1,179 ) 3,001 1,465 (120 )

$

4,455

$ F – 31

3,058

$

3,498

$

1,635

$

1,656

Portec Rail Products, Inc. Notes to Consolidated Financial Statements

Nine Months Ended September 30 2003 (Unaudited) (In Thousands) 2002 2002

Years Ended December 31 2001 2000

Depreciation and Amortization Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Corporate Total Total Assets Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Corporate Total Capital Expenditures Railway Maintenance Products Division Shipping Systems Division Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd. Corporate Total

$

462 9 227 335 3 1,036

$

545 12 235 279 56 1,127

$

721 15 392 373 66 1,567

$

784 67 282 469 114 1,716

$

734 80 244 477 113 1,648

$

$

$

$

$

$ 16,927 1,676 9,157 9,539 802 $ 38,101

$ 16,009 1,742 7,590 9,203 1,669 $ 36,213

$ 15,787 1,806 6,843 9,563 855 $ 34,854

$ 15,842 1,698 7,610 8,458 1,689 $ 35,297

$ 18,927 2,871 7,829 8,667 1,765 $ 40,059

$

342 28 64 68 — 502

$

219 3 118 35 5 380

$

276 3 122 356 5 762

$

200 1 81 137 — 419

$

359 3 1,551 372 8 2,293

$

$ F – 32

$

$

$

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Geographic information for sales, based on country of destination, and assets, based on country of location, is as follows:

Nine Months Ended September 30 2003 (Unaudited) (In Thousands) 2002 2002

Years Ended December 31 2001 2000

External Sales United States Canada United Kingdom Other Total Total Assets United States Canada United Kingdom Total

$ 20,616 12,451 8,725 2,945 $ 44,737

$ 19,952 11,047 7,647 1,141 $ 39,787

$ 25,920 12,375 9,999 1,787 $ 50,081

$ 23,458 7,300 8,588 4,493 $ 43,839

$ 27,225 8,642 8,053 3,230 $ 47,150

$ 19,405 9,157 9,539 $ 38,101

$ 19,420 7,590 9,203 $ 36,213

$ 18,448 6,843 9,563 $ 34,854

$ 19,229 7,610 8,458 $ 35,297

$ 23,563 7,829 8,667 $ 40,059

Major Customers The Company’s largest customers are North American Class I railroads; products are also sold to a variety of regional and short-line railroads, rail transit systems, and original equipment manufacturers for the material handling market in the United Kingdom. The Company’s two largest customers represented approximately 23% and 25% of the Company’s sales for the nine months ended September 30, 2003 and 2002, respectively, and 23%, 20% and 18% of the Company’s sales for the years ended December 31, 2002, 2001 and 2000, respectively. At September 30, 2003, December 31, 2002 and 2001, the Company’s two largest customers represented approximately 6%, 6% and 4%, respectively, of the Company’s total accounts receivable. F – 33

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 14: Selected Quarterly Financial Data (Unaudited)

First Quarter

Second Quarter (Dollars in Thousands)

Third Quarter

Fourth Quarter

2003 Revenue Gross Profit Net Income Earnings per Share: Basic Diluted 2002 Revenue Gross Profit Net Income Earnings per Share: Basic Diluted 2001 Revenue Gross Profit Net Income Earnings per Share: Basic Diluted $ 10,982 2,789 120 $ .02 .02 $ 12,484 3,538 396 $ .06 .06 $ 10,648 3,155 262 $ .04 .04 $ 9,725 2,559 75 .01 .01 $ 12,755 3,351 521 $ .08 .08 $ 14,433 3,924 786 $ .12 .12 $ 12,598 3,399 559 $ .09 .09 $ 10,295 3,050 320 $ .05 .05 $ 14,130 4,159 818 $ .13 .13 $ 17,696 4,971 1,292 $ .20 .20 $ 12,911 3,854 694 $ .11 .11 $ N/A N/A N/A N/A N/A

$

$

The sums of the quarterly earnings per share do not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective periods. Note 15: Financial Instruments The Company is exposed to market risk due to changes in currency exchange rates and interest rates. The Company currently utilizes no hedging or derivatives to partially offset these risks. Currency Exchange Risk Occasionally, the Company is exposed to currency exchange risk from transactions it enters into with customers whereby the Company settles in a currency other than its primary currency. The Company’s primary foreign currency exposures in relation to the U.S. dollar are the United Kingdom pound sterling and the Canadian dollar. F – 34

Portec Rail Products, Inc. Notes to Consolidated Financial Statements The amount of transactions and the currency exchange differences recorded by the Company for reported years and periods were not significant. Interest Rate Risk The Company has approximately $8,800,000 of debt. Substantially all of this debt is variable rate and adjusts based upon an underlying index such a LIBOR. Note 16: Certain Significant Estimates Management’s estimates that influence the financial statements are normally based on knowledge and experience about past and current events and assumptions about future events. The following estimates affecting the financial statements are particularly sensitive because of their significance, and it is at least reasonably possible that a change in these estimates will occur in the near term: Employee Benefits—Defined Benefit Plan The liabilities and expenses for pensions require significant judgments and estimates. These amounts are determined using actuarial methodologies and incorporate significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets and several assumptions relating to the employee workforce (salary increases, retirement age and mortality). The rate used to discount future estimated liabilities is determined considering the rates available at year end on debt instruments that could be used to settle obligations of the plan. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations. Goodwill The Company evaluates the recoverability of the goodwill of each of its reporting units as required under SFAS No. 142 by comparing the fair value of each reporting unit with its carrying value. The fair values of its reporting units are determined using a combination of a discounted cash flow analysis and market multiples based upon historical and projected financial information. The Company applies its best judgment when assessing the reasonableness of the financial projections used to determine the fair value of each reporting unit. Income Taxes As a Company with international operations, the Company records an estimated liability or benefit for income taxes and other taxes based on what it determines will likely be paid in various jurisdictions in which we operate. Management uses its best judgment in the determination of these amounts. However, the liabilities ultimately realized and paid are dependent on various matters including the resolution of the tax audits in the various affected tax jurisdictions and may differ from the amounts recorded. An adjustment to the estimated liability would be recorded through income in the period in which it becomes probably that the amount of the actual liability differs from the recorded amount. F – 35

Portec Rail Products, Inc. Notes to Consolidated Financial Statements Note 17: Subsequent Event Capital Raising Initiative In November 2003, the Company anticipates filing a registration statement on Form S-1 with the Securities and Exchange Commission for the initial public offering of shares of its common stock. The price range for the offering has not yet been determined. There is no assurance that the offering will be completed. F – 36

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus is an offer to sell only the common stock offered by this prospectus, and only under circumstances and in jurisdictions where it is lawful to do so. The information in this prospectus is current only as of the date of the prospectus.

TABLE OF CONTENTS

Summary Risk Factors Forward-Looking Statements How We Intend To Use The Proceeds From The Offering Our Policy Regarding Dividends Market For The Common Stock Capitalization Dilution Selected Consolidated Financial Information Management’s Discussion And Analysis Of Financial Condition And Results Of Operations Business Management Security Ownership Of Management Description Of Capital Stock Shares Eligible For Future Sale Underwriting Legal Matters Change In Accountants Experts Where You Can Obtain Information Index to Consolidated Financial Statements

1 6 12 13 13 13 14 15 16 17 33 50 59 60 61 62 66 66 67 67 F–1

Portec Rail Products, Inc. __________ Shares of Common Stock ______________ PROSPECTUS ______________ Ferris, Baker Watts Incorporated _____________, 2004 Until the later of _________ ___, 2004 or 25 days after the date of this prospectus all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II: INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution

Amount

SEC registration fee (1) Nasdaq National Market System fee National Association of Securities Dealers filing fee (1) Printing, postage and mailing Legal fees and expenses Accounting fees and expenses Transfer agent and registrar fees and expenses Stock certificate printing Reimbursement of underwriter’s expenses Advisory fee Miscellaneous Total

$

2,326 100,000 3,375 75,000 135,000 500,000 15,000 5,000 220,000 143,750 10,000 1,209,451

$

(1)

Actual expenses based upon the registration and sale of shares of common stock with an aggregate value of $28,750,000 (including the underwriters’ over allotment option). All other expenses are estimated.

Item 14. Indemnification of Directors and Officers Article VIII of the Registrant’s Bylaws provides as follows: 1. To the extent permitted by applicable law, the corporation shall indemnify any person (other than a shareholder of the corporation) who was or is a party or threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action or proceeding by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney fees), judgments, fines, taxes and penalties and interest thereon, and amounts paid in settlement actually and reasonably incurred by him in connection with such action or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. 2. To the extent permitted by applicable law the corporation shall indemnify any shareholder of the corporation who was or is a party or threatened to be made a party to any threatened, pending or completed action or proceedings, whether civil, criminal, administrative, or investigative (including, without limitation, an action or proceeding by or in the right of the corporation) by reason of the fact that he is or was a shareholder, director, officer, employee or agent of the corporation, or is, or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney fees), judgments, fines, taxes and penalties and interest thereon, and amounts paid in settlement actually and reasonably incurred by him in connection with such action or proceeding, except in relation to matters as to which he shall have been finally adjudged to be liable by reason of having been guilty of gross negligence or willful misconduct. In the event of any other judgment against any such shareholder or in the event of a settlement, indemnification shall be made only if the corporation shall be advised, in case none of the persons involved shall have been a director or the corporation, by the board of directors, and otherwise by independent counsel to be appointed by the board of directors, that in its or his opinion such shareholder was not guilty of gross negligence or willful misconduct, and, in the event of a settlement, that such settlement was, or if still to be made, is, in the best interests of the corporation. If a determination is to be made by the board of directors, it may rely, as to all questions of law, on the advice of the independent counsel. II-1

3. The foregoing rights of indemnification shall inure to the benefit of the heirs, executors or administrators of each such shareholder, director, officer, employee or agent and shall be in addition to and not exclusive of, any other rights to which such shareholder, director, officer, employee or agent may be entitled. Sections 31D-8-851 through 31D-8-853 of the West Virginia Business Corporation Act provide for the indemnification and the advancement of expenses to persons acting on behalf of a West Virginia corporation. These sections are as follows: 31D-8-851 PERMISSIBLE INDEMNIFICATION. — (a) Except as otherwise provided in this section, a corporation may indemnify an individual who is a party to a proceeding because he or she is a director against liability incurred in the proceeding if:

(1)

(A) He or she conducted himself or herself in good faith; and

(B) He or she reasonably believed: (i) In the case of conduct in his or her official capacity, that his or her conduct was in the best interests of the corporation; and (ii) in all other cases, that his or her conduct was at least not opposed to the best interests of the corporation; and (C) In the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful; or (2) He or she engaged in conduct for which broader indemnification has been made permissible or obligatory under a provision of the articles of incorporation as authorized by subdivision (5), subsection (b), section two hundred two, article two of this chapter. (b) A director’s conduct with respect to an employee benefit plan for a purpose he or she reasonably believed to be in the interests of the participants in, and the beneficiaries of, the plan is conduct that satisfies the requirement of subparagraph (ii), paragraph (B), subdivision (1), subsection (a) of this section. (c) The termination of a proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, is not determinative that the director did not meet the relevant standard of conduct described in this section. (d) Unless ordered by a court under subdivision (3), subsection (a), section eight hundred fifty-four of this article, a corporation may not indemnify a director:

(1) In connection with a proceeding by or in the right of the corporation, except for reasonable expenses incurred in connection with the proceeding if it is determined that the director has met the relevant standard of conduct under subsection (a) of this section; or

(2) In connection with any proceeding with respect to conduct for which he or she was adjudged liable on the basis that he or she received a financial benefit to which he or she was not entitled, whether or not involving action in his or her official capacity. 31D-8-852 MANDATORY INDEMNIFICATION. — A corporation must indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he or she was a party because he or she was a director of the corporation against reasonable expenses incurred by him or her in connection with the proceeding. 31D-8-853 ADVANCE FOR EXPENSES. — (a) A corporation may, before final disposition of a proceeding, advance funds to pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding because he or she is a director if he or she delivers to the corporation:

