VALLEY NATIONAL GASES INC, 424B1, 1997-04-10

VALLEY NATIONAL GASES INC
424B1, 1997-04-10
CHEMICALS & ALLIED PRODUCTS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-19973
2,000,000 SHARES

[LOGO] VALLEY(TM)
----------------------------
NATIONAL GASSES INCORPORATED
----------------------------
COMMON STOCK

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

Of the 2,000,000 shares of common stock, par value $0.001 per share (the
"Common Stock"), of Valley National Gases Incorporated (the "Company")
offered hereby (the "Offering"), 1,918,000 shares are being sold by the
Company and 82,000 shares are being sold by certain shareholders of the Company
(the "Selling Shareholders"). The Company will not receive any of the
proceeds from the sale of shares by the Selling Shareholders. See "Principal
and Selling Shareholders."

Prior to the Offering, there has been no public market for the Company's
Common Stock. The initial public offering price will be $8.00 per share. See
"Underwriting" for a discussion of the factors considered in determination of
the initial public offering price. The Company has received approval for the
trading of its Common Stock on the Nasdaq National Market under the symbol
"VNGI" subject to official notice of issuance.

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

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
----------------

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

<TABLE>
=================================================================================================================================
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS<F1> COMPANY<F2> SHAREHOLDERS
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................................... $8.00 $0.56 $7.44 $7.44
- ---------------------------------------------------------------------------------------------------------------------------------
Total<F3>........................................... $16,000,000 $1,120,000 $14,269,920 $610,080
=================================================================================================================================
<FN>
<F1> The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
<F2> Before deducting offering expenses payable by the Company, estimated at
$600,000.
<F3> The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $18,400,000, $1,288,000 and $16,501,920, respectively.
See "Underwriting."
</TABLE>

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

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer or to reject any orders in whole or in part. It is expected
that delivery of the shares of Common Stock will be made on or about April 15,
1997.

A.G. EDWARDS & SONS, INC. OPPENHEIMER & CO., INC.

The date of this Prospectus is April 10, 1997.

<PAGE> 2
[The map to be included in this space depicts the nine states in which the
Company operates: Delaware, Kentucky, Maryland, North Carolina, Ohio,
Pennsylvania, Tennessee, Virginia and West Virginia. The Company's locations in
those states are named and identified by a dot.]
[MAP]
This discussion contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions
as they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from those expressed in, or implied by,
these forward-looking statements as a result of, among other things, the
factors set forth in the section entitled "Risk Factors."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A PENALTY BID.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Financial Statements,
including the Notes thereto, appearing elsewhere in this Prospectus. All
references in this Prospectus to a fiscal year refer to the fiscal year ending
on June 30 of that year. Unless otherwise indicated, the information in this
Prospectus (i) assumes no exercise of the over-allotment option granted to the
Underwriters and (ii) assumes the Company implements a holding company
structure prior to the completion of the Offering. See "The Reorganization."
Unless the context otherwise indicates, references to the Company include
Valley National Gases Incorporated and its wholly-owned subsidiaries.

THE COMPANY

The Company is a leading packager and distributor of industrial, medical
and specialty gases, welding equipment and supplies, and propane in nine states
in the mid-Atlantic and midwestern regions of the United States. The Company's
net sales have grown, primarily as a result of acquisitions, at a compound
annual rate of approximately 17% per year since the Company started business in
1958, increasing from $190,000 in that year to $64.6 million on a pro forma
combined basis in fiscal 1996. In fiscal 1996, gases accounted for
approximately 46% of net sales, welding equipment and supplies accounted for
approximately 40% of net sales, and cylinder and tank rental accounted for
approximately 14% of net sales.

The Company's gas operations consist primarily of the packaging and mixing
of industrial, medical and specialty gases, such as oxygen, nitrogen and argon,
in pressurized cylinders and the transportation of these cylinders to customers
from one of the Company's 40 distribution and retail locations. The Company
also distributes propane to industrial and residential customers. Customers pay
a rental fee for use of the Company's cylinders. The Company owns approximately
290,000 cylinders, which require minimal maintenance and have useful lives that
the Company expects will extend on average for 50 years or longer. The Company
selectively participates in the small bulk gas market through the delivery of
gases in cryogenic transports and the storage of gases in cryogenic tanks and
propane tanks, which are also rented to bulk gas customers. The Company owns
approximately 7,000 bulk propane tanks and 250 bulk cryogenic tanks, which have
useful lives generally less than those of cylinders. In connection with the
distribution of gases, the Company sells welding equipment and supplies,
including welding machines, wire, fluxes and electrodes and a wide variety of
supporting equipment.

Historically, the industrial gas distribution business had a base of
customers engaged primarily in metal fabrication. In order to better serve
these customers, industrial gas distributors have also traditionally sold
welding equipment and supplies. As certain sectors of the economy have grown,
such as the electronics and chemicals industries, and as new applications for
gases have developed, the customer base of the industry has significantly
broadened to include almost every major industry, including health care,
electronics, chemicals, aerospace, beverages, environmental remediation, food
processing, oil and gas and primary metals, as well as metal fabrication.

The Company's principal business strategy is to aggressively pursue growth
through the acquisition of other independent distributors and also through
internally generated growth. Since the Company was founded, it has completed 38
acquisitions. Since January 1, 1996, the Company has acquired four independent
distributors, including Weldco, Inc. ("Weldco") with annual sales of
approximately $11 million in its most recent fiscal year and operations in
Cincinnati and Dayton, Ohio, and Weber Gas & Welding Supply Co., Inc. ("Weber")
with annual sales of approximately $5 million in its most recent fiscal year and
operations in western Pennsylvania. The integration of Weldco and Weber into
the Company's existing operations is currently in progress, with the benefits
of integration expected to be realized in the next two to eight quarters.
Management believes there will continue to be numerous attractive acquisition
candidates available to the Company as a result of the consolidation trend in
the industry and that the Company will be able to successfully integrate
acquired operations into its base business, generating growth and operational
synergies. Acquisitions will be financed primarily with borrowings under the
Company's credit facility and seller financing. While highly focused on
external growth, management believes that the Company's competitive strengths
will allow it to increase sales and improve market share in existing markets,
while maintaining acceptable levels of profitability.

The Company's principal executive offices are located at 67 43rd Street,
Wheeling, West Virginia 26003 and its telephone number is (304) 232-1541.

<PAGE> 4
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company............................... 1,918,000 Shares
Selling Shareholders...................... 82,000 Shares
Common Stock to be outstanding
after the Offering<F1>...................... 9,320,084 Shares
Use of proceeds............................... For repayment of indebtedness, payment of the
S Corporation Distribution and for general
corporate purposes. See "Use of Proceeds" and
"S Corporation Distribution."
Nasdaq National Market symbol................. VNGI

<FN>
- --------
<F1> Excludes 650,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan, of which options to purchase 175,000
shares will be granted effective as of the closing of the Offering.
Includes (i) 135,000 shares of Common Stock to be issued to Weldco or
certain shareholders of Weldco immediately prior to the closing of the
Offering pursuant to the purchase agreement among the Company, Weldco and
certain other parties, (ii) 170,718 shares of Common Stock to be issued to
two executive officers immediately prior to the closing of the Offering in
connection with the termination of certain deferred compensation
agreements and (iii) 96,366 shares of Common Stock to be issued to a
director immediately prior to the closing of the Offering pursuant to a
right under a consulting agreement to convert deferred consulting payments
to Common Stock. See "Management--Benefit Plans" and "Certain
Relationships and Related Transactions."
</TABLE>

RISK FACTORS

For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors."

<PAGE> 5
<TABLE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<CAPTION>
PRO
PRO FORMA
FORMA SIX MONTHS SIX
YEAR ENDED MONTHS
YEARS ENDED JUNE 30, ENDED DECEMBER 31, ENDED
--------------------------------------------------- JUNE 30, ------------------ DEC. 31,
1992 1993 1994 1995 1996 1996<F1> 1995 1996 1996<F1>
------- ------- ------- ------- ------- -------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $30,789 $35,251 $39,166 $44,914 $53,612 $64,585 $24,138 $33,777 $37,079
Gross profit......... 17,672 20,340 22,322 24,983 29,995 33,903 13,460 18,273 19,632
Income from
operations.......... 2,982 3,281 3,828 4,183 5,000 4,446 2,265 2,772 2,515
Net income<F2>....... 2,020 2,419 3,061 3,555 4,101 3,139 1,896 1,929 1,661
Pro forma net
income<F3>.......... 1,212 1,451 1,837 2,133 2,461 1,884 1,138 1,157 998
Pro forma net income
per common
share<F3>.......... $ 0.17 $ 0.20 $ 0.25 $ 0.29 $ 0.30 $ 0.23 $ 0.16 $ 0.14 $ 0.12
Pro forma weighted
average shares
outstanding<F4>.... 7,267 7,267 7,267 7,267 8,335<F5> 8,335<F5> 7,267 8,335<F5> 8,335<F5>

OTHER FINANCIAL DATA:
Depreciation and
amortization....... $ 2,169 $ 2,324 $ 2,790 $ 3,112 $ 4,700 $ 5,756 $ 1,999 $ 2,934 $ 3,197
Capital
expenditures........ 1,055 1,218 2,908 4,426 3,647 4,151 1,288 1,377 1,464
Cash flow from
operating
activities......... 4,224 4,479 5,971 6,317 7,423 -- 2,415 1,187 --
Cash flow from
investing
activities......... (898) (1,185) (4,080) (7,167) (9,179) -- (6,419) (5,781) --
Cash flow from
financing
activities......... (1,976) (3,082) (1,846) 1,624 2,450 -- 3,754 3,852 --

OTHER NON-GAAP FINANCIAL
DATA:
EBITDA<F6>........... $ 5,518 $ 5,947 $ 6,889 $ 7,739 $10,362 $10,864 $ 4,570 $ 5,856 $ 5,864

<CAPTION>
DECEMBER 31, 1996
-------------------------
PRO FORMA AS
ACTUAL ADJUSTED<F7>
------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................... $ 9,709 $ 9,966
Total assets.................................. 62,471 62,471
Total debt including redeemable common
stock....................................... 35,717 32,947
Shareholders' equity.......................... 17,911 17,489
<FN>
- ---------
<F1> The pro forma statement of operations data gives effect to the acquisition
of Weldco as if it had occurred on July 1, 1995 and the application of
the estimated net proceeds of the Offering.

<F2> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.

<F3> The pro forma net income and pro forma net income per common share reflect
federal and state income taxes, assuming a 40% statutory tax rate, as if
the Company had been taxed as a C Corporation for all periods presented.

<F4> Pro forma weighted average number of shares outstanding used to calculate
pro forma net income per share is based on the historical weighted average
number of shares outstanding, as adjusted to reflect (i) the issuance of
170,718 shares of Common Stock to two executive officers immediately prior
to the closing of the Offering in connection with the termination of
certain deferred compensation agreements and (ii) the issuance of 96,366
shares of Common Stock to a director immediately prior to the closing of
the Offering pursuant to a right under a consulting agreement to convert
deferred consulting payments to Common Stock. See "Management--Benefit
Plans" and "Certain Relationships and Related Transactions." In
connection with these compensation and consulting arrangements, the
Company will incur a one-time expense of $1.9 million in the period in
which the closing of the Offering occurs.

<F5> Further adjusted to reflect the assumed issuance of 1,068,208 shares of
Common Stock to fund the excess of dividends (including the estimated S
Corporation Distribution) over net income for the six months ended
December 31, 1996.

<F6> EBITDA represents the earnings of the Company before income taxes, net
interest expense, depreciation and amortization and other noncash items
reducing net income. EBITDA is not a measure of financial performance
under generally accepted accounting principles ("GAAP") and may not be
comparable to other similarly titled measures by other companies.
Accordingly, it does not represent net income or cash flows from
operations as defined by GAAP and does not necessarily indicate that cash
flows will be sufficient to fund cash needs. As a result, EBITDA should
not be considered an alternative to net income as an indicator of
operating performance or to cash flows as a measure of liquidity. The
Company incurs significant capital expenditures and incurs debt, primarily
related to acquisitions, which are not reflected in EBITDA. As such, the
Company has provided above cash flows from operating, investing and
financing activities, and capital expenditures which reflect these
transactions. The Company has included information concerning EBITDA as it
understands that it is used by certain investors as one measure of an
issuer's historical ability to service its debt.

<F7> Adjusted to give effect to (i) the payment of the S Corporation
Distribution estimated to be $10.1 million at December 31, 1996, (ii) the
recognition of a deferred tax liability of approximately $4.2 million upon
termination of the Company's S Corporation status, (iii) the issuance of
1,918,000 shares of Common Stock by the Company at an initial public
offering price of $8.00 per share and the application of the net proceeds
therefrom, (iv) the issuance of 135,000 shares of Common Stock to Weldco
(or certain shareholders of Weldco), and the retirement of indebtedness
payable to Weldco in the aggregate principal amount of $1,720,000, in each
case immediately prior to the closing of the Offering pursuant to the
purchase agreement among the Company, Weldco and certain other parties,
(v) the issuance of 170,718 shares of Common Stock to two executive
officers immediately prior to the closing of the Offering in connection
with the termination of certain deferred compensation agreements, (vi) the
issuance of 96,366 shares of Common Stock to a director immediately prior
to the closing of the Offering pursuant to a right under a consulting
agreement to convert deferred consulting payments to Common Stock, (vii)
recognition of an expense of $1.9 million ($1.1 million after assumed
taxes) in connection with the compensation and consulting arrangements and
(viii) the cancellation of treasury stock. See "Use of Proceeds," "S
Corporation Distribution," "Management--Benefit Plans" and "Certain
Relationships and Related Transactions."
</TABLE>

<PAGE> 6
RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company before purchasing the Common Stock offered hereby. This Prospectus
contains forward-looking statements that involve risks and uncertainties.
Actual results could differ from those discussed in the forward-looking
statements as a result of certain factors, including those set forth below and
elsewhere in this Prospectus.

THE COMPANY MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS

The Company has historically expanded its business primarily through
acquisitions. A key part of the Company's business strategy is the continuation
of growth through strategic acquisitions. The Company will consider and
evaluate acquisitions on a continuing basis, although it currently has no
material acquisitions under consideration. There can be no assurance that the
Company will continue to be able to identify attractive or willing acquisition
candidates, or that the Company will be able to acquire such candidates on
economically acceptable terms. The Company will compete with other distributors
for suitable acquisition candidates. The Company has a revolving loan in the
amount of $25 million to finance acquisitions, of which $10 million was
available for borrowing at December 31, 1996. The Company believes that it
could increase the amount of the credit facility, or obtain financing from
other sources, if necessary to finance an acquisition. To the extent cash and
available borrowings are not adequate to finance acquisitions, there can be no
assurance that the Company will be able to obtain adequate financing for any
acquisition or that, if available, such financing would be on terms acceptable
to the Company. See "Business--Business Strategy" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

RISKS ASSOCIATED WITH THE SUCCESSFUL ASSIMILATION OF ACQUISITIONS

The success of the Company's acquisition strategy will depend, among other
factors, upon its ability to successfully integrate acquired businesses with
existing operations in a timely manner, at reasonable costs. There can be no
assurance that acquired companies would perform in accordance with management's
expectations or that the Company would not encounter unanticipated problems or
liabilities. Some acquisitions have had, and the Company expects some future
acquisitions may have, a dilutive effect upon the Company's income from
operations and net income before tax for a short period following consummation.
This temporary dilution occurs because some of the benefits of acquisitions,
such as leveraging of operating and administrative expenses, improved product
gross margins and real sales growth, occur over a period ranging from two to
eight quarters, depending upon the complexity of integrating each acquisition
into the Company's existing operations.

RISKS ASSOCIATED WITH MANAGING GROWTH

The Company has grown rapidly in recent years. A continuing period of rapid
growth could place a significant strain on the Company's management, operations
and other resources. The Company's ability to manage its growth will require it
to continue to invest in its operational, financial and management information
systems, and to attract, retain, motivate and effectively manage its employees.
The inability of the Company's management to manage growth effectively would
have a material adverse effect on the financial condition, results of operation
and business of the Company.

COMPETITION

The Company's profitability may be affected by competition, which is based
primarily on customer loyalty, service and to a lesser extent, price. The
Company has several competitors in all of the markets in which it operates,
some of which are substantially larger and have substantially greater resources
than the Company. Many customers tend to develop long-term relationships with
their distributor and, therefore, it may be difficult to obtain new customers
other than through the acquisition of other distribution businesses.

DEPENDENCE ON KEY PERSONNEL

The Company's businesses are managed by a small number of management and
operating personnel, the loss of certain of whom could have a material adverse
effect on the Company. See "Management." The Company believes that its
ability to manage its planned growth successfully will depend in large part on
its continued ability to attract and retain highly skilled and qualified
personnel. None of the Company's key executives has a written employment

<PAGE> 7
agreement or non-compete agreement with the Company except for John R. Bushwack
who has a non-compete agreement with the Company. The Company maintains key
person life insurance on Gary E. West, Lawrence E. Bandi and John R. Bushwack.
See "Management" for detailed information on the Company's management and
directors.

DEPENDENCE ON KEY SUPPLIERS
There are several competing suppliers of most of the products that the
Company purchases. The Company purchases industrial gases pursuant to
short-term supply arrangements and open purchase orders with three of the five
major gas producers in the United States. One such producer accounted for
approximately 80% of the Company's gas purchases in fiscal 1996. The Company
purchases welding equipment and consumable supplies from approximately 85
primary vendors, of which purchases from the top five vendors represented
approximately 61% of total purchases in fiscal 1996. The Company purchases
most of its propane from three suppliers. The Company is not dependent upon
any single supplier for propane and supplies have historically been readily
available. If a particular supplier were to unexpectedly discontinue sales
of a product to the Company, the Company believes it would be able to
readily secure alternate sources of supply. However, the Company could
experience temporary decreases in its profit margins if its arrangements
with such alternate sources of supply were less favorable to the Company
than its current arrangements with suppliers.

CONTROL BY PRINCIPAL SHAREHOLDER

Upon completion of the Offering, Gary E. West, Chairman of the Board of
Directors, will control approximately 75.1% of the outstanding shares of Common
Stock (72.8% if the Underwriters' over-allotment option is exercised in full).
If all outstanding options to purchase Common Stock were exercised (and none
are currently vested), Mr. West would control approximately 73.7% of the
outstanding shares of Common Stock (71.5% if the Underwriters' over-allotment
option is exercised in full). Mr. West has the ability to exercise effective
control over the election of the Company's Board of Directors and the outcome
of corporate actions requiring shareholder approval. See "Management" and
"Principal and Selling Shareholders."

PRODUCT LIABILITY

The Company's business entails an inherent risk of liability in the event
of product failure or claim of it caused by use of the Company's products. The
Company has not had any material claims made nor is it aware of any material
claims against it based upon the use or the failure of its products. The
Company maintains product liability insurance against any such claims in
amounts it believes to be adequate. There can be no assurance that the Company
will not be subject to such claims, that any claim will be successfully
defended, or if the Company is found liable, that the claim will not exceed the
limits of the Company's insurance. There is also no assurance that the Company
will be able to continue to obtain product liability insurance on acceptable
terms. Product liability claims could have a material adverse effect on the
Company.

BLANK CHECK PREFERRED STOCK; CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's Articles of Incorporation (the "Articles") give the Board
of Directors the authority to issue up to 5,000,000 shares of preferred stock,
$.01 par value per share (the "Preferred Stock"), and to determine the price,
rights, preferences and privileges of those shares without any further vote or
action by the shareholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of shares of
Preferred Stock, while potentially providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the Company. The Company has no present
intention to issue shares of Preferred Stock.

Furthermore, certain provisions of the Articles, the Company's Bylaws
(the "Bylaws") and the Pennsylvania Business Corporation Law, including
a provision that provides for the Board of Directors to be divided into
three classes to serve for staggered three-year terms, could limit the price
that certain investors might be willing to pay in the future for shares of
the Common Stock and may have the effect of delaying or preventing a
change-in-control of the Company. These provisions may also reduce the
likelihood of an acquisition of the Company at a premium price by
another person or entity. See "Description of Capital Stock--Common Stock,"
"--Anti-Takeover Effects of Provisions of the Company's Articles and
Bylaws" and "--Pennsylvania Anti-Takeover Laws."
7

<PAGE> 8

SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICES; PRAXAIR RIGHT OF FIRST REFUSAL

Sales of substantial numbers of additional shares of Common Stock in the
public market could adversely affect the market price of the Common Stock and
make it more difficult for the Company to raise funds through future equity
offerings. Upon completion of the Offering, Gary E. West, the Company's
Chairman, will control approximately 75.1% of the Common Stock (72.8% if the
Underwriters' over-allotment option is exercised in full). See "Principal and
Selling Shareholders." A sale by Mr. West of these shares could adversely
affect the market price of the Common Stock. Mr. West and other shareholders
holding, in the aggregate, 7,320,084 of the 9,320,084 shares to be outstanding
immediately after the closing of the Offering (the "Previously Issued
Shares") have agreed to enter into agreements under which they will agree,
other than with the consent of A.G. Edwards & Sons, Inc., not to sell such
shares for a period of 180 days following the completion of the Offering. At
the expiration of such 180-day period, all of the Previously Issued Shares will
be eligible for sale, subject to volume and other limitations of Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"). See "Shares
Eligible for Future Sale." Following effectiveness of the registration
statement covering the shares offered hereby, the Company will register on Form
S-8 under the Securities Act 650,000 shares of Common Stock issuable under the
Company's 1997 Stock Option Plan, which registrations are expected to become
effective upon filing. There will be options to purchase 175,000 shares of
Common Stock outstanding effective as of the closing of the Offering, none of
which will be exercisable at such time. See "Management--Benefit Plans,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."

In September 1991, in connection with the purchase by the Company of certain
assets of Praxair, Inc. (``Praxair''), the Company, Mr. West and certain of his
affiliates entered into a Right of First Refusal Agreement with Praxair. In
March 1997, the parties to such agreement entered into an Amended and Restated
Right of First Refusal Agreement (the ``Right of First Refusal Agreement'') in
connection with the Company's reorganization. Pursuant to this agreement, if at
any time during the term of the agreement the Company wishes to accept a third
party offer to purchase all or a material part of the assets of the Company, or
Mr. West and his affiliates wish to accept an offer to purchase shares of
capital stock of the Company (the ``Capital Stock'') owned by them in a
transaction that would result in Mr. West and his affiliates collectively owning
less than 51% of the Company's issued and outstanding shares of Capital Stock on
a fully diluted basis or owning less than 51% of the combined voting power of
all outstanding voting securities of the Company, then Praxair will have a right
of first refusal to match the offer. In addition, in the absence of a third
party offer, if (a) Mr. West and his affiliates wish to sell shares of
Common Stock which would result in their owning collectively less than
51% or more of the Company's issued and outstanding shares of Common Stock,
(b) the Company wishes to sell all or a material part of its assets, or
(c) the Company wishes to issue additional shares, or options or securities
exercisable or convertible into shares of Common Stock, pursuant to employee
stock options, a public offering, private placement, merger, share exchange or
otherwise, which in the aggregate on a fully diluted basis would result in
Mr. West and his affiliates collectively owning less than 51% of all the issued
and outstanding shares of Common Stock, then Praxair will have the right
to purchase from Mr. West and his affiliates up to all of the issued and
outstanding shares of Common Stock held by them (but not less than 51% of
all of the issued and outstanding shares of the Company's Common Stock on a
fully diluted basis) at the then prevailing market price.
If Praxair does purchase shares of Capital Stock from Mr. West and his
affiliates as described in this paragraph, then Mr. West and his affiliates
will be bound by certain non-compete provisions, as described in the
Right of First Refusal Agreement, for a period of three years from such
purchase. See ``The Right of First Refusal Agreement.''

After completion of the Offering, after giving effect to the issuance of
Common Stock to certain persons contemplated to take place immediately prior to
the Offering, Mr. West will be the beneficial owner of approximately 75.1% of
the Common Stock (72.8% if the Underwriters' over-allotment option is exercised
in full). Under the Right of First Refusal Agreement, there is no limitation on
the Company's ability to issue additional shares of Capital Stock, or options or
securities exercisable or convertible into shares of Capital Stock, as long as
Mr. West and his affiliates own 51% or more of the issued and outstanding
Capital Stock. However, such Agreement will effectively restrict the ability of
the Company to issue such additional securities if the issuance would result in
Mr. West and his affiliates owning less than 51% of the issued and outstanding
Capital Stock. Therefore, the Right of First Refusal Agreement could in the
future limit the ability of the Company to raise capital through the sale of
stock to parties other than Praxair, may delay future offerings by the Company,
may restrict the ability of the Company to consummate strategic transactions
involving the issuance of stock, such as mergers, acquisitions, share exchanges
and the like, and may limit the flexibility of the Company to incentivize
employees through the issuance of stock options and other convertible
securities. The Right of First Refusal Agreement expires in September 2006.

<PAGE> 9

ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF COMMON STOCK PRICE

Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after the Offering or that investors will be able to sell the
Common Stock should they desire to do so. The initial public offering price
will be determined by negotiations between the Company and the representatives
of the Underwriters and may bear no relationship to the price at which the
Common Stock will trade upon completion of the Offering. There can be no
assurance that the market price of the Common Stock after the Offering will not
fall below the initial public offering price. The market price of the shares of
Common Stock could be subject to significant fluctuations in response to
variations in quarterly results, general market conditions and other factors.
The stock market has experienced price and volume fluctuations that often have
been unrelated or disproportionate to a company's operating performance. These
market fluctuations, as well as general economic, political and market
conditions such as recessions, may adversely affect the market price of the
Common Stock. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.

