As filed with the Securities and Exchange Commission on January 2, 1998
Registration No. 333-
- - - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM S-2
Registration Statement
Under
The Securities Act of 1933
------------------------------------
ROANOKE GAS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-0359895
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 983-3800
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
------------------------------------
John B. Williamson, III
Vice President - Rates and Finance
Roanoke Gas Company
519 Kimball Avenue, N.E., Roanoke, Virginia 24016
(540) 983-3810
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
------------------------------------
Copy to:
FAITH M. WILSON DAVID M. CARTER
Woods, Rogers & Hazlegrove, P.L.C. Hunton & Williams
First Union Tower, Suite 1400 Riverfront Plaza, East Tower
10 South Jefferson Street 951 East Byrd Street
Roanoke, Virginia 24011 Richmond, VA 23219-4074
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
------------------------------------
If the only securities being registered on this Form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Proposed maximum Proposed maximum Amount of
Amount to be offering price per aggregate offering registration
Title of each class of securities to be registed registered share* price* fee
- - - ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $5 par value................... 181,500 shares $19.69 $3,573,735 $1,055
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*Estimated solely for purposes of calculating the registration fee and based on
the average high and low prices of the Common Stock on the Nasdaq National
Market on December 29, 1997.
------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 31, 1997
165,000 SHARES
ROANOKE GAS COMPANY
COMMON STOCK
------------------------------------
All of the 165,000 shares of Common Stock offered hereby (the
"Offering") are being issued and sold by Roanoke Gas Company.
The Common Stock of Roanoke Gas Company is included for quotation in
The Nasdaq Stock Market's National Market (the "Nasdaq National Market") under
the symbol "RGCO." The last reported sale price of the Common Stock on December
29, 1997 on the Nasdaq National Market was $20.13 per share.
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting
Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- - - ----------------------------- ----------------------------- ----------------------------- -----------------------------
Per Share.................... $ $ $
Total(3)..................... $ $ $
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(1) Excluding a $7,500 financial advisory fee being paid to the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses estimated at $80,000, all of which are payable by
the Company.
(3) The Company has granted the Underwriter an option, exercisable within 30
days of the date hereof, to purchase up to an additional 16,500 shares of
Common Stock solely to cover over-allotments. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $_________, $__________ and $____________,
respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter, and
subject to certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify the Offering without notice and reject orders in
whole or in part. It is expected that delivery of the Common Stock offered
hereby will be made against payment therefor on or about ________, 1998, at the
offices of Scott & Stringfellow, Inc., Richmond, Virginia.
------------------------------------
Scott & Stringfellow, Inc.
------------------------------------
The date of this Prospectus is __________, 1998
<PAGE>
THE COMPANY'S NATURAL GAS SERVICE TERRITORIES AND PROPANE MARKETS
[Graphic and key of a map of West Virginia and Virginia showing the
Company's natural gas service territories and propane markets appears
here.]
Communities Served by the Company:
Beckley Galax Roanoke
Bedford Hillsville Rocky Mount
Blacksburg Hinton Rupert
Bluefield Lewisburg Salem
Bramwell Lexington Smith Mountain Lake
Buchanan Marion Tazewell
Christiansburg Natural Bridge Troutville
Clifton Forge New Castle Vinton
Covington Princeton White Sulphur Springs
Fincastle Pulaski Wytheville
Floyd Radford
Fort Chiswell Rainelle
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING THE UNDERWRITER MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
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PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and
is qualified in its entirety by the more detailed information and consolidated
financial statements and notes thereto contained elsewhere in this Prospectus or
incorporated herein by reference. Unless otherwise indicated, the information in
this Prospectus assumes that the underwriter's over-allotment option will not be
exercised. All references below to the Company shall mean Roanoke Gas Company
and its subsidiary corporations. This Prospectus contains forward looking
statements within the meaning of Section 27A of the Exchange Act. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Forward Looking Statements."
The Company
Roanoke Gas Company and its subsidiaries (the "Company") are engaged
primarily in the retail distribution and sale of natural gas and propane to
residential, commercial and industrial customers in southwestern Virginia and
southern West Virginia. The Company's gas utility markets include the cities of
Roanoke and Salem, Virginia and Bluefield, West Virginia, and surrounding
regions, including Roanoke County and portions of Bedford, Botetourt, Franklin,
Montgomery and Tazewell counties, Virginia and Mercer County, West Virginia. As
of September 30, 1997, the Company's gas utility operations served approximately
52,800 natural gas customers. Of the Company's revenues in fiscal 1997 from
regulated gas operations, approximately 57% was derived from residential
customers and approximately 43% was derived from commercial and industrial
customers. The Company's gas utility operations are regulated by the State
Corporation Commission of Virginia (the "Virginia Commission") and the Public
Service Commission of West Virginia (the "West Virginia Commission").
As of September 30, 1997, the Company's unregulated propane operations
served approximately 8,800 customers and represented the fastest growing segment
of the Company. From September 30, 1993 to September 30, 1997, the Company's
propane customer base grew at a compound annual rate of approximately 17%.
Including the lease and subsequent purchase of the propane assets of U.S. Gas,
Inc. ("U.S. Gas"), a small propane company serving the Bedford, Franklin and
Smith Mountain Lake areas of Virginia, the Company's propane customer base
increased by approximately 38% in fiscal 1997. For fiscal 1997, propane and
other nonutility operations accounted for approximately 21% of the Company's
total net earnings.
The Offering
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Common Stock offered hereby............................... 165,000 shares
Common Stock outstanding after the Offering (1)........... 1,726,803 shares
Nasdaq National Market trading symbol..................... RGCO
Range of high and low bid prices of Common Stock
(January 1, 1997 through December 29, 1997)............... $15.75 - $20.13
Closing bid price on December 29, 1997.................... $20.13
Indicated annualized dividend rate per share.............. $1.06
Book value per share at September 30, 1997................ $13.48
Use of proceeds........................................... To repay borrowings under lines of credit incurred
to fund additions to the utility plant of Roanoke
Gas Company
</TABLE>
(1) Based on the number of shares outstanding as of September 30, 1997,
adjusted to reflect the issuance of 34,317 shares of Common Stock on
December 9, 1997, in connection with the purchase of the propane assets of
U.S. Gas, and the issuance of 165,000 shares of Common Stock offered
hereby.
3
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Summary Consolidated Financial and Operating Information
(In thousands, except share, per share and customer data)
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As of or for Fiscal Years Ended
September 30,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- -------------- -------------- ------------- ------------
Statement of Earnings Data:
Operating revenues:
Gas utilities $ 57,842 $ 60,068 $ 44,062 $ 53,525 $ 53,506
Propane operations 7,206 5,703 4,549 4,671 4,210
----------- ------------ ----------- ----------- -----------
Total operating revenues 65,048 65,771 48,611 58,196 57,716
Operating margin:
Gas utilities 19,167 19,305 17,034 17,415 16,251
Propane operations 3,298 2,726 2,402 2,487 2,046
----------- ------------ ---------- ---------- ----------
Total operating margin 22,465 22,031 19,436 19,902 18,297
Operating expenses 18,062 17,996 15,914 16,365 15,062
---------- ---------- --------- --------- ---------
Operating earnings 4,403 4,035 3,522 3,537 3,235
Earnings before interest charges 4,550 4,113 3,702 3,592 3,265
Net earnings $ 2,310 $ 2,197 $ 1,777 $ 1,677 $ 1,441
Net earnings per share $ 1.54 $ 1.51 $ 1.26 $ 1.25 $ 1.13
Cash dividends declared per share $ 1.04 $ 1.02 $ 1.00 $ 1.00 $ 1.00
Average shares outstanding 1,503,388 1,455,999 1,408,659 1,339,402 1,280,176
Balance Sheet Data:
Utility and non-utility property and plant, net $ 48,159 $ 43,244 $ 40,146 $ 37,031 $ 34,111
Total assets 62,593 58,921 51,615 49,579 48,759
Long-term debt, excluding current
installments 17,079 20,222 17,504 16,415 16,530
Common stockholders' equity 20,597 18,975 17,555 16,425 14,653
Book value per share $ 13.48 $ 12.86 $ 12.25 $ 11.88 $ 11.36
Shares outstanding at September 30 1,527,486 1,475,843 1,432,512 1,382,343 1,289,302
Customer Data:
Number of gas customers 52,763 51,094 49,813 48,544 46,788
Number of propane customers 8,829 6,410 6,006 5,684 4,648
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As of September 30, 1997
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Actual As Adjusted(1)
-------------------------------- --------------------------------
Amount Percentage Amount Percentage
-------------- ------------- -------------- -------------
Capitalization:
Common stockholders' equity $ 20,597 54.7% $ %
Long-term debt, excluding current installments 17,079 45.3
-------- ------- -------------- ------------
Total capitalization $ 37,676 100.0% $ %
======== ======= ============== ============
(1) Adjusted to reflect the issuance of 34,317 shares of Common Stock on December 9, 1997, in connection with the purchase
of the propane assets of U.S. Gas, and the issuance of 165,000 shares of Common Stock offered hereby and the application
of estimated proceeds therefrom as described in "Use of Proceeds."
</TABLE>
4
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THE COMPANY
The Company is engaged primarily in the retail distribution and sale of
natural gas and propane to residential, commercial and industrial customers in
southwestern Virginia and southern West Virginia. Unless the context requires
otherwise, references to the Company include Roanoke Gas Company ("Roanoke Gas")
and its wholly owned regulated subsidiaries, Bluefield Gas Company ("Bluefield")
and Commonwealth Public Service Corporation ("Commonwealth"), as well as its
wholly owned unregulated subsidiary, Diversified Energy Company ("Diversified").
Roanoke Gas, a Virginia public service company, provides natural gas
service to approximately 48,000 customers in Roanoke, Virginia and surrounding
areas. Roanoke Gas' service area includes the cities of Roanoke and Salem,
Virginia and surrounding regions, including Roanoke County and portions of
Bedford, Botetourt, Franklin and Montgomery counties, Virginia. Bluefield, a
West Virginia public service corporation, provides natural gas service to
approximately 4,000 customers located in and around Bluefield, West Virginia.
Bluefield's service area extends from Princeton, West Virginia to the western
most city limits of Bluefield, West Virginia. Bluefield owns all of the issued
and outstanding stock of Commonwealth, a Virginia public service corporation,
which serves approximately 900 customers in Bluefield, Virginia and surrounding
areas. Commonwealth's service area includes principally the Town of Bluefield,
Virginia and a portion of Tazewell County, Virginia. Diversified, which is not a
regulated public utility, has two operating divisions, Highland Propane Company
("Highland Propane"), which sells propane and propane related products, and
Highland Gas Marketing ("Highland Marketing"), through which the Company assists
large industrial customers in the purchase of natural gas.