(1) A written affirmation of his or her good faith belief that he or she has met the relevant standard of conduct described in section eight hundred fifty-one of this article or that the proceeding II-2

involves conduct for which liability has been eliminated under a provision of the articles of incorporation as authorized by subdivision (4), subsection (b), section two hundred two, article two of this chapter; and

(2) His or her written undertaking to repay any funds advanced if he or she is not entitled to mandatory indemnification under section eight hundred fifty-two of this article and it is ultimately determined under section eight hundred fifty-four or eight hundred fifty-five of this article that he or she has not met the relevant standard of conduct described in section eight hundred fifty-one of this article. (b) The undertaking required by subdivision (2), subsection (a) of this section must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to the financial ability of the director to make repayment. (c) Authorizations under this section are to be made:

(1) By the board of directors:

(A) If there are two or more disinterested directors, by a majority vote of all disinterested directors, a majority of whom constitute a quorum for this purpose, or by a majority of the members of a committee of two or more disinterested directors appointed by a vote; or

(B) If there are fewer than two disinterested directors, by the vote necessary for action by the board in accordance with subsection (c), section eight hundred twenty-four of article in which authorization directors who do not qualify as disinterested directors may participate; or

(2) By the shareholders, but shares owned by or voted under the control of a director who the time does not qualify as a disinterested director may not be voted on the authorization; or

(3) By special legal counsel selected in a manner in accordance with subdivision (2), subsection (b), section eight hundred fifty-five of this article. Item 15. Recent Sales of Unregistered Securities

Not Applicable. Item 16. Exhibits and Financial Statement Schedules: The exhibits and financial statement schedules filed as part of this registration statement are as follows: (a) List of Exhibits

1.1 3.1 3.2 4 5 16.1 16.2

Form of Underwriting Agreement between Portec Rail Products, Inc. and Ferris, Baker Watts, Incorporated Articles of Incorporation of Portec Rail Products, Inc. Bylaws of Portec Rail Products, Inc. Form of common stock certificate of Portec Rail Products, Inc. Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities being registered Letter from Ernst & Young LLP regarding change in certifying accountant Letter from Deloitte & Touche LLP regarding change in certifying accountant

21 23.1 23.2 24

Subsidiaries of Registrant Consent of Luse Gorman Pomerenk & Schick (contained in Opinion included as Exhibit 5) Consent of BKD LLP Power of Attorney (set forth on signature page of registration statement) II-3

(b) Financial Statement Schedules No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes. Item 17. Undertakings The undersigned Registrant hereby undertakes: (1) To provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchase. (2) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (3) That, for the purpose of determining any liability under the Securities Act of 1933, it shall treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the undersigned Registrant under rule 424(b)(1), or (4), of 497(h) under the Securities Act as part of this registration statement as of the time the Commission declares it effective. (4) That, for the purpose of determining any liability under the Securities Act of 1933, it shall treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bonafide offering of those securities. II-4

SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Pittsburgh, Pennsylvania on November 6, 2003.

Portec Rail Products, Inc. By: /s/ John S. Cooper John S. Cooper Chie f Executive Officer and President (Duly Authorized Representative) POWER OF ATTORNEY We, the undersigned directors and officers of Portec Rail Products, Inc. (the ―Company‖) hereby severally constitute and appoint John S. Cooper as our true and lawful attorney and agent, to do any and all things in our names in the capacities indicated below which said John S. Cooper may deem necessary or advisable to enable the Company to comply with the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with the registration statement on Form S-1 relating to the offering of the Company’s Common Stock, including specifically, but not limited to, power and authority to sign for us in our names in the capacities indicated below the registration statement and any and all amendments (including post-effective amendments) thereto; and we hereby approve, ratify and confirm all that said John S. Cooper shall do or cause to be done by virtue thereof. In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates stated.

Signatures

Title

Date

/s/ John S. Cooper John S. Cooper /s/ Michael D. Bornak Michael D. Bornak /s/ Marshall T. Reynolds Marshall T. Reynolds /s/ Charles R. Hooten, Jr. Charles R. Hooten, Jr. /s/ Kirby J. Taylor Kirby J. Taylor /s/ Konstantinos Papazoglou Konstantinos Papazoglou

Chief Executive Officer, President and Director (Principal Executive Officer)

November 6, 2003

Chief Financial Officer (Principal Financial and Accounting Officer)

November 6, 2003

Chairman of the Board

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Signatures

Title

Date

/s/ Philip E. Cline Philip E. Cline /s/ Neal W. Scaggs Neal W. Scaggs /s/ Richard J. Jarosinki Richard J. Jarosinski /s/ Robert L. Shell, Jr. Robert L. Shell, Jr. /s/ Daniel P. Harrington Daniel P. Harrington /s/ Douglas V. Reynolds Douglas V. Reynolds /s/ Lucian J. Sieja Lucian J. Sieja /s/ Gary Bale Gary Bale /s/ Howard Darrel Darby Howard Darrel Darby

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

Director

November 6, 2003

EXHIBIT INDEX

1.1 3.1 3.2 4 5 16.1 16.2 21 23.1 23.2 24

Form of Underwriting Agreement between Portec Rail Products, Inc. and Ferris, Baker Watts, Incorporated Articles of Incorporation of Portec Rail Products, Inc. Bylaws of Portec Rail Products, Inc. Form of common stock certificate of Portec Rail Products, Inc. Opinion of Luse Gorman Pomerenk & Schick regarding legality of securities being registered Letter from Ernst & Young LLP regarding change in certifying accountant Letter from Deloitte & Touche LLP regarding change in certifying accountant Subsidiaries of Registrant Consent of Luse Gorman Pomerenk & Schick (contained in Opinion included as Exhibit 5) Consent of BKD LLP Power of Attorney (set forth on signature page of registration statement)

EXHIBIT 1.1 PORTEC RAIL PRODUCTS, INC. Common Stock (par value $1.00 per share) UNDERWRITING AGREEMENT , 2004 Ferris, Baker Watts, Incorporated 1700 Pennsylvania Avenue Washington, DC 20006 Ladies and Gentlemen: Introductory. Portec Rail Products, Inc., a West Virginia corporation (the ―Company‖), proposes to issue and sell to the several underwriters named in Schedule A (the ―Underwriters‖) an aggregate of shares (the ―Firm Shares‖) of common stock, par value $1.00 per share (the ―Common Shares‖). In addition, the Company has granted to the Underwriters an option to purchase up to an additional Common Shares (the ―Option Shares‖), as provided in Section 2. The Firm Shares and, if and to the extent such option is exercised, the Option Shares are collectively called the ―Shares.‖ Ferris, Baker Watts, Incorporated (―FBW‖) has agreed to act as representative of the several Underwriters (in such capacity, the ―Representative‖) in connection with the offering and sale of the Shares. The Company has prepared and filed with the Securities and Exchange Commission (the ―Commission‖) a registration statement on Form S-1 (File No. 333- ), which contains a form of prospectus to be used in connection with the public offering and sale of the Shares. Such registration statement, as amended, including the financial statements, exhibits and schedules thereto, in the form in which it was declared effective by the Commission under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the ―Securities Act‖), including any information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act, is called the ―Registration Statement.‖ Any registration statement filed by the Company pursuant to Rule 462(b) under the Securities Act is called the ―Rule 462(b) Registration Statement,‖ and from and after the date and time of filing of the Rule 462(b) Registration Statement, the term ―Registration Statement‖ shall include the Rule 462(b) Registration Statement and any post-effective amendment to the Registration Statement. Such prospectus, in the form first used by the

Underwriters to confirm sales of the Shares, is called the ―Prospectus.‖ All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, a preliminary prospectus or the Prospectus, or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System (―EDGAR‖). The Company hereby confirms its agreements with the Underwriters as follows: Section 1. Representations and Warranties. The Company hereby represents, warrants and covenants to each Underwriter as follows: a) Compliance with Registration Requirements . The Registration Statement and any Rule 462(b) Registration Statement have been declared effective by the Commission under the Securities Act. The Company has complied with all requests of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect, and no order is in effect that would prevent or suspend the use of any Prospectus, preliminary prospectus, Registration Statement, or amendment or supplement thereto, and no proceedings for such purpose have been instituted or are pending or, to the best of the Company’s knowledge, are contemplated or threatened by the Commission. Each preliminary prospectus and the Prospectus when filed complied in all material respects with the Securities Act and, as filed by electronic transmission pursuant to EDGAR (except as may be permitted by Regulation S-T under the Securities Act) was identical to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Shares. Each of the Registration Statement (including any Rule 462(b) Registration Statement) and any post-effective amendment thereto, at the time it became effective and at all subsequent times, complied and will comply in all material respects with the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Each preliminary prospectus, at the time of filing thereof, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Prospectus, as amended and supplemented, as of its date and at all subsequent times, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the three immediately preceding sentences do not apply to statements in or omissions from the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment thereto, any preliminary prospectus, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by the Representative expressly for use therein. b) Offering Materials Furnished to Underwriters. The Company has delivered to the Representative a complete manually signed copy of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and conformed copies of the 2

Registration Statement (without exhibits) and preliminary prospectuses and the Prospectus, as amended or supplemented, in such quantities and at such places as the Representative has reasonably requested for each of the Underwriters. c) Distribution of Offering Material by the Company. The Company has not distributed and will not distribute, prior to the later of the Second Closing Date (as defined below) and the completion of the Underwriters’ distribution of the Shares, any written offering material in connection with the offering and sale of the Shares other than a preliminary prospectus, the Prospectus or the Registration Statement. d) Exhibits; Material Contracts. There are no contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. The contracts so described in the Prospectus to which the Company is a party have been duly authorized, executed and delivered by the Company, constitute valid and binding agreements of the Company, and are enforceable against and, to the best of the Company’s knowledge by, the Company in accordance with their respective terms. To the best of the Company’s knowledge, no other party is in material breach of or material default under any of such contracts. e) The Underwriting Agreement. The Company has the power to enter into this Agreement and to perform its obligations and consummate the transactions contemplated herein. The Company has the power to issue, sell and deliver the Shares as provided herein. This Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that the indemnification provisions set forth in Section 6 of this Agreement may be limited by applicable law, and except as enforceability may be limited by bankruptcy, reorganization, moratorium or similar laws affecting the enforceability of creditors’ rights generally. f) Authorization of the Shares. The Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement, will be validly issued, fully paid and nonassessable. Shares are issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and non-assessable, will not have been issued in violation of any preemptive or other rights of security holders or other persons to acquire securities of the Company and will conform in all material respects to all statements relating thereto in the Registration Statement and the Prospectus. Good and marketable title to the Shares will pass to the Underwriters on the First Closing Date and Second Closing Date free and clear of any lien, encumbrance, security interest, claim or other restriction whatsoever. The Company has received, subject to notice of issuance, approval to have the Shares listed on the Nasdaq National Market (―NNM‖) and the Company knows of no reason or set of facts which is likely to adversely affect such approval. The Stock is registered pursuant to Section 12(g) under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (collectively, the ―Exchange Act‖). g) No Applicable Registration or Other Similar Rights. There are no persons with registration or other similar rights to have any equity or debt securities registered for sale 3

under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as have been duly satisfied or waived. h) No Material Adverse Change. Except as otherwise disclosed in the Prospectus, subsequent to the respective dates as of which information is given in the Prospectus: (i) there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether or not arising from transactions in the ordinary course of business, of the Company and the Subsidiaries (as defined below), considered as one enterprise (any such change or development is called a ―Material Adverse Change‖); (ii) the Company and the Subsidiaries, considered as one enterprise, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business, nor entered into any material transaction or agreement not in the ordinary course of business; (iii) there has been no material casualty loss or condemnation or other material adverse event with respect to any of the real properties or interests in real properties owned by the Company and the Subsidiaries or the real properties described as being under contract in the Prospectus; (iv) there has been no change in the capital stock, long-term debt or short-term borrowings of the Company and the Subsidiaries on a consolidated basis and (v) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends or distributions paid to the Company or the Subsidiaries, any of the Subsidiaries on any class of capital stock or other equity interests or repurchase or redemption by the Company or any of the Subsidiaries of any class of capital stock or other equity interests. i) Independent Accountants. BKD LLP, which has expressed its opinion with respect to the financial statements (which term as used in this Agreement includes the related notes and schedules thereto) filed with the Commission as a part of the Registration Statement and included in the Prospectus, are independent public or certified public accountants with respect to the Company, as required by the Securities Act, and the Exchange Act and the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations of the Commission promulgated thereunder (the ―Sarbanes-Oxley Act‖). j) Preparation of the Financial Statements. The financial statements filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly and accurately the consolidated financial position of the Company and the Subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. Any supporting schedules included in the Registration Statement present fairly and accurately the information required to be stated therein. Such financial statements and supporting schedules have been prepared in conformity with United States generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto and are in compliance with Regulation S-X promulgated under the Securities Act. The amounts in the Prospectus under the caption ―Management’s Discussion and Analysis of Financial Condition and Results of Operations‖ are accurately computed, fairly present the information shown therein and have been determined on a basis consistent with the financial statements included in the Registration Statement and the Prospectus. No other financial statements or supporting schedules are required to be included in the Registration Statement. The financial data set forth in the Prospectus under the captions ―Capitalization‖ and ―Selected Financial Information‖ fairly and accurately present the 4