ABSENCE OF DIVIDENDS

The Company does not anticipate paying dividends on the Common Stock for
the foreseeable future. The payment of dividends is prohibited by certain
covenants in the Company's credit facility. The Company anticipates that it
will reinvest its net income, if any, in its businesses. See "Dividend
Policy."

S CORPORATION DISTRIBUTION

Historically, the Company has been treated for federal and certain state
income tax purposes as an S Corporation under the Internal Revenue Code of
1986, as amended (the "Code"), and comparable state tax laws. As a result,
the Company's earnings have been taxed for federal and certain state income tax
purposes directly to its shareholders. Immediately prior to the closing of the
Offering, the Company's status as an S Corporation will be terminated and the
Company will be taxed as a C corporation thereafter. The Company intends to
declare a distribution (the "S Corporation Distribution") of all of its
undistributed earnings through the date of termination of its S Corporation
status to shareholders of record of the Company at such time. As of December
31, 1996, the estimated amount of the S Corporation Distribution totaled
approximately $10.1 million. The actual amount of the S Corporation
Distribution will also include the taxable income of the Company for the period
from January 1, 1997, through the date of the termination, less any other taxes
payable by the Company. The S Corporation Distribution will be paid by the
Company with a portion of the net proceeds of the Offering. See "Use of
Proceeds." The purchasers of the Common Stock in the Offering will not receive
any portion of the S Corporation Distribution.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,918,000 shares of
Common Stock offered by the Company hereby will be approximately $13.7 million
(after deducting the underwriting discount and estimated offering expenses
payable by the Company). The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders.

The Company will use the net proceeds to repay outstanding indebtedness,
including interest thereon, under the Company's credit facility, pay the
S Corporation Distribution and for general corporate purposes. The Company's
credit facility had an outstanding balance of $22.9 million as of December 31,
1996, and accrues interest at a weighted average interest rate of 7.6%.
Following such reduction, the outstanding indebtedness under the credit
facility will be approximately $21.0 million and the available borrowings
thereunder will be approximately $11.8 million. The outstanding indebtedness
under the credit facility has been used for various acquisitions by the
Company. See "S Corporation Distribution" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

The Company anticipates that the borrowings available under the credit
facility will be used for future acquisitions and general corporate purposes.
The Company's business strategy contemplates that it will seek to complement
internal growth with strategic investments and acquisitions. The Company has
entered into two letters of intent with two third parties concerning the
Company's purchase of two gas distribution businesses for a purchase price of
approximately $3.5 million and $3.8 million, respectively, subject to certain
adjustments. The parties are proceeding with due diligence and the negotiation
of definitive purchase agreements. The Company has no other present
understandings, agreements or commitments with respect to any acquisitions.

<PAGE> 10
DIVIDEND POLICY

The Company has not paid any cash dividends other than S Corporation
distributions, and does not anticipate that it will pay dividends in the
foreseeable future. The Company currently intends to retain future earnings, if
any, to provide funds for the growth and development of the Company's business.
The payment of dividends is prohibited by certain covenants in the Company's
credit facility.

CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company on an actual basis as of December 31, 1996 and as adjusted to give
effect to the transactions described in the footnotes below. The information
set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Company's
Financial Statements and the related Notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------------
PRO FORMA AS
ACTUAL ADJUSTED<F1>
------- -------------
(IN THOUSANDS)
<S> <C> <C>
Total short-term debt................................................................................ $ 4,182 $ 4,182
======= =======
Total long-term debt................................................................................. $31,535 $26,885
Redeemable common stock<F2>.......................................................................... -- 1,880
Shareholders' equity<F3>:
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued and outstanding as
adjusted......................................................................................... -- --
Common stock, $.001 par value, 30,000,000 shares authorized, 7,000,000 shares issued and
outstanding excluding treasury stock and 9,320,084 shares issued and outstanding as adjusted.... 18 9
Paid in capital...................................................................................... 96 15,100
Treasury stock (11,300,653 shares)................................................................... (3,705) --
Retained earnings.................................................................................... 21,502 2,380
------- -------
Total shareholders' equity....................................................................... 17,911 17,489
------- -------
Total capitalization............................................................................. $49,446 $46,254
======= =======
<FN>
- --------
<F1> Adjusted to give effect to (i) the payment of the S Corporation
Distribution estimated to be $10.1 million at December 31, 1996, (ii) the
recognition of a deferred tax liability of approximately $4.2 million upon
termination of the Company's S Corporation status, (iii) the issuance of
1,918,000 shares of Common Stock by the Company at an initial public
offering price of $8.00 per share and the application of the net proceeds
therefrom, (iv) the issuance of 135,000 shares of Common Stock to Weldco
(or certain shareholders of Weldco), and the retirement of indebtedness
payable to Weldco in the aggregate principal amount of $1,720,000, in each
case immediately prior to the closing of the Offering pursuant to the
purchase agreement among the Company, Weldco and certain other parties,
(v) the issuance of 170,718 shares of Common Stock to two executive
officers immediately prior to the closing of the Offering in connection
with the termination of certain deferred compensation agreements, (vi) the
issuance of 96,366 shares of Common Stock to a director immediately prior
to the closing of the Offering pursuant to a right under a consulting
agreement to convert deferred consulting payments to Common Stock, (vii)
recognition of an expense of $1.9 million ($1.1 million after assumed
taxes) in connection with the compensation and consulting arrangements and
(viii) the cancellation of treasury stock. See "Use of Proceeds," "S
Corporation Distribution," "Management--Benefit Plans" and "Certain
Relationships and Related Transactions."

<F2> Reflects shares to be issued to former shareholders of Weldco who have
the right to cause the Company to repurchase said shares. See "Certain
Relationships and Related Transactions."

<F3> Excludes 650,000 shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan. See "Management."
</TABLE>

<PAGE> 11
DILUTION

Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of their Common Stock
from the assumed initial public offering price. The net tangible book value of
the Company at December 31, 1996 was approximately $2.8 million, or $0.39 per
share. Net tangible book value per share is equal to net tangible assets
(tangible assets of the Company less total liabilities) divided by the number
of shares of Common Stock outstanding. Net tangible book value dilution per
share represents the difference between the amount per share paid by purchasers
of shares of Common Stock in the Offering and the pro forma net tangible book
value per share of Common Stock immediately after completion of the Offering.
After giving effect to the sale of the 1,918,000 shares of Common Stock
issued in the Offering (after deducting the underwriting discount and
estimated offering expenses), the pro forma net tangible book value of the
Company as of December 31, 1996 would have been approximately $2.4 million,
or $0.26 per share. This represents an immediate dilution of net tangible book
value of $7.74 per share to purchasers of Common Stock in the Offering, as
illustrated in the following table:

<TABLE>
<S> <C> <C>
Public offering price per share................................................. $ 8.00
Net tangible book value per share at December 31, 1996.................. $ 0.39
Decrease in net tangible book value per share attributable to new
investors............................................................. (0.13)
------
Pro forma net tangible book value per share after the Offering.................. 0.26
------
Net tangible book value dilution per share to new investors..................... $ 7.74
======
</TABLE>

The following table sets forth certain information with respect to the
number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share paid by officers and
directors who have purchased Common Stock during the prior five years and by
new investors purchasing shares from the Company in the Offering:

<TABLE>
<CAPTION>
AVERAGE
PRICE PER
SHARES PURCHASED TOTAL CONSIDERATION SHARE
---------------- ------------------- ---------
<S> <C> <C> <C>
Officers and directors............................ 367,084 $ 1,237,483 $3.37
New investors..................................... 1,918,000 $15,344,000 $8.00
</TABLE>

The foregoing table assumes no exercise of outstanding options. As of
December 31, 1996, there were no options outstanding. There are options to
purchase 175,000 shares of Common Stock outstanding effective as of the closing
of the Offering, none of which will be exercisable within 60 days of the date
of grant. See "Management--Benefit Plans" and "Shares Eligible for Future
Sale."

<PAGE> 12
SELECTED PRO FORMA FINANCIAL DATA

The following sets forth the unaudited Pro Forma Condensed Statement of
Operations of the Company and Weldco for the twelve months ended June 30, 1996
and the six months ended December 31, 1996, after giving effect to the
acquisition of Weldco by the Company (the "Acquisition"), which on October 10,
1996 was purchased for approximately $11.1 million. Approximately $7.9 million
of the purchase price was paid by promissory notes from the Company. Under the
Weldco Purchase Agreement, Weldco shareholders have the right, in the event of
an initial public offering of the Company's common stock, to convert a portion
of the Company's promissory notes to shares of the Company's common stock at
the initial public offering price. Under this provision, Weldco shareholders
have the right to receive 350,000 shares of the common stock in exchange for the
cancellation of indebtedness in the amount of $2,800,000. The Company and Weldco
shareholders have agreed that rather than issuing 350,000 shares, the Company
will prepay $1,720,000 under the Company's promissory notes and issue 135,000
shares of common stock to Weldco shareholders immediately prior to the closing
of the Offering. The Company understands that certain Weldco shareholders
intend to purchase up to 100,000 shares of common stock in the Offering. The
Weldco Purchase Agreement further grants Weldco shareholders the right to
cause the Company to purchase shares of common stock issued to Weldco
shareholders pursuant to the conversion of indebtedness for a period of three
years following the closing of the Offering at the initial public offering
price plus interest from the date of issuance at the rate of 6.6% per annum.
The Company expects that 235,000 shares will be subject to this right
following the closing of the Offering. Accordingly, such shares will not be
classified as shareholders' equity. The Company's payment obligation is
secured by a letter of credit.

The Pro Forma Condensed Statement of Operations and other data gives effect
to the Acquisition as if it had occurred on July 1, 1995. The Pro Forma
Condensed Balance Sheet and Pro Forma Condensed Statement of Operations
information also give effect to the use of the estimated proceeds from the
Offering. The unaudited pro forma financial information is presented for
information purposes only and is not necessarily indicative of the results
that actually would have occurred had the Acquisition been consummated on the
dates indicated or the results that may occur or be obtained in the future. The
following information is qualified in its entirety by reference to and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements of the Company
and Weldco, respectively, and related Notes thereto and other historical
financial information included elsewhere in this Prospectus.

The Acquisition was accounted for by the Company as a purchase whereby the
basis for accounting for Weldco's assets and liabilities was based upon their
fair market values at the date of the Acquisition. Pro forma adjustments
represent the Company's determination of these adjustments and are based upon
available information and certain assumptions the Company considers reasonable
under the circumstances.
12

<PAGE> 13
<TABLE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED JUNE 30, 1996
---------------------------------------------------------------------------------
WELDCO
ACQUISITION PRO FORMA PRO FORMA
COMPANY WELDCO ADJUSTMENTS SUBTOTAL ADJUSTMENTS AS ADJUSTED
-------- -------- ----------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. $ 53,612 $ 10,973 $64,585 $64,585
Cost of products sold, excluding
depreciation and amortization............ 23,617 7,065 30,682 30,682
-------- -------- ------- -------
Gross profit............................... 29,995 3,908 33,903 33,903
Operating and administrative expenses<F1> 20,295 3,406 23,701 23,701
Depreciation and amortization.............. 4,700 204 852 <F2> 5,766 5,756
-------- -------- ------- ------- ----- -------
Income from operations..................... 5,000 298 (852) 11,446 4,446
Interest expense........................... 1,561 33 782 <F3> 2,376 (407)<F8> 1,969
Other income............................... 662 662 662
-------- -------- ------- ------- ----- -------
Net income<F4>............................. 4,101 265 (1,634) 2,732 407 3,139
Pro forma income tax provision<F5>......... 1,640 106 (654) 1,092 163 1,255
-------- -------- ------- ------- ----- -------
Pro forma net income<F5>................... $ 2,461 $ 159 $ (980) $ 1,640 $ 244 <F7> $ 1,884
======== ======== ======= ======= ===== =======
Pro forma net income per common share<F5> $ 0.30 $ 0.23
Pro forma weighted average shares
outstanding<F6>.......................... 8,335 8,335

<FN>
- --------

<F1> Operating and administrative expenses do not reflect the elimination of
approximately $311,000 of salaries and benefits provided to former
shareholders of Weldco whose employment by Weldco was terminated as part of
the acquisition.

<F2> Reflects (i) $7.9 million related to goodwill amortized over twenty years,
(ii) $1.0 million related to consulting agreements amortized over the
three-year service period and (iii) the fair market value of assets
acquired depreciated over twelve years.

<F3> Reflects increased interest expense from acquisition debt of $3.2 million
under the revolving credit facility at 7.2% and seller notes of $7.9
million at 6.6%.

<F4> The Company and Weldco elected to be treated as S Corporations for the
periods presented. As a result, their income was taxed for federal and
state purposes directly to their respective shareholders.

<F5> The pro forma income tax provision, pro forma net income and pro forma net
income per common share reflect federal and state income taxes (assuming a
40% statutory tax rate) as if the Company and Weldco had been taxed as C
Corporations for all periods presented.

<F6> Weighted average number of shares outstanding used to calculate pro forma
net income per share is based on the historical weighted average number of
shares outstanding, as adjusted to reflect (i) the assumed issuance of
1,068,208 shares of Common Stock to fund the excess of dividends (including
the estimated S Corporation Distribution) over net income for the six
months ended December 31, 1996, (ii) the issuance of 170,718 shares of
Common Stock to two executive officers immediately prior to the closing of
the Offering in connection with the termination of certain deferred
compensation agreements and (iii) the issuance of 96,366 shares of Common
Stock to a director immediately prior to the closing of the Offering
pursuant to a right under a consulting agreement to convert deferred
consulting payments to Common Stock. See "Management--Benefit Plans" and
"Certain Relationships and Related Transactions." In connection with
these compensation and consulting arrangements, the Company will incur a
one-time expense of $1.9 million in the period in which the closing of the
Offering occurs.

<F7> Excludes non-recurring charges of approximately $1.1 million, net of taxes
related to the compensation and consulting arrangements and approximately
$4.2 million upon termination of the Company's S Corporation status.

<F8> Reflects a decrease to interest expense associated with debt repaid from
the estimated Offering proceeds.
</TABLE>
13

<PAGE> 14

<TABLE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------------
WELDCO
ACQUISITION PRO FORMA PRO FORMA
COMPANY WELDCO<F1> ADJUSTMENTS SUBTOTAL ADJUSTMENTS AS ADJUSTED
-------- ---------- ----------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $33,777 $3,302 $37,079 $37,079
Cost of products sold, excluding
depreciation and amortization.......... 15,504 1,943 17,417 17,447
------- ------ ------- -------
Gross profit............................. 18,273 1,359 19,632 19,632
Operating and administrative expenses<F2> 12,567 1,353 13,920 13,920
Depreciation and amortization............ 2,934 50 213 <F3> 3,197 3,197
------- ------ ------ ------- -------
Income from operations................... 2,772 (44) (213) 2,515 2,515
Interest expense......................... 993 20 196 <F4> 1,209 (203)<F9> 1,006
Other income............................. 150 2 152 152
------- ------ ------ ------- ----- -------
Net income<F5>........................... 1,929 (62) (409) 1,458 203 1,661
Pro forma income tax provision<F6>....... 772 (25) (165) 582 81 663
------- ------ ------ ------- ----- -------
Pro forma net income<F6>................. $ 1,157 $ (37) $ (244) $ 876 $ 122 <F8> $ 998
======= ====== ====== ======= ===== =======
Pro forma net income per common share<F6> $ 0.14 $ 0.12
Pro forma weighted average shares
outstanding<F7>........................ 8,335 8,335

<FN>
- --------
<F1> Results from Weldco for the period from July 1, 1996 through October
10, 1996 (the acquisition date) and includes a one-time charge of
$333,000 reflecting bonuses paid by Weldco as a result of the
acquisition.

<F2> Operating and administrative expenses do not reflect the elimination
of approximately $411,000 salaries and benefits provided to former
shareholders of Weldco whose employment by Weldco was terminated as part
of the acquisition and one-time bonuses declared by Weldco immediately
prior to the acquisition.

<F3> Reflects (i) $7.9 million related to goodwill amortized over twenty years,
(ii) $1.0 million related to consulting agreements amortized over the
three-year service period and (iii) the fair market value of assets
acquired depreciated over twelve years.

<F4> Reflects increased interest expense from acquisition debt of $3.2 million
under the revolving credit facility at 7.2% and seller notes of $7.9
million at 6.6%.

<F5> The Company and Weldco elected to be treated as S Corporations for the
periods presented. As a result, their income was taxed for federal and
state purposes directly to their respective shareholders.

<F6> The pro forma income tax provision, pro forma net income and pro forma net
income per common share reflect federal and state income taxes (assuming a
40% statutory tax rate) as if the Company and Weldco had been taxed as C
Corporations for all periods presented.

<F7> Weighted average number of shares outstanding used to calculate pro forma
net income per share is based on the historical weighted average number of
shares outstanding, as adjusted to reflect (i) the assumed issuance of
1,068,208 shares of Common Stock to fund the excess of dividends (including
the estimated S Corporation Distribution) over net income for the six
months ended December 31, 1996, (ii) the issuance of 170,718 shares of
Common Stock to two executive officers immediately prior to the closing of
the Offering in connection with the termination of certain deferred
compensation agreements and (iii) the issuance of 96,366 shares of Common
Stock to a director immediately prior to the closing of the Offering
pursuant to a right under a consulting agreement to convert deferred
consulting payments to Common Stock. See "Management--Benefit Plans" and
"Certain Relationships and Related Transactions." In connection with
these compensation and consulting arrangements, the Company will incur a
one-time expense of $1.9 million in the period in which the closing of the
Offering occurs.

<F8> Excludes non-recurring charges of approximately $1.1 million, net of taxes
related to the compensation and consulting arrangements and approximately
$4.2 million upon termination of the Company's S Corporation status.

<F9> Reflects a decrease to interest expense associated with debt repaid from
the estimated Offering proceeds.
</TABLE>
14

<PAGE> 15
<TABLE>
PRO FORMA CONDENSED BALANCE SHEET
(UNAUDITED)

<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------------
PRO FORMA
PRO FORMA AS
COMPANY ADJUSTMENTS<F1> ADJUSTED
------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 3,407 $ 3,407
Accounts receivable, net............................... 9,954 9,954
Inventory.............................................. 7,108 7,108
Other current assets................................... 798 798
------- -------- -------
Total current assets........................... 21,267 21,267
Property, plant and equipment, net..................... 25,747 25,747
Intangibles............................................ 15,061 15,061
Other assets........................................... 396 396
------- -------- -------
Total assets................................... $62,471 0 $62,471
======= ======== =======
Short-term debt........................................ $ 4,182 $ 4,182
Accounts payable....................................... 3,607 3,607
Accrued liabilities.................................... 3,768 (256)<F3> 3,512
Accrued distribution to shareholders................... -- 10,100 <F2> 0
(10,100)<F3>
------- -------- -------
Total current liabilities...................... 11,557 (256) 11,301
Long-term debt (less current maturities)............... 31,535 (1,850)<F3> 26,885
(2,800)<F3>
Deferred income taxes.................................. -- 4,200 <F2> 3,448
(752)<F3>
Other long-term liabilities............................ 1,468 1,468
------- -------- -------
Total liabilities.............................. $44,560 $ (1,458) $43,102
Redeemable common stock................................ -- 1,880 <F3> 1,880

Common stock, 7,000,000 and 9,320,084 shares issued
respectively......................................... 18 (9)<F3> 9
Paid-in-Capital........................................ 96 15,004 <F3> 15,100
Treasury stock 11,300,653 and 0 shares issued
respectively......................................... (3,705) 3,705 <F3> --
Retained earnings...................................... 21,502 (19,122)<F2><F3> 2,380
------- -------- -------
Total shareholders' equity............................. $17,911 $ (422) $17,489
------- -------- -------
Total liabilities and shareholders' equity............. $62,471 0 $62,471
======= ======== =======
<FN>
- --------
<F1> Reflects adjustments for the Offering and the intended application of the
proceeds therefrom.

<F2> Reflects (i) the recognition of the S Corporation Distribution estimated to be
$10.1 million at December 31, 1996 and (ii) the recognition of a deferred
tax liability of approximately $4.2 million upon termination of the
Company's S Corporation status.

<F3> Reflects (i) the offering of 1,918,000 shares of Common Stock by the
Company at an initial public offering price of $8.00 per share for total
net proceeds of $13.7 million and the application of the net proceeds
therefrom to repay indebtedness of $3.6 million and payment of the S
Corporation Distribution of $10.1 million, (ii) the issuance of 135,000
shares of Common Stock to Weldco (or certain shareholders of Weldco), and
the retirement of indebtedness payable to Weldco in the aggregate
principal amount of $1,720,000, in each case immediately prior to the
closing of the Offering pursuant to the purchase agreement among the
Company, Weldco and certain other parties, and the purchase by Weldco (or
certain shareholders of Weldco) of 100,000 shares in the Offering. The
owners of such 235,000 shares ($1,880,000) will have the right to require
that the Company repurchase such shares for a period of three years
following the closing of the Offering at the initial public offering price
plus interest, (iii) the issuance of 170,718 shares of Common Stock at
$8.00 per share to two executive officers immediately prior to the closing
of the Offering in connection with the termination of certain deferred
compensation agreements, (iv) the issuance of 96,366 shares of Common
Stock at $8.00 per share to a director immediately prior to the closing of
the Offering pursuant to a right under a consulting agreement to convert
deferred consulting payments to Common Stock, (v) recognition of an
expense net of related accruals of $0.3 million, of $1.9 million ($1.1
million after assumed taxes) in connection with the compensation
arrangements of $0.7 million ($0.4 million after assumed taxes) and
consulting arrangement of $1.2 million ($0.7 million after assumed taxes)
and (vi) cancellation of treasury stock. See "Use of Proceeds," "S
Corporation Distribution," "Management--Benefit Plans" and "Certain
Relationships and Related Transactions."
</TABLE>
15

<PAGE> 16
SELECTED HISTORICAL FINANCIAL DATA

Set forth below is selected financial data for each of the five years ended
June 30, 1996 and for the six-month periods ended December 31, 1995 and 1996.
The selected financial data for each of the three years ended June 30, 1996 has
been derived from the Company's Financial Statements included elsewhere in this
Prospectus which have been audited by Arthur Andersen LLP, independent public
accountants. The selected financial data for the years ended June 30, 1992 and
1993 has been derived from financial statements that are not included herein.
The selected financial data for the six months ended December 31, 1995 and 1996
has been derived from the Company's unaudited interim financial statements
contained elsewhere in this Prospectus. In the opinion of management, the
unaudited financial statements have been prepared on the same basis as the
audited Financial Statements and include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for these periods. Results of
operations for the six months ended December 31, 1996 are not necessarily
indicative of results to be expected for the year ending June 30, 1997. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business,"
"Risk Factors" and the Financial Statements and the Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................. $30,789 $35,251 $39,166 $44,914 $53,612 $24,138 $33,777
Cost of products sold,
excluding depreciation
and amortization........ 13,117 14,911 16,844 19,931 23,617 10,678 15,504
------- ------- ------- ------- ------- ------- -------
Gross profit.............. 17,672 20,340 22,322 24,983 29,995 13,460 18,273
Operating and
administrative
expenses................ 12,521 14,735 15,704 17,688 20,295 9,196 12,567
Depreciation and
amortization............ 2,169 2,324 2,790 3,112 4,700 1,999 2,934
------- ------- ------- ------- ------- ------- -------
Income from operations.... 2,982 3,281 3,828 4,183 5,000 2,265 2,772
Interest expense.......... 1,329 1,204 1,038 1,072 1,561 675 993
Other income.............. 367 342 271 444 662 306 150
------- ------- ------- ------- ------- ------- -------
Net income<F1>............ 2,020 2,419 3,061 3,555 4,101 1,896 1,929
Pro forma income tax
provision<F2>........... 808 968 1,224 1,422 1,640 758 772
------- ------- ------- ------- ------- ------- -------
Pro forma net
income<F2>.............. $ 1,212 $ 1,451 $ 1,837 $ 2,133 $ 2,461 $ 1,138 $ 1,157
======= ======= ======= ======= ======= ======= =======
Pro forma net income per
common share<F2>........ $ 0.17 $ 0.20 $ 0.25 $ 0.29 $ 0.30 $ 0.16 $ 0.14
Pro forma weighted average
shares outstanding<F3>.. 7,267 7,267 7,267 7,267 8,335<F4> 7,267 8,335<F4>
OTHER FINANCIAL DATA:
Capital expenditures...... $ 1,055 $ 1,218 $ 2,908 $ 4,426 $ 3,647 $ 1,288 $ 1,377
Cash flow from operating
activities.............. 4,224 4,479 5,971 6,317 7,423 2,415 1,187
Cash flow from
investing activities.... (898) (1,185) (4,080) (7,167) (9,179) (6,419) (5,781)
Cash flow from
financing activities.... (1,976) (3,082) (1,846) 1,624 2,450 3,754 3,852
OTHER NON-GAAP FINANCIAL DATA:
EBITDA<F5>................ $ 5,518 $ 5,947 $ 6,889 $ 7,739 $10,362 $ 4,570 $ 5,856

<CAPTION>
JUNE 30, DECEMBER 31,
------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $ 3,889 $ 4,376 $ 5,116 $ 6,327 $ 7,218 $ 9,194 $ 9,709
Total assets.............. 26,600 25,268 27,133 33,421 45,491 41,791 62,471
Total debt................ 15,145 12,835 11,931 15,099 22,244 21,047 35,717
Shareholders' equity...... 7,848 9,529 11,648 13,796 16,371 15,375 17,911

<PAGE> 17
<FN>
- --------
<F1> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.