As of September 30, 1997, the Company's utility operations, which are
regulated by the Virginia and West Virginia Commissions, served approximately
52,800 natural gas customers. From September 30, 1993 to September 30, 1997, the
Company's natural gas customer base grew at a compound annual rate of
approximately 3%, and its natural gas customer base increased by approximately
3% in fiscal 1997. Based on American Gas Association ("AGA") statistics, the
compound annual growth rate of natural gas customers in the United States from
1992 to 1996 was approximately 1.6%. Of the Company's revenues from regulated
gas operations during fiscal 1997, approximately 57% was derived from
residential customers and approximately 43% was derived from commercial and
industrial customers. The Company obtains its gas supply using a mix of
long-term, mid-term and spot gas purchase contracts. The Company also regards
storage supplies as an integral part of its gas portfolio. The Company's gas
operations hold the rights to approximately 2.9 billion cubic feet ("BCF") of
natural gas storage space, including pipeline and third party underground
facilities in both the Gulf Coast and Appalachian areas, as well as the
Company's own liquefied natural gas ("LNG") storage in Botetourt County,
Virginia.
The Company's unregulated propane operations served approximately 8,800
customers as of September 30, 1997 and represent the fastest growing segment of
the Company. From September 30, 1993 to September 30, 1997, the Company's
propane customer base grew at a compound annual rate of approximately 17%.
Including the lease and subsequent acquisition of the propane assets of U.S.
Gas, the Company's propane customer base increased by approximately 38% in
fiscal 1997. For fiscal 1997, propane and other nonutility operations accounted
for approximately 21% of the Company's total net earnings.
The Company's principal executive offices are located at 519 Kimball
Avenue, N.E., Roanoke, Virginia 24016, and its telephone number is (540)
983-3800.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, estimated to be $__________ ($________ if the Underwriter's
over-allotment option is exercised in full), are intended to be used to repay
borrowings under lines of credit incurred to fund additions to the utility plant
of Roanoke Gas. At September 30, 1997, the Company had approximately $7.1
million in borrowings under lines of credit outstanding, with a weighted average
interest rate of 6.14%.
5
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Roanoke Gas conducts an ongoing program of expansion and replacement of its
utility plant to maintain and improve the reliability and capacity of its gas
distribution system. The Company's capital expenditures totaled approximately
$8.1 million for the year ended September 30, 1997, approximately $5.1 million
of which represented additions to the utility plant of Roanoke Gas. Total
capital expenditures for the year ending September 30, 1998 are estimated to be
approximately $7.7 million, approximately $4.8 million of which is budgeted for
use by Roanoke Gas. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Capital Resources and Liquidity."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the Nasdaq National Market under
the trading symbol RGCO. The table below sets forth the range of bid prices for
shares of the Company's Common Stock, as reported in the Nasdaq National Market,
and quarterly dividends declared per share.
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Range of Bid Prices
------------------------------- Cash Dividends
Fiscal Year Ended September 30, High Low Per Share Declared
- - - ------------------------------- ----------- ---------- ------------------
1995
First Quarter $18.50 $16.00 $0.250
Second Quarter 17.00 14.00 0.250
Third Quarter 15.13 13.50 0.250
Fourth Quarter 15.00 14.25 0.250
1996
First Quarter $16.25 $14.25 $0.255
Second Quarter 18.50 15.00 0.255
Third Quarter 18.25 16.50 0.255
Fourth Quarter 17.25 14.75 0.255
1997
First Quarter $18.00 $16.75 $0.260
Second Quarter 18.25 17.00 0.260
Third Quarter 17.75 15.75 0.260
Fourth Quarter 18.13 16.00 0.260
1998
First Quarter (through 12/29/97) $20.13 $17.50 $0.265
</TABLE>
At September 30, 1997, the Company had 1,853 holders of record of its
Common Stock. The last reported sales price for the Common Stock of the Nasdaq
National Market was $20.13, on December 29, 1997.
Although the Company has paid continuous quarterly dividends to its
stockholders since August 1, 1944 and has increased per share dividends for
three consecutive fiscal years, the Company has not established a formal policy
with respect to dividends. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend upon, among other factors,
earnings, capital requirements and the operating and financial condition of the
Company. There can be no assurance that these or other conditions will not in
the future negatively affect the Company's ability to pay dividends. In
addition, the Company's long-term indebtedness contains restrictions on the
payment of dividends, primarily based on cumulative net earnings of the Company
and dividends previously paid.
6
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CAPITALIZATION
The following table sets forth the capitalization of the Company on a
consolidated basis as of September 30, 1997 and as adjusted as of such date to
reflect the issuance of 34,317 shares of Common Stock on December 9, 1997, in
connection with the purchase of the propane assets of U.S. Gas, and to give
effect to the sale of the Common Stock offered hereby and the application of the
estimated proceeds therefrom (after giving effect to the underwriting discounts
and commissions and estimated offering expenses payable by the Company) as
described under "Use of Proceeds." The information included in the table below
is qualified in its entirety by, and should be read in conjunction with, the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
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As of September 30, 1997
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Actual As Adjusted(1)
-------------------------------- --------------------------------
Amount Percentage Amount Percentage
-------------- ------------- -------------- -------------
(Dollars in thousands)
Common Stockholders' Equity:
Common Stock.......................................... $ 7,637 $
Capital in excess of par value........................ 5,272
Retained earnings(2).................................. 7,688
-------------- ------------- -------------- -------------
Total common stockholders' equity.............. 20,597 54.7% %
Long-Term Debt:
Roanoke Gas Company:
First Mortgage Bonds
Series K, 10%, due July 1, 2002.................. 1,350
Series L, 10.375%, due April 1, 2004............. 2,328
Term debentures..................................... 7,200
Unsecured senior notes payable...................... 8,000
Obligations under capital leases.................... 32
Bluefield Gas Company:
Unsecured installment loan.......................... 12
Unsecured note payable.............................. 1,300
-------------- --------------
Total long-term debt........................... 20,222
Less current installments...................... (3,143)
-------------- ------------- -------------- -------------
Long-term debt, less current installments...... 17,079 45.3% %
-------------- ------------- -------------
Total capitalization........................... $ 37,676 100.0% $ %
============== ============= ============== =============
Total borrowings under lines of credit.................. $ 7,129 $
============== ==============
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- - - ------------------------------------
(1) Adjusted to reflect the issuance of 34,317 shares of Common Stock on
December 9, 1997, in connection with the purchase of the propane assets of
U.S. Gas, and the issuance of 165,000 shares of Common Stock offered hereby
and the application of estimated proceeds therefrom as described in "Use of
Proceeds."
(2) The Company's obligations contain various provisions including a minimum
interest charge coverage ratio, limitations on debt as a percentage of total
capitalization, and limitations on total liabilities as a percentage of
tangible net worth. The obligations also contain a provision restricting the
payment of dividends, primarily based on the earnings of the Company and
dividends previously paid. At September 30, 1997, approximately $4.4 million
of retained earnings was available for dividends.
7
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following table sets forth selected consolidated financial and
operating data of the Company. The selected consolidated financial data as of
and for the five fiscal years ended September 30, 1997 was derived from the
audited consolidated financial statements of the Company. The financial data set
forth below should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto, and "Management's Discussion and Analysis of
Results of Operations and Financial Condition," included elsewhere in this
Prospectus.
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As of or for Fiscal Years Ended September 30,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ -------------- ------------- ------------ -------------
(In thousands, except share, per share, customer and degree day data)
Statement of Earnings Data:
Operating revenues:
Gas utilities................................ $ 57,842 $ 60,068 $ 44,062 $ 53,525 $ 53,506
Propane operations........................... 7,206 5,703 4,549 4,671 4,210
----------- ----------- ----------- ----------- -----------
Total operating revenues..................... 65,048 65,771 48,611 58,196 57,716
Cost of gas:
Gas utilities................................ 38,675 40,763 27,028 36,110 37,255
Propane operations........................... 3,908 2,977 2,147 2,184 2,164
----------- ----------- ----------- ----------- -----------
Total cost of gas............................ 42,583 43,740 29,175 38,294 39,419
Operating margin:
Gas utilities................................ 19,167 19,305 17,034 17,415 16,251
Propane operations........................... 3,298 2,726 2,402 2,487 2,046
----------- ----------- ----------- ----------- -----------
Total operating margin....................... 22,465 22,031 19,436 19,902 18,297
Operating expenses............................. 18,062 17,996 15,914 16,365 15,062
---------- ---------- ---------- ---------- ----------
Operating earnings............................. 4,403 4,035 3,522 3,537 3,235
Earnings before interest charges............... 4,550 4,113 3,702 3,592 3,265
Net earnings................................... $ 2,310 $ 2,197 $ 1,777 $ 1,677 $ 1,441
Net earnings per share......................... $ 1.54 $ 1.51 $ 1.26 $ 1.25 $ 1.13
Cash dividends declared per share.............. $ 1.04 $ 1.02 $ 1.00 $ 1.00 $ 1.00
Average shares outstanding..................... 1,503,388 1,455,999 1,408,659 1,339,402 1,280,176
Balance Sheet Data:
Utility property and plant, net................ $ 44,065 $ 40,911 $ 38,107 $ 35,264 $ 32,039
Non-utility property and plant, net............ 4,094 2,333 2,039 1,767 2,072
Total assets................................... 62,593 58,921 51,615 49,579 48,759
Current installments of long-term debt and
borrowings under lines of credit............. 10,272 7,322 2,621 5,907 6,019
Long-term debt, excluding current installments. 17,079 20,222 17,504 16,415 16,530
Common stockholders' equity.................... 20,597 18,975 17,555 16,425 14,653
Book value per share........................... $ 13.48 $ 12.86 $ 12.25 $ 11.88 $ 11.36
Selected Other Data:
Additions to utility and non-utility property and
plant....................................... $ 8,053 $ 5,523 $ 5,609 $ 5,518 $ 3,796
Depreciation and amortization expense.......... $ 3,247 $ 2,810 $ 2,563 $ 2,334 $ 2,147
Number of gas customers........................ 52,763 51,094 49,813 48,544 46,788
Number of propane customers.................... 8,829 6,410 6,006 5,684 4,648
Heating degree days (normal year - 4,232)...... 4,298 4,696 3,791 4,416 4,356
</TABLE>
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The core business of the Company is the distribution of natural gas.
The Company's natural gas operation provides services to customers in the cities
of Roanoke and Salem, Virginia and Bluefield, West Virginia, and surrounding
regions, including Roanoke County and portions of Bedford, Botetourt, Franklin,
Montgomery and Tazewell counties, Virginia and Mercer County, West Virginia.
Natural gas revenue is comprised of the sale and distribution, as well as the
transportation of natural gas to firm and interruptible customers, and is based
on rates and charges regulated by the Virginia Commission and the West Virginia
Commission. The Company also distributes and sells propane to customers in
southwestern Virginia and southern West Virginia through its Highland Propane
division. Propane has become an increasingly important aspect of the Company's
operations, with the annual growth in propane customers significantly exceeding
the annual growth in natural gas customers. See "Business."