information set forth therein on a basis consistent with that of the financial statements contained in the Registration Statement when read in conjunction with the textual information included in those sections. k) Internal Controls and Procedures. The Company and each Subsidiary have implemented controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it will file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure; and the Company makes and keeps books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company and each Subsidiary; and the Company and each Subsidiary maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and, to the Company’s knowledge, neither the Company nor any Subsidiary, nor any employee or agent thereof, has made any payment of funds of the Company or any Subsidiary, as the case may be, or received or retained any funds, and no funds of the Company or any Subsidiary, as the case may be, have been set aside to be used for any payment, in each case in violation of any law, rule or regulation. l) Organization and Good Standing of the Company and the Subsidiaries. Each of the Company and the subsidiaries listed on Exhibit 21 to the Registration Statement (each, a ―Subsidiary‖ and, collectively, the ―Subsidiaries‖) is a corporation has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and, in the case of the Company, to enter into and perform its obligations under this Agreement. Each of the Company and the Subsidiaries is duly qualified as a foreign corporation, limited partnership or limited liability company, as the case may be, to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. All of the issued and outstanding capital stock of each Subsidiary that is a corporation has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, claim, restriction or encumbrance, and all of the issued and outstanding membership interests of each Subsidiary that is a limited liability company, and all of the partnership interests of each Subsidiary that is a limited partnership, have been duly authorized and validly issued and are fully paid and are owned by the Company, directly or through Subsidiaries, free and clear of any security interest, mortgage, pledge, lien, claim, restriction or 5

encumbrance. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the Subsidiaries. m) Capitalization and Other Capital Stock Matters. The authorized capital stock of the Company is as set forth in the Prospectus. The issued and outstanding Common Shares are as set forth in the Prospectus. The Common Shares (including the Shares) conform in all material respects to the description thereof contained in the Prospectus. All of the issued and outstanding Common Shares have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with applicable federal and state securities laws. None of the outstanding Common Shares was issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. The Company has not issued any security or other equity interest other than as described in the Prospectus. None of the Common Shares have been or will be issued or is owned or held in violation of any preemptive right. The outstanding Common Shares have been issued by the Company in compliance with applicable federal and state securities laws. There are no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of the Subsidiaries other than those described in the Prospectus. The description of the Company’s stock option, stock bonus and other stock plans or arrangements, and of the options or other rights granted thereunder, set forth in the Prospectus fairly and accurately presents the information required to be shown with respect to such plans, arrangements, options and rights. Except as described in the Prospectus, the Company has not sold or issued any Common Shares during the six- month period preceding the date of the Prospectus. n) Intentionally deleted. o) Non-Contravention of Existing Instruments and Arrangements; No Further Authorizations or Approvals Required. Neither the Company nor any of the Subsidiaries is (i) in violation of (A) its charter or by- laws, or other organizational documents or (B) any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any of the Subsidiaries or (ii) in default (or, with the giving of notice or lapse of time or both, would be in default) (―Default‖) under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument, or in violation of the terms of any arrangement or agreement not evidenced by a written document, to which the Company or any of the Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of the Subsidiaries is subject, (each, an ―Existing Instrument or Arrangement‖), except such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. The execution, delivery and performance of this Agreement by the Company and consummation of the transactions contemplated hereby and by the Prospectus (i) will not result in any violation of the provisions of the (A) Certificate of incorporation or by- laws of the Company, each as amended to date, or (B) other organizational documents of the Company or any of the Subsidiaries, (ii) will not conflict with or constitute a breach of, or a Default or Debt Repayment Triggering Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to, or require the consent of any other party to, any Existing Instrument or Arrangement, and (iii) will not result in any violation of any law, 6

administrative regulation or administrative or court decree applicable to the Company or any of the Subsidiaries. No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company’s execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus, except such as have been obtained or made by the Company and are in full force and effect under the Securities Act and applicable state securities or blue sky laws and from the National Association of Securities Dealers, Inc. (the ―NASD‖). As used herein, a ―Debt Repayment Triggering Event‖ means any event or condition which gives, or with the giving of notice or lapse of time or both would give, the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of the Subsidiaries. p) No Material Actions or Proceedings. Except as otherwise disclosed in the Prospectus, there are no legal or governmental actions, suits or proceedings pending or, to the best of the Company’s knowledge, threatened (i) against or affecting the Company or any of the Subsidiaries or (ii) which has as the subject thereof any officer or director of, or property owned or leased by, the Company or any of the Subsidiaries. No material labor dispute with the employees of the Company or any of the Subsidiaries exists or, to the best of the Company’s knowledge, is threatened or imminent. q) Intellectual Property Rights. The Company and the Subsidiaries own or possess sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals, trade secrets and other similar rights (collectively, the ―Intellectual Property Rights‖) reasonably necessary to conduct their businesses as now conducted or as proposed to be conducted as described in the Prospectus; and the expected expiration of any of such Intellectual Property Rights would not result in a Material Adverse Change. Neither the Company nor any of the Subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property Rights of others, which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Change. r) All Necessary Permits, etc. The Company and the Subsidiaries possess such valid and current certificates, authorizations, licenses, registrations and permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of, or noncompliance with, any such certificate, authorization, license, registration or permit which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Change. s) Properties. The Company and the Subsidiaries own or lease all such properties as are necessary to its operations as now conducted or as proposed to be conducted as described in the Prospectus. The Company and the Subsidiaries have good and marketable title in fee simple to all of the Properties (hereinafter defined), free and clear of all security interests, mortgages, pledges, liens, claims, restrictions or encumbrances of any kind, except such as (i) are 7

described in the Prospectus or (ii) do not, individually or in the aggregate, materially affect the value of such Property and do not interfere with the use made and proposed to be made of such Property. All security interests, mortgages, pledges, liens, claims, restrictions and encumbrances of any kind on or affecting the Properties or the other assets of the Company and the Subsidiaries that are required to be disclosed in the Prospectus are disclosed therein. There is no violation by the Company of any municipal, state or federal law, rule or regulation (including, but not limited to, those pertaining to environmental matters) concerning the Properties or any part thereof which would result in a Material Adverse Change. Each of the Properties complies with all applicable zoning laws, ordinances, regulations and deed restrictions or other covenants and, if and to the extent there is a failure to comply, such failure would not, individually or together with all such other failures, result in a Material Adverse Change or result in a forfeiture or reversion. Neither the Company nor any of the Subsidiaries has received any notice from any governmental or regulatory authority or agency of any condemnation of or zoning change affecting the Properties or any part thereof, and the Company does not know of any such condemnation or zoning change which is threatened. No lessee of any portion of any of the Properties is in default under any of the leases governing such Properties and there is no event which, but for the passage of time or giving of notice or both, would constitute a default under any of such leases. The properties currently owned by the Company’s Subsidiaries are referred to collectively herein as the ―Properties‖ and individually as a ―Property.‖ t) Tax Law Compliance. The Company and the Subsidiaries have timely filed all necessary federal, state and foreign income and franchise tax returns or have properly requested extensions thereof and have paid all taxes required to be paid by them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them. The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in Section 1(j) above in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or any of the Subsidiaries has not been finally determined. u) Company Not an ―Investment Company.‖ The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the ―Investment Company Act‖). The Company is not, and after receipt of payment for the Shares will not be, an ―investment company‖ within the meaning of the Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act. v) Insurance. The Company and each of the Subsidiaries are insured by recognized and reputable institutions with policies in such amounts and with such deductibles and covering such risks as are generally deemed in the Company’s industry to be adequate and customary for their businesses, including, but not limited to, policies covering real and personal property owned or leased by the Company and the Subsidiaries against theft, damage, destruction, environmental liabilities, acts of vandalism, terrorism, floods and, with respect to the Properties, defects in title. The Company has no reason to believe that it or any of the Subsidiaries will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted or as proposed to be conducted as described in the Prospectus and at a cost that would not result in a Material 8

Adverse Change. Neither the Company nor any of the Subsidiaries has been denied any insurance coverage which it has sought or for which it has applied. w) Related Party Transactions. There are no business relationships or related-party transactions involving the Company or any of the Subsidiaries or any other person required to be described in the Prospectus which have not been described as required. There are no outstanding loans or advances or guarantees of indebtedness by the Company or any of the Subsidiaries to or for the benefit of any of the officers, directors, managers or trustees of the Company or any of the Subsidiaries or any of the members of the families of any of them. x) No Unlawful Contributions or Other Payments. Neither the Company nor any of the Subsidiaries nor, to the best of the Company’s knowledge, any employee or agent of the Company or any subsidiary, has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law or of the character required to be disclosed in the Prospectus. The Company has not offered, or caused the Representative to offer, Shares to any person pursuant to the Directed Share Program (as defined below) with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer’s or supplier’s level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company. y) Compliance with Environmental Laws. Except as otherwise disclosed in the Prospectus, or except as would not, individually or in the aggregate, result in a Material Adverse Change, (i) the Company and the Subsidiaries have been and are in compliance with applicable Environmental Laws (as defined below), (ii) none of the Company, any of the Subsidiaries or, to the best of the Company’s knowledge, any other owners of any of the Properties at any time or any other party, has at any time released (as such term is defined in CERCLA (as defined below)) or otherwise disposed of Hazardous Materials (as defined below) on, to, in, under or from the Properties or any other real properties previously owned, leased or operated by the Company or any of the Subsidiaries, (iii) neither the Company nor any of the Subsidiaries intends to use the Properties or any subsequently acquired properties, other than in compliance with applicable Environmental Laws, (iv) neither the Company nor any of the Subsidiaries has received any notice of, or has any knowledge of any occurrence or circumstance which, with notice or passage of time or both, would give rise to a claim under or pursuant to any Environmental Law with respect to the Properties, any other real properties previously owned, leased or operated by the Company or any of the Subsidiaries, or the assets described in the Prospectus or arising out of the conduct of the Company or the Subsidiaries, (v) none of the Properties are included or proposed for inclusion on the National Priorities List issued pursuant to CERCLA by the United States Environmental Protection Agency or, to the best of the Company’s knowledge, proposed for inclusion on any similar list or inventory issued pursuant to any other Environmental Law or issued by any other Governmental Authority (as defined below), (vi) none of the Company, any of the Subsidiaries or agents or, to the best of the Company’s knowledge, any other person or entity for whose conduct any of them is or may be held responsible, has generated, manufactured, refined, transported, treated, stored, handled, disposed, transferred, produced or processed any Hazardous Material at any of the Properties, except in compliance with all applicable Environmental Laws, and has not transported or arranged for the transport of any Hazardous Material from the Properties or any other real properties previously owned, leased or operated by the Company or any of the Subsidiaries to 9