<F2> The pro forma income tax provision, pro forma net income and pro forma net
income per common share reflect federal and state income taxes, assuming a
40% statutory tax rate, as if the Company had been taxed as a C
Corporation for all periods presented.

<F3> Pro forma weighted average number of shares outstanding used to calculate
pro forma net income per common share is based on the historical weighted
average number of shares outstanding, as adjusted to reflect (i) the
issuance of 170,718 shares of Common Stock to two executive officers
immediately prior to the closing of the Offering in connection with the
termination of certain deferred compensation agreements and (ii) the
issuance of 96,366 shares of Common Stock to a director immediately prior
to the closing of the Offering pursuant to a right under a consulting
agreement to convert deferred consulting payments to Common Stock. See
"Management--Benefit Plans" and "Certain Relationships and Related
Transactions." In connection with these compensation and consulting
arrangements, the Company will incur a one-time expense of $1.9 million in
the period in which the closing of the Offering occurs.

<F4> Further adjusted to reflect the assumed issuance of 1,068,208 shares of
Common Stock to fund the excess of dividends (including the estimated S
Corporation Distribution) over net income for the six months ended
December 31, 1996.

<F5> EBITDA represents the earnings of the Company before income taxes, net
interest expense, depreciation and amortization and other noncash items
reducing net income. EBITDA is not a measure of financial performance
under GAAP and may not be comparable to other similarly titled measures by
other companies. Accordingly, it does not represent net income or cash
flows from operations as defined by GAAP and does not necessarily indicate
that cash flows will be sufficient to fund cash needs. As a result, EBITDA
should not be considered an alternative to net income as an indicator of
operating performance or to cash flows as a measure of liquidity. The
Company incurs significant capital expenditures and incurs debt, primarily
related to acquisitions, which are not reflected in EBITDA. As such, the
Company has provided above cash flows from operating, investing and
financing activities, and capital expenditures which reflect these
transactions. The Company has included information concerning EBITDA as it
understands that it is used by certain investors as one measure of an
issuer's historical ability to service its debt.
</TABLE>
17

<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Financial Statements and the Notes thereto
and the Selected Historical Financial Data included elsewhere in this
Prospectus. This discussion contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this section, the
words "anticipate," "believe," "estimate," "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from those expressed in, or
implied by, these forward-looking statements as a result of, among other
things, the factors set forth in the section entitled "Risk Factors."
Historical operating results are not necessarily indicative of the trends in
operating results for any future period.
OVERVIEW

The Company believes it has been successful in executing its strategy of
growth through acquisitions, having completed 22 acquisitions since 1990. Some
acquisitions have had, and the Company expects some future acquisitions may
have, a dilutive effect upon the Company's income from operations and net
income before tax for a short period following consummation. This temporary
dilution occurs because some of the benefits of acquisitions, such as
leveraging of operating and administrative expenses, improved product gross
margins and real sales growth, occur over a period ranging from two to eight
quarters, depending upon the complexity of integrating each acquisition into
the Company's existing operations. The Company anticipates that the benefits of
the Weldco and Weber acquisitions will be realized over a comparable period.
The consideration for most acquisitions includes a combination of a cash
payment at closing, seller financing and payments under covenants not to
compete and consulting agreements. In most cases, operating cash flow of an
acquired business is positive in a relatively short period of time. For many
acquisitions, the Company believes that projections of future cash flows
justify payment of amounts in excess of the book or market value of the assets
acquired, resulting in goodwill being recorded.

The Company's results are subject to moderate seasonality, primarily due to
fluctuations in the demand for propane, which is highest during winter months
falling in the Company's second and third fiscal quarters.

Operating and administrative expenses are comprised primarily of salaries,
benefits, transportation equipment operating costs, facility lease expenses and
general office expenses. These expenses are generally fixed on a quarter-
to-quarter basis. The Company believes that changes in these expenses as a
percentage of sales should be evaluated over the long term rather than on a
quarter-to-quarter basis due to the moderate seasonality of sales mentioned
above and the generally fixed nature of these expenses.

Historically, the Company's gross profit margins as a percentage of sales
have been higher on the sale of gases than on the sale of welding equipment and
supplies ("hard goods"). As a result of recent acquisitions of some
distributors with a higher proportion of hard goods to gas sales, the Company's
average gross profit as a percentage of sales has decreased in comparison to
prior years, even though the dollar amount of the gross margin has increased.
Future acquisitions may affect this pattern depending upon the product mix of
the acquired businesses.

The Company has been an S Corporation for federal and state income tax
purposes. As a result, the Company has not been subject to federal and state
income taxes. The Company will terminate its S Corporation election in
connection with the Offering and become a C Corporation. Upon termination of
the S Corporation election, the Company will be required to recognize
approximately $4.2 million of deferred income taxes in the period in which the
closing of the Offering occurs.

<PAGE> 19
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items in
the Company's statements of operations as a percentage of net sales. Results
for any one or more periods are not necessarily indicative of annual results or
continuing trends.

<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-----------------------------------------------------
SIX MONTHS
ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
----------------------------- -----------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold, excluding depreciation and
amortization.............................................. 43.0 44.4 44.1 44.2 45.9
----- ----- ----- ----- -----
Gross profit................................................ 57.0 55.6 55.9 55.8 54.1
Operating and administrative expenses....................... 40.1 39.4 37.8 38.1 37.2
Depreciation and amortization............................... 7.1 6.9 8.8 8.3 8.7
----- ----- ----- ----- -----
Income from operations...................................... 9.8 9.3 9.3 9.4 8.2
Interest expense............................................ 2.7 2.4 2.9 2.8 2.9
Other income................................................ 0.7 1.0 1.2 1.3 0.4
----- ----- ----- ----- -----
Net income<F1>.............................................. 7.8% 7.9% 7.6% 7.9% 5.7%
===== ===== ===== ===== =====
EBITDA<F2>.................................................. 17.6% 17.2% 19.3% 18.9% 17.3%

<FN>
- --------
<F1> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.

<F2> EBITDA represents the earnings of the Company before income taxes, net
interest expense, depreciation and amortization and other noncash items
reducing net income. EBITDA is not a measure of financial performance
under GAAP and may not be comparable to other similarly titled measures by
other companies. See footnote 5 to the Selected Historical Financial Data.
</TABLE>

Comparison of Six Months Ended December 31, 1996 and 1995

Net sales increased 39.9%, or $9.7 million, to $33.8 million from $24.1
million for the six months ended December 31, 1996 and 1995, respectively.
Acquisitions made during the preceding twelve months contributed $7.9 million
of the increase in net sales, while base business growth contributed $1.7
million of the increase. Gases and cylinder income represented 57.3% of net
sales for the six months ended December 31, 1996, with hard goods representing
the remaining 42.7%. In comparison, net sales for the six months ended December
31, 1995 reflected gases and cylinder income as 61.5% and hard goods as 38.5%.
This change in sales mix reflects the effect of acquisitions made during the
preceding twelve months that as a consolidated group have had a sales mix of
36.5% gases and cylinder income and 63.5% hard goods. The Company believes that
this base of hard good customers related to these acquisitions provides it the
opportunity to build gas and cylinder business in the future.

Gross profit, which excludes depreciation and amortization, increased 35.8%,
or $4.8 million, to $18.3 million from $13.5 million for the six months
ended December 31, 1996 and 1995, respectively. Acquisitions made during the
preceding twelve months contributed $3.9 million of the increase in gross
profit, while the base business contributed $0.9 million of the increase. Gross
profit as a percentage of net sales was 54.1% compared to 55.8% for the six
months ended December 31, 1995. This change reflected an increase in the
proportion of hard good sales, which have a lower gross profit margin as a
percentage of net sales than gases, to 42.7% compared to 38.5% of net sales for
the same six months in 1995. This increase in the proportion of hard good sales
was primarily attributable to the two most recent acquisitions. Sharp increases
in propane costs during the six month period reduced the total gases gross
profit margin as a percentage of net sales as compared to the same six months in
1995. The Company implemented propane pricing policy changes during this period
to help insure that future cost changes are passed to its customers.

<PAGE> 20
Operating and administrative expenses increased 36.7%, or $3.4 million, to
$12.6 million from $9.2 million for the six months ended December 31, 1996 and
1995, respectively. Of this increase, $2.6 million was related to acquired
businesses, $0.2 million was for employee benefits, and $0.4 million was for
facility lease expenses. The increase in employee benefits reflects additional
amounts accrued for hospitalization and profit sharing. The increase in
facility lease expense was due to the commencement of lease payments on certain
properties subsequent to the sale of those properties by the Company to West
Rentals, Inc. See "Certain Relationships and Related Transactions." The
remaining increase is primarily attributable to inflation and expenses
associated with acquisitions made during the six month period. Depreciation and
amortization expense increased $0.9 million for the six months ended December
31, 1996 compared to the same period in 1995, primarily as a result of
acquisitions made during the last twelve months.

Net income of $1.9 million for the six months ended December 31, 1996 was
basically unchanged compared to the same period in 1995, although net income
as a percent of net sales decreased from 7.9% to 5.7%, reflecting primarily the
increase in depreciation, amortization and interest expense attributable to
acquisitions.

Earnings before interest, taxes, depreciation and amortization increased
28.1%, or $1.3 million, to $5.9 million for the six months ended December 31,
1996 compared to the same period in 1995.

Comparison of Years Ended June 30, 1996 and 1995

Net sales increased 19.4%, or $8.7 million, to $53.6 million from $44.9
million in fiscal 1996 and fiscal 1995, respectively. Acquisitions contributed
$7.7 million of the increase in net sales, while base business growth
contributed $1.0 million of the increase, fiscal 1996 sales mix of 60.3% gases
and cylinder income and 39.7% hard goods compared to fiscal 1995 sales mix of
62.0% gases and cylinder income and 38.0% hard goods, reflecting the effect of
acquisitions made during fiscal 1996 that had a sales mix of 42.2% gases and
cylinder income and 57.8% hard goods.

Gross profit, which excludes depreciation and amortization, increased 20.1%,
or $5.0 million, to $30.0 million from $25.0 million in fiscal 1996 and fiscal
1995, respectively. Acquisitions contributed $4.7 million of the increase in
gross profit, while the base business contributed $0.3 million of the increase.
Gross profit as a percentage of net sales improved to 55.9% in fiscal 1996,
compared to 55.6% in fiscal 1995, with improvements in gross profit as a
percentage of sales for each of the product groups being partially offset by
sales of hard goods increasing to 39.7% of net sales compared to 38.0% of net
sales in fiscal 1995.

Operating and administrative expenses increased 14.7%, or $2.6 million, to
$20.3 million from $17.7 million in fiscal 1996 and fiscal 1995, respectively.
Acquisitions contributed substantially all of this increase. Operating and
administrative expenses as a percentage of net sales improved to 37.8% in fiscal
1996, compared to 39.4% in fiscal 1995, reflecting the leveraging of general and
administrative costs as net sales were added from acquisitions. Depreciation and
amortization expense increased $1.6 million in fiscal 1996 compared to fiscal
1995, reflecting increased spending for acquisitions and capital expenditures.
Interest expense increased $0.5 million in fiscal 1996 compared to fiscal 1995
reflecting increased borrowings to finance acquisitions.

Net income increased 15.4%, or $0.5 million, to $4.1 million from $3.6
million in fiscal 1996 and fiscal 1995, respectively.

Earnings before interest, taxes, depreciation and amortization increased
33.9%, or $2.7 million, to $10.4 million from $7.7 million in fiscal 1996 and
fiscal 1995, respectively.

Comparison of Years Ended June 30, 1995 and 1994

Net sales increased 14.7%, or $5.7 million, to $44.9 million from $39.2
million in fiscal 1995 and fiscal 1994, respectively. Acquisitions contributed
$1.9 million of the increase in net sales, while base business growth
contributed $3.8 million of the increase, reflecting the growth of propane and
welding supplies sales at existing locations. The Company's net sales mix
remained relatively unchanged between fiscal 1995 and fiscal 1994 with gases and
cylinder income representing 62.0% and 62.5% respectively.

Gross profit, which excludes depreciation and amortization, increased 11.9%,
or $2.7 million, to $25.0 million from $22.3 million in fiscal 1995 and fiscal
1994, respectively. Acquisitions contributed $1.2 million of the increase in
gross profit in fiscal 1995, while the base business contributed $1.5 million of
the increase. Gross profit as a percentage of net sales declined to 55.6% in
fiscal 1995, compared to 57.0% in fiscal 1994. The decline in gross profit as a

<PAGE> 21

percentage of net sales reflects an increase in propane sales, which have a
lower gross profit as a percentage of net sales than other gases, and an
increase in product costs for hard goods. In fiscal 1995, the Company began
directing vendors to ship hard goods directly to the Company's branch locations,
rather than to the Company's central warehouse as in prior years. Vendors
increased purchase prices for hard goods to cover their additional shipping
costs. This increase in product cost was more than offset by reduced internal
distribution costs, which are reflected in operating expenses.

Operating and administrative expenses increased 12.6%, or $2.0 million, to
$17.7 million in fiscal 1995, compared to $15.7 million in fiscal 1994.
Acquisitions contributed $1.1 million of the increase in operating and
administrative expenses, while the base business contributed $0.9 million of
the increase.

Net income increased 16.1%, or $0.5 million, to $3.6 million from $3.1
million in fiscal 1995 and fiscal 1994, respectively.

Earnings before interest, taxes, depreciation and amortization increased
12.3%, or $0.8 million, to $7.7 million from $6.9 million in fiscal 1995 and
fiscal 1994, respectively.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly financial
information for each of the Company's last ten quarters. The Company believes
that this information includes all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such quarterly
information when read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus. The Company believes that
quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future
performance.

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Net sales....... $10,341 $11,081 $12,028 $11,464 $11,323 $12,815 $14,934 $14,540 $14,514 $19,263
Cost of products
sold,
excluding
depreciation
and
amortization.. 4,546 5,123 5,294 4,968 4,942 5,737 6,598 6,341 6,331 9,173
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.... 5,795 5,958 6,734 6,496 6,381 7,078 8,336 8,199 8,183 10,090
Operating and
administrative
expenses...... 4,154 4,235 4,754 4,546 4,333 4,862 5,590 5,510 5,741 6,826
Depreciation and
amortization.. 676 726 780 929 827 1,171 1,309 1,392 1,373 1,561
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income from
operations.... 965 997 1,200 1,021 1,220 1,045 1,437 1,297 1,069 1,703
Interest
expense....... 224 250 273 324 334 341 389 497 415 578
Other income.... 67 111 154 112 177 128 181 175 74 76
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net
income<F1>.... $ 808 $ 858 $ 1,081 $ 809 $ 1,064 $ 832 $ 1,229 $ 975 $ 728 $ 1,201
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
EBITDA<F2>...... $ 1,708 $ 1,834 $ 2,134 $ 2,062 $ 2,225 $ 2,344 $ 2,927 $ 2,864 $ 2,516 $ 3,340

<FN>
- ---------
<F1> For all periods shown, the Company elected to be treated as an S
Corporation. As a result, the income of the Company was taxed for federal
and state purposes directly to the Company's shareholders rather than to
the Company.

<PAGE> 22

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company has financed its operations, capital expenditures
and debt service with funds provided from operating activities. Acquisitions
have been financed by a combination of seller financing, bank borrowings and
funds generated from operations. Since April 1994, required debt service on
borrowings from banks has been limited primarily to interest payments.

At December 31, 1996, the Company had working capital of approximately $9.7
million. Funds provided by operations for the six months ended December 31,
1996 were approximately $1.2 million. Funds used for investing activities were
approximately $5.8 million for the six months, consisting primarily of capital
spending and financing for two acquisitions. Sources of funds from financing
activities for the six months were approximately $4.3 million from net
borrowings net of $0.4 million of S Corporation distribution for payment of
shareholder taxes.

Net cash provided by operating activities increased $1.1 million, to $7.4
million for fiscal 1996, compared to $6.3 million for fiscal 1995. Cash used
for acquisitions was approximately $6.4 million and $2.8 million for fiscal
1996 and fiscal 1995, respectively. Capital expenditures, made primarily for
the purchase of cylinders, tanks and delivery trucks, were approximately $3.6
million and $4.4 million for fiscal 1996 and fiscal 1995, respectively. The
Company received proceeds of $0.9 million in fiscal 1996 from the sale of real
estate. See "Certain Relationships and Related Transactions." The Company
borrowed $6.5 million and $5.0 million, made debt service payments of $2.5
million and $2.0 million, and made S Corporation distributions, principally for
payment of taxes, of $1.6 million and $1.4 million during fiscal 1996 and
fiscal 1995, respectively.

On October 4, 1996, the Company entered into a new credit facility totaling
$38.0 million, consisting of a $13.0 million term loan, which matures in seven
years and is amortized in equal monthly payments, and a $25.0 million revolving
loan with a $15.0 million sublimit for letters of credit, which matures in
October 1999. The revolving loan is used primarily to fund acquisitions. The
Company is not required to make principal payments on outstanding balances of
the revolving loan as long as certain covenants are satisfied. Interest is
charged on both the term loan and the revolving loan at either the lender's
prime rate or various LIBOR rates, at the Company's discretion, plus an
applicable spread. The weighted average interest rate for substantially all of
the borrowings under the credit facility was 7.62% as of December 31, 1996. The
Company pays a fee for the unused portion of the revolving loan. As of December
31, 1996, availability under the revolving loan was approximately $9.9 million,
with outstanding borrowings of approximately $10.1 million and outstanding
letters of credit of approximately $5.0 million. The credit facility is secured
by all of the Company's assets.

The loan agreement for the credit facility contains various financial
covenants applicable to the Company, including covenants requiring minimum
fixed charge coverage, maximum funded debt to EBITDA, and minimum net worth.
The Company is in compliance with these covenants and believes that it will
continue to be in compliance through at least the next twelve months.

The Company is obligated under various promissory notes related to the
financing of acquisitions that have various rates of interest, ranging from
3.0% to 10.0% per annum, and maturities through 2010. The outstanding balance
of these notes as of June 30, 1996 and 1995 was $3.8 million and $1.1 million,
respectively. The outstanding balance of these notes increased to $12.9 million
as of December 31, 1996, reflecting notes added as a result of the Weber and
Weldco acquisitions. Some of these notes are secured by assets related to the
applicable acquisition, some are unsecured, and some are backed by bank letters
of credit issued under the Company's credit facility. Outstanding letters of
credit as of June 30, 1996 and 1995 were $1.9 million and $0.7 million,
respectively.

The Company intends to use a portion of the net proceeds from the Offering
to reduce the balance of the revolving loan. The Company expects to use the
increased borrowing availability to pay for future acquisitions.

The Company believes that cash generated from operations, borrowing
availability under its credit facility and the net proceeds of the Offering
will be sufficient to satisfy the Company's requirements for operating funds,
capital expenditures and future acquisitions for at least the next twelve
months.

FLUCTUATIONS IN QUARTERLY RESULTS

The Company generally has experienced higher sales activity during its
second and third quarters as a result of seasonal sales of propane, with
corresponding lower sales for the first and fourth quarters. As a result,
income from

<PAGE> 23
operations and net income typically are higher for the second and third quarters
than for the first and fourth quarters of the fiscal year.

INFLATION

The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally low rates of inflation in the
economy and the Company's historical ability to pass purchase price increases
to its customers in the form of sales price increases. While inflation has not
had, and the Company does not expect that it will have, a material impact upon
operating results, there is no assurance that the Company's business will not
be affected by inflation in the future.

SUBSEQUENT EVENTS

On January 30, 1997, the Company entered into a letter of intent for the
purchase of all the outstanding shares of an industrial gas and welding supply
distributor for approximately $3.5 million. On February 28, 1997, the Company
entered into another letter of intent for the purchase of substantially all
the assets of an industrial gas and welding supply distributor for
approximately $3.8 million. The Company is proceeding with due diligence and
the negotiation of definitive purchase agreements. These acquisitions will be
financed by borrowings under the Company's credit facility.

RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of, was issued in March 1995. SFAS No. 121 requires that the carrying
value of long-lived operating assets, when determined to be impaired, be
adjusted so as not to exceed the estimated undiscounted cash flows provided by
such assets. SFAS No. 121 also addresses the accounting for long-lived assets
that are to be disposed of in future periods. The Company adopted the
provisions of SFAS No. 121 in the first quarter of fiscal 1997. The adoption of
SFAS No. 121 did not have any effect on the Company's financial position or
results of operations for the six months ended December 31, 1996.

Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, was issued in October 1995. The Company will be
required to adopt the new standard no later than fiscal 1997, although early
adoption is permitted. This standard establishes the fair value based method
(the "SFAS 123 Method") rather than the intrinsic value based method as the
preferred accounting methodology for stock-based compensation arrangements.
Entities are allowed to either (i) continue to use the intrinsic value based
methodology in their basic financial statements and provide in the footnotes
pro forma net income and earnings per share information as if the SFAS 123
Method had been adopted or (ii) adopt the SFAS 123 Method. Following adoption,
the Company anticipates providing the required disclosures in the notes to its
financial statements.

Financial Accounting Standard Board Statement No. 128, "Earnings Per Share"
(SFAS No. 128) was issued in February 1997 and is effective for periods ending
after December 15, 1997. This statement, upon adoption, will require all
prior-period earnings per share (EPS) data to be restated, to conform to
the provisions of the statement. This statement's objective is to simplify
the computation of EPS and to make the U.S. standard for EPS computations
more compatible with that of the International Accounting Standards
Committee. The Company will adopt SFAS No. 128 in fiscal 1998 and does not
anticipate that the statement will have a significant impact on its
reported EPS.

Financial Accounting Standard Board Statement No. 129, "Disclosure of
Information about Capital Structure" (SFAS No. 129) was issued in February 1997
and is effective for periods ending after December 15, 1997. This statement,
upon adoption, will require all companies to provide specific disclosure
regarding the entities capital structure. SFAS No. 129 will specify the
disclosures, for all companies, including descriptions of the securities
comprising the capital structure and the contractual rights of the
holders of such securities. The Company will adopt SFAS No. 129 in fiscal
1998 and does not anticipate that the statement will have a significant impact
on its disclosure.

<PAGE> 24
BUSINESS

OVERVIEW

The Company's gas operations consist primarily of the packaging and mixing
of industrial, medical and specialty gases, such as oxygen, nitrogen and argon,
in pressurized cylinders and the transportation of these cylinders to customers
from one of the Company's 40 distribution and retail locations. The Company
also distributes propane to industrial and residential customers. Customers pay
a rental fee for use of the Company's cylinders. The Company owns approximately
290,000 cylinders, which require minimal maintenance and have useful lives that
the Company expects will extend on average for 50 years or longer. The Company
selectively participates in the small bulk gas market through the delivery of
gases in cryogenic transports and the storage of gases in cryogenic tanks and
propane tanks which are also rented to bulk gas customers. The Company owns
approximately 7,000 bulk propane tanks and 250 bulk cryogenic tanks, which have
useful lives generally less than those of cylinders. In connection with the
distribution of gases, the Company sells welding equipment and supplies,
including welding machines, wire, fluxes and electrodes and a wide variety of
supporting equipment.

The Company's principal business strategy is to aggressively pursue growth
through the acquisition of other independent distributors and also through
internally generated growth. Since the Company was founded, it has completed 38
acquisitions. Since January 1, 1996, the Company has acquired four independent
distributors, including Weldco with annual sales of approximately $11 million
in its most recent fiscal year and operations in Cincinnati and Dayton, Ohio,
and Weber with annual sales of approximately $5 million in its most recent
fiscal year and operations in western Pennsylvania. The integration of Weldco
and Weber into the Company's existing operations is currently in progress, with
the benefits of integration expected to be realized in the next two to eight
quarters. Management believes there will continue to be numerous attractive
acquisition candidates available to the Company as a result of the
consolidation trend in the industry and that the Company will be able to
successfully integrate acquired operations into its base business, generating
growth and operational synergies. Acquisitions will be financed primarily with
borrowings under the Company's credit facility and seller financing. While
highly focused on external growth, management believes that the Company's
competitive strengths will allow it to increase sales and improve market share
in existing markets, while maintaining acceptable levels of profitability.

INDUSTRY OVERVIEW

GENERAL

The industrial, medical and specialty gas industry consists of two major
segments, the bulk segment and the packaged gas segment. The bulk segment
supplies gases to customers with large volume requirements, generally by truck
or pipeline to a customer's facility, or in some cases by the actual
construction of a gas production plant at a customer's facility. This segment
is primarily supplied by the major gas producers in the United States, although
some large distributors, such as the Company, selectively participate in the
small bulk gas market.

The Company competes primarily in the packaged gas segment, which consists
of the packaging, mixing and distribution of gases to customers with smaller
volume needs or requirements for specially blended or purified gases.

<PAGE> 25
This segment of the industry is estimated to have sales of $6 billion in the
United States, including sales of welding equipment and supplies. Participants
in this segment can be further divided into two groups, large multi-state
distributors with annual sales exceeding $25 million, and smaller, privately
owned companies with few or single locations and annual sales below $25
million. Management believes that large, multi-state distributors, including
the Company, account for approximately 50% of sales in the packaged gas
segment. Management estimates that the remaining sales are generated by
approximately 750 smaller distributors, many of which it believes are potential
candidates for acquisition by larger distributors in the current wave of
industry consolidation.

The Company believes that the following characteristics make the
distribution of packaged gases attractive and different from ordinary
industrial distribution: (i) the production, packaging and mixing of gases, as
well as the logistics of a large distribution network, require significant
knowledge and expertise; (ii) customers expect technical support and assistance
in a wide variety of gas applications; and (iii) the currently existing
logistical framework is unlikely to change significantly because of the
economics associated with the delivery and exchange of cylinders.