Energy conservation and the availability of modern, highly efficient
furnaces and other appliances for replacement and new services in
better-insulated homes continue to result in a slight decline in annual weather
normalized per capita residential usage. The effect of such per capita declines,
unless offset by new customer growth, abnormally cold weather, or requested rate
relief, could result in a decline or attrition in the Company's net operating
earnings as a percentage of the equity component of the rate base. Competition
from alternative fuels and/or suppliers could also impact the Company's
profitability levels. Continued public acceptance and a growing preference for
natural gas and propane as competitively priced, clean and efficient fuels for
space heating and other residential, commercial and industrial applications have
contributed to increases in the number of customers served by the Company and in
the cost of constructing plant and facilities required to serve them.
Seasonality and Sensitivity to Temperature Change
The Company's results of operations are highly seasonal and sensitive
to average temperature changes because a significant amount of the natural gas
and propane sold by the Company is used for heating purposes. Therefore, the
Company's results of operations in any given period reflect the impact of
weather, with colder average temperatures during a period resulting in increased
sales. The Company typically records a significant percentage of its total
fiscal year revenues and net earnings in its first and second fiscal quarters
(which cover the period from October 1 to March 31) and typically records
significantly lower revenues and net losses in its third and fourth fiscal
quarters (which cover the period from April 1 to September 30). In both fiscal
1997 and fiscal 1996, the Company recorded 72% of its annual revenues during the
first and second fiscal quarters.
Forward-looking Statements
This Prospectus and the documents incorporated by reference herein
contain forward-looking statements relating to anticipated financial
performance, business prospects, regulatory developments, supply arrangements
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include the following: (i) fluctuations in demand for natural gas and propane
attributable to weather; (ii) difficulty in obtaining rate increases from
regulatory authorities in adequate amounts and on a timely basis; (iii)
difficulty in earning on a consistent basis an adequate return on invested
capital; (iv) competition from alternative fuels for industrial and other
significant customers and fluctuations in the prices of oil, which can make oil
less costly than natural gas, and potential increased future competition
resulting from continuing industry deregulation; (v) volatility in the supply
and price of natural gas and propane; (vi) some uncertainty in projected rate of
growth of natural gas and propane requirements of the Company's customers; (vii)
increasing expenses and labor costs and availability; and (viii) general
economic conditions both locally and nationally.
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Results Of Operations
Fiscal Year 1997 Compared With Fiscal Year 1996
Operating revenues of the Company's natural gas utility operations
decreased $2,225,226 to $57,842,181 in 1997 from $60,067,407 in 1996. The volume
of natural gas delivered to customers decreased 0.4 BCF to 10.8 BCF in 1997 from
11.2 BCF in 1996. The decreases in revenues and volume delivered are primarily
attributable to weather that was approximately 8% warmer in 1997 than in 1996.
The warmer weather more than offset the impact of natural gas customer growth of
3% in 1997. The cost of natural gas was $38,675,337 in 1997 compared to
$40,763,104 in 1996. The $2,087,767 decrease was due to the 3% decline in gas
volume delivered and a 2% decrease in the average unit cost of gas purchased,
both factors of which were influenced by the warmer 1997 weather. As a result of
all of these factors, the operating margin of the Company's natural gas utility
operations decreased $137,459 to $19,166,844 in 1997 from $19,304,303 in 1996.
Operating revenues of the Company's propane operations increased
$1,502,179 to $7,205,645 in 1997 from $5,703,466 in 1996, due to the significant
growth in 1997 of the Company's propane customer base and to higher billing
rates influenced by higher average cost of propane. The Company delivered 6.6
million gallons of propane in 1997 compared to 6.0 million gallons in 1996, an
increase of 570,000 gallons or 10%, despite warmer average weather. The cost of
propane was $3,907,568 in 1997 compared to $2,976,974 in 1996. The $930,594
increase was due to the increase in sales volume and a 20% increase in the
average unit cost of propane purchased. As a result of all of these factors, the
operating margin of the Company's propane operations increased $571,585 to
$3,298,077 in 1997 from $2,726,492 in 1996.
Total operating expenses from the Company's natural gas utilities
decreased by $223,729 to $15,360,872 in 1997 from $15,584,601 in 1996. Although
the Company had modest increases in expenses associated with health insurance
and bad debt accruals, legal expenses and the write-off of regulatory assets,
these were more than offset by reductions in FAS 106 accruals and maintenance
expenses. General taxes increased $54,631 to $2,456,399 in 1997 from $2,401,768
in 1996. While there were decreases in the revenue-sensitive taxes (gross
receipts and occupation taxes), the business license and merchants taxes,
franchise taxes and property taxes increased. Income taxes were down $105,931 to
$857,964 in 1997 from $963,895 in 1996. See note 5 of the notes to consolidated
financial statements for information on income taxes. Depreciation and
amortization expenses increased $239,465 to $2,533,912 in 1997 from $2,294,447
in 1996 due to depreciation on normal additions to plant in service. Other
operating expenses - propane operations includes the operating and maintenance
expenses, taxes and depreciation of Highland Propane. These costs increased
$289,736 to $2,700,626 in 1997 from $2,410,890 in 1996. The increase was mainly
due to depreciation on increased plant associated with customer growth and
increased income taxes associated with higher taxable income.
Other income, net of other deductions, increased $69,170 to $146,910 in
1997 from $77,740 in 1996. The increase was primarily due to jobbing revenues
and interest income and the elimination of a write-down of nonutility property
which occurred in 1996.
Total interest charges increased $324,081 to $2,240,453 in 1997 from
$1,916,372 in 1996. The increase was associated with higher borrowings under
lines of credit due to under-collections of gas costs in the early winter
months, higher receivable balances, higher inventories, increases in capital
additions and interest on rate refund reserve.
Net earnings for 1997 were $2,309,880 as compared to $2,196,672 for
1996. Net earnings per share of Common Stock were $1.54 in 1997 compared to
$1.51 in 1996. The $113,208 increase in net earnings can be attributed to cost
containment and customer growth.
Fiscal Year 1996 Compared With Fiscal Year 1995
Operating revenues of the Company's natural gas utilities increased
$16,005,670 to $60,067,407 in 1996 from $44,061,737 in 1995. The volume of
natural gas delivered to customers increased 1.2 BCF to 11.2 BCF in 1996 from
10.0 BCF in 1995. The increase in revenues and volume delivered is attributable
to weather that was approximately 24%
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colder in 1996 than in 1995, as well as to natural gas customer growth of
approximately 3% in 1996. The cost of natural gas was $40,763,104 in 1996
compared to $27,027,507 in 1995. The $13,735,597 increase was due to the 12%
increase in gas volume delivered and a 34% increase in the average unit cost of
gas purchased, both factors of which were influenced by colder weather. As a
result of all of these factors, the operating margin of the Company's natural
gas utility operations increased $2,270,073 to $19,304,303 in 1996 from
$17,034,230 in 1995.
Operating revenues of the Company's propane operations increased
$1,154,056 to $5,703,466 in 1996 from $4,549,410 in 1995, due to the significant
growth in 1996 of the Company's propane customer base, to higher billing rates
influenced by the higher average cost of propane and to significantly colder
average weather in 1996 compared to 1995. The Company delivered 6.0 million
gallons of propane in 1996 compared to 4.8 million gallons in 1995, an increase
of 1.2 million gallons or 24%. The cost of propane was $2,976,974 in 1996
compared to $2,147,776 in 1995. The $829,198 increase was due to the increase in
sales volume and an 11% increase in the average unit cost of propane purchased.
As a result of all of these factors the operating margin of the Company's
propane operations increased $324,858 to $2,726,492 in 1996 from $2,401,634 in
1995.
Total operating expenses from the Company's natural gas utilities
increased by $1,697,103 to $15,584,601 in 1996 from $13,887,498 in 1995. Other
operations and maintenance expenses increased 11% to $9,924,491 in 1996 from
$8,959,677 in 1995. The largest increases were in bad debt accruals (associated
with higher billings), collection and billing expenses, legal expenses, general
office renovations and maintenance of distribution system. General taxes
increased 15% to $2,401,768 in 1996 from $2,082,896 in 1995, due primarily to
revenue-sensitive taxes (gross receipts and business and occupation taxes).
Income taxes on the natural gas utilities increased $252,458 to $963,895 in 1996
from $711,437 in 1995, primarily due to increased taxable income. See note 5 of
the notes to consolidated financial statements for additional information on
income taxes. Depreciation and amortization expenses increased $160,959 to
$2,294,447 in 1996 from $2,133,488 in 1995 due to depreciation on normal
additions to plant in service. Other operating expenses - propane operations
consist of the operating and maintenance expenses, taxes and depreciation of
Highland Propane. These costs increased to $2,410,890 in 1996 from $2,026,108 in
1995. The $384,782 increase was mainly attributable to higher expenses
associated with market expansion, customer growth and foul weather, including
higher tank setting, delivery and marketing expenses, as well as higher
depreciation expense on increased plant.
Other income, net of other deductions, decreased significantly in 1996
to $77,740 from $179,649 in 1995. The decrease was primarily due to the Company
being in a borrowing mode instead of an investment mode on the cash management
system, a reduction in net jobbing revenues, and the elimination of interest
income and a capital gain on the sale of investment property of Highland
Propane.
Total interest charges were down $8,295 for 1996 versus 1995 due to the
liquidity of Highland Propane.
Net earnings for fiscal 1996 were $2,196,672 as compared to $1,777,240
for fiscal 1995. The $419,432 increase in net earnings can be attributed to
weather that was 11% colder than normal and 24% colder than fiscal 1995 and
increased sales from customer growth. Net earnings per share of common stock
were $1.51 in 1996 compared to $1.26 in 1995.
Capital Resources and Liquidity
The Company's primary capital needs are the funding of its continuing
pipeline construction program and the seasonal funding of its stored gas
inventories. The Company's capital expenditures for fiscal 1997 were invested in
a combination of replacement and expansion projects, reflecting the Company's
long-term program to replace older cast iron and bare steel pipe with new
plastic pipe, while continuing to meet the requirements of customer growth.
Total capital expenditures for fiscal 1997 were $8,052,801, allocated as
follows: $5,118,473 for Roanoke Gas, $608,106 for Bluefield Gas and $2,326,222
for Highland Propane. In fiscal 1997, the Company recorded $3,247,015 of
depreciation and amortization expense, which was equal to 40% of its capital
expenditures for the year. The Company invested $5,522,977 in 1996 and
$5,609,292 in 1995 capital expenditures. The Company estimates that its fiscal
1998 capital expenditures will total $7,666,931, of which $4,833,360 is budgeted
for use by Roanoke Gas. The Company believes that the net proceeds from the
Offering, internally generated funds and available lines of credit will be
adequate to meet
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its capital requirements for fiscal 1998. The Company anticipates that future
capital expenditures will be funded with a combination of internally generated
funds, lines of credit, and issuances of debt and equity.