another property, except in compliance with all applicable Environmental Laws, (vii) no lien has been imposed on the Properties by any Governmental Authority in connection with the presence on or off such Property of any Hazardous Material, and (viii) none of the Company, any of the Subsidiaries or, to the best of the Company’s knowledge, any other person or entity for whose conduct any of them is or may be held responsible, has entered into or been subject to any consent decree, compliance order, or administrative order with respect to the Properties or any facilities or improvements or any operations or activities thereon. As used herein, ―Hazardous Material‖ shall include, without limitation, any flammable materials, explosives, radioactive materials, hazardous materials, hazardous substances, hazardous wastes, toxic substances or related materials, asbestos, petroleum, petroleum products and any hazardous material as defined by any federal, state or local environmental law, statute, ordinance, rule or regulation, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. § § 9601-9675 (―CERCLA‖), the Hazardous Materials Transportation Act, as amended, 49 U.S.C. § § 5101-5127, the Resource Conservation and Recovery Act, as amended, 42 U.S.C. § § 6901-6992k, the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. § § 11001-11050, the Toxic Substances Control Act, 15 U.S.C. § § 2601-2692, the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. § § 136-136y, the Clean Air Act, 42 U.S.C. § § 7401-7642, the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. § § 1251-1387, the Safe Drinking Water Act, 42 U.S.C. § § 300f-300j-26, and the Occupational Safety and Health Act, 29 U.S.C. § § 651-678, and any analogous state laws, as any of the above may be amended from time to time and in the regulations promulgated pursuant to each of the foregoing (including environmental statutes and laws not specifically defined herein) (individually, an ―Environmental Law‖ and collectively, the ―Environmental Laws‖) or by any federal, state or local governmental authority having or claiming jurisdiction over the properties and assets of the Company and the Subsidiaries (a ―Governmental Authority‖). z) Periodic Review of Costs of Environmental Compliance. In the ordinary course of its business, the Company periodically reviews the effect of Environmental Laws on the business, operations and properties of the Company and the Subsidiaries, and periodically identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such reviews and the amount of its established reserves, the Company has reasonably concluded that such associated costs and liabilities would not, individually or in the aggregate, result in a Material Adverse Change. aa) ERISA Compliance. The Company and any ―employee benefit plan‖ (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, ―ERISA‖)) established or maintained by the Company or its ERISA Affiliates (as defined below) are in compliance in all material respects with ERISA. ―ERISA Affiliate‖ means, with respect to the Company, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Code of which the Company is a member. No ―reportable event‖ (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any ―employee benefit plan‖ 10

established or maintained by the Company or any of its ERISA Affiliates. No ―employee benefit plan‖ established or maintained by the Company or any of its ERISA Affiliates, if such ―employee benefit plan‖ were terminated, would have any ―amount of unfunded benefit liabilities‖ (as defined under ERISA). Neither the Company nor any of its ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any ―employee benefit plan‖ or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each ―employee benefit plan‖ established or maintained by the Company or any of its ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification. bb) Brokers and Finders. Neither the Company nor any Subsidiary has incurred any liability for a fee, commission or other compensation on account of the employment of a broker or finder in connection with the transactions contemplated by this Agreement other than as contemplated hereby. cc) Doing Business with Cuba. The Company is in compliance with all provisions of Florida Statutes § 517.075 and the regulations thereunder, relating to issuers doing business with Cuba. dd) No Prohibition on Paying Dividends or Making Other Distributions. No Subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock or other equity interests, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary. Except as otherwise disclosed in the Prospectus, the Company is not prohibited, directly or indirectly, from paying any dividends to its stockholders. ee) Lock-Up Agreements. The Company has obtained, for the benefit of the Underwriters, from each of the persons named on Schedule B hereto, a written agreement in substantially the form attached hereto as Exhibit B. Any certificate signed by an officer of the Company and delivered to the Representative or to counsel for the Underwriters shall be deemed to be a representation and warranty by the Company to each Underwriter as to the matters set forth therein. Section 2. Purchase, Sale and Delivery of the Shares. a) The Firm Shares . The Company agrees to issue and sell to the several Underwriters the Firm Shares upon the terms herein set forth. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriters agree, severally and not jointly, to purchase from the Company the respective number of Firm Shares set forth opposite their names on Schedule A. The purchase price per Firm Share to be paid by the several Underwriters to the Company shall be $ per share. b) The First Closing Date. Delivery of certificates for the Firm Shares to be purchased by the Underwriters and payment therefor shall be made at the offices of the 11

Representative located at (or such other place as may be agreed to by the Company and the Representative) at 10:00 a.m. Eastern time, on , 2004, or such other time and date as the Representative shall designate by notice to the Company (the time and date of such closing are called the ―First Closing Date‖), but in no event more than seven business days after the effective date of the Registration Statement. The Company hereby acknowledges that circumstances under which the Representative may provide notice to postpone the First Closing Date as originally scheduled include, but are not limited to, any determination by the Company or the Representative to recirculate to the public copies of an amended or supplemented Prospectus or a delay as contemplated by the provisions of Section 8. c) The Option Shares; the Second Closing Date. In addition, on the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of Option Shares from the Company at the purchase price per share to be paid by the Underwriters for the Firm Shares. The option granted hereunder is for use by the Underwriters solely in covering any overallotments in connection with the sale and distribution of the Firm Shares. The option granted hereunder may be exercised at any time upon notice by the Representative to the Company, which notice may be given at any time within 30 days from the date of this Agreement. Such notice shall set forth (i) the aggregate number of Option Shares as to which the Underwriters are exercising the option, (ii) the names and denominations in which the certificates for the Option Shares are to be registered and (iii) the time, date and place at which such certificates will be delivered (which time and date may not be earlier than the First Closing Date; and in the case that such date is simultaneous with the First Closing Date, the term ―First Closing Date‖ shall refer to the time and date of delivery of certificates for the Firm Shares and the Option Shares). Such time and date of delivery, if subsequent to the First Closing Date, is called the ―Second Closing Date‖ and shall be determined by the Representative and shall not be earlier than three nor later than ten full business days after delivery of such notice of exercise. If any Option Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Option Shares (subject to such adjustments to eliminate fractional shares as the Representative may determine) that bears the same proportion to the total number of Option Shares to be purchased as the number of Firm Shares set forth on Schedule A opposite the name of such Underwriter bears to the total number of Firm Shares. The Representative may cancel the option at any time prior to its expiration by giving written notice of such cancellation to the Company. d) Directed Shares. It is understood that approximately of the Firm Shares (―Directed Shares‖) initially will be reserved by the Underwriters for offer and sale to employees and persons having business relationships with the Company (―Directed Share Participants‖) upon the terms and conditions set forth in the Prospectus and in accordance with the rules and regulations of the NASD (the ―Directed Share Program‖). The Directed Shares shall be subject to the underwriters’ discount and commissions provided for on the cover page of the Prospectus. Under no circumstances will the Representative or any Underwriter be liable to the Company or to any Directed Share Participant for any action taken or omitted to be taken in good faith in connection with such Directed Share Program. To the extent that any Directed Shares are not affirmatively reconfirmed for purchase by any Directed Share Participant on or 12

immediately after the date of this Agreement, such Directed Shares may be offered to the public as part of the public offering contemplated herein. e) Public Offering of the Shares. The Representative hereby advises the Company that the Underwriters intend to offer for sale to the public, as described in the Prospectus, their respective portions of the Shares as soon after this Agreement has been executed and the Registration Statement has been declared effective as the Representative, in its sole judgment, has determined is advisable and practicable. f) Payment for the Shares. Payment for the Shares shall be made at the First Closing Date (and, if applicable, at the Second Closing Date) by wire transfer of immediately available funds to the order of the Company. It is understood that the Representative has been authorized, for its own account and the accounts of the several Underwriters, to accept delivery of and receipt for, and make payment of the purchase price for, the Firm Shares and any Option Shares the Underwriters have agreed to purchase. FBW, individually and not as Representative of the Underwriters, may (but shall not be obligated to) make payment for any Shares to be purchased by any Underwriter whose funds shall not have been received by the Representative by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any of its obligations under this Agreement. 13

g) Delivery of the Shares. The Company shall deliver, or cause to be delivered, to the Representative for the accounts of the several Underwriters the Firm Shares at the First Closing Date, including, at the option of the Representative, through the facilities of the Depository Trust Company (―DTC‖), against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The Company also shall deliver, or cause to be delivered, to the Representative for the accounts of the several Underwriters, the Option Shares the Underwriters have agreed to purchase at the First Closing Date or the Second Closing Date, as the case may be, including at the option of the Representative, through the facilities of DTC, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The certificates for the Shares shall be in definitive form and registered in such names and denominations as the Representative shall have requested at least two full business days prior to the First Closing Date (or the Second Closing Date, as the case may be) or in the form of one or more global certificates deposited with DTC and registered in the name of Cede & Co., as nominee for DTC and shall be made available for inspection on the business day preceding the First Closing Date (or the Second Closing Date, as the case may be) at a location the Representative may reasonably designate. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. h) Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m. on the second business day following the date the Shares are first released by the Underwriters for sale to the public, the Company shall deliver or cause to be delivered, copies of the Prospectus in such quantities and at such places as the Representative shall request. Section 3. Additional Covenants. The Company further covenants and agrees with each Underwriter as follows: a) Representative’s Review of Proposed Amendments and Supplements . During such period beginning on the date hereof and ending on the later of the Second Closing Date or such date, as in the opinion of counsel for the Underwriters, the Prospectus is no longer required by law to be delivered in connection with sales by an Underwriter or dealer (the ―Prospectus Delivery Period‖), prior to amending or supplementing the Registration Statement (including any registration statement filed under Rule 462(b) under the Securities Act) or the Prospectus, the Company shall furnish to the Representative and to counsel for the Underwriters for review a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement without the Representative’s consent. b) Securities Act Compliance. The Company will use its best efforts to cause the Registration Statement, if not effective at the time of execution of this Agreement, and any amendments thereto, to become effective as promptly as practicable. If required, the Company will file the Prospectus and any amendments or supplements thereto with the Commission in the manner and within the time period required by Rule 424(b). After the date of this Agreement, the Company shall promptly advise the Representative in writing of (i) the receipt of any comments of, or requests for additional or supplemental information from, the Commission during the period beginning on the date hereof and ending on the later of the Second Closing Date or the date the Prospectus is no longer required by law to be delivered in connection with sales of Shares by an Underwriter or dealer, (ii) the time and date of any filing of any post14

effective amendment to the Registration Statement or any amendment or supplement to any preliminary prospectus or the Prospectus, (iii) the time and date that any post-effective amendment to the Registration Statement becomes effective and (iv) the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Shares from any securities exchange upon which it is listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. The Company will use its best efforts to prevent the issuance of any stop order by the Commission. If the Commission shall enter any such stop order at any time, the Company will use its best efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 434, as applicable, under the Securities Act and will use its best efforts to confirm that any filings made by the Company under Rule 424(b) were received in a timely manner by the Commission. c) Amendments and Supplements to the Prospectus and Other Securities Act Matters. If, during the Prospectus Delivery Period, any event shall occur or condition exist as a result of which the Prospectus, as then amended or supplemented, would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if in the opinion of the Representative or counsel for the Underwriters it is otherwise necessary to amend or supplement the Prospectus to comply with law, the Company agrees to promptly prepare (subject to Section 3(a) hereof), file with the Commission and furnish at its own expense to the Underwriters, and, if requested by the Underwriters, to dealers, amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading or so that the Prospectus, as amended or supplemented, will comply with law. d) Copies of any Amendments and Supplements to the Prospectus. The Company agrees to furnish the Representative, without charge, during the Prospectus Delivery Period, as many copies of the Prospectus and any amendments and supplements thereto as the Representative may reasonably request. e) Blue Sky Compliance. The Company shall cooperate with the Representative and counsel for the Underwriters to qualify or register the Shares for sale under (or obtain exemptions from the application of) the state securities or blue sky laws or Canadian provincial securities laws of those jurisdictions designated by the Representative, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as required for the distribution of the Shares provided that the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any such jurisdiction where it is not presently qualified or required to file such a consent. The Company will advise the Representative promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of 15