INDUSTRY CONSOLIDATION

The industry is undergoing significant consolidation, a trend which began
in the early 1980's. The Company believes there are many reasons for this
trend, including:

* Many of the owners who started welding supply distributors after World
War II are reaching retirement age without qualified succession.

* Small distributors are facing increasing competition from large
distributors who generally operate with lower cost structures due to
economies of scale.

* Rapid changes in technology in recent years are providing opportunities
for more efficient order entry, inventory and distribution management.
Larger distributors are more likely to have the capital and human
resources to take advantage of these opportunities, thereby creating
greater cost and service reliability advantages.

* Larger customers are demanding additional services from their suppliers
in such areas as automated order entry, automated restocking and
applications technology support. These services require an investment in
technology and equipment that many smaller distributors are incapable or
unwilling to make.

* The number and complexity of government regulations is increasing,
especially for distributors who produce or package gas products.
Complying with new regulations requires human resource expertise, which
is difficult for the smaller distributor to access and maintain.

* The acquisition of a distributor generally requires greater financial
resources than in the past because the businesses are generally larger,
sellers often demand full payment in cash, and sellers and major
industrial gas producers appear to be less willing to provide financing.

The Company believes this consolidation trend will continue, providing
opportunities for those distributors, such as the Company, who have the
financial and human resources to acquire and effectively assimilate
acquisitions into their base business. The Company believes that distributors
who fail to successfully participate in this consolidation trend and achieve a
strong or leading position in their market areas will be at a cost disadvantage
in the long term.

In recent years, the propane industry has also been undergoing
consolidation for many of the same reasons as the industrial gas industry. The
Company has been taking advantage of this consolidation trend through selective
acquisitions. Except for a few large companies, the propane distribution
industry is highly fragmented. Industry sources indicate there are
approximately 8,000 retail propane companies operating 13,500 local
distribution centers nationwide. The Company believes that the 50 largest
propane distributors have less than a 50% share of the approximately nine
billion gallon annual market.

ECONOMIC CHARACTERISTICS OF THE INDUSTRY

The industrial gas industry is mature with real growth consistent with
growth in the overall economy. Gas sales tend to be less adversely impacted by
a decline in general economic conditions than the sale of welding equipment and
supplies. Management believes that the industrial gas distribution business is
relatively resistant to downturns in the

<PAGE> 26
business cycle due to the following factors: (i) the industry has a broad and
diverse customer base; (ii) gases frequently represent a fixed component of
operating costs which does not decline with production levels; (iii) gases are
required for maintenance and renovation activities, which tend to increase
during economic downturns; (iv) industries less impacted by economic downturns
are major purchasers of industrial gases; and (v) gas purchases represent a
small portion of operating expenses and, therefore, are not a large cost
cutting item. The total market for industrial gases has continued to expand due
to strong growth in certain segments, such as electronics, food processing and
health care, and significant growth from new applications for industrial gases.
However, other activities which use industrial gases, such as metal
fabrication, have declined in recent years.

BUSINESS STRATEGY

The Company has implemented a strategic plan designed to (i) sustain
profitable growth through the acquisition of key distributors in selected
markets, (ii) achieve and maintain a low-cost supplier position in each market
segment where the Company participates and (iii) build a unified, cohesive
organization, staffed by skilled employees who are responsive to changing
customer requirements.

GROWTH THROUGH ACQUISITIONS

Prior Acquisitions. Since the formation of the Company in 1958, the Company
has completed the acquisition of the 38 distributors identified below:

<TABLE>
<CAPTION>
DISTRIBUTOR PRINCIPAL LOCATION FISCAL YEAR ACQUIRED
- ----------- ------------------ --------------------
<S> <C> <C>
Weldco, Inc. Cincinnati, OH 1997
Weber Gas & Welding Supply Co., Inc. Pittsburgh, PA 1997
Gas & Oil, Inc. Croydon, PA 1996
U.S. Air & Supplies, Inc. Chambersburg, PA 1996
Wootten Industries, Inc. Salisbury, MD 1996
Quest Welding Supply Columbus, OH 1996
AL Compressed Gases Sharonville, OH 1995
Ted's Bottled Gas, Inc. Tarentum, PA 1995
Allegheny LP Gas Evans City, PA 1995
Evans Welding Supply Co. Johnson City, TN 1995
Ina Oil Co. Southport, NC 1995
Smith LP Gases Bruceton Mills, WV 1995
Green's LP Gases Carrollton, OH 1994
Allegheny Air Gas Washington, PA 1994
A-1 Welding Supply Co. Bluefield, VA 1994
Big Sandy Welding Supply Co. Paintsville, KY 1993
Fort Pitt Paint and Glass Pittsburgh, PA 1992
Linde Gases of Western Pennsylvania Greensburg, PA 1992
Malanzak Bottled Gas Co. Uniontown, PA 1991
Penn-Ohio Welding Supply Co. New Castle, PA 1990
Penn-Air Industrial Gases New Castle, PA 1990
Airco Rare and Specialty Gases Pittsburgh, PA 1990
Speedy Welding Supply Co. Wilmington, NC 1989
Safety Equipment Co. Wilmington, NC 1989
A-B-C Fire Protection Wilmington, NC 1989
Herdman Brothers Welding Supply Co. Steubenville, OH 1989
Dunlap Welding Supply Zanesville, OH 1989
Airco Retail Leetsdale, PA 1988

<PAGE> 27
<CAPTION>
DISTRIBUTOR PRINCIPAL LOCATION FISCAL YEAR ACQUIRED
- ----------- ------------------ --------------------
<S> <C> <C>
Interstate Welding Supply Co. Huntington, WV 1985
Welder's Products Connellsville, PA 1984
Wood Brothers Propane Co. Uniontown, PA 1983
Home Bottled Gas Co. Uniontown, PA 1983
Fayette Oxygen Co. Uniontown, PA 1983
Cambridge Welding Cambridge, OH 1980
Washington Welding Supply Co. Washington, PA 1980
Better Welding Supply Wheeling, WV 1978
Fire Safety Service Wheeling, WV 1975
Johnson Welder's Supply Co. Friendly, WV 1973
</TABLE>

The Company has entered into two letters of intent with two third parties
concerning the Company's purchase of two gas distribution businesses for a
purchase price of approximately $3.5 million and $3.8 million, respectively,
subject to certain adjustments. The parties are proceeding with due diligence
and the negotiation of definitive purchase agreements.

The Company's acquisitions historically have been financed, and the Company
expects that future acquisitions will be financed, primarily with borrowings
under the Company's credit facility and seller financing. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The Company does not currently intend to
issue shares of its Common Stock or other securities in order to consummate
its acquisitions, but may in the future elect to do so. Any such issuances
may be limited by the Right of First Refusal Agreement. See "The Right of
First Refusal Agreement."

Acquisition Strategy. The Company intends to continue to focus its
acquisition efforts both on market areas where the Company has an existing
presence and on new areas where it believes it can achieve a leading presence.
The Company believes there are many potential acquisition candidates with
operations in these market areas. The Company seeks to achieve operating
efficiencies when it acquires a distributor in an overlapping or contiguous
market area by closing redundant locations, eliminating a significant portion
of the acquired distributor's overhead and consolidating distribution routes.
Acquisitions in new markets allow the Company to achieve operating efficiencies
through volume discounts on purchases, lower administrative and professional
expenses and the purchase of new equipment to replace inefficient equipment and
equipment previously leased at relatively expensive rental rates.

The Company believes that its principal competitive advantages in acquiring
distributors are (i) its flexibility in structuring acquisitions to meet the
concerns of sellers, (ii) its ability to offer sellers a continuing role in
management and (iii) its methodology in assimilating acquisitions. The Company
also believes it has a well organized acquisition program which utilizes
individuals who are well respected in the industry and who have extensive
experience in evaluating and negotiating transactions with distributor owners.
Based upon the Company's experience, price is not always the primary
determining factor in a selling distributor's choice of a buyer. Most owners of
independent distributors are sensitive as to whom they sell their business and
have concern for the well being of their employees after the acquisition. The
Company has found that relationships, existing competitive rivalry and
reputation are key elements in the success of acquiring most small,
privately-owned distributors. The Company believes it has earned an excellent
reputation for treating fairly the employees of businesses it has acquired,
providing them with competitive wages and benefits and opportunities for
advancement within the scope of the Company's operations.

Competition for Acquisitions. In seeking to acquire distributors, the
Company competes with the major industrial gas producers and national and
regional gas distributors. The largest national distributor is Airgas, Inc.
("Airgas") which has been growing through acquisitions since the mid-1980's.
The Company expects that Airgas will continue to selectively acquire
distributors in the future, and in some situations will compete with the
Company for acquisitions. The Company believes that Praxair and AGA Gas, Inc.
are the only major industrial gas producers who are actively soliciting
independent distributors for purchase at this time, but that both have
self-imposed size and geographic constraints. The Company also believes that
some major industrial gas producers have limited their acquisition efforts due
primarily to the difficulty of resolving management differences, cultural
differences and cost structure differences between the small, privately-held
business and the large multinational corporation. The smaller independent

<PAGE> 28
distributors with which the Company competes for acquisitions generally do not
seek acquisitions beyond their immediate geographic region.
Acquisition Process. The Company has established formal procedures for
locating, investigating and valuing potential distributor acquisitions.
Criteria used by the Company in evaluating potential acquisitions include (i) a
history of profitability, (ii) realistic projections of future performance,
(iii) a sales mix which is or has the potential to become weighted towards the
sale of gases, which generally have higher profit margins than welding
equipment and supplies, (iv) a cylinder gas market which is serviced primarily
by independent distributors, as opposed to industrial gas producers and (v)
availability of qualified management and key personnel.

Assimilation of Acquired Businesses. The Company believes that the
effective assimilation of acquired businesses into the Company's existing
operations is critical to the success of the Company's acquisition strategy.
The Company has established a transition team comprised of selected personnel
with technical expertise in various areas, such as purchasing, accounting,
operations and sales. This team has primary responsibility for converting the
acquired business from its existing methods and practices to those used by the
Company. A primary goal of the assimilation process is to instill the Company's
culture into the new operations. The Company believes the ability to instill
its culture provides a distinct and key competitive advantage. This is partly
accomplished by requiring the adoption of uniform policies and procedures which
support the Company's operational strategies.

ACHIEVE AND MAINTAIN POSITION AS A LOW-COST SUPPLIER

The Company strives to produce, package and market the Company's products
and services at costs which are lower than its local market competitors. This
is achieved by optimizing branch size and location, requiring adherence to the
Company's uniform policies and procedures, taking advantage of volume discount
purchases not available to smaller competitors and utilizing the Company's
management information systems. Where branch size is suboptimal, the Company
has developed alternatives to increase size or profitability through growth or
product diversification. The Company has implemented a "best practices"
program involving the identification of the most effective method of performing
a specific activity, such as inventory control, and has adopted procedures and
training to implement the practice as a standard throughout the Company's
operations.

The Company has made a significant investment in its management information
systems as part of its strategy to be a low cost supplier. The Company has
installed an integrated company-wide point-of-sale data entry system that
provides current information on inventory levels and account status. The
Company believes significant costs savings have resulted from the increased
ability to efficiently manage inventory levels and accounts payable.

The Company believes the selective addition of complementary product
offerings will enable it to better serve its diverse, expanding customer base,
reach new customers, increase sales in existing locations and leverage its
distribution system. For this reason, the Company has focused in recent years
on expanding its propane business. The addition of propane distribution at
existing Company locations has proven to be advantageous by providing the
opportunity to leverage fixed costs at existing locations, thereby creating
economies of scale. Certain Company locations are more attractive than others
for propane distribution, due primarily to residential growth potential and
existing branch size. In addition to propane, the Company believes that fire
safety equipment, currently a very small component of total sales, may be
suitable for distribution to portions of the Company's existing customer base.

ENHANCE ORGANIZATIONAL STRENGTH

The Company believes that to be competitive in attracting and maintaining
customers it must have a skilled and responsive work force dedicated to
providing excellent service. The Company works to instill a service culture
through various operational policies. The Company places special emphasis on
customer service, including the ability to quickly respond to technical
questions on products and applications. The Company believes this is a key
value provided to its customers. The Company commits significant resources to
the training and education of its employees through various programs. See
"--Employees."

The Company strives to utilize to the fullest extent its existing
management resources. The Company recently restructured certain management
reporting relationships and areas of responsibility to place operating and
financial responsibility at the local market level, thereby eliminating a layer
of management and improving communication. These changes also allowed the
Company to redirect the focus of certain key management members on important

<PAGE> 29
operating issues, such as system logistics, training, budgeting and overall
operating performance, that are vital to managing the Company's growth.

PRODUCTS

Gases packaged and distributed by the Company include oxygen, nitrogen,
hydrogen, argon, helium, acetylene, carbon dioxide, nitrous oxide, specialty
gases and propane. Specialty gases include rare gases, high-purity gases and
blended, multi-component gas mixtures. In connection with the distribution of
gases, the Company sells welding equipment and supplies, including welding
machines, wire, fluxes and electrodes and a wide variety of supporting
equipment.

In fiscal 1996, the Company sold approximately eight million gallons of
propane to approximately 2,000 residential, commercial and industrial users.
Propane sales accounted for approximately 6% of net sales in fiscal 1996.
Typical residential and commercial uses include conventional space heating,
water heating and cooking. Typical industrial uses include engine fuel for fork
lifts and other vehicles, metal cutting, brazing and heat treating. The
distribution of propane is seasonal in nature and sensitive to variations in
weather with consumption as a heating fuel peaking sharply in winter months.

While primarily a packager and distributor of gases, the Company also
manufactures a portion of its acetylene requirements at its facility in West
Mifflin, Pennsylvania. Acetylene is produced through a combination of calcium
carbide and water at relatively high temperatures. The reaction of these
elements also produces lime as a by-product, which is sold in bulk to customers
for a variety of applications. In fiscal 1996, acetylene accounted for
approximately 3% of net sales.

The following table sets forth the percentage of the Company's net sales
for the fiscal years ended June 30, 1994, 1995 and 1996 and for the six months
ended December 31, 1996 for each of the following products and services:

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, SIX MONTHS
-------------------------- ENDED
1994 1995 1996 DEC. 31, 1996
---- ---- ---- --------------
<S> <C> <C> <C> <C>
Gases............................................. 47.5% 47.2% 45.9% 43.6%
Welding equipment and supplies.................... 37.5 38.0 39.7 42.7
Cylinder rental................................... 15.0 14.8 14.4 13.7
</TABLE>

CUSTOMERS

The Company currently has more than 40,000 customers, none of which
accounted for more than 1.5% of net sales in fiscal 1996. In fiscal 1996,
approximately 23% of the Company's net sales were to metal production and
fabrication customers. The second largest customer category was health care,
which represented 9% of the Company's net sales in fiscal 1996 and is one of
the Company's fastest growing categories. The customer base also includes
smaller distributors who are in close proximity to one of the Company's larger
packaging facilities and find it economically advantageous to source certain
products from the Company.

The Company believes the industry has been characterized by relatively high
customer loyalty because of the importance of quality service and personal
relations. This characteristic has made it difficult for new entrants in a
market to acquire existing customers. However, service requirements for certain
large customers are becoming more demanding and sophisticated and the Company
expects that this will result in more account turnover in the future.

For some larger volume customers, bulk cryogenic products are delivered in
transports to cryogenic tanks at the customer location. The Company serves
small bulk customers only where it can compete effectively with producers,
primarily on the basis of service and the supply of other products, such as
cylinder gases and hard goods.

SALES AND MARKETING

The distribution of most packaged gases is most economically performed
within approximately a thirty-mile radius of the product packaging or inventory
location due primarily to the costs associated with the delivery of cylinders.
Therefore, the aggregate national market of $6 billion consists of hundreds of
regional markets with an estimated size of $5 million to $100 million in annual
sales. The Company believes the average market size is approximately $20
million.

<PAGE> 30
The Company solicits and maintains business primarily through a direct
selling effort using an experienced sales force of approximately 60 sales
representatives. Sales representatives receive continuous training so that they
are knowledgeable about gas and product performance characteristics and current
application technology. On average, the Company's sales representatives have
more than ten years of industry experience. Sales representatives are paid a
base salary and commissions based upon account profit margin. Efforts are
focused on accounts generating sales of high margin products. Occasionally,
sales representatives make joint sales calls with the Company's suppliers to
address difficult or innovative customer application requirements. The Company
has been testing both telemarketing and catalog solicitation at selected
locations to attract new accounts.

Smaller accounts are usually served from "walk in" retail locations,
where the gases and hard goods are picked up rather than delivered. Each retail
location contains a showroom to allow the customer easy access to equipment and
supplies. Branch locations are chosen on the basis of local market distribution
logistics rather than suitability for "walk in" retail sales. The Company's
advertising efforts are limited as management does not consider advertising to
be a significant factor in generating sales.

COMPETITION

Competition is almost always on a regional market basis and is based
primarily on customer loyalty, service and, to a lesser extent, price. Most
regional markets have between three and six competitors, the majority of whom
are small independent companies, with one or two competitors having a
significantly higher market share than the others. The Company competes in many
markets throughout West Virginia, Pennsylvania, Kentucky, Ohio, Virginia,
Tennessee, Maryland, Delaware and North Carolina. The Company believes it has a
strong or leading position in most of the markets it serves.

While the Company competes with the distribution subsidiaries of the major
industrial gas producers, the Company does not believe that the production of
industrial gas provides these producers with a significant competitive
advantage because in most cases, the cost for base gases represents a
relatively minor component of the total selling price in comparison to the
packaging and distribution expenses.

SUPPLIERS

The Company purchases industrial gases pursuant to short-term supply
arrangements and open purchase orders with three of the five major gas
producers in the United States. One such producer accounted for approximately
80% of the Company's gas purchases in fiscal 1996. If any of these arrangements
were terminated, the Company believes it would be able to readily secure an
alternate source of supply.

The Company purchases welding equipment and consumable supplies from
approximately 85 primary vendors, of which purchases from the top five vendors
represented approximately 61% of total purchases in fiscal 1996. Purchases from
major vendors are made pursuant to purchase orders that are cancelable by the
Company upon minimal notice. With supplier overcapacity in most product lines
and high competitive rivalry for volume purchasers, large distributors such as
the Company are generally able to purchase welding equipment and supplies from
the vendor of their choice. This enables the Company to participate in vendor
discount and rebate programs and obtain products at competitive costs.

The Company purchases propane from pipeline sources at various supply
points in its market areas, generally on a short-term basis at prevailing
market prices. The Company historically has been able to adjust prices to
customers to reflect changes in product cost, which varies with season and
availability. The Company is not dependent upon any single supplier for propane
and supplies have historically been readily available. A significant portion of
the Company's propane sales are made to industrial customers. As a result, the
Company's sales are less seasonal than those of many competitors in the propane
market who focus on the residential segment. Because of the Company's off-peak
season demand, the Company believes that it would be less likely than some
distributors to be placed on allocation by suppliers during a period of tight
supply and accordingly would receive adequate supplies to meet customer demand.

<PAGE> 31

EMPLOYEES

At December 31, 1996, the Company employed 441 people, of whom
approximately 19% were covered by collective bargaining agreements.
Historically, the Company has not been adversely affected by strikes or work
stoppages. Approximately 58% of the Company's employees are hourly workers. The
Company believes it has a skilled and motivated work force and that its
relationship with employees is good. The Company believes that its wages and
benefits, which reflect local conditions, are competitive with those provided
by major competitors. All of the Company's hourly employees are currently paid
wages at a rate that exceeds the current, and federally mandated increases in,
the minimum wage. The Company believes it would not be materially impacted by
future increases in the minimum wage.

The Company believes that continuing education is necessary for its
employees to achieve and maintain the skills required to be effective in
today's competitive environment. At its Wheeling, West Virginia training
center, the Company provides a variety of programs and courses covering all
phases of operations, sales, safety and distribution. Key suppliers also
provide employees product training relating primarily to welding and gas
application technology.

PROPERTIES

The Company owns approximately 290,000 cylinders, 7,000 bulk propane tanks
and 250 bulk cryogenic tanks, generally ranging in size from 250 gallons to
11,000 gallons. Most cylinders and storage tanks are located at customer sites.
Cylinders require minimal maintenance and have useful lives that the Company
expects will extend on average for 50 years or longer. Bulk tanks have useful
lives generally less than those of cylinders.

The Company has 40 industrial gas and welding supply distribution locations
in nine states, twelve of which also package and distribute propane. A typical
location has two acres of property, 5,000 square feet of space used to
warehouse hard goods, 5,000 square feet of space used for gas filling and
cylinder storage and 2,000 square feet of space used for a retail showroom. The
Company's headquarters are located in 20,000 square feet of space located in
Wheeling, West Virginia.

Most of the specialty gas products sold by the Company are purified,
packaged and mixed at a facility operated by the Company in Evans City,
Pennsylvania. This facility normally processes approximately 30,000 cylinders
per month, but has capacity to process approximately 50% more volume, which the
Company believes would be sufficient to meet increased volume requirements in
the future.

All of the Company's facilities are leased on terms which the Company
believes are consistent with commercial rental rates prevailing in the
surrounding rental market. See "Certain Relationships and Related
Transactions." The Company believes that its facilities are adequate for its
needs and that its properties are generally in good condition, well maintained
and suitable for their intended use.

REGULATORY MATTERS

The Company is subject to federal and state laws and regulations adopted
for the protection of the environment, and the health and safety of employees
and users of its products. In addition, the Company voluntarily complies with
applicable industry safety standards. Management believes that the Company is
in substantial compliance with all such laws, regulations and standards
currently in effect and that the cost of compliance with such laws, regulations
and standards will not have a material adverse effect on the Company.

PRODUCT LIABILITY AND INSURANCE

The Company maintains insurance coverage which it believes to be adequate.
The nature of the Company's business may subject it to product liability
lawsuits. To the extent that the Company is subject to claims which exceed its
liability insurance coverage, such suits could have a material adverse effect
on the Company. No such lawsuits are pending against the Company and the
Company has not suffered any material losses from such lawsuits in the past.

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings.

<PAGE> 32
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

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

<TABLE>
<CAPTION>
YEARS
EXPERIENCE IN
NAME AGE INDUSTRY POSITION
---- --- ------------- --------
<S> <C> <C> <C>
Gary E. West...................................... 60 27 Chairman of the Board of Directors
Lawrence E. Bandi................................. 42 23 President, Chief Executive Officer, Director
John R. Bushwack.................................. 46 21 Executive Vice President, Chief Operating
Officer, Secretary, Director
Robert D. Scherich................................ 36 1 Chief Financial Officer
Ben Exley, IV..................................... 50 1 Director
James P. Hart..................................... 42 1 Director
William A. Indelicato............................. 57 28 Director
R. Bruce Kraemer.................................. 51 30 Director
August E. Maier................................... 67 14 Director

</TABLE>

GARY E. WEST, CHAIRMAN OF THE BOARD. Mr. West has served as Chairman of the
Board of Directors of the Company since 1984. From 1970, when he purchased the
Company, to March 1995, Mr. West served as President of the Company. Mr. West
is primarily responsible for the growth and success of the Company. Mr. West
has also served as President of West Rentals, Inc. and Equip Lease Corp. and
Vice President of Acetylene Products Corp. since 1992, 1988 and 1985,
respectively. See "Certain Relationships and Related Transactions." Since
June 1993, he has served as a director of WesBanco Wheeling, and since June
1990 he has served as a director of H.E. Newmann Co., a plumbing, heating and
mechanical contracting company. Mr. West received his Bachelor of Science
degree in Business Administration from West Liberty State College.

LAWRENCE E. BANDI, PRESIDENT AND CHIEF EXECUTIVE OFFICER. Mr. Bandi has
served as President and Chief Executive Officer of the Company since March 1995
and April 1991, respectively, and as a director of the Company since March
1984. Mr. Bandi has held various positions with the Company since joining it in
1974. Mr. Bandi is a Director of the Ohio Valley Industrial and Business
Development Corporation, a private corporation established for the purpose of
attracting various business entities to West Virginia. Mr. Bandi received his
Bachelor of Science degree in Accounting from Wheeling College and his Masters
in Business Administration degree from Wheeling Jesuit College.

JOHN R. BUSHWACK, EXECUTIVE VICE PRESIDENT, CHIEF OPERATING OFFICER AND
DIRECTOR. Mr. Bushwack has served as the Executive Vice President, Chief
Operating Officer and a director of the Company since January 1997. From 1991
to 1996, Mr. Bushwack served in various positions with the Company, including
Executive Vice President of Sales and Acquisitions, Vice President of Sales and
Acquisitions, Vice President of Sales and General Manager. From 1987 to 1990,
Mr. Bushwack served as President of the Harvey Company, a gas distributor, and
from 1990 to 1991 he served as Vice President and director of Linde Gases of
the Great Lakes, also a gas distributor. In addition, Mr. Bushwack has been a
director of Convenient Care Products Group, Ltd., a division of Westmoreland
Health System, since 1991.

ROBERT D. SCHERICH, CHIEF FINANCIAL OFFICER. Mr. Scherich has served as the
Company's Chief Financial Officer since May 1996. From January 1993 to April
1996, he served as Controller and General Manager of Wheeling Pittsburgh Steel
Corporation, a subsidiary of WHX Corporation, and from January 1988 to December
1993 he served as Division Controller of such corporation. Mr. Scherich was an
accountant with Ernst & Whinney from 1981 to 1984. Mr. Scherich received his
Bachelor of Science degree in Accounting from Pennsylvania State University and
is a Certified Public Accountant.