At September 30, 1997, the Company had available lines of credit
totaling $20 million for its short-term borrowing needs, of which $7,129,000 was
outstanding. Short-term borrowing, in addition to providing limited capital
project bridge financing, is used to finance summer and fall gas purchases,
which are stored in the underground facilities of Columbia Gas Transmission
Corporation, Tennessee Gas Pipeline Company and Virginia Gas Storage Company, as
well as in the Company's LNG storage facility, to help ensure adequate winter
supplies to meet customer demand.
Short-term borrowings, together with internally-generated funds,
long-term debt and the sale of common stock through the Company's Dividend
Reinvestment and Stock Purchase Plan (the "DRP"), have been adequate to cover
construction costs, debt service and dividend payments to stockholders. The
terms of the Company's short-term borrowings under lines of credit are
negotiable, with average rates of 5.97% in 1997, 5.84% in 1996 and 6.07% in
1995. The lines do not require compensating balances. The Company utilizes a
cash management program, which provides for daily balancing of the Company's
temporary investment and short-term borrowing needs with interest rates indexed
to the 30-day LIBOR interest rate plus a premium.
From September 30, 1996 to September 30, 1997, stockholders' equity
increased by $1,621,950, reflecting an increase of $739,231 in retained earnings
and proceeds of $882,719 from issuances of common stock through the DRP and the
Restricted Stock Plan for Outside Directors.
Accounting Changes
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("Statement 121"), on October 1, 1996.
Statement 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of Statement 121 in 1997 did not have a material
impact on the Company's consolidated financial position, results of operations
or liquidity.
Prior to October 1, 1996, the Company accounted for its stock options
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense was recorded on the date of grant only if the
current market price of the underlying stock exceeded the option price. On
October 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("Statement 123"), which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, Statement 123
allows entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net earnings and pro forma net earnings per share disclosures
for stock option grants made in 1996 and future years as if the fair-value-based
method defined in Statement 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of Statement 123.
Recent Accounting Developments
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("Statement 128"). Statement 128 supersedes APB Opinion No. 15, Earnings Per
Share, and specifies the computation, presentation and disclosure requirements
for earnings per share ("EPS") for entities with publicly-held common stock or
potential common stock. The Company is required to adopt the provisions of
Statement 128 for fiscal 1998. The Company believes the adoption of Statement
128 will not have a material impact on its EPS calculations.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards ("SFAS") No. 129, Disclosure of Information about
Capital Structure, SFAS No. 130, Reporting Comprehensive Income, and SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. These
Statements are
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effective for fiscal years beginning after December 15, 1997. The Company does
not anticipate the adoption of these Statements will have a material impact on
its consolidated financial position, results of operations or liquidity.
Impact Of Inflation
The cost of natural gas represented approximately 72% for fiscals 1997
and 1996 and 66% for fiscal 1995 of the total operating expenses of the
Company's gas utilities' operations. However, under the present regulatory
purchased gas adjustment mechanism, the increases and decreases in the cost of
gas are passed through to the Company's customers.
Inflation impacts the Company through increases in non-gas costs such
as insurance, labor costs, supplies and services used in operations and
maintenance and in the replacement cost of plant and equipment. The margin
charged to natural gas customers to cover these costs can only be increased
through the regulatory process via a rate increase application. In addition to
stressing performance improvements and higher gas sales volumes to offset
inflation, management must continually review operations and economic conditions
to assess the need for filing and receiving adequate and timely rate relief from
the Virginia Commission and the West Virginia Commission
Franchises and Certificates of Public Convenience and Necessity
Roanoke Gas and Commonwealth currently hold the only franchises and/or
certificates of public convenience and necessity to distribute natural gas in
their respective Virginia service areas. The franchises generally extend for
multi-year periods and are renewable by the municipalities. Certificates of
public convenience and necessity, which are issued by the Virginia Commission,
are exclusive and of perpetual duration, subject to compliance with regulatory
standards.
Bluefield holds the only franchise to distribute natural gas in its
West Virginia service area. Its franchise extends for a period of 30 years from
August 23, 1979.
Management anticipates that the Company will be able to renew all of
its franchises when they expire. There can be no assurance, however, that a
given jurisdiction will not refuse to renew a franchise or will not, in
connection with the renewal of a franchise, attempt to impose certain
restrictions or conditions that could adversely affect the Company's business
operations or financial condition.
Environmental Issues
Both Roanoke Gas and Bluefield operated manufactured gas plants
("MGPs") as a source of fuel for lighting and heating until the early 1950s. The
process involved heating coal in a low-oxygen environment to produce a
manufactured gas that could be distributed through the Company's pipeline system
to customers. A by-product of the process was coal tar, and the potential exists
for on-site tar waste contaminants at both former plant sites. The extent of
contaminants at these sites is unknown at this time, and the Company has not
performed formal analyses of any environmental media at the Roanoke Gas MGP
site. An analysis at the Bluefield site indicates some contamination. The
Company, with concurrence of legal counsel, does not believe any events have
occurred requiring regulatory reporting. Further, the Company has not received
any notices of violation or liabilities associated with environmental statutes
or regulations related to the MGP sites and is not aware of any off-site
contamination or pollution as a result of these prior sites. Therefore, the
Company has no plans for subsurface remediation at either of the MGP sites.
Should the Company eventually be required to remediate either of the MGP sites,
the Company will pursue all prudent and reasonable means to recover any related
costs, including insurance claims and regulatory approval for rate case
recognition of expenses associated with any work required. Based upon prior
orders of the Commission related to environmental matters at other companies,
the Company believes it would be able to recover prudently incurred costs.
Additionally, a stipulated rate case agreement between the Company and the West
Virginia Commission recognizes the Company's right to defer MGP clean-up costs,
should any be incurred, and to seek rate relief for such costs. If the Company
eventually incurs costs associated with a required clean-up of either MGP site,
the Company anticipates recording a regulatory asset for such clean-up costs
which are anticipated to be recoverable in future rates. Based on
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anticipated regulatory actions and current practices, management believes that
any costs incurred related to the previously-mentioned environmental matters
will not have a material effect on the Company's consolidated financial
position, although there can be no assurance this will be the case.
BUSINESS
General
Roanoke Gas was organized as a Virginia public service corporation in
1912. The principal service of Roanoke Gas was, and continues to be, the
distribution and sale of natural gas. On May 15, 1987, Roanoke Gas, through a
series of merger transactions, acquired 100% of the outstanding stock of
Bluefield, a public service corporation, organized in 1944 under the laws of
West Virginia and principally engaged in the distribution of natural gas in
Bluefield, West Virginia and surrounding areas. Bluefield owns all of the issued
and outstanding stock of Commonwealth, a small Virginia public service
corporation organized in 1930 as the subsidiary of a predecessor corporation to
Bluefield. The distribution and sale of propane was added to the Company's line
of business in 1972 and is operated through the Company's Highland Propane
division. In addition, the Company, through its Highland Marketing division,
maintains a gas marketing operation which brokers natural gas to several
industrial customers on the Roanoke Gas and Bluefield distribution systems.
The Company's utility markets include the cities of Roanoke and Salem,
Virginia and Bluefield, West Virginia, and surrounding regions, including
Roanoke County and portions of Bedford, Botetourt, Franklin, Montgomery and
Tazewell counties, Virginia and Mercer County, West Virginia. The Company's
propane markets are located in southwestern Virginia and southern West Virginia
and currently extend east to Lynchburg, Virginia, west to Marion, Virginia,
north to Beckley, West Virginia and south to the North Carolina border and, in
addition to the markets in the Company's gas utility territories, include
Bedford, Blacksburg, Christiansburg, Lexington, Lynchburg and Radford Virginia,
and Beckley, Princeton and Lewisburg, West Virginia. The total population of the
Company's gas utility and propane market areas is approximately 700,000.
Management believes there are strong pockets of growth in the Company's market
areas. For example, Bedford County had the fourth fastest population growth of
all the counties of Virginia from 1990 to 1996. In addition, the Company's
markets along the Interstate 81 corridor are experiencing growth in the
manufacturing and industrial sector.
Marketing and Sales
The Company experienced strong customer growth in fiscal 1997, with
customer growth of approximately 3% for its utility operations and approximately
38% for its propane operations. The Company's total combined customer base
increased from approximately 57,500 customers at September 30, 1996 to
approximately 61,600 customers at September 30, 1997, an approximately 7%
increase.
In fiscal 1997, Highland Propane surpassed 2,000 tank installations in
a single year for the first time in the Company's history. This represented a
112% increase over tank installations in fiscal 1996. Including the lease and
subsequent purchase of the propane assets of U.S. Gas, Highland Propane expanded
its marketing efforts in fiscal 1997 in Beckley, West Virginia and Rockbridge
County, Alleghany County and Bedford County, Virginia.
The Company has intensified its marketing efforts over the last several
years. The marketing strategy for both the Company's natural gas and propane
distribution businesses is centered around developing strong relationships with
key decision makers in the local construction, retail, wholesale and service
markets, in addition to providing superior, timely customer service. Over the
last three years, the Company has increased its number of commissioned sales
representatives from one to six. These sales representatives focus on
maintaining one-on-one contact with such local decision makers, and their
primary goal is the addition of new gas customers along existing gas mains or
the addition of new propane customers. The Company also monitors and works
closely with prospective industrial and commercial customers, as well as
regional economic development groups.
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Natural Gas Distribution Operations
As of September 30, 1997, the Company's utility operations served
approximately 52,800 natural gas customers through an integrated natural gas
distribution system. Natural gas is purchased from suppliers and distributed to
residential, commercial and large industrial users through the Company's
underground pipeline system. Of the Company's revenues from regulated gas
operations during fiscal 1997, approximately 57% was derived from residential
customers and 43% was derived from commercial and industrial customers. The
Company's utility operations served approximately 47,600 residential customers
and approximately 5,200 industrial and commercial customers in fiscal 1997.
The Company's natural gas distribution business accounted for 89%, 92%,
and 91% of the total Company revenues in fiscal years 1997, 1996 and 1995,
respectively. The Company's revenues are affected by the cost of natural gas,
economic conditions in the areas that the Company serves and weather conditions.
Higher gas costs, which the Company is generally able to pass through to
customers, may cause customers to conserve, or in the case of industrial
customers, to use alternative energy sources. In recent years, however,
regulatory changes at the federal level and excess supply in the natural gas
industry have led to a national spot market for natural gas and an increase in
the number of suppliers of natural gas.
Natural Gas Supplies and Storage. Since November 1, 1993, the natural
gas transportation pipelines supplying the Company, including Columbia Gas
Transmission Corporation and Columbia Gulf Transmission Corporation (together
"Columbia") and East Tennessee Natural Gas Company and Tennessee Gas Pipeline
Company (together "East Tennessee"), have operated under Federal Energy
Regulatory Commission ("FERC") Order 636. Order 636 represented a major shift in
the responsibility of gas supply procurement and management from pipeline
companies to local distribution companies, such as the Company.