the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment. f) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Shares sold by it in the manner described under the caption ―Use of Proceeds‖ in the Prospectus and shall report the use of proceeds as may be required under Rule 463 under the Securities Act. g) Transfer Agent. The Company shall maintain, at its expense, a registrar and transfer agent for the Common Shares. h) Earnings Statement. As soon as practicable, but not later than the Availability Date (as defined below) the Company will make generally available to its security holders and to the Representative an earnings statement that satisfies the provisions of Section 11(a) of the Securities Act. For the purpose of the preceding sentence, ―Availability Date‖ means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes the date the Registration Statement became effective, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, ―Availability Date‖ means the 90th day after the end of such fourth fiscal quarter. i) Periodic Reporting Obligations. During the Prospectus Delivery Period, the Company shall file, on a timely basis, and in compliance with the Exchange Act and the Sarbanes-Oxley Act, with the Commission and the NNM all reports and documents required to be filed under the Exchange Act. j) Agreement Not to Offer or Sell Additional Securities. During the period of 180 days following the date of the Prospectus, the Company will not, without the prior written consent of FBW (which consent may be withheld at the sole discretion of FBW), directly or indirectly, sell, offer, contract or grant any option to sell, pledge, transfer or establish an open ―put equivalent position‖ within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act in respect of, any Common Shares, options or warrants to acquire Common Shares or securities exchangeable or exercisable for or convertible into Common Shares (other than as contemplated by this Agreement with respect to the Shares); [provided, however, that the Company may grant options to purchase Common Shares and issue Common Shares upon the exercise of options, in both cases, pursuant to any stock option plan or arrangement described in the Prospectus, provided, that the holders of such options or Common Shares issued upon the exercise of such options, agree in writing not to sell, offer, dispose of or otherwise transfer any such options or Common Shares during such 180 day period without the prior written consent of FBW (which consent may be withheld at the sole discretion of FBW).] k) Directed Share Program. In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by the NASD or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement; that the Representative will notify the Company as to which participants will need to be so restricted; and that the Company will direct the transfer agent to place stop transfer restrictions upon such 16

securities for such period of time; and that, should the Company release, or seek to release, from such restrictions any of the Directed Shares, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release. l) Future Reports to the Representative. During the period of five years hereafter, the Company will furnish to the Representative at 100 Light Street, 8th Floor, Baltimore, Maryland 21202, Attention: Mr. Richard Prins: (i) at the same time as distributed to the Company’s stockholders after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders’ equity and cash flows for the year then ended and the opinion thereon of the Company’s independent public or certified public accountants; and (ii) at the same time as mailed to the Company’s stockholders, copies of any report or communication of the Company mailed generally to holders of its capital stock. m) Statement Regarding Certain Events. If at any time during the 30-day period after the Registration Statement becomes effective, any publication or event relating to or affecting the Company shall occur as a result of which in the reasonable opinion of the Representative the market price of the Common Shares has been or is likely to be materially affected (regardless of whether such publication or event necessitates a supplement or amendment of the Prospectus) and after written notice from the Representative advising the Company to the effect set forth above, the Company agrees to forthwith prepare, consult with the Representative concerning the substance of, and disseminate a press release or other public statement, reasonably satisfactory to the Representative, responding to or commenting on such publication or event. n) Company Not an ―Investment Company.‖ The Company is familiar with the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, and will in the future conduct its affairs, in such a manner so as to ensure that the Company will not be an ―investment company‖ within the meaning of the Investment Company Act of 1940 and the rules and regulations thereunder. o) No Price Stabilization or Manipulation. The Company will not, and will use its best efforts to cause its officers, trustees and affiliates not to, (i) take, directly or indirectly prior to the termination of the underwriting syndicate contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or which may cause or result in, or which might in the future reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Shares, (ii) sell, bid for, purchase or pay anyone any compensation for soliciting purchases of the Shares or (iii) pay or agree to pay to any person any compensation for soliciting any order to purchase any other securities of the Company. p) Listing. The Company will use its best efforts to maintain the listing of its Common Shares (including the Shares) on the NNM. Section 4. Payment of Expenses. The Company will pay or cause to be paid and bear all costs, fees and expenses incident to the performance of its obligations under this 17

Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits), as originally filed and as amended, the preliminary prospectuses and the Prospectus and any amendments or supplements thereto, and the cost of furnishing copies thereof to the Underwriters; (ii) the preparation, printing and distribution of this Agreement, any Agreement Among Underwriters, and Selected Dealer Agreement; (iii) the issuance and delivery of the Shares to the Underwriters, including any transfer taxes payable upon the sale of the Shares to the Underwriters (other than transfer taxes on resales by the Underwriters); (iv) the fees and disbursements of the Company’s counsel and accountants; (v) the qualification of the Shares under the applicable securities laws in accordance with Section 3(b) hereof and any filing for review of the offering with the NASD, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith; (vi) the transfer agent’s and registrar’s fees and all miscellaneous expenses referred to in Part II of the Registration Statement; (vii) costs related to travel and lodging incurred by the Company and its representatives relating to meetings with and presentations to prospective purchasers of the Shares (viii) all other costs and expenses incident to the performance of the Company’s obligations hereunder (including costs incurred in closing the purchase of the Option Shares, if any) that are not otherwise specifically provided for in this section and (ix) all out-of-pocket expenses of the Underwriters (including but not limited to counsel fees and disbursements) in connection with or in contemplation of or preparation for the performance of their obligations hereunder. The Company, upon your request, will provide funds in advance for filing fees in connection with ―blue sky‖ qualifications and the NASD. Section 5. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Shares as provided herein on the First Closing Date and, with respect to the Option Shares, the Second Closing Date, shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in Section 1 hereof as of the date hereof and as of the First Closing Date as though then made and, with respect to the Option Shares, as of the Second Closing Date as though then made, to the timely performance by the Company of its covenants and other obligations hereunder, and to each of the following additional conditions: a) Registration Statement. The Registration Statement, any Rule 462(b) Registration Statement, and the Prospectus, as they may then be amended or supplemented, shall contain all statements that are required to be stated therein under the Securities Act and the regulations thereunder and in all respects shall conform to the requirements of the Securities Act and the regulations thereunder, the Company shall have complied in all respects with Rule 430A (if it shall have elected to rely thereon) and neither the Registration Statement, any Rule 462(b) Registration Statement nor the Prospectus, as they may then be amended or supplemented, shall contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. b) No Material Actions or Proceedings. No action, suit or proceeding at law or in equity before or by any federal, state or other commission, court, board or administrative agency shall be pending or, to the Company’s knowledge, threatened against the Company or any Subsidiary that would be required to be set forth in the Prospectus, other than as set forth 18

therein, wherein an unfavorable decision, ruling or finding could result in a Material Adverse Change. c) Accountants’ Comfort Letter. On the date hereof, the Representative shall have received from BKD LLP, independent public or certified public accountants for the Company, a letter dated the date hereof addressed to the Underwriters, in form and substance satisfactory to the Representative, containing statements and information of the type ordinarily included in accountants’ ―comfort letters‖ to underwriters, delivered according to Statement of Auditing Standards No. 72 (or any successor bulletin), with respect to the audited and unaudited financial statements and certain financial information contained in the Registration Statement and the Prospectus. d) Compliance with Registration Requirements; No Stop Order; No Objection from NASD. For the period from and after effectiveness of this Agreement and prior to the First Closing Date and, with respect to the Option Shares, the Second Closing Date:

(i) the Company shall have filed the Prospectus with the Commission (including the information required by Rule 430A under the Securities Act) in the manner and within the time period required by Rule 424(b) under the Securities Act; or the Company shall have filed a post-effective amendment to the Registration Statement containing the information required by such Rule 430A, and such post-effective amendment shall have become effective;

(ii) no stop order suspending the effectiveness of the Registration Statement (including any Rule 462(b) Registration Statement) or any post-effective amendment to the Registration Statement, shall be in effect and no proceedings for such purpose shall have been instituted or threatened by the Commission; and

(iii) the NASD shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements. e) No Material Adverse Change. For the period from and after the date of this Agreement and prior to the First Closing Date and, with respect to the Option Shares, the Second Closing Date, (i) in the judgment of the Representative, there shall not have occurred any Material Adverse Change; (ii) the Company and the Subsidiaries, considered as one enterprise, shall not have incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business, nor entered into any material transaction or agreement not in the ordinary course of business; (iii) there shall not have occurred any material casualty loss or condemnation or other material adverse event with respect to any of the Properties; (iv) there shall not have occurred any change in the capital stock, long-term debt or short-term borrowings of the Company and the Subsidiaries on a consolidated basis; and (v) there shall have been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends or distributions paid to the Company or Subsidiaries, any of the Subsidiaries on any class of capital stock or other equity interests or repurchase or redemption by the Company or any of the Subsidiaries of any class of capital stock or other equity interests. 19

f) Opinion of Counsel for the Company. On each of the First Closing Date and the Second Closing Date, the Representative shall have received the favorable opinion of Luse, Gorman, Pomerenk and Schick, P.C., counsel for the Company dated as of such Closing Date with respect to the matters listed on Exhibit A in form and substance satisfactory to counsel for the Underwriters. g) Opinion of Counsel for the Underwriters. On each of the First Closing Date and the Second Closing Date, the Representative shall have received the favorable opinion of Venable LLP, counsel for the Underwriters, dated as of such Closing Date, in form and substance satisfactory to the Representative. h) Officers’ Certificate. On each of the First Closing Date and the Second Closing Date, the Representative shall have received a written certificate executed by the Chairman of the Board, Chief Executive Officer or President of the Company and the Chief Financial Officer or Chief Accounting Officer of the Company, dated as of such Closing Date, to the effect that:

(i) the Registration Statement has become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement or preventing or suspending the use of the Prospectus has been issued, and no proceedings for that purpose have been instituted or are pending or, to their knowledge, threatened under the Securities Act;

(ii) they have reviewed the Registration Statement, any Rule 462(b) Registration Statement and the Prospectus and when the Registration Statement and any Rule 462(b) Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, the Registration Statement, any Rule 462(b) Registration Statement and the Prospectus and any amendments or supplements thereto contained all statements and information required to be included therein or necessary to make the statements therein in light of the circumstances in which they were made, not misleading and neither the Registration Statement, any Rule 462(b) Registration Statement, the Prospectus nor any amendment or supplement thereto included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading, and, since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented Prospectus that has not been so set forth;

(iii) for the period from and after the date of this Agreement and prior to such Closing Date, there has not occurred any Material Adverse Change;

(iv) the representations, warranties and covenants of the Company set forth in this Agreement are true and correct with the same force and effect as though expressly made on and as of such Closing Date; and

(v) the Company has complied with all the agreements hereunder and satisfied all the conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date. 20

i) Bring-down Comfort Letters. On each of the First Closing Date and the Second Closing Date, the Representative shall have received from BKD LLP, independent public or certified public accountants for the Company, letters dated such date, in form and substance satisfactory to the Representative, to the effect that they reaffirm the statements made in the letters furnished by them pursuant to subsection (c) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than two business days prior to the First Closing Date or Second Closing Date, as the case may be. j) Lock-Up Agreements from Shareholders. On or before the date hereof, the Company shall have furnished to the Representative an agreement in the form of Exhibit B hereto from each person identified on Schedule B hereto, and such agreement shall be in full force and effect on each of the First Closing Date and the Second Closing Date. k) Listing. The Firm Shares, and Option Shares, if any, shall have been approved for listing on the NNM, subject only to official notice of issuance. l) Additional Documents. On or before each of the First Closing Date and the Second Closing Date, the Representative and counsel for the Underwriters shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Shares as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained. If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Representative by notice to the Company at any time on or prior to the First Closing Date and, with respect to the Option Shares, at any time prior to the Second Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 4, Section 6 and Section 7 shall at all times be effective and shall survive such termination. Section 6. Indemnification. a) Indemnification of the Underwriters . The Company agrees to indemnify and hold harmless each Underwriter, its officers, directors, employees, partners, members, agents and representatives and each person, if any, who controls any Underwriter within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense (including the reasonable cost of investigation), as incurred, to which such Underwriter or such person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation or the laws or regulations of foreign jurisdictions where Shares have been offered, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based (i) upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereto, including any information deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) upon any untrue statement or alleged untrue statement 21