BEN EXLEY, IV, DIRECTOR. Mr. Exley was elected a Director of the Company in
January 1997. He has served as the President of Ohio Valley-Clarksburg, Inc.
since 1990 and Bailey Drug Company since 1993, both of which are pharmaceutical
distributors and wholly-owned subsidiaries of Cardinal Health Inc. Mr. Exley
has also served on the

<PAGE> 33
board of directors of several companies, including BankOne West Virginia N.A.
since 1994, BankOne Wheeling-Steubenville N.A. since 1991 and Stone & Thomas, a
chain of clothing department stores, since 1991. Mr. Exley is a graduate of
West Virginia Wesleyan with a Bachelor of Science degree in Business
Administration. He also holds a Masters in Business Administration degree from
Northern Illinois University.

JAMES P. HART, DIRECTOR. Mr. Hart was elected a director of the Company in
January 1997. He has been Vice President and Chief Financial Officer of
Industrial Scientific Corporation ("ISC"), a manufacturer of portable
instruments used for detecting and monitoring a variety of gases, since August
1994. From March 1984 to August 1994, Mr. Hart was Treasurer and Controller of
ISC. Mr. Hart holds a Bachelor of Science degree in Accounting from Scranton
University.

WILLIAM A. INDELICATO, DIRECTOR. Mr. Indelicato was elected a director of
the Company in January 1997. Mr. Indelicato has been President of ADE Vantage,
Inc., a business consulting firm which provides certain services to the
Company, since July 1992. From 1988 to 1991, Mr. Indelicato served as General
Business Director of Union Carbide Industries Gases Inc. Mr. Indelicato is also
an associate professor of strategic management at Pace University in New York.
Mr. Indelicato received his Bachelor of Science degree in Electrical
Engineering from the University of Notre Dame and his Masters in Business
Administration degree from Pace University.

R. BRUCE KRAEMER, DIRECTOR. Mr. Kraemer was elected a Director of the
Company in January 1997. He is the owner of Reading Supplies Inc., a
distributor of pipe, valves and fittings. Mr. Kraemer was President of Weldco
from 1985 to 1996 and a sales representative of Weldco from 1966 to 1985. Mr.
Kraemer received a degree from the Ohio College of Applied Sciences.

AUGUST E. MAIER, DIRECTOR. Mr. Maier was elected a Director of the Company
in January 1997. He has served as Chief Executive Officer of Houston Fearless
79, a manufacturer of film processing equipment, since May 1995. From October
1987 to May 1995, Mr. Maier was Chief Executive officer of Holox, Inc., a
manufacturer and distributor of industrial gases and welding equipment, which
is wholly owned by Hoeklos Ltd. of Holland. Mr. Maier received his Bachelor of
Science degree in Mechanical Engineering from the Indiana Institute of
Engineering and his Masters in Business Administration degree from the Harvard
Business School.

Officers are elected annually and serve at the discretion of the Board of
Directors.

BOARD OF DIRECTORS

Prior to the Offering, the Board of Directors will be divided into three
classes with terms expiring, respectively, at the annual meeting of
shareholders in 1998 (Messrs. Bandi and Kraemer), 1999 (Messrs. Bushwack, Hart
and West) and 2000 (Messrs. Exley, Indelicato and Maier).

The Company's Board of Directors has established an Executive Committee, an
Audit and Finance Committee, and a Nominating and Compensation Committee. The
Executive Committee is comprised of Messrs. West, Bandi and Indelicato. The
Executive Committee has authority to exercise most of the powers of the full
Board during the intervals between meetings. The Audit and Finance Committee is
made up of a majority of independent directors comprised of Messrs. Hart,
Bushwack, Kraemer and Maier. The Audit and Finance Committee reviews the
Company's accounting practices, internal accounting controls and financial
results and oversees the engagement of the Company's independent auditors. The
Nominating and Compensation Committee is comprised of Messrs. West, Indelicato
and Exley. The Nominating and Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company, administers the Company's benefit plans and
recommends policies relating to such plans, and administers the issuance of
stock options and other awards under the Company's 1997 Stock Option Plan to
all Company employees and directors, other than the members of such committee,
and recommends to the Board of Directors nominees for election as directors,
and periodically reviews potential candidates, including incumbent directors.

The Company intends to pay each outside director a $1,000 fee for each
Board meeting attended and a $500 fee for each Committee meeting attended.
Directors are also reimbursed for certain reasonable expenses incurred in
attending Board meetings. Officers of the Company do not receive any additional
compensation for serving as members of the Board of Directors or any of its
Committees.

<PAGE> 34
EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to the Chief Executive
Officer and the two other executive officers whose annual salary and bonus
exceeded $100,000 for services rendered in all capacities to the Company for
fiscal year 1996.

<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION<F1>
NAME AND ----------------------- ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION
------------------ -------- -------- ------------
<S> <C> <C> <C>
Gary E. West........................................... $ 61,159 $125,000 $ 9,712<F3>
Chairman of the Board<F2>
Lawrence E. Bandi...................................... 93,408 128,631 64,827<F3>
President and Chief Executive Officer
John R. Bushwack....................................... 110,238 46,500 32,260<F3>
Executive Vice President and Chief Operating Officer

<FN>
- --------
<F1> The named individuals did not receive any annual compensation not properly
categorized as salary or bonus, except for certain perquisites and other
personal benefits which are not shown because the value of such
perquisites and other personal benefits provided by the Company did not
exceed the lesser of $50,000 or 10% of the total of annual salary and
bonus for the named executive officer for such year.

<F2> In addition to salary, Mr. West received S Corporation distributions as a
shareholder of the Company.

<F3> Represents amounts accrued by the Company on behalf of Mr. Bandi and Mr.
Bushwack in the amounts of $54,616 and $21,846, respectively, pursuant to
deferred compensation agreements. Represents contributions by the Company
to the pension and profit sharing plan accounts of Messrs. West, Bandi and
Bushwack in the amount of $9,712 each. Represents premiums paid by the
Company on behalf of Messrs. Bandi and Bushwack in the amounts of $499 and
$702, respectively, for insurance to fund death, disability and retirement
benefits under certain agreements.
</TABLE>

BENEFIT PLANS

1997 STOCK OPTION PLAN

The Company adopted the 1997 Stock Option Plan (the "Plan") in February
1997. The Plan provides for the issuance of options to purchase up to 650,000
shares of Common Stock to key employees, officers and directors of the Company
and is administered by the Nominating and Compensation Committee of the Board
of Directors.

The Company will grant to Lawrence E. Bandi, John R. Bushwack and each of
the five independent directors options to purchase 42,000, 26,000 and 5,000
shares, respectively, of the Common Stock effective as of the closing of the
Offering. The options vest three years after the date of the grant and have a
term of ten years. The options are exercisable at a price equal to the fair
market value of the shares of Common Stock on the date of the grant. In the
case of key employees and officers, unexercised options granted under the Plan
are subject to forfeiture upon termination of employment for any reason other
than death, disability or normal retirement.

401(K) PLAN

The Company has a qualified 401(k) savings and retirement plan (the
"401(k) Plan"). Eligibility to participate in the 401(k) Plan requires an
employee to have been employed with the Company for twelve months ("Eligible
Employees"). The 401(k) Plan allows Eligible Employees to defer into their
plan account a certain dollar amount or stated percentage of their salary, not
to exceed statutorily mandated annual limits (the "Employee Contributions").
Eligible Employees are 100% vested in their Employee Contributions. The Company
makes an annual contribution (the "Company Contribution") to all Eligible
Employees' plan account in an amount equal to 5% of their salary or wages.
Company Contributions vest over a term of seven years. The Company also makes a
determination each year based upon performance as to the amount, if any, of
additional contributions to be made to Eligible Employees' plan accounts. If a
determination is made to make additional contributions in any year, such
amounts are contributed on a pro rata basis to the plan accounts of Eligible
Employees who made voluntary contributions during such year.

<PAGE> 35
Distributions under the 401(k) Plan may be made at retirement, death, permanent
disability or other termination of employment, in a lump sum payment.

CERTAIN AGREEMENTS WITH EXECUTIVE OFFICERS

Lawrence E. Bandi and John R. Bushwack have entered into long-term deferred
compensation agreements with the Company pursuant to which the Company has
awarded units to Mr. Bandi and Mr. Bushwack having a value based upon a
percentage of the value of the Company. For purposes of such agreements, the
value of the Company is generally determined pursuant to a formula based upon a
multiple of earnings before interest, income taxes, depreciation and
amortization, subject to certain adjustments. The value of the units is
adjusted annually. The interests of Mr. Bandi and Mr. Bushwack in their units
vest either over a period of years or automatically upon the occurrence of
certain transactions, including closing of the Offering. These agreements will
be terminated immediately prior to the closing of the Offering and the Company
will issue to Mr. Bandi and Mr. Bushwack 121,942 and 48,776 shares of Common
Stock, respectively, in exchange for their units. In connection with the
termination of these agreements, the Company will recognize a one-time,
non-cash expense of $0.4 million in the period in which the closing of the
Offering occurs.

Lawrence E. Bandi and John R. Bushwack have entered into agreements with
the Company whereby the Company has agreed to pay each of them, or their
respective beneficiaries, certain death, disability and/or retirement benefits,
provided that they are employed with the Company until their respective
retirements or deaths, and that with respect to retirement benefits, they do
not thereafter compete with the Company. In the event of the death or
retirement of Mr. Bandi or Mr. Bushwack, the Company is obligated to make
payments of $2,000 and $1,000 per month, respectively, for eighty-four months.
In the event of disability, the Company is obligated to make payments of $2,000
and $1,000 per month, respectively, for the duration of the disability, but not
after 65 years of age.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In January, 1997, the Company established a Compensation Committee
comprised of Messrs. West, Indelicato and Exley. The Company did not have a
compensation committee or other board committee performing equivalent functions
prior to 1997. Messrs. West and Bandi made all decisions relating to executive
officer compensation in 1996. None of the Company's directors serve on any
other board which relationship would be construed to constitute a compensation
committee interlock.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

As permitted by the Pennsylvania Business Corporation Law of 1988, as
amended (the "PBCL"), the Articles of the Company provide that (i) the Company
is required to indemnify its directors and officers to the maximum extent
permitted by Pennsylvania law, (ii) the Company may indemnify employees or
agents to the maximum extent permitted by Pennsylvania law, (iii) the Company
is required to advance expenses in defending a proceeding against its officers
and directors and may advance such expenses to its employees and agents, upon
receipt of an undertaking by such person to repay such amount if it is
determined that such person is not entitled to indemnification, (iv) the
rights conferred in the PBCL and in the Company's Articles are not exclusive,
(v) the Company may enter into agreements with any director, officer, employee
or agent to provide indemnification rights as it deems appropriate and (vi)
the Company is authorized to maintain insurance on behalf of its officers and
directors, employees and agents.

The Company has also adopted in its Articles and Bylaws a provision
limiting a director's personal liability for monetary damages unless (i) the
director has breached or failed to perform his or her duties under applicable
law and (ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.

Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company pursuant
to the Company's Articles, Bylaws and the PBCL, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
35

<PAGE> 36
PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock immediately prior to the Offering and as adjusted
to reflect the sale of shares offered hereby, for (i) each person known to the
Company to own beneficially 5% or more of the outstanding shares of Common
Stock, (ii) the Company's directors and named executive officers, (iii) each
Selling Shareholder and (iv) all the Company's directors and executive officers
as a group. Each named beneficial owner has sole voting and investment power.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO SHARES OWNED AFTER
OFFERING OFFERED OFFERING<F1>
------------------------ --------- -----------------------
NUMBER PERCENT NUMBER PERCENT
--------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Gary E. West<F2>................... 7,000,000 94.6 -- 7,000,000 75.1
Lawrence E. Bandi<F3>.............. 121,942 1.6 37,000 84,942 <F*>
John R. Bushwack<F3>............... 48,776 <F*> 15,000 33,776 <F*>
William A. Indelicato<F4>.......... 96,366 1.3 30,000 66,366 <F*>
Ben Exley, IV...................... -0- -- -- -- --
James P. Hart...................... -0- -- -- -- --
R. Bruce Kraemer................... 100,000 1.4 -- 100,000 1.1
August E. Maier.................... -0- -- -- -- --
All directors and executive
officers as a group.............. 7,367,084 99.5 82,000 7,285,084 78.2

<FN>
- --------
<F*> Less than 1%.

<F1> Assumes no exercise of the Underwriters' over-allotment option.

<F2> Gary E. West beneficially owns and controls the shares indicated through
six grantor retained annuity trusts.

<F3> Mr. Bandi is the President and Chief Executive Officer of the Company. Mr.
Bushwack is the Executive Vice President and Chief Operating Officer of
the Company. Each is also a director of the Company. See "Management."

<F4> Mr. Indelicato has been a director of the Company since January 1997 and
provides consulting services to the Company through ADE Vantage, Inc. See
"Certain Relationships and Related Transactions."
</TABLE>

THE RIGHT OF FIRST REFUSAL AGREEMENT

In September 1991, in connection with the purchase by the Company of
certain assets of Praxair, Inc. (``Praxair''), the Company, Mr. West and certain
of his affiliates entered into a Right of First Refusal Agreement with Praxair.
In March 1997, the parties to such agreement entered into an Amended and
Restated Right of First Refusal Agreement (the ``Right of First Refusal
Agreement'') in connection with the Company's reorganization. Pursuant to this
agreement, if at any time during the term of the agreement the Company wishes to
accept a third party offer to purchase all or a material part of the assets
of the Company, or Mr. West and his affiliates wish to accept an offer
to purchase shares of Capital Stock owned by them in a transaction
that would result in Mr. West and his affiliates collectively owning
less than 51% of the Company's issued and outstanding shares of Capital Stock
on a fully diluted basis or owning less than 51% of the combined voting
power of all outstanding voting securities of the Company, then Praxair will
have a right of first refusal to match the offer. If within 30 days of the
notice, Praxair elects to exercise its right of first refusal, it must purchase
the Company's assets or Mr. West's and his affiliates' shares of Capital
Stock, as the case may be, at the same price and on the same terms
as those offered by any third party. If within such 30 day period
Praxair elects not to exercise such right, or fails to make any
election, Mr. West and his affiliates, or the Company, as the case may
be, may consummate the proposed sale to such third party within 100 days
of the expiration of such 30 day period. If such sale is not consummated
within such 100 day period, Praxair will have a right of first refusal
with respect to subsequent third party offers.

In addition, in the absence of a third party offer, if (a) Mr. West
and his affiliates wish to sell shares of Common Stock which would
result in their owning collectively less than 51% or more of the
Company's issued and outstanding shares of Common Stock, (b) the Company
wishes to sell all or a material part of its assets, or (c) the Company wishes

<PAGE> 37

to issue additional shares, or options or securities exercisable or convertible
into shares of Common Stock, pursuant to employee stock options, a public
offering, private placement, merger, share exchange or otherwise, which in the
aggregate on a fully diluted basis would result in Mr. West and his affiliates
collectively owning less than 51% of all the issued and outstanding shares of
Common Stock, then, as a condition to that transaction Mr. West and his
affiliates must give notice of the proposed sale or issuance to Praxair and
Praxair will have the right within 30 days of such notice to elect to purchase
from Mr. West and his affiliates up to all of the issued and outstanding shares
of Common Stock held by them (but not less than 51% of all of the issued and
outstanding shares of the Company's Common Stock on a fully diluted basis) at
the then prevailing market price. If within such 30 day period Praxair elects
not to exercise such right, or fails to make any election, Mr. West and his
affiliates, or the Company, as the case may be, may consummate the proposed sale
or issuance within 100 days of the expiration of such 30 day period. If such
sale is not consummated within such 100 day period, Praxair will have a right of
first refusal with respect to subsequent third party offers. If within two
years of any such sale to Praxair, Praxair acquires the remaining shares
of Common Stock in a second step transaction at a price per share
greater than that initially paid to Mr. West and his affiliates, it must
pay to Mr. West and his affiliates the difference between the average price
per share of Common Stock paid in such second step transaction and the
price per share initially paid to Mr. West and his affiliates. Additionally,
if within two years of any such sale, Praxair resells the Company's shares
at a price per share which exceeds the price per share paid by it to Mr. West
and his affiliates, Praxair will be required to turn over to Mr. West and
his affiliates 50% of the profit therefrom.

Praxair has agreed that until such time, if ever, as it acquires at least
51% of the issued and outstanding Capital Stock it will not acquire Capital
Stock through public purchases or otherwise and will not seek to change the
composition or the policies of the Company's Board of Directors. Mr. West
has agreed with Praxair that he will not, nor will he cause or permit the
Company to, take or permit any action which would result in his ceasing
to be the beneficial owner of at least 51% of the issued and outstanding
Capital Stock until September 1998. Mr. West has informed the Company that
he does not currently intend to take, cause or permit the Company to take,
any such action at any time during the term of the Right of First Refusal
Agreement. The Right First Refusal Agreement expires in September 2006.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

WELDCO, INC.

On October 11, 1996, the Company purchased substantially all of the assets
of Weldco pursuant to a Purchase and Sale Agreement dated as of September 27,
1996 among the Company, Weldco and certain other persons (the "Weldco Purchase
Agreement"). Approximately $7.9 million of the purchase price was paid by the
delivery of the Company's promissory notes. Under the Weldco Purchase
Agreement, Weldco (or its shareholders following liquidation) has the right, in
the event of an initial public offering of the Company's Common Stock, to
convert a portion of the indebtedness evidenced by the Company's promissory
notes to shares of the Company's Common Stock based upon the initial public
offering price of the Common Stock. Under this provision, Weldco has the right
to receive 350,000 shares of the Common Stock in exchange for the cancellation
of indebtedness in the amount of $2,800,000. The Company and Weldco have agreed
that rather than issuing 350,000 shares to Weldco, the Company will prepay
$1,720,000 under the Company's promissory notes and issue 135,000 shares of
Common Stock to Weldco (or its shareholders) immediately prior to the closing
of the Offering. The Company understands that certain shareholders of Weldco
intend to purchase up to 100,000 shares of Common Stock in the Offering and
that the Underwriters have agreed to reserve such number of shares for purchase
by Weldco (or its shareholders). See "Underwriting." The Weldco Purchase
Agreement further grants Weldco (or its shareholders) the right to cause the
Company to purchase shares of Common Stock issued to Weldco (or its
shareholders) pursuant to the conversion of indebtedness. Such right shall be
exercised, if at all, within three years following the closing of the Offering
based upon the initial public offering price plus interest from the date of
issuance at the rate of 6.6% per annum. The Company expects that 235,000 shares
will be subject to this right following the closing of the Offering.

<PAGE> 38

WEST RENTALS, INC.

The Company leases 38 buildings from West Rentals, Inc., a West Virginia
corporation ("West Rentals"), 35 of which are leased pursuant to a Master
Lease Agreement (the "Master Lease") and three of which are leased pursuant
to pass-through subleases. Gary E. West, the Company's Chairman of the Board,
is the sole shareholder of West Rentals. The Master Lease terminates on October
31, 2006 and may be renewed for an additional five-year term. Currently, the
Company pays an aggregate of $132,118 a month to West Rentals as rent for all
real property leased. In addition, the Company pays all utility bills and fees
as well as all property and local taxes on the real property leased from West
Rentals. In May 1996, the Company sold several of its properties to West
Rentals for an aggregate purchase price of approximately $850,000, which
purchase price was supported by a third-party appraisal.

In addition, the Company rents cylinders and trailers from West Rentals and
currently pays approximately $7,860 a month to West Rentals for such rentals.
Employees of the Company provide occasional construction, maintenance and
clerical related services to West Rentals. The Company bills West Rentals for
such services on an hourly basis. Aggregate expenditures by the Company under
the Master Lease and for rental of cylinders and trailers, for the fiscal year
ended June 30, 1996, was approximately $932,624. The Company believes that the
amounts it has paid for rental of real property, cylinders and trailers have
not been less favorable than could have been obtained in arms-length
transactions with unaffiliated third parties.

ACETYLENE PRODUCTS CORP.

On December 31, 1996, the Company terminated an oral take-or-pay agreement
with Acetylene Products Corp. ("APC"), whose shareholders are all directors,
officers or employees of the Company. The agreement obligated the Company to
purchase a minimum quantity of acetylene on an annual basis regardless of
whether it accepted delivery of the acetylene. During fiscal 1996 and the six
months ended December 31, 1996, the Company paid APC $159,915 and $96,216,
respectively. The Company also leases approximately 1,400 square feet of space
located in Wheeling, West Virginia from APC for use as an employee training
center at a cost of $700 per month. The lease has a one year term expiring in
October 1997. Employees of the Company provide occasional construction,
maintenance and clerical related services to APC. The Company bills APC for
such services on an hourly basis and the amounts received in fiscal 1996 were
$63,550. The Company believes that the current arrangements with APC are not
less favorable than could be obtained in arms-length transactions with
unaffiliated third parties.

The Company and APC have formed a Pennsylvania business trust through which
the Company conducts its operations in Pennsylvania. The financial results of
the business trust are consolidated in the Company's financial statements. The
Company and APC hold a 99% and 1% interest in the trust, respectively. The
Company realizes certain tax benefits as a result of this structure. In fiscal
1996, a nominal amount of cash was distributed by the trust to APC.

INDELICATO CONSULTING ARRANGEMENT

The Company has entered into a consulting agreement (the "Consulting
Agreement") with William A. Indelicato, a director of the Company, whereby Mr.
Indelicato provides consulting services concerning all aspects of the Company's
acquisition program. In return for his services, the Company accrues
"credits" for Mr. Indelicato in amounts based upon hours worked and hourly
rates that vary depending upon criteria related to each particular acquisition.
Mr. Indelicato can redeem accrued credits for cash at any time within seven
years from the date of accrual. The amount of the accrued, unredeemed credits
is adjusted proportionately following the end of each fiscal year based upon
the increase (but not any decrease) in the Company's net worth since the end of
the last fiscal year. In addition, Mr. Indelicato has the right, in connection
with a public offering of the Common Stock, to exchange all or a portion of his
accrued credits (excluding credits accrued for annual adjustments) for shares
of Common Stock based on the book value per share of Common Stock as of the end
of the fiscal year for which the credits were accrued, in which case the
accrued credits for annual adjustments are cancelled. As of June 30, 1996, the
total amount of the accrued credits was approximately $158,000. Mr. Indelicato
will exchange all the accrued credits for 96,366 shares of Common Stock, of
which 30,000 shares are being sold in the Offering. See "Principal and Selling
Shareholders." Pursuant to the Consulting Agreement, the Company also retains
ADE Vantage, Inc. ("ADE"), a consulting company wholly-owned by Mr. Indelicato,
to support Mr. Indelicato in providing consulting services. The Company pays Mr.
Indelicato a monthly retainer fee of $1,000 and reimburses his out-of-pocket
expenses related to the performance of services. Payments to Mr. Indelicato and
ADE for fiscal 1996 totaled $76,000. The term of the

<PAGE> 39

Consulting Agreement expires on March 16, 1999, but either party may terminate
it at any time. The Company intends to continue using the consulting services of
Mr. Indelicato and ADE after the Offering.

EQUIPLEASE, CORP.

EquipLease Corp. ("EquipLease"), a corporation wholly-owned by Gary E.
West, rents its one airplane and helicopter to the Company at an hourly rate of
$220 and $150, respectively. The Company paid a total of $18,800 to EquipLease
for rental of the airplane and helicopter during fiscal 1996. The Company
believes that the arrangements with EquipLease have not been less favorable
than could have been obtained in arms-length transactions with unaffiliated
third parties.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering and assuming no exercise of outstanding
options, the Company will have outstanding 9,320,084 shares of Common Stock
(9,620,084 shares if the Underwriters' over allotment option is exercised in
full). Of these shares, the 2,000,000 shares sold in the Offering will be
immediately eligible for resale in the public market without restriction under
the Securities Act, except for any shares purchased by an "Affiliate" (as
that term is defined under the Securities Act) of the Company, which will be
subject to the resale limitations of Rule 144 under the Securities Act. The
remaining 7,320,084 shares of Common Stock outstanding following the Offering
(the "Previously Issued Shares") are deemed to be "restricted securities"
within the meaning of the Securities Act and may be publicly sold only if
registered under the Securities Act or sold in accordance with an applicable
exemption from registration, such as those provided by Rule 144 promulgated
under the Securities Act.

All of the holders of the Previously Issued Shares have agreed to enter
into agreements with the Company ("Lock-up Agreements") pursuant to which
they will agree that, during the 180-day period after the date of this
Prospectus, they will not, except with the prior consent of A.G. Edwards &
Sons, Inc., offer, sell, contract to sell or grant an option to purchase any of
such Previously Issued Shares. In addition, the Company has agreed that during
such period it will not, without the prior consent of A.G. Edwards & Sons,
Inc., offer, sell, contract to sell or grant an option to purchase any shares
of Common Stock. See "Underwriting." At the expiration of such lock-up period
all of the Previously Issued Shares will be eligible for sale, subject to the
volume and other limitations of Rule 144.

In general, under Rule 144, beginning 90 days after the date of this
Prospectus, an Affiliate of the Company or other person (or persons whose
shares are aggregated) who has beneficially owned Previously Issued Shares for
at least one year, will be entitled to sell in any three-month period a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of the Company's Common Stock (approximately 9,620,084 shares
immediately after the offering, if the Underwriters' over-allotment option is
exercised in full) or (ii) the average weekly trading volume of the Company's
Common Stock on the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose shares
are aggregated) who is not deemed to have been an Affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned Restricted Shares for at least two years is entitled to sell
such shares pursuant to Rule 144(k) without regard to the limitations described
above.