Order 636 required interstate pipeline companies to unbundle or
separate gas sales, transportation and storage services. Upon the implementation
of Order 636, most pipeline companies discontinued their traditional merchant
function. This resulted in local distribution companies, like the Company,
becoming responsible for obtaining all of their gas supply in the open market.
Although the unbundling of these services provides local distribution companies
with greater flexibility in selecting and managing the type of services required
to provide their customers with the lowest possible priced gas while maintaining
reliable gas supplies, it also places responsibility on a local distribution
company to obtain gas supplies in the open market on a timely basis to fulfill
customer demand requirements during peak use periods.
In fiscal 1997 and fiscal 1996, the Company delivered 10.8 BCF and 11.2
BCF, respectively, of natural gas to its customers. The Company currently uses
long-term (one year or longer), mid-term (one month to one year) and spot (less
than one month) gas purchase contracts to meet its system requirements. The
Company's objective is to create a reliable and cost effective mixture of supply
contracts with terms that will not prohibit the Company's ability to respond to
changing market conditions or additional unbundling. The Company currently has
long-term supply contracts with Amoco Energy Trading, Cabot Oil and Gas,
Columbia Energy Services, Engage Energy, Phoenix Energy Sales Company, Texaco
Natural Gas and Southern Company Energy (Vastar), which together provide for the
supply of up to approximately 8.0 BCF of gas on an annual basis. The Company
currently has mid-term supply contracts with Duke Energy and LG& E Energy
Marketing, which together provide for the supply of up to approximately 1.5 BCF
of gas on an annual basis. Spot gas supply is generally always available to the
Company at current market prices, with daily deliverability determined by the
amount of capacity available under the Company's pipeline contracts. The
Company's volumes of spot gas purchases fluctuate based on demand, pricing and
season.
The Company regards storage supplies as an integral component of its
gas supply portfolio. With the growth of the spot gas market, gas prices have
developed a pronounced seasonal pattern, with summer to winter price swings of
as much as 40%. The Company tries to take advantage of these price swings by
injecting lower-priced summer gas into its LNG storage facility, which is
capable of storing 220,000 decatherms ("DTH") for use during peak winter
periods. In addition, the Company has contracted for storage reserves from
Columbia, Tennessee Gas Pipeline Company and Virginia Gas Storage Company, with
a combined total of 2.7 BCF of underground storage capacity for Roanoke and
Bluefield. These reserves were available for summer 1997 storage injections
using spot market supply. The Company
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believes that its gas storage capacity provides supply security with reduced
exposure to potential supply interruptions. It also offers the Company the
flexibility to balance supply with its highly-variable, weather-sensitive
customer consumption patterns. In addition, the Company participates in pipeline
capacity release programs to further minimize the cost of firm service to its
customers by reselling pipeline capacity not needed during the warmer months.
Columbia continues to be the Company's primary transporter of natural
gas. Columbia historically has delivered approximately two-thirds of Roanoke
Gas' gas supply and 100% of Bluefield's gas supply. East Tennessee continues to
be the Company's other major source of supply. Historically, East Tennessee has
delivered approximately one-third of the Company's natural gas supply. The rates
paid for natural gas transportation and storage services purchased from Columbia
and East Tennessee are established by tariffs approved by the FERC. These
tariffs contain flexible pricing provisions which, in some instances, authorize
these suppliers to reduce rates and charges to meet price competition.
Roanoke Gas has a current peak day firm requirement of 94,315 DTH of
natural gas. The Company's multi-year firm transportation contracts with
Columbia and East Tennessee provide for the supply of 40,592 DTH per day. The
Company's multi-year firm storage contracts with Columbia provide for the supply
of an additional 25,364 DTH per day. Finally, the Company's LNG storage facility
in Botetourt County, Virginia has the capacity to provide up to an additional
33,000 DTH per day.
Bluefield and Commonwealth have a combined current peak day firm
requirement of 12,307 DTH of natural gas. Multi-year firm transportation
contracts with Columbia provide for the supply of 2,058 DTH per day, and a
multi-year firm storage contract with Columbia provides for the supply of an
additional 8,682 DTH per day. A new pipeline connection with Phoenix Energy
Sales Company, which is currently under construction and projected by management
to be completed in fiscal 1998, is expected to provide additional gas volumes of
up to 2,500 DTH per day.
The Company believes that its current supply, transportation and
storage contracts and arrangements position it to meet current customer
requirements, as well as to meet the gas supply requirements of future customer
growth. The Company believes that the parties with which it has contracted to
provide such services are reliable and able to fulfill their contractual
obligations. However, there can be no assurance that all of such parties will
fulfill their contractual obligations, in which case the Company may have
difficulty in arranging prompt and economical replacement supply, transportation
and/or storage.
Competition. The Company competes with other energy sources such as
fuel oil, electricity and coal. Competition is intense among the competing
energy sources and is based primarily on price. This is particularly true for
industrial applications, where sales are at risk to price competition in markets
which may switch to residual and other fuel oils.
Regulatory changes resulting from Order 636 have created competition
among suppliers or brokers of natural gas. Marketers can be expected to seek to
provide increasing volumes of natural gas to large users located within the
Company's service territories. Currently, the Company transports all
third-party, commodity gas sold to customers within its territories. Currently,
margins earned by the Company for such transportation services are the same as
the margins that would be earned by the Company on bundled supply and delivery
sales to the same customer. Deregulation of the energy industry is expected to
continue, and the form and effect of such deregulation is uncertain. The Company
expects that competition from other fuel sources, as well as from natural gas
brokers and marketers, may intensify in the future.
Roanoke Gas and Commonwealth currently hold the only franchises and
certificates of public convenience and necessity to distribute natural gas in
their respective Virginia service areas. The franchises generally extend for
multi-year periods and are renewable by the municipalities. Certificates of
public convenience and necessity, which are issued by the Virginia Commission,
are of perpetual duration, subject to compliance with regulatory standards.
Bluefield holds the only franchise to distribute natural gas in its
West Virginia service area. Its franchise extends for a period of 30 years from
August 23, 1979.
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Management anticipates that the Company will be able to renew all of
its franchises when they expire. There can be no assurance, however, that a
given jurisdiction will not refuse to renew a franchise or will not, in
connection with the renewal of a franchise, impose certain restrictions or
conditions that could adversely affect the Company's business operations or
financial condition.
Supervision and Regulation. The Company's natural gas distribution
operations, which are composed of Roanoke Gas, Commonwealth and Bluefield, are
subject to regulation at the federal and state levels. Gas transmission between
Bluefield and Commonwealth is regulated by FERC, which regulates the prices,
terms and conditions of interstate pipeline transportation and sales of natural
gas. In addition, the Company monitors proceedings before FERC that affect the
Company's pipeline gas transporters, the Company's operations and other matters
which may affect the Company's business. At the state level, Roanoke Gas and
Commonwealth are regulated by the Virginia Commission, and Bluefield is
regulated by the West Virginia Commission. The Virginia Commission and the West
Virginia Commission regulate various matters, including rates charged for
services, financings, planning and safety matters. The Virginia Commission also
grants certificates of public convenience and necessity to distribute natural
gas in the Commonwealth of Virginia.
In addition, certain municipalities and localities grant franchises for
the placement of natural gas distribution pipelines and the operation of a
natural gas distribution network for Roanoke Gas, Commonwealth and Bluefield.
The Company is also subject to standards prescribed under the Natural Gas
Pipeline Safety Act of 1968 with respect to design, installation, testing,
construction and maintenance of pipeline facilities.
Regulatory and Rate Case Proceedings. At September 30, 1997, the
Company had three rate case applications pending before the Virginia Commission
and the West Virginia Commission.
In May 1997, Bluefield filed a rate case with the West Virginia
Commission to primarily add certain utility plant investments to its rate base
and to recover costs associated with such utility plant. On December 1, 1997,
the Company and the West Virginia Commission filed a stipulated settlement which
would provide for approximately $133,000 of additional annual revenue.
Management expects the West Virginia Commission to approve the settlement, with
the new rates effective February 9, 1998.
In December 1996, Roanoke Gas filed a rate case with the Virginia
Commission to primarily add certain utility plant investments to its rate base
and to recover costs associated with such utility plant. Roanoke Gas placed the
rates requested into effect on January 1, 1997, subject to refund. A hearing on
the case was held in June 1997, in which the Virginia Commission staff
recommended an annual revenue increase based upon a return of 11.2% on common
equity. Roanoke Gas filed rebuttal in the case supporting an increase in annual
revenues based upon a return of 11.7% on common equity. However, the Company has
established reserves that are adequate to cover the refund to customers which
would be required if the case were decided based upon an 11.2% return on common
equity. A final order from the Virginia Commission is expected in the second or
third quarter of fiscal 1998.
In June 1997, Commonwealth filed a rate case with the Virginia
Commission to primarily add certain utility plant investments to its rate base
and to recover costs associated with such utility plant. Commonwealth placed the
rates requested into effect in December 1997, subject to refund. The hearing for
this rate case has been scheduled for February 3, 1998, with an order expected
from the Virginia Commission in the second or third quarter of fiscal 1998. The
Company currently expects to settle this case for an annual revenue increase of
$65,000, based upon a 10.7% return on common equity.
Nonutility Operations
Propane. The Company, through Highland Propane, serves approximately
8,800 active propane accounts in southwestern Virginia and southern West
Virginia. Highland Propane's market areas currently extend east to Lynchburg,
Virginia, west to Marion, Virginia, north to Beckley, West Virginia, and south
to the North Carolina border and, in addition to the markets in the Company's
utility territories, include Bedford, Blacksburg, Christiansburg, Lexington,
Lynchburg and Radford, Virginia, and Beckley, Princeton and Lewisburg, West
Virginia. Propane sales are becoming
17
<PAGE>
an increasingly important aspect of the Company's operations, with the annual
growth rate of its propane customers significantly exceeding the annual growth
rate of its natural gas customers. From September 30, 1993 to September 30,
1997, the Company's propane customer base grew at a compound annual rate of
approximately 17%. Including the lease and subsequent purchase of U.S. Gas, the
Company's propane customer base increased by approximately 38% in fiscal 1997.
For fiscal 1997, propane and other nonutility operations represented
approximately 21% of the Company's total net earnings.
Propane is a form of liquefied petroleum gas, which is typically
extracted from natural gas or separated during the crude oil refining process.
Although propane is gaseous at normal pressures, it is easily compressed into
liquid form for storage and transportation. Propane is a clean-burning fuel,
gaining increased recognition for its safety, efficiency, transportability and
ease of use relative to alternative forms of energy. Propane is sold primarily
in suburban and rural areas which are not served by natural gas pipelines.
Demand for propane is typically much higher in the winter months and is
significantly affected by seasonal temperature variations because of its use in
residential and commercial heating.