of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (iii) in whole or in part upon any inaccuracy in the representations and warranties of the Company contained herein; (iv) in whole or in part upon any failure of the Company to perform its obligations hereunder or under any domestic and foreign law; or (v) upon (A) any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to participants in connection with the Directed Share Program, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (B) any failure of any Directed Share Participant to pay for and accept delivery of Directed Shares that the Directed Share Participant has agreed to purchase, or (C) the Directed Share Program; and to reimburse each Underwriter and each such person for any and all expenses (including the fees and disbursements of counsel chosen by FBW) as such expenses are reasonably incurred by such Underwriter or such person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Representative expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), as the same is described in Section 6(b) below; and provided, further, that with respect to any preliminary prospectus, the foregoing indemnity agreement shall not inure to the benefit of any Underwriter from whom the person asserting any loss, claim, damage, liability or expense purchased Shares, or any person controlling such Underwriter, if copies of the Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The indemnity agreement set forth in this Section 6(a) shall be in addition to any liabilities that the Company may otherwise have. b) Indemnification of the Company, its Directors and Officers. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement, its agents and representatives and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense (including the reasonable cost of investigation), as incurred, to which the Company, or any such person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged 22

omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by the Representative expressly for use therein; and to reimburse the Company, or any such controlling person for any legal and other expenses reasonably incurred by the Company, or any such director, officer or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Company hereby acknowledges that the only information that the Underwriters have furnished to the Company expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) are the statements set forth in the second paragraph and the first sentence of the tenth paragraph under the caption ―Underwriting‖ in the Prospectus. The indemnity agreement set forth in this Section 6(b) shall be in addition to any liabilities that each Underwriter may otherwise have. c) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 6, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise under the indemnity agreement contained in this Section 6 to the extent it is not prejudiced as a proximate result of such failure, but the omission so to notify the indemnifying party will not in any event relieve the indemnifying party from any liability that it may have to any indemnified party otherwise than under this Section 6. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party’s election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel) representing the indemnified parties who are parties to such action) or (ii) the 23

indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the reasonable fees and expenses of counsel shall be at the expense of the indemnifying party. d) Settlements. The indemnifying party under this Section 6 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. Section 7. Contribution. If the indemnification provided for in Section 6 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Shares pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other hand, in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Shares pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Shares pursuant to this Agreement (before deducting expenses) received by the Company, and the total underwriting discount and commissions received by the Underwriters, in each case as set forth on the front cover page of the Prospectus bear to the aggregate initial public offering price of the Shares as set forth on such cover. The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact or any such inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company, on the one hand, or the Underwriters, on the other hand, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 6(c), any legal or other fees or expenses reasonably incurred by such party in 24

connection with investigating or defending any action or claim. The provisions set forth in Section 6(c) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 7; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 6(c) for purposes of indemnification. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the underwriting discount and commissions received by such Underwriter in connection with the Shares underwritten by it and distributed to the public. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute pursuant to this Section 7 are several, and not joint, in proportion to their respective underwriting commitments as set forth opposite their names in Schedule A. For purposes of this Section 7, each officer, director, employee, partner, member, agent or representative of an Underwriter and each person, if any, who controls an Underwriter within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as such Underwriter, and each trustee of the Company, each officer of the Company who signed the Registration Statement, each agent or representative and each person, if any, who controls the Company within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company. Section 8. Default of One or More of the Several Underwriters. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the several Underwriters shall fail or refuse to purchase Shares that it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed 10% of the aggregate number of the Shares to be purchased on such date, the other Underwriters shall be obligated, severally, in the proportions that the number of Firm Shares set forth opposite their respective names on Schedule A bears to the aggregate number of Firm Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as may be specified by the Representative with the consent of the non-defaulting Underwriters, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares and the aggregate number of Shares with respect to which such default occurs exceeds 10% of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to the Representative and the Company for the purchase of such Shares are not made within 48 hours after such default, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter, except that the provisions of Section 4, Section 6 and Section 7 shall at all times be effective and shall survive such termination. In any such case, either the Representative or the Company shall have 25

the right to postpone the First Closing Date or the Second Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected. As used in this Agreement, the term ―Underwriter‖ shall be deemed to include any person substituted for a defaulting Underwriter under this Section 8. Any action taken under this Section 8 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. Section 9. Termination of this Agreement. Prior to the First Closing Date, this Agreement may be terminated by the Representative by notice given to the Company if at any time (i) trading or quotation in any of the Company’s securities shall have been suspended or limited by the Commission or by the NNM, or trading in securities generally on any of the New York Stock Exchange, Nasdaq Stock Market or the American Stock Exchange shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges by the Commission or the NASD; (ii) a general banking moratorium shall have been declared by any federal, Maryland or New York authorities; (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States’ or international political, financial or economic conditions, as in the judgment of the Representative is material and adverse and makes it impracticable to market the Shares in the manner and on the terms described in the Prospectus or to enforce contracts for the sale of securities; (iv) in the judgment of the Representative there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the judgment of the Representative may interfere materially with the conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. Any termination pursuant to this Section 9 shall be without liability on the part of (a) the Company to any Underwriter, (b) any Underwriter to the Company, or (c) of any party hereto to any other party, except that the provisions of Section 6 and Section 7 shall at all times be effective and shall survive such termination. Section 10. Representations and Indemnities to Survive Delivery. The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Shares sold hereunder and any termination of this Agreement. Section 11. Notices. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: 26

If to the Representative: Ferris, Baker Watts, Incorporated 100 Light Street Baltimore, MD 21202 Facsimile: (410) 659-4632 Attention: Richard K. Prins with a copy to: Venable LLP Two Hopkins Plaza Suite 1800 Baltimore, MD 21202 Facsimile: (410) 244-7742 Attention: Thomas D. Washburne, Jr., Esq. If to the Company: Portec Rail Products, Inc. 900 Old Freeport Road Pittsburgh, PA 15238 Facsimile: (412) 782-3987 Attention: 27

with a copy to: Luse Gorman, Pomerenk and Schick, P.C. 5335 Wisconsin Avenue, NW Suite 400 Washington, DC 20015 Attention: Alan Schick, Esq. Any party hereto may change the address for receipt of communications by giving written notice to the others. Section 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 8 hereof, and to the benefit of the employees, officers, trustees, directors, partners, members, agents, representatives and controlling persons referred to in Section 6 and Section 7, and in each case their respective successors, and no other person will have any right or obligation hereunder. The term ―successors‖ shall not include any purchaser of the Shares as such from any of the Underwriters merely by reason of such purchase. Section 13. Partial Unenforceability. The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. Section 14. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Maryland applicable to agreements made and to be performed in such state. Section 15. General Provisions. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. The Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. Each of the parties hereto acknowledges that it is a sophisticated business person who was adequately represented by counsel during negotiations regarding the provisions hereof, including, without limitation, the indemnification provisions of Section 6 and the contribution provisions of Section 7, and is fully informed regarding said provisions. Each of the parties hereto further acknowledges that the provisions of Section 6 and 7 hereto fairly allocate the risks in light of the ability of the parties to investigate the Company, its affairs and its business in 28

order to assure that adequate disclosure has been made in the Registration Statement, any preliminary prospectus and the Prospectus (and any amendments and supplements thereto), as required by the Securities Act and the Exchange Act. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 29

If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.

Very truly yours, Portec Rail Products, Inc. By: Name: Title: The foregoing Underwriting Agreement is hereby confirmed and accepted by the Underwriters as of the date first above written. Ferris, Baker Watts, Incorporated

By: Name: Title: 30

SCHEDULE A

Underwriters

Number of Firm Shares to be Purchased

Ferris, Baker Watts, Incorporated Total

31

SCHEDULE B LOCK-UP AGREEMENTS 32

EXHIBIT A FORM OF OPINION OF LUSE GORMAN POMERENK AND SCHICK, P.C. The final opinion of counsel for the Company to be delivered pursuant to Section 5(f) of this Agreement will be attached in draft form as Exhibit A at the time this Agreement is executed. References to the Prospectus in this Exhibit A include any amendments or supplements thereto at the First Closing Date, or Second Closing Date, as the case may be.

(i) The Company has been duly formed and is validly existing as a corporation in good standing under the laws of the State of West Virginia.

(ii) The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Agreement.

(iii) Each Subsidiary has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus.

(iv) Each of the Company and the Subsidiaries is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change.

(v) The authorized capital stock of the Company (including the Shares) conforms to the descriptions thereof set forth in the Prospectus. The Company has the authorized capital stock as set forth under the caption ―Capitalization‖ in the Prospectus. The form of certificate used to evidence the Shares is in due and proper form and complies with all applicable requirements of the NNM, the charter and bylaws of the Company and the applicable laws of the State of West Virginia. All of the issued and outstanding shares of the Company’s capital stock have been duly authorized and validly issued and are fully paid and nonassessable and, to the best knowledge of such counsel, have been issued in compliance with applicable federal and state securities laws.

(vi) All of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, free and clear of any security interest, mortgage, pledge, lien, claim, restriction or encumbrance. No Subsidiary is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such Subsidiary’s capital stock, from repaying to the Company any loans or advances to such Subsidiary from the Company or from transferring any of such Subsidiary’s property or assets to the Company or any other Subsidiary. To the best knowledge of such counsel,

the Company does not own, directly or indirectly, any capital stock or other equity securities of any other corporation or any ownership interest in any partnership, joint venture or other association, except for the Subsidiaries.

(vii) The Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except to the extent that the indemnification provisions set forth in Section 6 of the Agreement may be limited by applicable law, and except as enforceability may be limited by bankruptcy, reorganization, moratorium or similar laws affecting enforceability of creditors’ rights generally.

(viii) The Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to the Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and nonassessable.

(ix) The Shares have been approved for listing on the NNM.

(x) No shareholder of the Company or any other person has any preemptive right, right of first refusal or other similar right to subscribe for or purchase securities of the Company or a Subsidiary arising (a) by operation of the charter or bylaws of the Company or such Subsidiary, or laws of the State of West Virginia or place of incorporation of such Subsidiary, or (b) to the best knowledge of such counsel, otherwise.

(xi) To the best knowledge of such counsel, none of the Company nor any Subsidiary is in Default under any existing instrument or in breach or violation of any law, regulation or rule or any decree, judgment or order applicable to the Company or any Subsidiary.

(xii) [Each of] the Registration Statement [and the Rule 462(b) Registration Statement, if any,] has been declared effective by the Commission under the Securities Act. No stop order suspending the effectiveness of [either] the Registration Statement [or the Rule 462(b) Registration Statement, if any,] has been issued under the Securities Act and no proceedings for such purpose have been instituted or are pending or are contemplated or threatened by the Commission. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b).

(xiii) The Registration Statement, [including any Rule 462(b) Registration Statement,] the Prospectus, and each amendment or supplement to the Registration Statement and the Prospectus, as of their respective effective or issue dates (other than the financial statements and any supporting schedules included therein, as to which no opinion need be rendered) comply as to form in all material respects with the applicable requirements of the Securities Act. A-2

(xiv) The statements (a) in the Prospectus under the captions and (b) in Item of the Registration Statement, insofar as such statements constitute matters of law, summaries of legal matters, the Company’s charter or bylaw provisions, documents or legal proceedings, or legal conclusions, have been reviewed by such counsel and fairly and accurately present and summarize, in all material respects, the matters referred to therein.

(xv) There are no legal or governmental actions, suits or proceedings pending or, to the best knowledge of such counsel, threatened which are required to be disclosed in the Registration Statement, other than those disclosed therein.

(xvi) To the best knowledge of such counsel, there is no indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of the Subsidiaries is subject of a character required to be described or referred to in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement other than those described or referred to therein or filed as exhibits thereto; and the descriptions of those filed or described therein and references thereto are correct in all material respects.

(xvii) No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company’s execution, delivery and performance of this Agreement and consummation of the transactions contemplated thereby and by the Prospectus, except as required under the Securities Act and applicable state securities or blue sky laws and from the NASD.