Previously Issued Shares may also be resold (i) to a person whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A and (ii) in an off-shore transaction complying with
Rules 903 or 904 of Regulation S under the Securities Act.

An employee of the Company who purchased shares or was awarded options to
purchase shares pursuant to a written compensatory plan or contract meeting the
requirements of Rule 701 under the Securities Act is entitled to rely on the
resale provisions of Rule 701 under the Securities Act which permits Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
the holding period restrictions of Rule 144, in each case commencing 90 days
after the date of this Prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.

Following the effectiveness of the registration statement covering the
shares of Common Stock offered hereby, the Company will register under the
Securities Act the shares of Common Stock reserved for issuance under the
Company's 1997 Stock Option Plan covering 650,000 shares. The Company expects
that this registration will automatically become effective upon filing.
Accordingly, shares registered under such registration statement and

<PAGE> 40

acquired pursuant to the Plan will be available for sale in the open market
upon the expiration of the public sale restrictions described below (see
"Underwriting"), subject to Rule 144 volume limitations applicable to
Affiliates, except to the extent such shares are subject to vesting
restrictions with the Company.

Prior to the Offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to
time. Sales of substantial amounts of Common Stock of the Company in the public
market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.

THE REORGANIZATION

The business of the Company historically has been conducted through Valley
National Gases, Inc., a West Virginia corporation (the "Operating Company").
Prior to the closing of the Offering, a holding company structure will be
implemented by having the shareholders of the Operating Company exchange their
shares of common stock of the Operating Company for shares of Common Stock of
the Company, which is a newly organized Pennsylvania corporation. The Company
will then contribute all of the outstanding common stock of the Operating
Company to its wholly owned subsidiary, Valley National Gases Delaware, Inc., a
Delaware corporation.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

The Company's Articles provide for authorized capital stock to consist of
30,000,000 shares of Common Stock, and 5,000,000 shares of Preferred Stock. The
Company will have outstanding, immediately prior to the issuance and sale of
shares of Common Stock pursuant to the Offering, 7,402,084 shares of Common
Stock. Upon the closing of the Offering, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding stock
options, the Company will have outstanding 9,320,084 shares of Common Stock
and no shares of Preferred Stock.

COMMON STOCK

Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors or preemptive rights to purchase or subscribe for any
stock or other securities. Subject to the prior rights of the holders of any
shares of Preferred Stock, if any, which subsequently may be issued and
outstanding, holders of Common Stock are entitled to receive dividends as and
when declared by the Board of Directors out of funds legally available for the
purpose. Such dividends shall not be cumulative. The holders of Common Stock
shall share ratably in all assets remaining after payment of liabilities.
Additional shares of authorized Common Stock may be issued without shareholder
approval. All of the shares of Common Stock are, and the shares to be sold in
the Offering will be, upon issuance and payment therefor, fully paid and
non-assessable.

PREFERRED STOCK

The Board has the authority to issue up to an aggregate of 5,000,000 shares
of Preferred Stock from time to time in one or more series, without shareholder
approval. The Board has the authority to establish from time to time the number
of shares to be included in each such series, dividend rate, redemption and
liquidation rights and terms, sinking fund provisions, if any, for the
redemption or purchase of shares, conversion terms and conditions, if any,
voting rights, if any, and to set the designation of the series and to fix and
determine the relative rights and preferences of the shares of each such series
and any qualifications, limitations or restrictions thereof. Depending upon the
rights of such Preferred Stock, the issuance of Preferred Stock could have an
adverse effect on the holders of Common Stock by delaying or preventing a
change of control of the Company, making removal of the present management of
the Company more difficult, or resulting in restrictions upon the payment of
dividends and other distributions to the holders of Common Stock. The Company
has no current plans to issue any Preferred Stock.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Upon the completion of the Offering, there will be 20,029,916 shares of
Common Stock and 5,000,000 shares of Preferred Stock available for future
issuance without shareholder approval, taking into consideration the 650,000
shares of Common Stock reserved for issuance upon exercise of outstanding
options. These additional shares may be issued for a variety of proper corporate
purposes, including raising additional capital, corporate acquisitions, and
employee benefit plans. Except as contemplated by the 1997 Stock Option Plan and
other possible employee benefit

<PAGE> 41

or stock purchase plans, the Company does not currently have any plans to issue
additional shares of Common Stock or Preferred Stock.

One of the effects of the existence of unissued and unreserved Common Stock
and Preferred Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management, which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest, or otherwise, and thereby protect the continuity
of the Company's management and possibly deprive the shareholders of
opportunities to sell their shares of Common Stock at prices higher than the
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company
pursuant to the operation of the 1997 Stock Option Plan, or otherwise.

ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S ARTICLES AND BYLAWS

Certain provisions of the Articles could have an anti-takeover effect.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the Board of Directors of the Company and in
the policies formulated by the Board of Directors and to discourage an
unsolicited takeover of the Company if the Board determines that such takeover
is not in the best interests of the Company and its shareholders. The
provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not contemplate
the acquisition of all of its outstanding shares or an unsolicited proposal for
the restructuring or sale of all or part of the Company. However, the following
provisions could have the effect of discouraging certain attempts to acquire
the Company or remove incumbent management even if some or a majority of
shareholders deemed such an attempt to be in their best interests.

PENNSYLVANIA ANTI-TAKEOVER LAWS

The Company has elected to have the "anti-takeover" provisions of
Subchapters 25E, F, G and H of the Pennsylvania Business Corporation Law
("PBCL") relating to "business combinations" with "interested shareholders"
not apply to the Company. However, other provisions of the PBCL provide that
directors may, in discharging their duties, consider the interests of a number
of different constituencies, including shareholders, employees, suppliers,
customers, creditors and the community in which it is located. Directors are
not required to consider the interests of shareholders to a greater degree
than other constituencies' interests. The PBCL expressly provides that
directors do not violate their fiduciary duties solely by relying on poison
pills or the anti-takeover provisions of the PBCL.

ARTICLES OF INCORPORATION

Classified Board of Directors. The Articles provide for the Board of
Directors to be divided into three classes of Directors serving three-year
terms. The initial terms of the Class I, Class II and Class III directors are
set to expire at the end of the 1998 annual shareholders meeting, the 1999
annual shareholders meeting and the 2000 annual shareholders meeting,
respectively. At each annual meeting of shareholders beginning in 1998,
successors to the directors whose term expires at the annual meeting shall be
elected to a three year term, with each director to hold office until a
successor has been duly elected and qualified. As a result, approximately
one-third of the Board of Directors will be elected each year. The Board of
Directors believes that a classified Board of Directors will help to assure the
continuity and stability of the Board of Directors and the business strategies
and policies of the Company as determined by the Board of Directors.

The classified board provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain
control of the Company and may maintain the incumbency of the Board even though
such an attempt might be beneficial to the Company and its shareholders. The
existence of a classified board could delay shareholders who do not agree with
the policies of the Board of Directors from removing a majority of the Board
for two years, unless they can show cause and obtain the requisite vote.

Number of Directors; Removal. The Articles provide that the Board of
Directors will consist of at least three (3) but not more than ten (10)
directors with the exact number to be fixed from time to time by resolution
adopted by a majority of the Board of Directors. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, the Articles provide
that any director or the entire Board of Directors, may be removed only for
cause and only by the affirmative vote of holders of two-thirds of the
outstanding shares of the capital stock of the Company entitled to vote
generally in the election of directors. This charter provision prevents a
shareholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.

<PAGE> 42

Special Meetings of Shareholders. The Articles provide that special
meetings of the shareholders of the Company may be called only by the Chairman,
the President or a majority of the members of the Board of Directors.

Amendment of Certain Provisions of the Articles. The Articles generally
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of the voting stock of the Company entitled to vote
generally in the election of directors in order to amend charter provisions
concerning (i) the classified Board of Directors, (ii) the removal of
directors, (iii) the amendment of the Bylaws, (iv) the calling of special
meetings of the shareholders, (v) indemnification of officers and directors,
(vi) limitation of director liability, (vii) the opting out of certain
anti-takeover provisions and (viii) the supermajority voting requirements
described in this paragraph. These voting requirements make it more difficult
for shareholders to make changes in the Articles designed to facilitate the
exercise of control over the Company. However, this provision shall be
inapplicable at any time at which the holders of at least a majority of the
voting stock of the Company shall be Praxair, its subsidiaries and/or its
affiliates (and in each case permitted successors and assigns thereof)
if they shall have acquired such voting stock pursuant to a transaction
required or permitted by the Right of First Refusal Agreement, and at
any such time, any provisions contained in such Articles may be amended or
repealed by the affirmative vote of the holders of at least a majority
of the outstanding shares of the voting stock of the Company, at a regular
or special meeting of shareholders or upon the written consent of the
holders of at least a majority of such outstanding shares of voting stock.

BYLAWS

Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the director of the Board of Directors or a
committee thereof, of candidates for election as director and for other
shareholder proposals to be considered at shareholder meetings.

Notice of shareholder proposals and director nominations must be timely
given in writing to the secretary of the Company prior to the meeting at which
the matters are to be acted upon or at which the directors are to be elected.
To be timely, notice must be received at the principal executive offices of the
Company not less than sixty (60) days prior to the shareholder meeting.

A shareholder's notice to the secretary with respect to a shareholder
proposal shall set forth as to each matter the shareholder proposes to bring
before the meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address of the shareholder proposing such business,
(iii) the class or series and number of shares of stock of the Company which
are owned beneficially or of record by such shareholder and the name and
address under which such stock is issued and (iv) a description of any material
interest of such shareholder in such business. A shareholder's notice to the
secretary with respect to a director nomination shall set forth (i) certain
information about the nominee, (ii) the signed consent of the nominee to serve
as a director of the Company if elected, (iii) the name and address of the
nominating shareholder and (iv) the class or series and number of shares of
stock of the Company which are beneficially owned by such shareholder and the
name and address under which such stock is held.

The purpose of requiring advance notice is to afford the Board of Directors
an opportunity to consider the qualifications of the proposed nominees or the
merits of other shareholder proposals and, to the extent deemed necessary or
desirable by the Board of Directors, to inform shareholders about those
matters.

SHARE OWNERSHIP

After the consummation of this Offering, Mr. West will be the beneficial
owner of approximately 75.1% of the Common Stock (72.8% if the Underwriters'
over-allotment option is exercised in full). At such point in time as
Mr. West would cease to be the beneficial owner of at least 51% of the
Common Stock, Praxair will have the right to exercise its right of first
refusal. See "The Right of First Refusal Agreement." Control by Mr. West or
Praxair of a majority of the Common Stock will prevent third parties from
acquiring control of the Company and may deter third parties from seeking to
acquire large minority positions of the Company's Common Stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.

<PAGE> 43
UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement among the
Company, the Selling Shareholders, and A.G. Edwards & Sons, Inc. and
Oppenheimer & Co., Inc. (the "Representatives"), the underwriters listed
below (the "Underwriters") have severally agreed to purchase from the Company
and the Selling Shareholders the aggregate number of shares of the Company's
Common Stock set forth opposite their respective names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
A.G. Edwards & Sons, Inc................................................... 685,000
Oppenheimer & Co., Inc..................................................... 685,000
Alex. Brown & Sons Incorporated............................................ 40,000
Dillon, Read & Co. Inc..................................................... 40,000
Donaldson, Lufkin & Jenrette Securities Corporation........................ 40,000
Lehman Brothers Inc........................................................ 40,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated......................... 40,000
PaineWebber Incorporated................................................... 40,000
Prudential Securities Incorporated......................................... 40,000
Fahnestock & Co. Inc....................................................... 20,000
First of Michigan Corporation.............................................. 20,000
Interstate/Johnson Lane Corporation........................................ 20,000
Janney Montgomery Scott Inc................................................ 20,000
Legg Mason Wood Walker Incorporated........................................ 20,000
McDonald & Company Securities, Inc......................................... 20,000
Morgan Keegan & Company, Inc............................................... 20,000
Neuberger & Berman, LLC.................................................... 20,000
The Ohio Company........................................................... 20,000
Parker/Hunter Inc.......................................................... 20,000
Pennsylvania Merchant Group Ltd............................................ 20,000
Raymond James & Associates, Inc............................................ 20,000
Tucker Anthony Incorporated................................................ 20,000
Vector Securities International, Inc....................................... 20,000
Wheat, First Securities, Inc............................................... 20,000
Cleary Gull Reiland & McDevitt Inc......................................... 10,000
First Analysis Securities Corporation...................................... 10,000
Hazlett, Burt & Watson, Inc................................................ 10,000
Sands Brothers & Co., Ltd.................................................. 10,000
Starr Securities, Inc...................................................... 10,000
---------
Total.............................................................. 2,000,000
=========
</TABLE>

Pursuant to the terms of the Underwriting Agreement, the Underwriters will
acquire the shares of Common Stock offered hereby from the Company and the
Selling Shareholders at the public offering price set forth on the cover page
hereof less the underwriting discounts and commissions set forth on the cover
page. The Underwriters propose to offer the shares to the public at the public
offering price set forth on the cover page. Some of the shares offered to the
public will be sold to certain dealers at the public offering price less a
dealers' concession not in excess of $0.30 per share. The Underwriters and such
dealers may allow a discount not in excess of $0.10 per share to other dealers.
After the shares are released for sale to the public, the public offering price
and other terms may be varied by the Representatives.

The nature of the obligations of the Underwriters is such that if any of
the shares offered hereby are purchased, all of such shares must be purchased.

<PAGE> 44
The Company has granted to the Underwriters an option for 30 days to
purchase (at the public offering price less the underwriting discounts and
commissions shown on the cover page of this Prospectus) up to 300,000
additional shares. The Underwriters may exercise such option only to cover
over-allotments of shares made in connection with the sale of the shares
offered hereby. To the extent the Underwriters exercise such option, each of
the Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of the option shares that the number
of shares of Common Stock to be purchased by it shown in the above table bears
to 2,000,000, and the Company will be obligated, pursuant to the option, to
sell such shares to the Underwriters.

The Company and holders of Previously Issued Shares have agreed to enter
into Lock-up Agreements pursuant to which they will agree that they will not,
for 180 days from and after the date of this Prospectus, sell, offer to sell,
or otherwise dispose of, directly or indirectly, any shares of capital stock of
the Company (other than shares offered hereby, shares issuable pursuant to a
plan for employees or shareholders in effect on the date of this Prospectus,
and Common Stock issuable on conversion of securities or exercise of warrants
or options outstanding on the date of this Prospectus) without the prior
written consent of A.G. Edwards & Sons, Inc.

Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price of the shares of Common Stock will be
negotiated among the Company and the Representatives. In addition to prevailing
market conditions, among the factors that may be considered in determining the
initial public offering price of the shares of Common Stock are the Company's
historical financial performance, estimates of the business potential and
earning prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to the market valuations of
companies in similar business.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the
Underwriters may be required to make in respect thereof.

In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Shareholders,
and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 300,000 shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to above. In addition, A.G. Edwards & Sons,
Inc., on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in the offering) for the account of the
other Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

The Underwriters have reserved approximately 200,000 shares of Common Stock
for sale, at the initial public offering price, to employees of the Company and
certain other individuals. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.

<PAGE> 45
LEGAL MATTERS

The validity of the shares of Common Stock offered hereby has been passed
upon for the Company and the Selling Shareholders by Bryan Cave LLP, New York,
New York. Certain legal matters will be passed upon for the Underwriters
by Peper, Martin, Jensen, Maichel and Hetlage, St. Louis, Missouri.

EXPERTS

The audited financial statements and related schedules included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of such firm as
experts in accounting and auditing in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission,
Washington, D.C. (the "Commission"), a Registration Statement (the
"Registration Statement") on Form S-1 under the Securities Act, with respects
to the Common Stock offered hereby. This Prospectus, which constitutes part of
the Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including exhibits and schedules
thereto, may be inspected at the principal offices of the Commission at 450
Fifth Street, N.W., Washington, D.C., 20549, and at its regional offices at
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661,
and at Seven World Trade Center, Suite 1300, New York, New York 10048, and
copies may be obtained at the prescribed rates from the Public Reference
Section of the Commission at its principal office in Washington, D.C. The
Commission maintains an Internet Web site (http://www.sec.gov.) that contains
such documents filed electronically by the Company with the Commission through
its Electronic Data Gathering, Analysis and Retrieval System (EDGAR) filing
system. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.

<PAGE> 46
VALLEY NATIONAL GASES, INC.
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----

<S> <C>
VALLEY NATIONAL GASES, INC.

Condensed Balance Sheets as of June 30, 1996 and December 31, 1996 (unaudited)........ F-2

Unaudited Condensed Statements of Operations for the six month periods ended December
31, 1995 and 1996.................................................................... F-4

Statements of Changes in Shareholder's Equity for the year ended June 30, 1996 and the
six month period ended December 31, 1996 (unaudited)................................. F-5

Unaudited Condensed Statements of Cash Flows for the six month periods ended December
31, 1995 and 1996.................................................................... F-6

Notes to Unaudited Condensed Financial Statements..................................... F-7

Report of Independent Public Accountants.............................................. F-11

Balance Sheets as of June 30, 1995 and 1996........................................... F-12

Statements of Operations for the three years ended June 30, 1994, 1995 and 1996....... F-14

Statements of Changes in Shareholder's Equity for the three years ended
June 30, 1994, 1995 and 1996........................................................ F-15

Statements of Cash Flows for the three years ended June 30, 1994, 1995 and 1996....... F-16

Notes to Financial Statements......................................................... F-17

WELDCO, INC.

Report of Independent Public Accountants.............................................. F-26

Balance Sheets as of December 31, 1995 and September 30, 1996 (Unaudited)............. F-27

Statements of Operations for the year ended December 31, 1995 and the nine month
period ended September 30, 1996 (Unaudited).......................................... F-29

Statements of Changes in Shareholder's Equity for the year ended December 31, 1995
and the nine month period ended September 30, 1996 (Unaudited)...................... F-30

Statements of Cash Flows for the year ended December 31, 1995 and the nine month
period ended September 30, 1996 (Unaudited)......................................... F-31

Notes to Financial Statements......................................................... F-32
</TABLE>
F-1
<PAGE> 47
VALLEY NATIONAL GASES, INC.
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
PRO FORMA
JUNE 30, DECEMBER 31, DECEMBER 31,
ASSETS 1996 1996 1996 (NOTE 6)
------ -------- ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 4,148,546 $ 3,406,886 $ 3,406,886
Restricted cash........................................................ 400,000 -- --
Accounts receivable, net of allowance for doubtful accounts of $140,000
and $259,423, respectively........................................... 6,701,939 9,954,160 9,954,160
Inventory.............................................................. 4,157,906 7,108,020 7,108,020
Prepaids and other..................................................... 832,899 797,719 797,719
----------- ----------- ------------
Total current assets............................................... 16,241,290 21,266,785 21,266,785
----------- ----------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Land................................................................... 7,000 7,000 7,000
Buildings and improvements............................................. 2,664,460 3,379,283 3,379,283
Equipment.............................................................. 30,788,676 35,737,114 35,737,114
Transportation equipment............................................... 5,758,581 6,367,548 6,367,548
Furniture and fixtures................................................. 1,937,110 2,037,860 2,037,860
----------- ----------- ------------
Total property, plant and equipment................................ 41,155,827 47,528,805 47,528,805
Accumulated depreciation............................................... (18,029,419) (21,782,406) (21,782,406)
----------- ----------- ------------
Net property, plant and equipment.................................. 23,126,408 25,746,399 25,746,399
----------- ----------- ------------
OTHER ASSETS:
Intangibles, net of amortization of $1,745,353 and $2,368,920,
respectively......................................................... 5,902,885 15,061,249 15,061,249
Deposits and other assets.............................................. 220,265 396,294 396,294
----------- ----------- -----------
Total other assets................................................. 6,123,150 15,457,543 15,457,543
----------- ----------- -----------
TOTAL ASSETS............................................................... $45,490,848 $62,470,727 $62,470,727
=========== =========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-2
<PAGE> 48
VALLEY NATIONAL GASES, INC.
<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
PRO FORMA
JUNE 30, DECEMBER 31, DECEMBER 31,
LIABILITIES AND SHAREHOLDER'S EQUITY 1996 1996 1996 (NOTE 6)
------------------------------------ -------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt................................... $ 2,736,814 $ 4,181,927 $ 4,181,927
Accounts payable, trade................................................ 2,835,920 3,606,578 3,606,578
Accrued compensation and employee benefits............................. 2,970,987 3,037,794 3,037,794
Other current liabilities.............................................. 479,126 731,071 731,071
Accrued distribution to shareholders................................... -- -- 10,100,000
----------- ----------- -----------
Total current liabilities.......................................... 9,022,847 11,557,370 21,657,370

LONG-TERM DEBT, less current maturities.................................... 19,506,728 31,534,974 31,534,974

DEFERRED INCOME TAXES...................................................... -- -- 4,200,000

OTHER LONG-TERM LIABILITIES................................................ 590,181 1,467,589 1,467,589
----------- ----------- -----------
Total liabilities.................................................. 29,119,756 44,559,933 58,859,933
----------- ----------- -----------
COMMITMENTS
SHAREHOLDER'S EQUITY:
Preferred stock, par value, $.01 per share--5,000,000 shares
authorized, no shares issued
Common stock, par value, $.001 per share--Authorized, 30,000,000 shares
Issued, 18,300,653 shares............................................ 18,301 18,301 18,301
Paid-in-capital........................................................ 95,914 95,914 95,914
Treasury stock, 11,300,653 shares at cost.............................. (3,705,000) (3,705,000) (3,705,000)
Retained earnings...................................................... 19,961,877 21,501,579 7,201,579
----------- ----------- -----------
Total shareholder's equity......................................... 16,371,092 17,910,794 3,610,794
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY................................. $45,490,848 $62,470,727 $62,470,727
=========== =========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-3
<PAGE> 49
VALLEY NATIONAL GASES, INC.
<TABLE>
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------------
1995 1996
----------- -----------
<S> <C> <C>
NET SALES.................................................................. $24,137,833 $33,777,288

COST OF PRODUCTS SOLD, excluding depreciation and amortization............. 10,678,417 15,504,275
----------- -----------
Gross profit....................................................... 13,459,416 18,273,013
----------- -----------
EXPENSES:
Operating and administrative........................................... 9,195,589 12,567,193
Depreciation and amortization.......................................... 1,998,708 2,934,240
----------- -----------
Total expenses..................................................... 11,194,297 15,501,433
----------- -----------
Income from operations............................................. 2,265,119 2,771,580
----------- -----------
INTEREST EXPENSE........................................................... 675,296 992,851
----------- -----------
OTHER INCOME/(EXPENSE):
Interest and dividend income........................................... 164,318 173,098
Rental income (expense)................................................ 31,310 (10,080)
Gain (loss) on disposal of assets...................................... (9,481) (17,630)
Other income (expense)................................................. 119,890 4,628
----------- -----------
Total other income................................................. 306,037 150,016
----------- -----------
NET INCOME................................................................. $ 1,895,860 $ 1,928,745
=========== ===========

<CAPTION>
PRO FORMA INFORMATION
(UNAUDITED)
------------------------------
<S> <C> <C>
Net income................................................................. $ 1,895,860 $ 1,928,745
Pro forma income taxes..................................................... 758,344 771,498
----------- -----------
Pro forma net income....................................................... $ 1,137,516 $ 1,157,247
=========== ===========
Pro forma net income per share............................................. $ 0.16 $ 0.14
=========== ===========
Pro forma weighted average number of shares outstanding.................... 7,267,074 8,335,282
=========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-4
<PAGE> 50
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY

FOR THE YEAR ENDED JUNE 30, 1996 AND
THE SIX MONTHS ENDED DECEMBER 31, 1996
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
--------------------- PAID-IN- ------------------------- RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EQUITY
---------- ------- -------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1995........ 18,300,653 $18,301 -- 11,300,653 $(3,705,000) $17,482,478 $13,795,779

Net income................ -- -- -- -- -- 4,100,928 4,100,928

Contribution of capital... -- -- $95,914 -- -- -- 95,914

Dividends paid............ -- -- -- -- -- (1,621,529) (1,621,529)
---------- ------- ------- ---------- ----------- ----------- -----------

BALANCE, June 30, 1996........ 18,300,653 18,301 95,914 11,300,653 (3,705,000) 19,961,877 16,371,092

Net income................ -- -- -- -- -- 1,928,745 1,928,745

Dividends paid............ -- -- -- -- -- (389,043) (389,043)
---------- ------- ------- ---------- ----------- ----------- -----------

BALANCE, December 31, 1996
(Unaudited)................. 18,300,653 $18,301 $95,914 11,300,653 $(3,705,000) $21,501,579 $17,910,794
========== ======= ======= ========== =========== =========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-5
<PAGE> 51
VALLEY NATIONAL GASES, INC.
<TABLE>
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
-----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net cash provided by operating activities.................................. $ 2,414,937 $ 1,186,735
----------- -----------
Cash flows from investing activities:
Proceeds from disposal of assets....................................... 30,609 24,353
Purchases of property and equipment.................................... (1,288,438) (1,377,456)
Business acquisitions, net of cash acquired............................ (5,161,389) (4,827,247)
Change in restricted cash.............................................. -- 400,000
----------- -----------
Net cash used by investing activities...................................... (6,419,218) (5,780,350)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings............................................... 5,524,087 5,511,102
Principal payments on loans............................................ (1,452,921) (1,270,104)
Dividends paid......................................................... (316,845) (389,043)
----------- -----------
Net cash provided (used) by financing activities........................... 3,754,321 3,851,955
----------- -----------
Net change in cash and cash equivalents.................................... (249,960) (741,660)

Cash and cash equivalents, beginning of period............................. 3,854,889 4,148,546
----------- -----------
Cash and cash equivalents, end of period................................... $ 3,604,929 $ 3,406,886
=========== ===========
Supplemental cash flow information:

Cash payments for interest............................................. $ 675,296 $ 814,226
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE> 52
VALLEY NATIONAL GASES, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION:

The financial statements of Valley National Gases, Inc. (the Company)
presented herein are unaudited. Certain information and footnote disclosures
normally prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes that all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation have been made, interim periods are not necessarily
indicative of the financial results of operations for a full year. As such,
these financial statements should be read in conjunction with the financial
statements and notes thereto included or incorporated by reference in the
Company's audited financial statements for the period ending June 30, 1996.