Highland Propane delivered approximately 6.6 million gallons of propane
in fiscal 1997, an increase of 10% from fiscal 1996 levels on 8% warmer average
weather. The increased volume is attributed to customer growth resulting from
market expansion, increased sales efforts in existing markets and the Company's
initial leasing, and ultimate purchase on December 9, 1997, of the propane
assets of U.S. Gas. The acquisition of U.S. Gas' assets accounted for
approximately 500 of the 2,419 customer additions by Highland Propane in fiscal
1997 and expanded Highland Propane into the growing markets of the Bedford,
Franklin and Smith Mountain Lake areas of Virginia.
Highland Propane purchases propane primarily from five suppliers, which
consist of major domestic oil companies and independent producers. Supplies of
propane from these and other sources are readily available for purchase by
Highland Propane. The Company's propane supply contracts generally are renewed
annually and contain minimum and maximum volume purchase provisions. A
significant portion of the propane volumes covered under these supply contracts
is typically on a fixed price basis. The Company currently has propane supply
contracts which expire from March 31, 1998 through June 30, 1998, and which
provide for maximum total volume to be delivered to the Company of approximately
7.0 million gallons over their terms. Highland Propane owns 10 storage
facilities, which provide total storage capacity of approximately 414,000
gallons of propane. Management believes its propane supply strategies have well
positioned Highland Propane to provide adequate, economic supply to current
customers and to meet the demand of future customer growth.
Propane competes primarily with electricity and fuel oil as an energy
source. Propane is typically comparable in price to fuel oil and is generally
less expensive than electricity based on equivalent British thermal unit ("BTU")
value. Because natural gas has historically been less expensive than propane,
propane is generally not distributed in areas serviced by natural gas, except
for special applications.
Highland Propane competes with over 15 propane distribution competitors
in its total market area, ranging from very small local companies to regional
operations of national companies. However, within each local market, there
typically are fewer than five active competitors. Competition is primarily based
on price, service, reliability and responsiveness to customer needs. Competition
is on a local basis, as transportation costs require distributors to be in the
proximity of their customers.
The Company's propane distribution activities are not subject to any
federal or state pricing regulation. Propane distribution operations are subject
to state and federal safety regulations relating to hook-up and placement of
propane tanks and distribution and handling of propane.
Other. In addition to propane operations, the Company, through Highland
Marketing, maintains a natural gas marketing business. Highland Marketing buys
interruptible supplies of spot gas and temporary interstate pipeline
transportation services, and resells them to large industrial customers that
contract with the local utility for delivery from the interstate pipeline to the
customer's meter. The natural gas marketing business is highly competitive with
relatively low margins; however, it also has a low cost of operation with
minimal facility and personnel requirements. Highland
18
<PAGE>
Marketing sold approximately 1.2 BCF of natural gas in fiscal 1997, an increase
of 14% over fiscal 1996. In fiscal 1997, Highland Marketing generated net
earnings of approximately $56,000.
Properties
An integral component of the Company's business is its distribution,
transmission, storage and general property, plant and equipment. The Company
owns approximately 98 miles of transmission mains and approximately 955 miles of
distribution mains, which are constructed of plastic, coated steel, cast iron
and bare steel pipe and are used in the distribution of natural gas to the
Company's customers. The Company has undertaken a long-term program to replace
approximately 160 miles of cast iron and bare steel mains over the next 20
years. Under this program, the Company replaced approximately eight miles of
such older mains in fiscal 1997 with plastic or coated steel pipe and projects
the replacement of approximately eight miles of such older mains again in fiscal
1998. The Company's gas mains are primarily located under public highways and
streets, but are also located under private property over which the Company has
obtained easements or rights-of-way from the record holders of title. Other
distribution plant and equipment of the Company consists of meters and
regulation equipment. The Company believes its utility distribution plant is
adequate to serve its existing natural gas customers.
The Company owns an LNG storage facility, which is capable of storing
220,000 DTH of natural gas purchased during the summer for use during peak
winter demand periods. The Company also owns 10 propane storage facilities,
which are capable of storing up to 414,000 gallons of propane.
The Company owns a total of approximately 135 acres of land and 13
buildings containing primarily office and warehouse space, office equipment and
computer equipment and systems. In addition, the Company owns transportation
equipment, propane tanks and miscellaneous equipment. All of the Company's
property, plant and equipment is located in its southwestern Virginia and
southern West Virginia markets.
See discussion of environmental issues under "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Employees
At September 30, 1997, the Company had 155 full-time employees. As of
that date, 55 of the Company's service and distribution employees belonged to
the Oil, Chemical and Atomic Workers International Union, AFL-CIO Local No.
3-515, which has entered into a collective bargaining agreement with the
Company. The union has been in place at the Company since 1952. The current
collective bargaining agreement became effective on August 1, 1997 and will
expire on July 31, 1998. This collective bargaining agreement contains certain
new general terms and compensation provisions. While the Company considers its
employee relations to be satisfactory, and expects to negotiate a new collective
bargaining agreement to become effective August 1, 1998, there can be no
assurance that the Company and the union will arrive at a mutually acceptable
agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 21, 1997, certain
information regarding the beneficial ownership of Common Stock by each director,
director nominee for the Company's Annual Shareholders Meeting to be held on
January 26, 1998 (the "1998 Annual Meeting"), and all directors and executive
officers as a group. Unless otherwise noted in the footnotes to the table, the
named persons have sole voting and investment power with respect to all shares
of Common Stock shown beneficially owned by them.
To the Company's knowledge, no person is the beneficial owner of more
than 5% of the issued and outstanding Common Stock of the Company.
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Shares of Common
Name of Stock Beneficially Owned
Beneficial Owner As of 11/21/971 Percent of Class
- - - ---------------- --------------- ----------------
Lynn D. Avis 8,760 *
Abney S. Boxley, III 3,707 *
Frank T. Ellett 5,869 *
Frank A. Farmer, Jr. 41,8972 2.71%
Wilbur L. Hazlegrove 35,6063 2.32%
J. Allen Layman 4,347 *
John H. Parrott 14,1464 *
Thomas L. Robertson 5,544 *
S. Frank Smith 5,871 *
John B. Williamson, III 8,1925 *
All Directors and Executive
Officers as a Group (14 persons) 147,2716 9.41%
</TABLE>
- - - ---------------------------
* Less than 1%
1 Includes restricted shares purchased by directors pursuant to Restricted
Stock Plan for Outside Directors.
2 Includes 9,282 shares owned by spouse and includes 818 shares owned by Mr.
Farmer's mother for which Mr. Farmer holds power of attorney. Also includes
13,000 shares which Mr. Farmer has the right to acquire through the exercise
of stock options.
3 Includes 11,144 shares owned by spouse.
4 Includes 2,216 shares owned by spouse
5 Includes 6,500 shares which Mr. Williamson has the right to acquire through
the exercise of stock options.
6 Includes an aggregate of 30,000 shares which executive officers have the
right to acquire through the exercise of stock options.
MANAGEMENT
The following table sets forth certain information with respect to the
directors and principal officers of Roanoke Gas at November 21, 1997. The Board
of Directors of Roanoke Gas consists of nine directors, divided into three
classes of equal size. The directors of the respective classes serve staggered
three-year terms. Officers are elected annually by the Board and serve at the
pleasure of the Board.
<TABLE>
<CAPTION>
<S> <C>
Served as Served as Principal Occupation or
Name, Age and Positions Director Executive Employment During Last
Held with the Company Since Officer Since Five Years
- - - ------------------------------------------- ------------ ---------------- ---------------------------------------------
Class A Directors (Serving until 1998 Annual Meeting)
Abney S. Boxley, III, Age 39, Director 1994 --- President, W. W. Boxley Co. (crushed stone
supplier); Director, Valley Financial
Corporation
S. Frank Smith, Age 49, Director 1990 --- Executive Vice President, Coastal Coal
Sales, Inc. (marketers and sellers of coal)
20
<PAGE>
Served as Served as Principal Occupation or
Name, Age and Positions Director Executive Employment During Last
Held with the Company Since Officer Since Five Years
- - - ------------------------------------------- ------------ ---------------- ---------------------------------------------
John H. Parrott, Age 70, Director(1) 1983 --- President, John H. Parrott and Associates,
Inc. (construction consultants) since 1983;
prior thereto, Vice President, Olver,
Incorporated (consulting engineers and
environmental laboratories) 1986-1991
Class B Directors (Serving until 1999 Annual Meeting)
Lynn D. Avis, Age 63, Director 1986 --- President, Avis Construction Co., Inc.
(construction company)
J. Allen Layman, Age 45, Director 1991 --- President and Chief Executive Officer, R&B
Communications, Inc. (telecommunications)
Thomas L. Robertson, Age 54, Director 1986 --- President, Carilion Health System and
Carilion Medical Center; Director, Roanoke
Electric Steel Corporation
Class C Directors (Serving until 2000 Annual Meeting)
Frank T. Ellett, Age 59, Director 1983 --- President, Virginia Truck Center, Inc. (sale,
lease and service of heavy trucks)
F. A. Farmer, Jr., Age 65, President and 1979 1991 President and Chief Executive Officer of the
Chief Executive Officer of the Company; Company since January 1991 (retiring
Chairman of the Board of Directors(2) January 1998); Chairman of the Board of
Directors of the Company since January
1996
W. L. Hazlegrove, Age 68, Director and 1979 --- Member, law firm of Woods, Rogers &
General Counsel of the Company, 1984- Hazlegrove, P.L.C.; Vice President and
1994 General Counsel of the Company, 1984-
1994
Executive Officers Who Are Not Also Directors
John B. Williamson, III, Age 43, Vice --- 1993 Vice President-Rates & Finance of the
President- Rates and Finance(1)(2) Company since January 1993; Director of
Rates and Finance April 1992 to January
1993; prior thereto, Chief Administrator,
Botetourt County, Virginia
Roger L. Baumgardner, Age 55, Vice --- 1986 Vice President, Secretary and Treasurer
President, Secretary and Treasurer since 1986
Arthur L. Pendleton, Age 46, Executive --- 1987 Executive Vice President and Chief
Vice President and Chief Operating Operating Officer since January 1998; Vice
Officer since January 1998(2) President - Operations from January 1991 to
January 1998
- - - ------------------------------------
</TABLE>
(1) Mr. Parrott will retire as a director at the 1998 Annual Meeting. Mr.
Williamson has been nominated as a Class A director to fill the vacancy
created by Mr. Parrott's retirement.
21
<PAGE>
(2) Mr. Farmer will retire as President and Chief Executive Officer of the
Company, effective as of the 1998 Annual Meeting. Mr. Williamson will at
that time become President and Chief Executive Officer of the Company and
Arthur L. Pendleton will become Executive Vice President and Chief
Operating Officer of the Company. Mr. Farmer will continue to serve as the
Chairman of the Board of Directors of the Company.