(xviii) The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder and the consummation of the transactions contemplated hereby and by the Prospectus (including the issuance and sale of the Shares and the use of proceeds of the Shares as described in the Prospectus under the caption ―Use of Proceeds‖) (A) have been duly authorized by all necessary corporate action on the part of the Company, (B) will not result in any violation of the provisions of the charter or bylaws of the Company, (C) will not result in any violation of any statute, law, administrative regulation or administrative or court decree applicable to the Company and (D) will not conflict with or constitute a breach of, or a Default or Debt Repayment Triggering Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of the Subsidiaries pursuant to, or require the consent of any other party to, any existing instrument known to such counsel. (xix) The Company is not, and after receipt of payment for the Shares will not be, an ―investment company‖ within the meaning of the Investment Company Act. A-3

(xx) Except as disclosed in the Prospectus, to the best knowledge of such counsel, there are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by the Underwriting Agreement. In addition, such counsel shall state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company and with representatives of the Underwriters at which the contents of the Registration Statement and the Prospectus, and any supplements or amendments thereto, and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (other than as specified above), and any supplements or amendments thereto, on the basis of the foregoing, nothing has come to their attention which would lead them to believe that either the Registration Statement or any amendments thereto, at the time the Registration Statement or such amendments became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as of its date or at the First Closing Date or the Second Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief as to the financial statements or schedules included in the Registration Statement or the Prospectus or any amendments or supplements thereto). It is understood that the opinion of counsel to the Company may be rendered in reliance upon the opinion of other counsel for the Company with respect to matters of West Virginia, Canadian or British law. A-4

EXHIBIT B LOCK UP AGREEMENT Ferris, Baker Watts, Incorporated 1700 Pennsylvania Avenue, N.W. Washington, DC 20006 As Representatives of the Several Underwriters Re: Portec Rail Products, Inc. (the ―Company‖) Ladies & Gentlemen: The undersigned is an owner of record or beneficially of certain shares of beneficial interest of the Company (―Shares‖) or securities convertible into or exchangeable or exercisable for Shares (collectively, ―Securities‖). The Company proposes to carry out a public offering of Shares (the ―Offering‖) for which you will act as the representative of the underwriters. The undersigned recognizes that the Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you and the other underwriters are relying on the representations and agreements of the undersigned contained in this letter agreement (this ―Agreement ―) in carrying out the Offering and in entering into underwriting arrangements with the Company with respect to the Offering. In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not (and will cause any spouse or immediate family member of the spouse or the undersigned living in the undersigned’s household and any trustee of any trust that holds Securities for the benefit of the undersigned or such spouse or family member not to), without the prior written consent of Ferris, Baker Watts, Incorporated (which consent may be withheld in their sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), loan, pledge, transfer, establish an open ―put equivalent position‖ within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or otherwise dispose of, or grant any rights with respect to, any Shares, options or warrants to acquire Shares, or Securities currently or hereafter owned either of record or beneficially (as defined in Rules 13d-3 and 16a-1(a) under the Securities Exchange Act of 1934, as amended) by the undersigned (or such spouse or family member), or publicly announce an intention to do any of the foregoing, for a period commencing on the date hereof and continuing through the close of trading on the date 180 days after the date of the Prospectus with respect to the Offering (the ―Lock-up Period‖). The foregoing restrictions have been expressly agreed to by the undersigned so as to preclude the undersigned (or such spouse, family member or trustee) from engaging in any hedging or other transaction that is designed to or reasonably expected to lead to or result in a disposition of Securities during the Lock-up Period, even if such Securities would be disposed of by someone other than such holder. Such prohibited hedging or other transactions would include, without limitation, any short sale (whether or not against the box) or

any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that included, relates to or derives any significant part of its value from Securities. The foregoing shall not apply to bona fide gifts by the undersigned, provided that (1) each resulting transferee of Securities executes and delivers to you an agreement satisfactory to you certifying that such transferee is bound by the terms of this Agreement and has been in compliance with the terms hereof since the date first above written as if it had been an original party hereto and (2) to the extent any interest in the Securities is retained by the undersigned (or such spouse or family member), the Securities shall remain subject to the restrictions contained in this Agreement, provided that any Shares shall be subject to the restrictions contained in this Agreement. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of Securities held by the undersigned or such spouse or family member as described herein except in compliance with this Agreement. This Agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned. [Signature Page Follows.] B-2

Dated:

Printed Name of Holder By: Signature

Printed Name of Person Signing (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity)

EXHIBIT 3.1 ARTICLES OF INCORPORATION OF RAILWAY PRODUCTS ACQUISITION CORP. The undersigned, acting as incorporator of a corporation under the West Virginia Corporation Act, adopts the following Articles of Incorporation for such corporation: 1. 2. The name of the corporation is Railway Products Acquisition Corp. The period of the corporation’s duration is perpetual.

3. The purpose for which the corporation is organized is the transaction of any and all lawful business for which corporations may be incorporated under Article One, Chapter Thirty-One, of the West Virginia Code of 1931, as amended. 4. The address of the principal office of the corporation is P. O. Box 4040, Huntington, West Virginia 25729.

5. The number of directors constituting the initial board of directors of the corporation is two (2) and the names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors are elected and shall qualify is:

Marshall T. Reynolds P. O. Box 4040 Huntington, West Virginia 25729 Kirby J. Taylor P. O. Box 716 Ashland, Kentucky 41105-0716 6. The name and address of the incorporator is Thomas J. Murray, P. O. Box 2185, Huntington, West Virginia 25722.

7. each.

The aggregate number of shares which the corporation shall have authority to issue is 5,000 common shares of the par value of $1.00

8. Provisions limiting or denying preemptive rights are: No holder of any shares of the corporation shall have any preemptive right to purchase, subscribe for, or otherwise acquire any shares of the corporation of any class now or hereafter authorized, or any securities exchangeable for or convertible into such shares, or any warrants or other instruments evidencing rights or options to subscribe for, purchase, or otherwise acquire such shares. 9. Provisions for the regulation of the internal affairs of the corporation are: None.

Dated: October 14, 1997

/s/ Thomas J. Murray THOMAS J. MURRAY This instrument prepared by: Thomas J. Murray HUDDLESTON, BOLEN, BEATTY, PORTER & COPEN Post Office Box 2185 Huntington, West Virginia 25722 2

STATE OF WEST VIRGINIA, COUNTY OF CABELL, TO-WIT: The foregoing instrument was acknowledged before me this 14th day of October, 1997, by Thomas J. Murray. My commission expires: September 14, 1999.

/s/ Jody L. Christian Notary Public (NOTARIAL SEAL) 3

ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF RAIL PRODUCTS ACQUISITION CORP. Pursuant to the provisions of Section 109 of the West Virginia Corporation Act, the undersigned corporation adopts the following ARTICLES OF AMENDMENT to its Articles of Incorporation: 1. The name of the corporation is Rail Products Acquisition Corp.

2. The following Amendment of the Articles of Incorporation, which amends Article 7 in its entirety, was adopted by the shareholders of the corporation at a special meeting held on December 5, 1997, in the manner prescribed by the West Virginia Corporation Act:

Article 7 of the Articles of Incorporation is hereby amended to read as follows: 7. The aggregate number of shares which the corporation shall have authority to issue is eight hundred thousand (800,000) common shares of the par value of $1.00 each. 3. The number of shares of the corporation outstanding at the time of such adoption was 100; and the number of shares entitled to vote thereon was 100. 4. The number of shares voted for such amendment was 100; and the number of shares voted against such amendment was -0-.

DATED: December 5, 1997

RAIL PRODUCTS ACQUISITION CORP. By /s/ Marshall T. Reynolds Marshall T. Reynolds, its President /s/ Kirby J. Taylor Kirby J. Taylor, its Secretary

STATE OF WEST VIRGINIA, COUNTY OF CABELL, TO-WIT: I, Chasity L. Chapman, a Notary Public, do hereby certify that on this 5 th day of December, 1997, personally appeared before me Marshall T. Reynolds and Kirby J. Taylor, who being by me first duly sworn declared that they are the President and Secretary, respectively, of Rail Products Acquisition Corp., that they signed the foregoing document as President and Secretary, respectively, of the corporation, and that the statements therein contained are true. My commission expires: November 26, 2007

/s/ Chasity L. Chapman NOTARY PUBLIC This instrument was prepared by: Thomas J. Murray, Attorney at Law HUDDLESTON, BOLEN, BEATTY, PORTER & COPEN Post Office Box 2185 Huntington, West Virginia 25722 2

ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF RAIL PRODUCTS ACQUISITION CORP. Pursuant to the provisions of Section 109 of the West Virginia Corporation Act, the undersigned corporation adopts the following ARTICLES OF AMENDMENT to its Articles of Incorporation: 1. The name of the corporation is Rail Products Acquisition Corp.

2. The following Amendment of the Articles of Incorporation, which amends Article 1 in its entirety, was adopted by the shareholders of the corporation at a special meeting held on December 10, 1997, in the manner prescribed by the West Virginia Corporation Act: Article 1 of the Articles of Incorporation is hereby amended to read as follows: 1. The name of the corporation is Portec Rail Products, Inc. 3. The number of shares of the corporation outstanding at the time of such adoption was 100; and the number of shares entitled to vote thereon was 100. 4. The number of shares voted for such amendment was 100; and the number of shares voted against such amendment was -0-.

DATED: December 10, 1997

RAIL PRODUCTS ACQUISITION CORP. By /s/ Marshall T. Reynolds Marshall T. Reynolds, its President /s/ Janet Carter Janet Carter, its Assistant Secretary

STATE OF WEST VIRGINIA, COUNTY OF CABELL, TO-WIT: I, James J. Hatfield, Jr., a Notary Public, do hereby certify that on this 10th day of December, 1997, personally appeared before me Marshall T. Reynolds and Janet Carter, who being by me first duly sworn declared that they are the President and Assistant Secretary, respectively, of Rail Products Acquisition Corp., that they signed the foregoing document as President and Assistant Secretary, respectively, of the corporation, and that the statements therein contained are true. My commission expires: May 10, 2005

/s/ James J. Hatfield, Jr. NOTARY PUBLIC This instrument was prepared by: Thomas J. Murray, Attorney at Law HUDDLESTON, BOLEN, BEATTY, PORTER & COPEN Post Office Box 2185 Huntington, West Virginia 25722 2

ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF PORTEC RAIL PRODUCTS, INC. Pursuant to the provisions of Section 109 of the West Virginia Corporation Act, the undersigned corporation adopts the following ARTICLES OF AMENDMENT to its Articles of Incorporation: 1. The name of the corporation is Portec Rail Products, Inc.

2. The following Amendment of the Articles of Incorporation, which amends Article 7 in its entirety, was adopted by the shareholders of the corporation at an annual meeting held on March 20, 1999, in the manner prescribed by the West Virginia Corporation Act:

Article 7 of the Articles of Incorporation is hereby amended to read as follows: 7. The aggregate number of shares which the corporation shall have authority to issue is ten million (10,000,000) common shares of the par value of $1.00 each. 3. The number of shares of the corporation outstanding at the time of such adoption was 650,000; and the number of shares entitled to vote thereon was 650,000. 4. The number of shares voted for such amendment was 616,650; and the number of shares voted against such amendment was -0-.

DATED: March 20, 1999

PORTEC RAIL PRODUCTS, INC. By /s/ John S. Cooper John S. Cooper, its President /s/ Kirby J. Taylor Kirby J. Taylor, its Secretary

STATE OF WEST VIRGINIA, COUNTY OF CABELL, TO-WIT: I, Lisa A. Lucas, a Notary Public, do hereby certify that on this 20 th day of March, 1999, personally appeared before me John S. Cooper and Kirby J. Taylor, who being by me first duly sworn declared that they are the President and Secretary, respectively, of Portec Rail Products, Inc., that they signed the foregoing document as President and Secretary, respectively, of the corporation, and that the statements therein contained are true. My commission expires: December 22, 2003

/s/ Lisa A. Lucas NOTARY PUBLIC This instrument was prepared by: Thomas J. Murray, Attorney at Law HUDDLESTON, BOLEN, BEATTY, PORTER & COPEN Post Office Box 2185 Huntington, West Virginia 25722 2

EXHIBIT 3.2 BY-LAWS ARTICLE I. OFFICES 1. The principal office of the corporation shall be located as set out in the Articles of Incorporation.