2. INVENTORY:

Inventory is carried at the lower of cost or market using the first-in,
first-out (FIFO) method.

The components of inventory are as follows:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
Hardgoods......................................... $3,529,294 $5,978,689
Gases............................................. 628,612 1,129,331
---------- ----------
$4,157,906 $7,108,020
========== ==========
</TABLE>

3. ACQUISITIONS:

The Company acquires businesses engaged in the distribution of industrial,
medical and specialty gases and related welding supplies and accessories.
Acquisitions have been recorded using the purchase method of accounting and,
accordingly, results of their operations have been included in the Company's
financial statements since the effective dates of the respective acquisitions.

The Company purchased Weber Gas & Welding Supply Co. Inc. for an aggregate
purchase price of approximately $ 1,549,000 in August, 1996.

On October 10, 1996, the Company purchased substantially all of the assets
of Weldco Inc. (Weldco) pursuant to a Purchase and Sale Agreement (the Weldco
Purchase Agreement) for approximately $11.1 million. Approximately $7.9 million
of the purchase price was paid by promissory notes from the Company. Under the
Weldco Purchase Agreement, Weldco shareholders have the right, in the event of
an initial public offering of the Company's common stock, to convert a portion
of the Company's promissory notes to shares of the Company's common stock at
the initial public offering price. Under this provision, Weldco shareholders
have the right to receive 350,000 shares of the common stock in exchange for
the cancellation of indebtedness in the amount of $2,800,000. The Company and
Weldco shareholders have agreed that rather than issuing 350,000 shares, the
Company will prepay $1,720,000 under the Company's promissory notes and issue
135,000 shares of common stock to Weldco shareholders immediately prior to the
closing of the Offering. The Company understands that certain Weldco
shareholders intend to purchase up to 100,000 shares of common stock in the
Offering. The Weldco Purchase Agreement further grants Weldco shareholders the
right to cause the Company to purchase shares of common stock issued to Weldco
shareholders pursuant to the conversion of indebtedness for a period of three
years following the closing of the Offering at the initial public offering
price plus interest from the date of issuance at the rate of 6.6% per annum.
The Company expects that 235,000 shares will be subject to this right following
the closing of the Offering. Accordingly, such shares will not be classified
as shareholders' equity. The Company's payment obligation is secured by a
letter of credit.
F-7
<PAGE> 53
VALLEY NATIONAL GASES, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

In connection with these acquisitions, the total purchase price, fair value
of assets acquired, cash paid and liabilities assumed were as follows:

<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C>
Cash paid....................................................................... $ 5,150,032
Notes issued to sellers......................................................... 8,822,187
Notes payable and capital leases assumed........................................ 405,674
Other liabilities assumed and acquisition costs................................. 4,921,766
-----------
Total purchase price allocated to assets acquired............................... $19,299,659
===========
</TABLE>

4. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revolving Note, interest at LIBOR plus 2% payable monthly through September
2003. Secured by the assets of the Company................................ $ -- $10,162,514
Term note, interest equal to Revolving Note, payable monthly through
September 1999. Secured by the assets of the Company...................... -- 12,690,476
Acquisitions offering revolving line of credit, interest at prime rate minus
.125%, as defined, payable in full on November, 1997 or if notified by the
bank in equal monthly installments. Secured by the assets of the
Company................................................................... 9,748,696 --
Term note, interest at prime rate, as defined, payable in monthly
installments through November 2000. Secured by the assets of the
Company................................................................... 7,000,010 --
Term note, interest at prime rate minus .125%, as defined, payable in
monthly installments through April 2002. Secured by the assets of the
Company................................................................... 833,330 --
Term note, interest at prime rate plus 1%, as defined, payable in monthly
installments through April 2005. Secured by the assets of the Company..... 1,048,184 --
Convertible notes, interest at 6.6% payable annually through October 2003.
Secured by letter of credit and certain assets of the Company............. -- 7,886,721
Notes payable, interest at 7.0% payable monthly through July 2003. Secured
by certain assets of the Company.......................................... -- 910,657
Individuals and corporations, mortgages and notes, interest at 2.978% to
10.50%, payable at various dates through 2010............................. 3,843,591 4,283,839
----------- -----------
22,473,811 35,934,207
Original issue discount..................................................... (230,269) (217,306)
Current maturities.......................................................... (2,736,814) (4,181,927)
----------- -----------
Total long-term debt........................................................ $19,506,728 $31,534,974
=========== ===========
</TABLE>

Prime rate was 8.25% and LIBOR was 5.625% at December 31, 1996.

F-8
<PAGE> 54
VALLEY NATIONAL GASES, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

prime or LIBOR, depending on the Company's funded debt to EBITDA ratio, payable
monthly through September of 2003. The agreement also provides for a revolving
note with a maximum of $25,000,000 at a variable interest rate equal to that of
the term note payable monthly through September of 1999. A commitment fee of
$32,500 was paid upon acceptance of the agreement. These notes are secured by
the Company's accounts receivable, equipment, inventory, and general
intangibles, and the proceeds thereof. The agreement also contains various
financial covenants including minimum fixed charge coverage, maximum of funded
debt to EBITDA, and minimum net worth level.

5. SUBSEQUENT EVENTS:

A. INITIAL PUBLIC OFFERING AND REORGANIZATION

In connection with the initial public offering (the Offering) by the
Company, the following transactions occurred on April 9, 1997:

a. Termination of the Company's S Corporation status. In connection with
the termination of S Corporation status, the Company intends to declare
a distribution (the S Corporation Distribution) of all of its
undistributed earnings, estimated to be $10.1 million as of December 31,
1996. In addition, the Company will be required to record a deferred tax
liability with a corresponding one-time tax provision of approximately
$4.2 million in accordance with SFAS No. 109.

b. The reorganization, whereby Valley National Gases, Inc., a West Virginia
corporation has become an indirect wholly owned subsidiary of Valley
Natural Gases Incorporated, a Pennsylvania corporation by exchange of
stock. Valley National Gases Incorporated has authorized common stock of
30,000,000 shares, par value $.001 and authorized preferred stock of
5,000,000 shares, par value $.01.

c. Issuance of 267,084 shares of common stock as part of compensation
agreements with certain executive officers and directors. In connection
with these compensation arrangements, the Company will incur an expense
of approximately $1.9 million in the period in which the closing of the
Offering occurs.

d. The cancellation of treasury stock of Valley National Gases, Inc.

Accordingly, the Company's shareholders' equity accounts and the number of
shares in the accompanying financial statements have been retroactively
restated to give effect to the reorganization and increase in authorized capital
stock.

B. BUSINESS ACQUISITIONS

On January 30, 1997, the Company entered into a letter of intent for the
purchase of all the outstanding shares of an industrial gas and welding supply
distributor for approximately $3.5 million. On February 28, 1997, the Company
entered into another letter of intent for the purchase of substantially all
of the assets of an industrial gas and welding supply distributor for
approximately $3.8 million. The Company is proceeding with due diligence and
the negotiation of definitive purchase agreements. These acquisitions will be
financed by borrowings under the Company's credit facility. The Company does
not anticipate consummation of these transactions prior to the closing of the
Offering.

C. 1997 STOCK OPTION PLAN

The Company will grant to two executives and each of the five independent
directors options to purchase 46,000, 26,000 and 5,000 shares, respectively,
of the Common Stock effective as of the closing of the Offering. The options
vest three years after the date of the grant and have a term of ten years. The
options are exercisable at a price equal to the fair market value of the
shares of Common Stock on the date of the grant. In the case of key employees
and

F-9
<PAGE> 55
VALLEY NATIONAL GASES, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

officers, unexercised options granted under the Plan are subject to
forfeiture upon termination of employment for any reason other than death,
disability or normal retirement.

D. Right of First Refusal

6. PRO FORMA INFORMATION (UNAUDITED):

The pro forma balance sheet as of December 31, 1996 reflects an anticipated
S Corporation Distribution, estimated to be approximately $10.1 million
at that date, and the recording of a deferred tax liability of approximately
$4.2 million upon termination of the Company's S Corporation status.

The pro forma adjustments for income taxes included in the accompanying
income statements are based upon the statutory rates in effect for C
Corporations during the periods presented. Pro forma earnings per share were
calculated by dividing pro forma net income by the weighted average shares
outstanding for each period. The weighted average number of shares outstanding
used to calculate the pro forma net income per share is based on the historical
weighted average number of shares outstanding using an offering price of $8 per
share as adjusted to reflect (i) the assumed issuance of 1,068,208 shares to
fund the excess of dividends (including the estimated S Corporation
Distribution) over net income for the six months ended December 31, 1996 (ii)
the issuance of 170,718 shares of common stock to two executive officers
immediately prior to the closing of the Offering in connection with the
termination of certain deferred compensation agreements, and (iii) the issuance
of 96,366 shares of common stock to a director immediately prior to the closing
of the Offering, pursuant to a right under a consulting agreement to convert
deferred consulting payments to common stock. In connection with these
compensation arrangements, the Company will incur an expense of approximately
$1.9 million ($2.2 million gross compensation net of related accruals of $0.3
million) in the period in which the closing of the Offering occurs.

F-10
<PAGE> 56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Valley National Gases, Inc.:

We have audited the accompanying balance sheets of Valley National Gases,
Inc. (an S corporation) as of June 30, 1995 and 1996, and the related
statements of operations, changes in shareholder's equity and cash flows each
of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Valley National Gases, Inc.
as of June 30, 1995 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended June 30, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
August 13, 1996
(except for the matters discussed in
Note 10 as to which the date is
April 9, 1997)

F-11
<PAGE> 57
VALLEY NATIONAL GASES, INC.
<TABLE>
BALANCE SHEETS
<CAPTION>
JUNE 30,
-------------------------------
ASSETS 1995 1996
------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 3,454,889 $ 4,148,546
Restricted cash............................................................. 400,000 400,000
Accounts receivable, net of allowance for doubtful accounts of $140,000 in
1995 and 1996............................................................. 5,228,190 6,701,939
Inventory................................................................... 2,933,340 4,157,906
Prepaids and other.......................................................... 493,819 832,899
------------ ------------
Total current assets.................................................... 12,510,238 16,241,290
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land........................................................................ 146,242 7,000
Buildings and improvements.................................................. 3,533,507 2,664,460
Equipment................................................................... 26,182,328 30,788,676
Transportation equipment.................................................... 4,448,081 5,758,581
Furniture and fixtures...................................................... 1,228,580 1,937,110
------------ ------------
Total property, plant and equipment..................................... 35,538,738 41,155,827
Accumulated depreciation.................................................... (16,632,432) (18,029,419)
------------ ------------
Net property, plant and equipment....................................... 18,906,306 23,126,408
------------ ------------
OTHER ASSETS:
Intangibles, net of amortization of $552,560 and $1,745,353 respectively.... 1,861,589 5,902,885
Deposits and other assets................................................... 142,714 220,265
------------ ------------
Total other assets...................................................... 2,004,303 6,123,150
------------ ------------
TOTAL ASSETS.................................................................... $ 33,420,847 $ 45,490,848
============ ============

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-12
<PAGE> 58
VALLEY NATIONAL GASES, INC.
<TABLE>
BALANCE SHEETS
<CAPTION>
JUNE 30,
-----------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY 1995 1996
------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt........................................ $ 2,134,583 $ 2,736,814
Accounts payable, trade..................................................... 1,919,682 2,835,920
Accrued compensation and employee benefits.................................. 1,819,687 2,970,987
Other current liabilities................................................... 308,804 479,126
----------- -----------
Total current liabilities........................................... 6,182,756 9,022,847

LONG-TERM DEBT, less current maturities......................................... 12,964,092 19,506,728

OTHER LONG-TERM LIABILITIES..................................................... 478,220 590,181
----------- -----------
Total liabilities................................................... 19,625,068 29,119,756
----------- -----------
COMMITMENTS
SHAREHOLDER'S EQUITY:
Preferred stock, par value; $.01 per share-5,000,000 shares authorized; no
shares issued
Common stock, par value, $.001 per share-Authorized, 30,000,000 shares;
Issued, 18,300,653 shares................................................. 18,301 18,301
Paid-in-capital............................................................. -- 95,914
Treasury stock, 11,300,653 shares at cost................................... (3,705,000) (3,705,000)
Retained earnings........................................................... 17,482,478 19,961,877
----------- -----------
Total shareholder's equity.......................................... 13,795,779 16,371,092
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................................... $33,420,847 $45,490,848
=========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-13
<PAGE> 59
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES............................................................. $39,166,027 $44,914,252 $53,611,979

COST OF PRODUCTS SOLD, excluding depreciation and amortization........ 16,844,386 19,931,377 23,617,062
----------- ----------- -----------
Gross profit.................................................. 22,321,641 24,982,875 29,994,917
----------- ----------- -----------
EXPENSES:
Operating and administrative...................................... 15,704,048 17,688,338 20,295,254
Depreciation and amortization..................................... 2,789,657 3,111,516 4,699,608
----------- ----------- -----------
Total expenses................................................ 18,493,705 20,799,854 24,994,862
----------- ----------- -----------
Income from operations........................................ 3,827,936 4,183,021 5,000,055
----------- ----------- -----------
INTEREST EXPENSE...................................................... 1,037,845 1,071,794 1,561,081
----------- ----------- -----------
OTHER INCOME/(EXPENSE):
Interest and dividend income...................................... 161,063 268,313 332,133
Rental income..................................................... 50,964 61,460 81,565
(Loss) gain on disposal of assets................................. (1,491) 25,211 (5,095)
Other income...................................................... 60,510 88,753 253,351
----------- ----------- -----------
Total other income............................................ 271,046 443,737 661,954
----------- ----------- -----------
NET INCOME............................................................ $ 3,061,137 $ 3,554,964 $ 4,100,928
=========== =========== ===========

<CAPTION>
PRO FORMA INFORMATION
(UNAUDITED)
-------------------------------------------
<S> <C> <C> <C>

Net Income............................................................ $ 3,061,137 $ 3,554,964 $ 4,100,928
Pro forma income taxes................................................ 1,224,455 1,421,986 1,640,371
----------- ----------- -----------
Pro forma net income.................................................. $ 1,836,682 $ 2,132,978 $ 2,460,557
=========== =========== ===========
Pro forma net income per share........................................ $ 0.25 $ 0.29 $ 0.30
=========== =========== ===========
Pro forma weighted average number of shares outstanding............... 7,267,074 7,267,074 8,335,282
=========== =========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-14
<PAGE> 60
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1995 AND 1996
<CAPTION>
COMMON STOCK TREASURY STOCK TOTAL
--------------------- PAID-IN- ------------------------- RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EQUITY
---------- ------ -------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>

BALANCE, June 30, 1993... 18,300,653 $18,301 $ -- 11,300,653 $(3,705,000) $13,216,073 $ 9,529,374

Net income........... -- -- -- -- -- 3,061,137 3,061,137

Dividends paid....... -- -- -- -- -- (942,531) (942,531)
---------- ------- -------- ---------- ----------- ----------- -----------

BALANCE, June 30, 1994... 18,300,653 18,301 -- 11,300,653 (3,705,000) 15,334,679 11,647,980

Net income........... -- -- -- -- -- 3,554,964 3,554,964

Dividends paid....... -- -- -- -- -- (1,407,165) (1,407,165)

BALANCE, June 30, 1995... 18,300,653 18,301 -- 11,300,653 (3,705,000) 17,482,478 13,795,779
---------- ------- -------- ---------- ----------- ----------- -----------

Net income........... -- -- -- -- -- 4,100,928 4,100,928

Contribution of
capital............ -- -- 95,914 -- -- -- 95,914

Dividends paid....... -- -- -- -- -- (1,621,529) (1,621,529)
---------- ------- -------- ---------- ----------- ----------- -----------

BALANCE, June 30, 1996... 18,300,653 $18,301 $95,914 11,300,653 $(3,705,000) $19,961,877 $16,371,092
========== ======= ======== ========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-15
<PAGE> 61
VALLEY NATIONAL GASES, INC.
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
-----------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 3,061,137 $ 3,554,964 $ 4,100,928
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation........................................ 2,520,392 2,737,188 3,437,208
Amortization........................................ 269,265 374,328 1,262,400
Loss (gain) on disposal of assets................... 1,491 (25,211) 5,095
Other long-term liabilities......................... 1,712 67,571 111,725
Changes in operating assets and liabilities--
Accounts receivable............................. (242,692) (256,165) (527,257)
Inventory....................................... (34,158) (353,250) (151,906)
Prepaids and other.............................. (255,523) (468,183) (308,617)
Accounts payable, trade......................... 372,551 233,207 421,667
Accrued compensation and employee benefits...... 236,513 437,852 (462,280)
Other current liabilities....................... 161,702 (103,541) 45,073
Deposits and other assets....................... (121,871) 118,620 (511,465)
----------- ----------- -----------
Net cash provided by operating activities... 5,970,519 6,317,380 7,422,571
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets........................ 37,565 66,230 903,621
Purchases of property and equipment..................... (2,907,967) (4,426,384) (3,646,899)
Business acquisitions, net of cash acquired............. (1,209,266) (2,806,545) (6,435,879)
----------- ----------- -----------
Net cash used by investing activities....... (4,079,668) (7,166,699) (9,179,157)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................ 1,642,954 4,996,063 6,530,000
Principal payments on loans............................. (2,546,626) (1,965,495) (2,458,228)
Dividends paid.......................................... (942,531) (1,407,165) (1,621,529)
----------- ----------- -----------
Net cash provided by (used for) financing
activities............................... (1,846,203) 1,623,403 2,450,243
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 44,648 774,084 693,657
CASH AND CASH EQUIVALENTS, at beginning of year............. 2,636,157 2,680,805 3,454,889
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of year................... $ 2,680,805 $ 3,454,889 $ 4,148,546
=========== =========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-16
<PAGE> 62
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION:

Valley National Gases, Inc. (the Company), formerly Valley Welding Supply
Co., is an S corporation. The Company produces, packages and resells industrial
gases, specialty gases and propane; and resells welding hardgoods and
equipment. The Company has been in operation since 1958 and currently operates
in nine states.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.

The Company holds a certificate of deposit of $400,000 which is restricted
cash. This certificate of deposit is pledged as collateral for a bank loan
(original amount $1,250,000) and will be released as collateral when the
principal balance of the loan is reduced to $850,000.

The Company invested in certain repurchase agreements during the year ended
June 30.

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
WestBanco Bank--principal......................... $2,377,990 $3,038,249
--accrued interest................. 56,518 74,607
---------- ----------
$2,434,508 $3,112,856
--weighted average maturity........ 144 days 133 days

Bank One--principal............................... $ 691,811 $ 476,479
--accrued interest ....................... 3,613 216
---------- ----------
$ 695,424 $ 476,695
--weighted average maturity............... 4 days 1 day

Balance as of June 30............................. $3,129,932 $3,589,551
Average amount outstanding........................ 2,602,130 2,554,678
Maximum amount outstanding........................ 3,129,932 3,589,551
</TABLE>

Securities underlying the agreements exceed the repurchase liability and
consist primarily of certificates of deposit and U.S. government securities
held on behalf of the Company. These agreements are collectible upon demand
by the Company.

INVENTORY

Inventory is carried at the lower of cost or market using the first-in,
first-out (FIFO) method.

The components of inventory for the year ended June 30 were as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Hardgoods......................................... $2,545,862 $3,529,294
Gases............................................. 387,478 628,612
---------- ----------
$2,933,340 $4,157,906
========== ==========
</TABLE>

F-17
<PAGE> 63
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
properties while leasehold improvements are amortized over the shorter of their
useful life or the term of the lease as follows:

<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and improvements........................ 10 - 25
Cylinders......................................... 12
Equipment other than cylinders.................... 7
Transportation equipment.......................... 3 - 7
Furniture and fixtures............................ 3 - 7
</TABLE>

The cost of maintenance and repairs is charged to operations as incurred.
Major renewals and betterments are capitalized.

INTANGIBLES

Intangibles consist of noncompetition agreements, goodwill, consulting
agreements and deferred loan origination costs. Costs pursuant to
noncompetition agreements entered into in connection with business acquisitions
are amortized over the terms of the arrangements. Goodwill represents costs in
excess of net assets of businesses acquired and is amortized on a straight-line
basis over 15 years. The Company assesses the recoverability of goodwill by
determining whether it can be recovered through projected undiscounted cash
flows. Consulting agreements are entered into with the owners of various
businesses acquired by the Company and require such owners to be available
to perform services upon the Company's request. Consulting payments are made
regardless of the number of hours of service performed and are payable to the
consultant's successor upon death. Consulting costs are amortized over the
term of the agreement. Deferred loan origination costs are amortized over the
term of the related debt.

INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the historical financial statements do
not include a provision for income taxes because the Company does not incur
federal or state income taxes. Instead, its earnings and losses are included in
the shareholder's personal income tax return and are taxed based on the
shareholder's personal tax strategy.

Certain events, including the public offering of the Company's Common
Stock, will automatically terminate its S Corporation status, thereby
subjecting future income to federal and state income taxes at the corporate
level. Due to temporary differences in recognition of revenue and expenses,
income for financial reporting purposes has exceeded income for income tax
purposes. Accordingly, the application of the provisions of SFAS No. 109,
"Accounting for Income Taxes" will result in the recognition of deferred tax
liabilities (and a corresponding one-time charge to expense) in the period in
which the initial public offering occurs. If the S Corporation status had been
terminated as of December 31, 1996, this liability would have been
approximately $4,200,000.

REVENUE RECOGNITION

Revenues are recognized for product sales when such goods are received by
the customer. Additionally, revenues from cylinder leases are reported ratably
over the terms of the leases.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
during fiscal 1996.
F-18
<PAGE> 64
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The following methods and assumptions were used to estimate fair value of
each class of financial instrument for which it is practicable to estimate that
value:

CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of those instruments.

LONG-TERM DEBT--The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of the same
remaining maturities.

The estimated fair values of the Company's financial instruments as of June
30, 1996 are as follows:

<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Cash and cash equivalents........................................ $4,148,546 $4,148,546
Restricted cash.................................................. 400,000 400,000
Term notes....................................................... 8,881,524 8,881,524
Acquisitions offering revolving line of credit................... 9,748,696 9,748,696
</TABLE>

The fair values and carrying amounts of the Company's term notes and
acquisitions offering revolving line of credit are deemed to be approximately
equivalent as they bear interest at floating rates which are based upon current
market rates.

SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
---------------------------------------------
1994 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
Cash paid for certain items:
Cash payments for interest.................... $ 869,197 $1,082,625 $1,503,680
Noncash investing and financing activities:
Retirement of long-term notes................. $10,289,547 $ -- $ --
Payment of accrued interest on notes.......... 123,055 -- --
Noncash portion of refinancing note issued........ $10,412,602 $ -- $ --
</TABLE>

USE OF ESTIMATES

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

RECLASSIFICATIONS

Certain reclassifications have been made to prior period amounts to conform
to the current period presentation.

3. ACQUISITIONS:

During fiscal 1996, the Company purchased four businesses. The largest of
these acquisitions and their effective dates included Quest Welding Supply
(September 1995) and Wootten Industries, Inc. (December 1995). The aggregate
purchase price for all acquisitions amounted to approximately $6,695,000.

F-19
<PAGE> 65
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

During fiscal 1995, the Company purchased six businesses. The largest of
these acquisitions and their effective dates included Evans Welding Supply Co.
(December 1994), Allegheny LP Gas (February 1995). The aggregate purchase price
for all acquisitions amounted to approximately $3,776,000.

During fiscal 1994, the Company purchased three businesses for an aggregate
purchase price of approximately $1,643,000.

In connection with these acquisitions, the total purchase price, fair value
of assets acquired, cash paid and liabilities assumed for the year ended June
30 were as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid......................................... $1,060,847 $2,806,545 $6,435,879
Notes issued to sellers........................... 582,500 969,298 259,417
Notes payable and capital leases assumed.......... -- 132,274 176,678
Other liabilities assumed and acquisition costs... -- 337,482 682,142
---------- ---------- ----------
Total purchase price allocated to assets
acquired........................................ $1,643,347 $4,245,599 $7,554,116
========== ========== ==========
</TABLE>

The following presents unaudited estimated pro forma operating results as
if the 1996 and 1995 acquisitions had been consummated on July 1, 1994. These
pro forma results have been prepared for comparable purposes only and do not
purport to be indicative of what would have occurred had the acquisitions been
made as of July 1, 1994, or of results which may occur in the future. Pro forma
net income includes an adjustment for income taxes as if the Company had been
taxed as a C Corporation (see Note 11).

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net sales.......................... $55,813,000 $57,816,000
Net income......................... 3,345,000 4,036,000
Pro forma net income............... 2,007,000 2,422,000
Pro forma net income per share..... 0.28 0.29
</TABLE>

4. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:

The Company markets its products to a diverse customer base in unrelated
industries and, as such, does not have any significant concentrations of credit
risk. No one customer accounted for greater than 10% of revenues in 1994, 1995
and 1996.