DESCRIPTION OF COMMON STOCK
General
The total number of authorized shares of Common Stock of Roanoke Gas is
3,000,000 shares, $5 par value per share. As of December 29, 1997, there were
1,571,565 shares of Common Stock issued and outstanding, all of which were
validly issued, fully paid and nonassessable, and, upon issuance as described in
this Prospectus the shares of Common Stock offered hereby will be validly
issued, fully paid and nonassessable. No other class of stock is currently
authorized.
Dividend Rights
Holders of the Common Stock are entitled to receive pro rata dividends
if, when and as declared by the Board of Directors out of funds legally
available therefor. The Company's long-term debt instruments contain certain
restrictions on the payment of cash dividends. At September 30, 1997, under the
most limiting of such provisions, retained earnings in the amount of
approximately $4.4 million were unrestricted and available for the payment of
dividends. See "Price Range of Common Stock and Dividends."
Voting Rights
Each outstanding share of Common Stock is entitled to full voting
rights for the election of directors and for all other purposes with one vote
for each share of Common Stock held of record. Shareholders do not have
cumulative voting rights, which means that the holders of more than 50% of the
outstanding shares of the Common Stock voting as a group for the election of
directors can elect current classes of Roanoke Gas' directors and, except for
certain major corporate actions, such as mergers, dissolution, or sale of
substantially all of Roanoke Gas' assets other than in the ordinary course of
business and matters relating to the fundamental rights of shareholders set
forth above, can control the general business of the Company.
Liquidation Rights
In the event of any liquidation, dissolution, or winding up of the
Company, the holders of the Common Stock are entitled to receive pro rata all
the assets of Roanoke Gas available for distribution to its stockholders.
Dividend Reinvestment Plan
Roanoke Gas maintains a Dividend and Reinvestment and Stock Purchase
Plan (the "DRP"). All holders of Common Stock may participate in the DRP and may
have cash dividends on their shares of Common Stock automatically reinvested in
additional shares of Common Stock and may invest in additional shares of Common
Stock by making optional cash payments without the payment of brokerage
commissions or service charges. Roanoke Gas has reserved 400,000 shares of
Common Stock, as adjusted, for issuance under the DRP. As of December 29, 1997,
approximately 185,821 of these shares were reserved but unissued. Proceeds
received by Roanoke Gas from sales of shares of Common Stock pursuant to the DRP
have been added to the general funds of Roanoke Gas and used for capital
expenditures and working capital needs. Participation in the DRP is offered only
through a separate prospectus available from Roanoke Gas.
22
<PAGE>
Preferential, Preemptive, and Other Rights.
No holder of stock has any preferential, preemptive, or other rights to
purchase or subscribe to any shares of stock or other securities convertible
into stock.
Election of Directors
The Articles of Incorporation of Roanoke Gas provide that directors are
elected for terms of three years, with one-third of the seats of the Board of
Directors being subject to election each year. The holders of Roanoke Gas Common
Stock do not have cumulative voting rights in the election of directors.
Vacancies on the Company's Board of Directors may only be filled by a majority
of the directors then in office, whether or not a quorum. Directors may be
removed from office only for cause. These provisions may have the effect of
delaying or deterring a change in control of the Company. See also "State
Anti-Takeover Statutes."
Shareholder Protection Statutes
The Virginia Act includes two shareholder protection statutes, the
Affiliated Transactions Statute and the Control Share Acquisitions Statute,
which are applicable to Roanoke Gas.
The Affiliated Transactions Statute restricts certain transactions
("affiliated transactions") between a Virginia corporation having more than 300
shareholders of record and a beneficial owner of more than 10% of any class of
voting stock (an "interested shareholder"). An affiliated transaction is defined
in the Virginia Act as any of the following transactions with or proposed by an
interested shareholder: a merger; a share exchange; certain dispositions of
assets or guaranties of indebtedness other than in the ordinary course of
business; certain significant securities issuances; dissolution of the
corporation; or reclassification of the corporation's securities. Under the
statute, an affiliated transaction generally requires the approval of a majority
of disinterested directors and two-thirds of the voting shares of the
corporation other than shares owned by an interested shareholder during a
three-year period commencing as of the date the interested shareholder crosses
the 10% threshold. This special voting provision does not apply if a majority of
disinterested directors approved the acquisition of the more than 10% interest
in advance. After the expiration of the three-year moratorium, an interested
shareholder may engage in an affiliated transaction only if it is approved by a
majority of disinterested directors or by two-thirds of the outstanding shares
held by disinterested shareholders, or if the transaction complies with certain
fair price provisions. This special voting rule is in addition to, and not in
lieu of, other voting provisions contained in the Virginia Act and the Articles
of Incorporation of Roanoke Gas.
The Control Share Acquisitions Statute provides that, with respect to
Virginia corporations having 300 or more shareholders of record, shares acquired
in a transaction that would cause the acquiring person's aggregate share
ownership to meet or exceed any of three thresholds (20%, 33-1/3% or 50%) have
no voting rights unless such rights are granted by a majority vote of the shares
not owned by the acquiring person or any officer or employee-director of the
corporation. The statute sets out a procedure whereby the acquiring person may
call a special shareholder's meeting for the purpose of considering whether
voting rights should be conferred. Acquisitions pursuant to a merger or share
exchange to which the corporation is a party and acquisitions pursuant to a
tender or exchange offer arising out of an agreement to which the corporation is
a party are exempt from the statute.
Application of the control share acquisition statute is automatic
unless a corporation "opts out" of its coverage by expressly providing in its
articles of incorporation or bylaws that the statute does not apply to
acquisitions of shares of such corporation. Roanoke Gas has not "opted out" of
the statute.
Roanoke Gas furnishes to its shareholders annual reports containing
audited financial statements and quarterly reports containing unaudited
financial information.
23
<PAGE>
Transfer Agent and Registrar
The Transfer Agent and Registrar for Roanoke Gas Common Stock is First
Union National Bank of North Carolina, Corporate Trust Client Services, N.C. -
1153, 1525 West W. T. Harris Boulevard - 3C3, Charlotte, North Carolina
28288-1153.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement
between Scott & Stringfellow, Inc. (the "Underwriter") and the Company, the
Underwriter has agreed to purchase from the Company, and the Company has agreed
to sell to the Underwriter, 165,000 shares of Common Stock.
The Underwriting Agreement provides that the obligations of the
Underwriter thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriter's
obligation is such that it is committed to purchase and pay for all the shares
of Common Stock offered hereby if any are purchased.
The Underwriter proposes to offer the shares of Common Stock directly
to the public at the public offering price set forth on the cover page of this
Prospectus.
The Company has granted the Underwriter an option for 30 days after the
date of this Prospectus to purchase up to 16,500 additional shares of Common
Stock, at the public offering price, less the underwriting discount, as set
forth on the cover page of the Prospectus. The Underwriter may exercise such
option only to cover over-allotments made in connection with the sale of the
165,000 shares of Common Stock offered hereby.
The Underwriter and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the Common Stock at a market price
that exceeds the highest independent bid. In addition, the net daily purchases
made by any passive market maker generally may not exceed the greater of 30% of
its average daily trading volume in the Common Stock during a specified two
month prior period, or 200 shares. A passive market maker must identify
passive-market making bids as such on the Nasdaq electronic inter-dealer
reporting system. Passive market making may stabilize or maintain the market
price of the Common Stock above independent market levels. The Underwriter and
dealers are not required to engage in passive market making and may end passive
market making activities at any time.
In order to facilitate the offering of the Common Stock, the
Underwriter may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock. Specifically, the Underwriter may
overallot in connection with the offering, creating a short position in the
Common Stock for its own account. In addition, to cover overallotments or to
stabilize the price of the Common Stock, the Underwriter may bid for, and
purchase, shares of Common Stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the Common Stock in the offering, if the syndicate repurchases
previously distributed Common Stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriter is not required to engage in these activities,
and may end any of these activities at any time.
The Company has agreed not to issue, and all directors and executive
officers of the Company have agreed not to offer, sell or contract to sell or
otherwise dispose of, directly or indirectly, or announce an offering of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus, subject to certain limited exceptions, without the prior written
consent of the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriter may be required to make in respect thereof. The
Company also has agreed to pay the Underwriter a financial advisory fee of
$7,500 in connection with the Offering.
24
<PAGE>
LEGAL OPINIONS
Legal matters in connection with the issuance of the Common Stock will
be passed upon by Woods, Rogers & Hazlegrove, P.L.C., Roanoke, Virginia. Certain
legal matters will be passed upon for the Underwriter by Hunton & Williams,
Richmond, Virginia.
EXPERTS
The consolidated financial statements of Roanoke Gas Company and
subsidiaries as of September 30, 1997 and 1996, and for each of the years in the
three-year period ended September 30, 1997, have been included and incorporated
by reference in this Prospectus and elsewhere in the registration statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission ("SEC"). Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities of the SEC, at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as the following Regional Offices: 7 World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611. Copies of such materials also can
be obtained at prescribed rates from the Public Reference Section of the SEC at
the Washington D.C. address given above. The SEC maintains a web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC, including the
Company. The address of such web site is http://www.sec.gov. In addition, such
reports, proxy and information statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, DC 20006-1506. The
Company's Common Stock is included for quotation on the Nasdaq National Market
under the symbol "RGCO."
This Prospectus constitutes a part of a registration statement on Form
S-2 (herein, together with all exhibits thereto, referred to as the
"Registration Statement") filed by the Company with the SEC under the Securities
Act of 1933, as amended (the "Securities Act") with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth or incorporated by reference in the Registration Statement, as permitted
by the rules and regulations of the SEC. For further information with respect to
the Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits filed or incorporated by
reference as part thereof. Copies of the Registration Statement and exhibits
thereto are on file at the offices of the SEC and may be obtained upon payment
of the prescribed fee or may be examined without charge at the Public Reference
Section of the SEC described above. Statements contained in this Prospectus
concerning the provisions of documents filed with, or incorporated by reference
in, the Registration Statement as exhibits are necessarily summaries of such
documents, and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, heretofore filed by the Company with the SEC (File No.
0-367) pursuant to the Exchange Act, is hereby incorporated by reference in this
Prospectus.
25
<PAGE>
Any statement contained herein or in a document incorporated by
reference herein shall be deemed modified or superseded, for purposes of this
Prospectus, to the extent that a statement contained herein modifies or
supersedes such statement.
The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon the written or oral request of such
person, a copy of any document described above (other than exhibits). Requests
for such copies should be directed to: Roger L. Baumgardner, Secretary, Roanoke
Gas Company, 519 Kimball Avenue, N.E., Roanoke, Virginia 24016, (540) 983-3855.