2. The corporation may have such other offices, either within or without West Virginia, as the board of directors may designate or as the business of the corporation may require from time to time. ARTICLE II. SHAREHOLDERS 1. The annual meeting of the shareholders shall be held within 12 months following the close of each fiscal year, on such date and at such time as shall be fixed by the board of directors. If the election of directors shall not be held on the day designated for any annual meeting of the shareholders, or at any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be. 2. Special meetings of the shareholders, for any purposes, unless otherwise prescribed by statute, may be called by the president or by the board of directors, and shall be called by the president at the request of the holders of not less than 1/10 of all outstanding shares of the corporation entitled to vote at the meeting. 3. The board of directors may designate any place, either within or without West Virginia, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without West Virginia as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the corporation. 4. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less

than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting originally noticed. The shareholders present at a duly organized meeting may continue to transact business until adjournment, not withstanding the withdrawal of enough shareholders to leave less than a quorum. ARTICLE III. BOARD OF DIRECTORS 1. The business and affairs of the corporation shall be managed by its board of directors.

2. The number of directors of the corporation shall be such number as may be designated by the board of directors from time to time; provided that such number shall be not less than two (2). 3. A regular meeting of the board of directors shall be held without other notice than by this by- law after, and at the same place as, the annual meeting of shareholders. The board of directors may provide by resolution, the time and place, either within or without West Virginia, for the holding of additional regular meetings without other notice than such resolution. 4. Special meetings of the board of directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the board of directors may fix any place, either within or without West Virginia, as the place for holding any special meeting of the board of directors called by them. 5. Notice of any special meeting may be given by telephone, telegram, or written notice, provided sufficient time is given each director to attend such meetings; provided, however, any special meeting may be held in any event if notice shall be given at least two days previously thereto by written notice delivered personally or mailed to each director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice be

given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. 6. A majority of the number of directors fixed by Section 2 of this Article III. shall constitute a quorum for the transaction of business at any meeting of the board of directors, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. 7. By resolution of the board of directors, each director may be paid his expenses, if any, of attendance at each meeting of the board of directors, and may be paid a stated salary as a director or a fixed sum for attendance at each meeting of the board of directors or both. No such payments shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 8. At the option of the officer presiding over any meeting of the board of directors, one or more directors may participate in a meeting of the board, or of a committee of the board, by means of a telephone conference call or other type of communication equipment, provided that all persons participating in the meeting can clearly hear and communicate with each other. All directors so participating shall be deemed present at such meeting for purposes of determining a quorum and otherwise conducting such business as may be transacted during such meeting. ARTICLE IV. OFFICERS 1. The officers of the corporation shall be a president, one or more vice-presidents (the number thereof to be determined by the board of directors), a secretary and a treasurer, each of whom shall be elected by the board of directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the board of directors. 2. The officers of the corporation to be elected by the board of directors shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer

shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner provided by law. 3. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term. 4. The president shall be the principal executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the shareholders and of the board of directors. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the board of directors, certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these by-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. 5. In the absence of the president or in the event of his death, inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Any vice-president may sign, with the secretary or any assistant secretary, certificates for shares of the corporation; and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors. 6. The secretary shall: (a) Keep the minutes of the proceedings of the shareholders and of the board of directors in one or more books provided for that purpose;

(b) See that all notices are duly given in accordance with the provisions of these by- laws or as required by law; (c) Be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) Keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (e) Sign with the president, or a vice-president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (f) Have general charge of the stock transfer books of the corporation; and (g) In general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. 7. The treasurer shall: (a) Have charge and custody of and be responsible for all funds and securities of the corporation; (b) Receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of Article V. of these by- laws; and (c) In general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine.

8. The assistant secretaries may sign with the president or a vice-president certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the board of directors. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform the duties as shall be assigned to them by the secretary or the treasurer, respectively or by the president or the board of directors. 9. The salaries of the president, vice-presidents, secretary and treasurer shall be fixed from time to time by the board of directors and the salaries of all other officers, agents and employees shall be fixed from time to time by the president subject to the control of the board of directors. No officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS 1. The board of directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. 2. No loan shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances. 3. All checks, drafts or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the board of directors. 4. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors may select.

ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER 1. Certificates representing shares of the corporation shall be in such form as shall be determined by the board of directors. Such certificates shall be signed by the president or a vice-president and by the secretary or an assistant secretary and sealed with the corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified. All certificates surrendered to the corporation for trans fer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe. 2. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the secretary of the corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. ARTICLE VII. CORPORATE SEAL The board of directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words ―Corporate Seal‖. ARTICLE VIII. INDEMNIFICATION 1. To the extent permitted by applicable law, the corporation shall indemnify any person (other than a shareholder of the corporation) who was or is a party or threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action or proceeding by or in the right of the corporation) by reason of the fact that he is or was a director, officer,

employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney fees), judgments, fines, taxes and penalties and interest thereon, and amounts paid in settlement actually and reasonably incurred by him in connection with such action or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. 2. To the extent permitted by applicable law the corporation shall indemnify any shareholder of the corporation who was or is a party or threatened to be made a party to any threatened, pending or completed action or proceedings, whether civil, criminal, administrative, or investigative (including, without limitation, an action or proceeding by or in the right of the corporation) by reason of the fact that he is or was a shareholder, director, officer, employee or agent of the corporation, or is, or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney fees), judgments, fines, taxes and penalties and interest thereon, and amounts paid in settlement actually and reasonably incurred by him in connection with such action or proceeding, except in relation to matters as to which he shall have been finally adjudged to be liable by reason of having been guilty of gross negligence or wilful misconduct. In the event of any other judgment against any such shareholder or in the event of a settlement, indemnification shall be made only if the corporation shall be advised, in case none of the persons involved shall have been a director of the corporation, by the board of directors, and otherwise by independent counsel to be appointed by the board of directors, that in its or his opinion such shareholder was not guilty of gross negligence or wilful misconduct, and, in the event of a settlement, that such settlement was, or if still to be made, is, in the best interests of the corporation. If a determination is to be made by the board of directors, it may rely, as to all questions of law, on the advice of the independent counsel.

3. The foregoing rights of indemnification shall inure to the benefit of the heirs, executors or administrators of each such shareholder, director, officer, employee or agent and shall be in addition to and not exclusive of, any other rights to which such shareholder, director, officer, employee or agent may be entitled.

EXHIBIT 4 INCORPORATED UNDER THE LAWS OF THE STATE OF WEST VIRGINIA

No.

PORTEC RAIL PRODUCTS, INC. CUSIP FULLY PAID AND NON-ASSESSABLE PAR VALUE $1.00 EACH

Shares

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS, SEE REVERSE SIDE THIS CERTIFIES that SHARES OF COMMON STOCK OF Portec Rail Products, Inc. a West Virginia corporation The shares evidenced by this certificate are transferable only on the books of Portec Rail Products, Inc. by the holder hereof, in person or by attorney, upon surrender of this certificate properly endorsed. IN WITNESS WHEREOF, Portec Rail Products, Inc. has caused this certificate to be executed, by the facsimile signatures of its duly authorized officers and has caused a facsimile of its seal to be hereunto affixed. is the owner of

B y KIRBY J. TAYLOR CORPORATE SECRETARY

[SEAL]

B y JOHN S. COOPER PRESIDENT AND CHIEF EXECUTIVE OFFICER

The Board of Directors of Portec Rail Products, Inc. (the ―Company‖) is authorized by resolution or resolutions, from time to time adopted, to provide for the issuance of more than one class of stock, including preferred stock in series, and to fix and state the voting powers, designations, preferences, limitations and restrictions thereof. The Company will furnish to any shareholder upon request and without charge a full description of each class of stock and any series thereof. The following abbreviations when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations.

TEN COM - as tenants in common

UNIF GIFT MIN ACT

Custodi an (Cust)

(Minor)

TEN ENT JT TEN

- as tenants by the entireties Under Uniform Gifts to Minors Act - as joint tenants with right of survivorship and not as tenants in common _______________________________ (State)

Additional abbreviations may also be used though not in the above list For value received, hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER ________________________________________________________ ________________________________________________________

_________________________________________________________________________________________ (please print or typewrite name and address including postal zip code of assignee) _________________________________________________________________________________________

___________________________________________________________________________ Shares of the Common Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint_______________________ Attorney to transfer the said shares on the books of the within named corporation with full power of substitution in the premises.

Dated, _________________________ In the presence of Signature:

NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.

EXHIBIT 5 LUSE GORMAN POMERENK & SCHICK A Professional Corporation ATTORNEYS AT LAW 5335 WISCONSIN AVENUE, N.W., SUITE 400 WASHINGTON, D.C. 20015 TELEPHONE (202) 274-2000 FACSIMILE (202) 362-2902 www.luselaw.com November 5, 2003 The Board of Directors Portec Rail Products, Inc. 900 Old Freeport Road Pittsburgh, Pennsylvania 15238-8250

Re: Portec Rail Products, Inc. Common Stock Par Value $1.00 Per Share Ladies and Gentlemen: You have requested the opinion of this firm as to certain matters in connection with the offer and sale of Portec Rail Products, Inc. (the ―Company‖) Common Stock, par value $1.00 per share (―Common Stock‖). We have reviewed the Company’s Articles of Incorporation as amended, Registration Statement on Form S-1 (the ―Form S-1‖), as well as applicable statutes and regulations governing the Company and the offer and sale of the Common Stock. We are of the opinion that upon the declaration of effectiveness of the Form S-1, the Common Stock, when sold pursuant to the Company’s prospectus will be legally issued, fully paid and non-assessable. This Opinion has been prepared for the use of the Company in connection with the Form S-1. We hereby consent to our firm being referenced under the caption ―Legal Matters,‖ and for inclusion as an exhibit to the Registration Statement on Form S-1.

Very truly yours, /s/ LUSE GORMAN POMERENK & SCHICK LUSE GORMAN POMERENK & SCHICK A PROFESSIONAL CORPORATION

Exhibit 16.1 • •

Ernst & Young LLP 2100 One PPG Place Pittsburgh, Pennsylvania 15222

Phone: (412) 644-7800 www.ey.com

November 3, 2003 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Gentlemen: We have read the disclosure required by Item 11(i) of Form S-1, as contained in the registration statement on Form S-1 dated November 6, 2003, of Portec Rail Products, Inc. and are in agreement with the statements in paragraphs 2 and 3 under ―Change of Accountants‖ contained therein as they relate to Ernst & Young LLP. We have no basis to agree or disagree with other statements of the registrant contained therein.

Exhibit 16.2
Deloitte &Touche LLP 2500 One PPG Place Pittsburgh, Pennsylvania 15222-5401 Tel: (412) 338-7200 www.deloitte.com

November 6, 2003

Securities and Exchange Commission Mail Stop 11-3 450 5 th Street, N.W. Washington, D.C. 20549 Dear Sirs/Madams: We have read the section captioned ―Change in Accountants‖ on pages 66 to 67 of the Registration Statement of Portec Rail Products, Inc. on Form S-1 dated November 6, 2003, and have the following comments:

1.

We have no basis on which to agree or disagree with the statement in the first sentence of the first paragraph with respect to the appointment of BKD, LLP, and agree with the statement insofar as it relates to the dismissal of Deloitte & Touche LLP. We have no basis on which to agree or disagree with the statements made in the second and third sentences of this paragraph, and agree with the statement made in the fourth sentence. We have no basis on which to agree or disagree with the statement made in the first sentence of the second paragraph. We agree with the statements made in the second and third sentences of this paragraph insofar as they relate to Deloitte & Touche LLP, and have no basis on which to agree or disagree with the statements insofar as they relate to Ernst & Young LLP. We agree with the statements made in the third paragraph insofar as they relate to Deloitte & Touche LLP, and have no basis on which to agree or disagree with the statements insofar as they relate to Ernst & Young LLP. We have no basis on which to agree or disagree with the statements made in the fourth paragraph.

2.

3.

4. Yours truly,

EXHIBIT 21 SUBSIDIARIES OF PORTEC RAIL PRODUCTS, INC.

Name

Jurisdiction of Incorporation

Portec, Rail Products Ltd. Portec Rail Products (UK) Ltd.

Canada United Kingdom

EXHIBIT 23.2 Independent Auditors’ Consent We consent to the use in this Registration Statement of Portec Rail Products, Inc. on Form S-1 of our report dated October 10, 2003, appearing in the Prospectus, which is part of this Registration Statement and to the reference to us under the heading ―Experts‖ in such Prospectus.

Evansville, Indiana November 5, 2003