5. INTANGIBLE ASSETS:

Intangible assets were recorded at the date of acquisition at their
allocated cost. Amortization is provided over the estimated useful lives of the
assets as disclosed below:

<TABLE>
<CAPTION>
AMORTIZATION ORIGINAL ACCUMULATED BALANCE AT BALANCE AT
PERIOD COST AMORTIZATION JUNE 30, 1996 JUNE 30, 1995
------------ ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Noncompetition agreements..... 3-7 years $4,242,161 $1,095,784 $3,146,377 $1,040,997
Consulting agreements......... 1-3 years 1,556,077 503,687 1,052,390 -
Goodwill...................... 15 years 1,642,699 116,921 1,525,778 762,651
Deferred financing and
organization costs.......... 5-12 years 207,301 28,961 178,340 57,941
---------- ---------- ---------- ----------
$7,648,238 $1,745,353 $5,902,885 $1,861,589
========== ========== ========== ==========
</TABLE>

F-20
<PAGE> 66
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT:

Long-term debt consists of the following as of June 30:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Acquisitions offering revolving line of credit, interest at prime
rate minus .125%, as defined, payable in full on November, 1997
or if notified by the bank in equal monthly installments.
Secured by the assets of the Company........................... $ 3,218,696 $ 9,748,696
Term note, interest at prime rate, as defined, payable in monthly
installments through November 2000. Secured by the assets of
the Company.................................................... 8,615,390 7,000,010
Term note, interest at prime rate minus .125%, as defined,
payable in monthly installments through April 2002. Secured by
the assets of the Company...................................... 976,190 833,330
Term note, interest at prime rate plus 1%, as defined, payable in
monthly installments through April 2005. Secured by the assets
of the Company................................................. 1,118,300 1,048,184
Individuals and corporations, mortgages and notes, interest at
2.978% to 10.00%, payable at various dates through 2010........ 1,139,266 3,843,591
Wayne County Commission note, interest at 80% of prime, as
defined, payable at various dates through 1996................. 30,833 --
----------- -----------
15,098,675 22,473,811
Original issue discount.......................................... -- (230,269)
Current maturities............................................... (2,134,583) (2,736,814)
----------- -----------
Total long-term debt............................................. $12,964,092 $19,506,728
=========== ===========
</TABLE>

Prime rate was 8.25% at June 30, 1996.

On April 15, 1994, the Company entered into a loan agreement with
NationsBank. The agreement provides for borrowings in the form of a revolving
operating line of credit, a term loan and an acquisitions offering line of
credit.

Combined borrowings under the agreement can amount to $31,000,000. As of
June 30, 1996, the Company's borrowings under the agreement amounted to
$17,582,036. Borrowings bear interest at the bank's prime rate minus .125%. A
commitment fee of $10,000 was paid upon acceptance of the agreement and .25% is
payable upon each draw of the acquisitions offering line of credit. These fees
totaled $16,325 for the year ended June 30, 1996. The agreement also contains
various financial covenants including current ratio, working capital, tangible
net worth, leverage, interest coverage and debt service.

A $400,000 certificate of deposit, accounts receivable, inventory,
equipment and vehicles are pledged as collateral on the above notes and
acquisitions offering line of credit used to finance or refinance the purchase
of those assets. Additionally, letters of credit of $1,896,667 at June 30, 1996
serve as collateral on the individual notes.

On October 4, 1996, the Company executed a three year revolving credit
agreement with Bank One for the purpose of refinancing the then existing
revolving credit agreement with NationsBank and to provide additional
acquisition capital. This agreement provides for a term note of $13,000,000 at
a variable interest rate based upon prime or LIBOR, depending on the Company's
funded debt to EBITDA ratio, payable monthly through September of 2003. The
agreement also provides for a revolving note with a maximum of $25,000,000 at a
variable interest rate equal to that of the term note payable monthly through
September of 1999. A commitment fee of $32,500 was paid upon acceptance of the
agreement. These notes are secured by the Company's accounts receivable,
equipment, inventory, and general intangibles, and the proceeds thereof. The
agreement also contains various financial covenants including minimum fixed
charge coverage, maximum of funded debt to EBITDA, and minimum net worth level.

F-21
<PAGE> 67
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The schedule of maturities as amended for the new credit agreements for the
next five years and thereafter is as follows as of June 30, 1996:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING
JUNE 30,
- ------------------
<S> <C>
1997....................... $ 2,727,604
1998....................... 2,715,913
1999....................... 2,567,400
2000....................... 2,271,295
2001....................... 2,030,952
Thereafter................. 9,930,378
-----------
Total...................... $22,243,542
===========
</TABLE>

7. PENSION PLANS:

The Company sponsors a defined contribution pension plan for employees. All
employees are eligible to participate in the Company-sponsored plan after
meeting the age and service requirements. Contributions to the plan are based
on a percentage of employees' compensation. Pension expense for this plan was
$232,066, $337,139 and $413,077, respectively, in 1994, 1995 and 1996.

Certain management employees are also covered by unfunded deferred
compensation agreements which provide supplemental retirement benefits. The
cost of these contracts is being accrued over the period of active employment
of the covered employees. The costs of the deferred compensation plans charged
to expense were $17,543, $83,206 and $78,203, respectively, in 1994, 1995 and
1996.

The Company also maintains a profit sharing plan for its employees. Profit
sharing payments are based on a discretionary amount determined annually by the
Board of Directors and are paid as additional contributions to the pension
plan. In 1994, 1995 and 1996, the amount of additional contributions to be
distributed to the employees' pension plan amounted to $61,233, $83,506 and
$91,961, respectively.

8. LEASE OBLIGATIONS:

The Company leases real estate at several locations for use as branch
stores and warehouses. Certain equipment is also leased. All of the leases,
which are with related and unrelated parties, are classified as operating
leases. The lease terms expire at various dates through the year 2006, with
options to renew for periods of three to five years. Lease expenses charged to
operations were $915,745, $1,330,394 and $1,541,898, respectively, in 1994,
1995 and 1996.

Minimum future rental payments under noncancelable operating leases for
each of the next five years are as follows:

<TABLE>
FISCAL YEAR ENDING
JUNE 30, REAL ESTATE EQUIPMENT TOTAL
- ------------------ ----------- --------- ----------
<S> <C> <C> <C>
1997............................ $1,746,294 $105,549 $1,851,843
1998............................ 1,629,948 73,963 1,703,911
1999............................ 1,576,248 66,720 1,642,968
2000............................ 1,558,746 60,360 1,619,106
2001............................ 1,541,244 41,175 1,582,419
----------- --------- ----------
Totals.......................... $8,052,480 $347,767 $8,400,247
=========== ========= ==========
</TABLE>

F-22
<PAGE> 68
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. RELATED PARTY TRANSACTIONS:

The Company leases buildings and equipment, rents cylinders and has sales
and purchase transactions with related parties, including the sole shareholder
and corporations owned by the sole shareholder and officers of the Company.
These transactions and balances for the year ended June 30 are summarized as
follows:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Transactions--
Lease of buildings and equipment....................................... $731,020 $857,205 $932,624
Rental of aircraft..................................................... 26,100 26,100 18,800
Purchases of acetylene and services........................................ 271,016 267,657 159,915
Sales of material and services............................................. 183,453 533 379
Balances--
Accounts receivable--trade............................................. 280 -- --
Noncurrent receivable.................................................. 10,016 -- --
</TABLE>

During 1996, the Company realized a gain of $95,914 on the sale of various
operating properties to a related party for a total sale price of $850,000.
This gain was reflected as additional paid-in-capital in the accompanying
financial statements.

The Company has entered into a master lease agreement for virtually all of
its operating properties, including those sold in 1996, with this related
party. The terms of this master lease agreement are ten years with annual
minimum lease payments of $1,278,600 with renewal options and have been
accounted for as operating leases in the accompanying financial statements.

The Company has entered into a consulting agreement (the "Consulting
Agreement") with William A. Indelicato, a director of the Company, whereby Mr.
Indelicato provides consulting services concerning all aspects of the Company's
acquisition program. In return for his services, the Company accrues
"credits" for Mr. Indelicato in amounts based upon hours worked and hourly
rates that vary depending upon criteria related to each particular acquisition.
Mr. Indelicato can redeem accrued credits for cash at any time within seven
years from the date of accrual. The amount of the accrued, unredeemed credits
is adjusted proportionately following the end of each fiscal year based upon
the increase (but not any decrease) in the Company's net worth since the end of
the last fiscal year. In addition, Mr. Indelicato has the right, in connection
with a public offering of the Common Stock, to exchange all or a portion of his
accrued credits (excluding credits accrued for annual adjustments) for shares
of Common Stock based on the book value per share of Common Stock as of the end
of the fiscal year for which the credits were accrued, in which case the
accrued credits for annual adjustments are cancelled. As of June 30, 1996, the
total amount of the accrued credits was approximately $158,000. Mr. Indelicato
will exchange all the accrued credits for 96,366 shares of Common Stock, of
which 30,000 shares are being sold in the Offering. Pursuant to the Consulting
Agreement, the Company also retains ADE Vantage, Inc. ("ADE"), a consulting
company wholly-owned by Mr. Indelicato, to support Mr. Indelicato in providing
consulting services. The Company pays Mr. Indelicato a monthly retainer fee of
$1,000 and reimburses his out-of-pocket expenses related to the performance of
services. Payments to Mr. Indelicato and ADE for fiscal 1996 totaled $76,000.
The term of the Consulting Agreement expires on March 16, 1999, but either
party may terminate it at any time. The Company intends to continue using the
consulting services of Mr. Indelicato and ADE after the Offering.

F-23
<PAGE> 69
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. SUBSEQUENT EVENTS:

A. INITIAL PUBLIC OFFERING AND REORGANIZATION

In connection with the initial public offering (the Offering) by the
Company, the following transactions occurred on April 9, 1997:

a. Termination of the Company's S Corporation status. In connection with
the termination of S Corporation status the Company intends to declare a
distribution (the S Corporation Distribution) of all of its
undistributed earnings estimated to be $10.1 million as of December 31,
1996. In addition, the Company will be required to record a deferred tax
liability with a corresponding one-time tax provision of approximately
$4.2 million in accordance with SFAS No. 109.

c. Issuance of 267,074 shares of Common Stock as part of compensation
agreements with certain executive officers and directors. In connection
with these compensation arrangements, the Company will incur an expense
of approximately $1.9 million in the period in which the closing of the
Offering occurs; and

d. The cancellation of treasury stock of Valley National Gases, Inc.

Accordingly, the Company's shareholders' equity accounts and the number of
shares in the accompanying Financial Statements have been retroactively
restated to give effect to the reorganization and increase in authorized capital
stock.

B. WELDCO PURCHASE AGREEMENT

C. WEBER PURCHASE

As of August 31, 1996, the Company consummated the acquisition of Weber Gas
& Welding Supply Co., Inc. (Weber), a business engaged in the distribution of
industrial, medical and specialty gases and related welding supplies and
accessories. Sales for the past fiscal year of the acquired business
approximated 9% of the Company's net sales.

F-24
<PAGE> 70
VALLEY NATIONAL GASES, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. PRO FORMA INFORMATION (UNAUDITED):

The pro forma adjustments for income taxes included in the accompanying
income statements are based upon the statutory rates in effect for C
Corporations during the period presented. Pro forma earnings per share were
calculated by dividing pro forma net income by the weighted average shares
outstanding for each period. The weighted average number of shares outstanding
used to calculate the pro forma net income per share is based on the historical
weighted average number of shares outstanding using an offering price of $8 per
share as adjusted to reflect (i) the assumed issuance of 1,068,208 shares at $8
per share to fund the excess of dividends (including the estimated S
Corporation Distribution) over net income for the six months ended December
31, 1996 of $10.1 million (ii) the issuance of 170,718 shares of common stock
to two executive officers immediately prior to the closing of the Offering in
connection with the termination of certain deferred compensation agreements,
and (iii) the issuance of 96,366 shares of common stock to a director
immediately prior to the closing of the Offering, pursuant to a right under a
consulting agreement to convert deferred consulting payments to common stock.
The Company will incur an expense of approximately $1.9 million ($2.2 million
gross compensation net of related accruals of $0.3 million or $1.1 million
after assumed taxes) in the period in which the closing of the Offering occurs
in connection with the compensation arrangements of $0.7 million ($0.4 million
after assumed taxes) and consulting arrangement of $1.2 million ($0.7 million
after assumed taxes).

F-25
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Valley National Gases, Inc.:

We have audited the accompanying balance sheet of Weldco, Inc. (an S
corporation) as of December 31, 1995, and the related statement of operations,
changes in shareholder's equity and cash flows for the year then ended. 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 audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Weldco, Inc. as of December
31, 1995, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
December 20, 1996

F-26
<PAGE> 72
WELDCO, INC.

<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1995 1996
------ ------------ -------------
(UNAUDITED)

<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 115,642 $ 92,684
Marketable securities....................................................... 106,851 117,090
Accounts receivable--trade, net of allowance for doubtful accounts of
$100,823 and $103,093, respectively........................................ 1,596,759 1,444,223
Accounts receivable--shareholders........................................... 34,785 34,785
Inventory................................................................... 487,596 659,391
Prepaids and other.......................................................... 14,781 10,676
----------- -----------
Total current assets.................................................... 2,356,414 2,358,849
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Leasehold improvements...................................................... 321,458 321,458
Equipment................................................................... 1,433,199 1,601,240
Transportation equipment.................................................... 223,379 275,084
Furniture and fixtures...................................................... 661,951 706,653
----------- -----------
Total property, plant and equipment..................................... 2,639,987 2,904,435
Accumulated depreciation.................................................... (1,225,450) (1,376,651)
----------- -----------
Net property, plant and equipment....................................... 1,414,537 1,527,784
----------- -----------
OTHER ASSETS.................................................................... 132,210 136,812
----------- -----------
TOTAL ASSETS.................................................................... $ 3,903,161 $ 4,023,445
=========== ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-27
<PAGE> 73
WELDCO, INC.

<TABLE>
BALANCE SHEETS
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1995 1996
------------------------------------ ------------ -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt........................................ $ 184,291 $ 316,260
Accounts payable, trade..................................................... 1,515,559 1,304,874
Accrued compensation and employee benefits.................................. 36,171 103,016
Other current liabilities................................................... 55,717 53,371
---------- ----------
Total current liabilities........................................... 1,791,738 1,779,521

LONG-TERM DEBT, less current maturities......................................... 265,940 373,923
---------- ----------
Total liabilities................................................... 2,057,678 2,153,444
---------- ----------
COMMITMENTS
SHAREHOLDER'S EQUITY:
Common stock, no par value
Authorized, 35,000 shares
Issued, 25,000 shares................................................... 500 500
Paid-in-capital............................................................. 19,919 19,919
Unrealized gain on marketable securities.................................... 106,851 117,090
Retained earnings........................................................... 1,718,213 1,732,492
---------- ----------
Total shareholder's equity.......................................... 1,845,483 1,870,001
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $3,903,161 $4,023,445
========== ==========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-28

<PAGE> 74
WELDCO, INC.

<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
NET SALES....................................................................... $10,973,421 $8,457,952
COST OF PRODUCTS SOLD, excluding depreciation and amortization.................. 7,064,773 5,355,557
----------- ----------
Gross profit............................................................ 3,908,648 3,102,395
----------- ----------
EXPENSES:
Operating and administrative................................................ 3,406,556 2,642,033
Depreciation and amortization............................................... 203,610 151,200
----------- ----------
Total expenses.......................................................... 3,610,166 2,793,233
----------- ----------
Income from operations.................................................. 298,482 309,162
----------- ----------
INTEREST EXPENSE................................................................ 33,704 42,647
----------- ----------
OTHER INCOME/(EXPENSE):
Interest and dividend income................................................ 6,886 --
(Loss) on disposal of assets................................................ (6,806) (1,485)
----------- ----------
Total other income...................................................... 80 (1,485)
----------- ----------
NET INCOME...................................................................... $ 264,858 $ 265,030
=========== ==========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-29
<PAGE> 75
WELDCO, INC.

<TABLE>
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996
<CAPTION>
COMMON UNREALIZED
STOCK GAIN ON TOTAL
--------------- PAID-IN- MARKETABLE RETAINED SHAREHOLDER'S
SHARES AMOUNT CAPITAL SECURITIES EARNINGS EQUITY
------ ------ -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 25,000 $500 $19,919 $ -- $1,601,405 $1,621,824

Net income.......................... -- -- -- -- 264,858 264,858

Unrealized gain on marketable
securities........................ -- -- -- 106,851 -- 106,851

Dividends paid...................... -- -- -- -- (148,050) (148,050)
------ ---- ------- -------- ---------- ----------

BALANCE, December 31, 1995.............. 25,000 $500 $19,919 $106,851 $1,718,213 $1,845,483

Net income.......................... -- -- -- -- 265,030 265,030

Unrealized gain on marketable
securities......................... -- -- -- 10,239 -- 10,239

Dividends paid...................... -- -- -- -- (250,751) (250,751)

BALANCE, September 30, 1996 (Unaudited). 25,000 $500 $19,919 $117,090 $1,732,492 $1,870,001
====== ==== ======= ======== ========== ==========

The accompanying notes are an integral part of these financial statements.
</TABLE>

F-30
<PAGE> 76
WELDCO, INC.

<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 264,858 $ 265,030
Adjustments to reconcile net income to net cash provided by operating
activities--
Depreciation and amortization........................................... 203,610 151,200
Loss on disposal of assets.............................................. 6,806 1,485
Changes in operating assets and liabilities--
Accounts receivable................................................. (356,512) 152,536
Inventory........................................................... 21,842 (171,795)
Prepaids and other.................................................. (19,268) 4,105
Accounts payable and accrued expenses............................... 778,595 (144,186)
Other assets........................................................ 25,995 (4,602)
--------- ---------
Net cash provided by operating activities....................... 925,926 253,773
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets............................................ 3,200 2,700
Purchases of property and equipment......................................... (658,648) (262,265)
--------- ---------
Net cash used by investing activities........................... (655,448) (259,565)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................................................... 5,499 340,062
Principal payments on loans................................................. (98,343) (106,477)
Dividends paid.............................................................. (148,050) (250,751)
--------- ---------
Net cash used by financing activities........................... (240,894) (17,166)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS......................................... 29,584 (22,958)
CASH AND CASH EQUIVALENTS, at beginning of period............................... 86,058 115,642
--------- ---------
CASH AND CASH EQUIVALENTS, at end of period..................................... $ 115,642 $ 92,684
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................................................... $ 33,704 $ 42,646
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>

F-31
<PAGE> 77
WELDCO, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION:

Weldco, Inc. (the Company) is an S corporation involved in the sale and
distribution of industrial gases, welding equipment and supplies.

The financial statements of the Company for the nine month period ended
September 30, 1996 presented herein are unaudited. Certain information and
footnote disclosures normally prepared in accordance with generally accepted
accounting principles have been either condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. Although the
Company believes that all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation have been made, interim periods
are not necessarily indicative of the financial results of operations for a full
year.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.

MARKETABLE SECURITIES

Marketable securities consist of 4,090 shares of AllAmerica Financial
Corporation common stock with a cost of $0 and a market value of $106,851 and
$117,090 on December 31, 1995 and September 30, 1996, respectively.

The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 115. Under SFAS No. 115, the recorded cost of investments
which are considered to be available for sale are adjusted to fair market
value. The difference between cost and fair market value is classified as an
unrealized gain in the shareholder's equity section of the balance sheet.

INVENTORY

Inventory is carried at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method.

The components of inventory are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Gross Inventory......................... $ 862,596 $1,034,907
LIFO Reserve............................ (375,000) (575,516)
--------- ----------
Net Inventory........................... $ 487,596 $ 659,391
========= ==========
</TABLE>

PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold improvements............................ 15
Equipment......................................... 7-10
Transportation equipment.......................... 5
Furniture and fixtures............................ 10
</TABLE>

F-32
<PAGE> 78

WELDCO, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

The cost of maintenance and repairs is charged to operations as incurred.
Major renewals and betterments are capitalized.

INCOME TAXES

The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Accordingly, the financial statements do not include
a provision for income taxes because the Company does not incur federal or
state income taxes. Instead, its earnings and losses are included in the
shareholder's personal income tax return and are taxed based on the
shareholder's personal tax strategy.

DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments,"
during fiscal year 1995.

The following methods and assumptions were used to estimate fair value of
each class of financial instrument for which it is practicable to estimate that
value:

CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value
because of the short maturity of those instruments.

The estimated fair values of the Company's financial instruments as of
December 31, 1995 are as follows:

<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Cash and cash equivalents........................................ $115,642 $115,642
Long-term debt................................................... 450,231 450,231
</TABLE>

USE OF ESTIMATES

3. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:

F-33
<PAGE> 79
WELDCO, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT:

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Fixed rate note payable to bank at 8.5% interest rate,
payable in monthly installments through September 1999...... $192,761 $ 159,590
Bank revolving credit line at prime rate (8.5% at
December 31, 1995) plus 0.5% maturing on July 1, 1997....... 70,014 162,560
Notes payable at 5% and 6% on life insurance cash
surrender value of life insurance............................ 51,760 51,760
Equipment obligation payable at 16.0% interest rate, payable
in monthly installments through February 1997............... 11,233 2,978
Variable rate note payable to bank at prime rate (8.5% at
December 31, 1995) plus 1.25%, payable in monthly
installments through March 1997............................. 31,984 15,821
Fixed rate note payable to bank at 7.125% interest rate,
payable in monthly installments through August 1998......... 92,479 68,309
Fixed rate note payable to a bank at 8.5% interest rate,
payable in monthly installments through April 2001.......... -- 229,165
-------- ---------
$450,231 $ 690,183
Current maturities........................................... (184,291) (316,260)
-------- ---------
Total long-term debt......................................... $265,940 $ 373,923
======== =========
</TABLE>

The schedule of maturities as amended for the new credit agreements for the
next five years and thereafter as of December 31, 1995 is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31,
- ------------------
<S> <C>
1996........................ $184,291
1997........................ 91,959
1998........................ 79,009
1999........................ 43,212
2000........................ --
Thereafter.................. 51,760
--------
Total....................... $450,231
========
</TABLE>

These loans have certain covenants regarding current ratio, operating cash
flow to debt service, tangible net worth, total liabilities to tangible net
worth, and capital expenditures. At December 31, 1995, the Company was in
violation of certain covenants. These violations were waived as of December 31,
1995 and the Company was in compliance with these covenants as of September
30, 1996. Carrying value approximates fair value.

F-34
<PAGE> 80
WELDCO, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. PENSION PLANS:

The Company sponsors a defined contribution pension plan for employees. All
employees are eligible to participate in the Company-sponsored plan after
meeting the age and service requirements. Contributions to the plan are based
on a percentage of employees' compensation. Pension expense for this plan was
$26,890 for the year ended December 31, 1995 and $28,595 for the nine month
period ended September 30, 1996.

6. LEASE OBLIGATIONS:

The Company leases certain office equipment and delivery vehicles. All of
the leases, which are with related and unrelated parties, are classified as
operating leases. The lease terms expire at various dates through the year
2002. Lease expenses charged to operations was $96,064 for the year ended
December 31, 1995 and $72,680 for the nine month period ended September
30, 1996.

Minimum future rental payments under noncancelable operating leases for
each of the next five years are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31, TOTAL
- ------------------ ----------
<S> <C>
1996........................ $ 365,001
1997........................ 346,652
1998........................ 338,239
1999........................ 333,069
2000........................ 330,367
----------
Totals...................... $1,713,328
==========
</TABLE>
7. RELATED PARTY TRANSACTIONS:

The Company leases office and warehouse facilities and rents equipment from
related parties who are shareholders of the Company. These transactions and
balances are summarized as follows for the year ended December 31, 1995:

Transactions--
Lease of office and warehouse
facilities............................. $209,469
Rental of equipment...................... 55,916

8. SUBSEQUENT EVENT:

In October 1996, substantially all of the Weldco's assets and liabilities
were purchased by Valley National Gases, Inc. for an approximate purchase price
of $11.1 million.

F-35

<PAGE> 81
===============================================================================
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------

<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................................................. 3

Risk Factors.................................................................... 6

S Corporation Distribution...................................................... 9

Use of Proceeds................................................................. 9

Dividend Policy................................................................. 10

Capitalization.................................................................. 10

Dilution........................................................................ 11

Selected Pro Forma Financial Data............................................... 12

Selected Historical Financial Data.............................................. 16

Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 18

Business........................................................................ 24

Management...................................................................... 32

Principal and Selling Shareholders.............................................. 36

The Right of First Refusal of Agreement......................................... 36

Certain Relationships and Related Transactions.................................. 39

Shares Eligible for Future Sale................................................. 39

The Reorganization.............................................................. 40

Description of Capital Stock.................................................... 40

Underwriting.................................................................... 43

Legal Matters................................................................... 45

Experts......................................................................... 45

Additional Information.......................................................... 45

Index to Financial Statements................................................... F-1
</TABLE>
----------------

UNTIL MAY 5, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
================================================================================

================================================================================
- --------------------------------------------------------------------------------

2,000,000 SHARES

[LOGO] VALLEY(TM)
----------------------------
NATIONAL GASSES INCORPORATED
----------------------------

COMMON STOCK

-------------------
P R O S P E C T U S
-------------------
A.G. EDWARDS & SONS, INC.
OPPENHEIMER & CO., INC.

April 10, 1997

- --------------------------------------------------------------------------------
======================================================================