26
<PAGE>
<TABLE>
ROANOKE GAS COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report..................................................................... F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1997 and 1996................................ F-3
Consolidated Statements of Earnings for the years ended September 30, 1997, 1996 and 1995.... F-5
Consolidated Statements of Stockholders' Equity for the years ended September 30, 1997, 1996
and 1995................................................................................. F-6
Consolidated Statements of Cash Flows for the years ended September 30, 1997, 1996 and 1995.. F-7
Notes to Consolidated Financial Statements................................................... F-9
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Roanoke Gas Company:
We have audited the accompanying consolidated balance sheets of Roanoke Gas
Company and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Roanoke Gas
Company and subsidiaries as of September 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1997, in conformity with generally accepted
accounting principles.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Roanoke, Virginia
October 17, 1997
F-2
<PAGE>
<TABLE>
Roanoke Gas Company and Subsidiaries
Consolidated Balance Sheets
September 30, 1997 and 1996
<CAPTION>
<S> <C>
Assets 1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Utility Plant:
In service $ 65,590,024 60,454,905
Accumulated depreciation and amortization (22,612,963) (20,822,398)
- - - -------------------------------------------------------------------------------------------------------------------
In service, net 42,977,061 39,632,507
Construction work-in-progress 1,088,083 1,277,999
- - - -------------------------------------------------------------------------------------------------------------------
Utility plant, net 44,065,144 40,910,506
- - - -------------------------------------------------------------------------------------------------------------------
Nonutility Property:
Propane 6,634,369 4,403,630
Accumulated depreciation and amortization (2,540,274) (2,070,405)
- - - -------------------------------------------------------------------------------------------------------------------
Nonutility property, net 4,094,095 2,333,225
- - - -------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 116,045 633,322
Accounts receivable, less allowance for
doubtful accounts of $368,345 in
1997 and $279,316 in 1996 4,188,984 3,857,407
Inventories 7,427,581 7,402,586
Prepaid income taxes 7,368 297,521
Deferred income taxes 1,206,995 379,356
Purchased gas adjustments 587,457 1,782,590
Other 420,674 479,926
- - - -------------------------------------------------------------------------------------------------------------------
Total current assets 13,955,104 14,832,708
- - - -------------------------------------------------------------------------------------------------------------------
Other Assets 478,915 844,660
- - - -------------------------------------------------------------------------------------------------------------------
$ 62,593,258 58,921,099
- - - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<CAPTION>
Liabilities And Stockholders' Equity 1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Capitalization:
Stockholders' equity:
Common stock, $5 par value. Authorized 3,000,000 shares; issued
and outstanding 1,527,486 and 1,475,843 shares in 1997 and 1996,
respectively $ 7,637,430 7,379,215
Capital in excess of par value 5,271,667 4,647,163
Retained earnings 7,687,854 6,948,623
- - - -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 20,596,951 18,975,001
Long-term debt, excluding current installments 17,079,000 20,222,124
- - - -------------------------------------------------------------------------------------------------------------------
Total capitalization 37,675,951 39,197,125
- - - -------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Current installments of long-term debt 3,143,124 669,423
Borrowings under lines of credit 7,129,000 6,652,500
Dividends payable 397,530 376,795
Accounts payable 5,512,348 4,931,467
Customer deposits 427,895 362,384
Accrued expenses 4,233,860 3,214,953
Refunds from suppliers - due customers 425,860 23,865
- - - -------------------------------------------------------------------------------------------------------------------
Total current liabilities 21,269,617 16,231,387
- - - -------------------------------------------------------------------------------------------------------------------
Deferred Credits And Other Liabilities:
Deferred income taxes 3,145,932 2,960,795
Deferred investment tax credits 492,357 531,792
Other deferred credits 9,401 -
- - - -------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,647,690 3,492,587
- - - -------------------------------------------------------------------------------------------------------------------
$ 62,593,258 58,921,099
- - - -------------------------------------------------------------------------------------------------------------------
F-4
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Earnings
Years Ended September 30, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
Operating Revenues:
Gas utilities $ 57,842,181 60,067,407 44,061,737
Propane operations 7,205,645 5,703,466 4,549,410
- - - -------------------------------------------------------------------------------------------------------------------
Total operating revenues 65,047,826 65,770,873 48,611,147
- - - -------------------------------------------------------------------------------------------------------------------
Cost Of Gas:
Gas utilities 38,675,337 40,763,104 27,027,507
Propane operations 3,907,568 2,976,974 2,147,776
- - - -------------------------------------------------------------------------------------------------------------------
Total cost of gas 42,582,905 43,740,078 29,175,283
Operating Margin 22,464,921 22,030,795 19,435,864
- - - -------------------------------------------------------------------------------------------------------------------
Other Operating Expenses:
Gas utilities:
Other operations 8,049,833 8,056,211 7,726,611
Maintenance 1,462,764 1,868,280 1,233,066
Taxes - general 2,456,399 2,401,768 2,082,896
Taxes - income 857,964 963,895 711,437
Depreciation and amortization 2,533,912 2,294,447 2,133,488
Propane operations (including taxes - income of $309,137,
$177,059 and $224,017 in 1997, 1996 and 1995, respectively) 2,700,626 2,410,890 2,026,108
- - - -------------------------------------------------------------------------------------------------------------------
Total other operating expenses 18,061,498 17,995,491 15,913,606
- - - -------------------------------------------------------------------------------------------------------------------
Operating Earnings 4,403,423 4,035,304 3,522,258
- - - -------------------------------------------------------------------------------------------------------------------
Other Income (Deductions):
Gas utilities:
Interest income 8,204 274 26,652
Merchandising and jobbing, net 147,522 99,334 120,475
Other deductions (87,486) (120,539) (142,389)
Taxes - income (37,552) (22,486) (14,547)
Propane operations, net 116,222 121,157 189,458
- - - -------------------------------------------------------------------------------------------------------------------
Total other income (deductions) 146,910 77,740 179,649
- - - -------------------------------------------------------------------------------------------------------------------
Earnings Before Interest Charges 4,550,333 4,113,044 3,701,907
- - - -------------------------------------------------------------------------------------------------------------------
Interest Charges:
Gas utilities:
Long-term debt 1,740,998 1,621,661 1,680,078
Other 441,444 292,301 231,142
Propane operations 58,011 2,410 13,447
- - - -------------------------------------------------------------------------------------------------------------------
Total interest charges 2,240,453 1,916,372 1,924,667
- - - -------------------------------------------------------------------------------------------------------------------
Net Earnings $ 2,309,880 2,196,672 1,777,240
- - - -------------------------------------------------------------------------------------------------------------------
Net Earnings Per Share $ 1.54 1.51 1.26
- - - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Stockholders' Equity
Years Ended September 30, 1997, 1996 and 1995
<CAPTION>
Capital In Total
Common Excess Of Retained Stockholders'
Stock Par Value Earnings Equity
- - - -------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1994 $ 6,911,715 3,631,335 5,881,869 16,424,919
Net earnings - - 1,777,240 1,777,240
Cash dividends ($1.00 per share) - - (1,416,081) (1,416,081)
Issuance of common stock (50,169 shares) 250,845 522,699 - 773,544
Common stock issuance costs - (4,450) - (4,450)
- - - -------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1995 7,162,560 4,149,584 6,243,028 17,555,172
Net earnings - - 2,196,672 2,196,672
Cash dividends ($1.02 per share) - - (1,491,077) (1,491,077)
Issuance of common stock (43,331 shares) 216,655 497,579 - 714,234
- - - -------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1996 7,379,215 4,647,163 6,948,623 18,975,001
Net earnings - - 2,309,880 2,309,880
Cash dividends ($1.04 per share) - - (1,570,649) (1,570,649)
Issuance of common stock (51,643 shares) 258,215 624,504 - 882,719
- - - -------------------------------------------------------------------------------------------------------------------
Balances, September 30, 1997 $ 7,637,430 5,271,667 7,687,854 20,596,951
- - - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Roanoke Gas Company and Subsidiaries
Consolidated Statements Of Cash Flows
Years Ended September 30, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings $ 2,309,880 2,196,672 1,777,240
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,247,015 2,810,314 2,563,128
Loss (gain) on disposal of utility plant and
nonutility property (961) (4,202) 4,823
Loss (gain) on sale of other asset 3,293 - (67,556)
Write-down of other asset 4,230 - -
Write-off of regulatory assets 132,523 - -
Decrease (increase) in purchased gas adjustments 1,195,133 (2,019,589) 931,422
Changes in assets and liabilities which provided
(used) cash, exclusive of changes and noncash
transactions shown separately 1,471,321 (3,608,875) 3,139,960
- - - -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 8,362,434 (625,680) 8,349,017
- - - -------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to utility plant in service and under
construction and nonutility property (8,052,801) (5,522,977) (5,609,292)
Proceeds from disposal of property 50,094 42,511 70,403
Cost of removal of utility plant, net (158,855) (423,221) (122,523)
Proceeds from sale of other asset 141,969 - -
Proceeds from collection of note receivable - - 490,000
- - - -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,019,593) (5,903,687) (5,171,412)
- - - -------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt - - 2,700,000
Retirement of long-term debt and payments on
obligations under capital leases (669,423) (1,179,415) (1,124,703)
Net borrowings (repayments) under lines of credit 476,500 8,598,000 (3,793,000)
Proceeds from issuance of common stock 882,719 714,234 773,544
Common stock issuance costs - - (4,450)
Cash dividends paid (1,549,914) (1,473,025) (1,403,370)
- - - -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (860,118) 6,659,794 (2,851,979)
- - - -------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (517,277) 130,427 325,626
Cash and Cash Equivalents, Beginning of Year 633,322 502,895 177,269
- - - -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 116,045 633,322 502,895
- - - -------------------------------------------------------------------------------------------------------------------
(Continued)
F-7
<PAGE>
<CAPTION>
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
Changes in Assets and Liabilities Which Provided (Used)
Cash, Exclusive of Changes and Noncash Transactions
Shown Separately:
Accounts receivable and customer deposits, net $ (266,066) (346,566) (304,927)
Inventories (24,995) (2,054,592) 1,028,359
Prepaid income taxes 290,153 (297,521) 260,609
Other noncurrent assets 83,730 160,936 (277,339)
Accounts payable 580,881 (613,180) 224,166
Income taxes payable - (476,410) 476,410
Accrued expenses and other current assets, net 1,078,159 (111,608) 2,011,166
Refunds from suppliers - due customers 401,995 (658,986) 183,953
Deferred taxes, including amortization of deferred
investment tax credits (681,937) 789,052 (350,121)
Other deferred credits 9,401 - (112,316)
- - - -------------------------------------------------------------------------------------------------------------------
$ 1,471,321 (3,608,875) 3,139,960
- - - -------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures Of Cash Flows Information:
Cash paid during the year for:
Interest $ 2,065,893 1,493,801 1,867,816
- - - -------------------------------------------------------------------------------------------------------------------
Income taxes, net of refunds $ 1,575,952 1,148,319 675,418
- - - -------------------------------------------------------------------------------------------------------------------
Noncash Transactions:
TheCompany refinanced $9,300,000 of current installments of long-term
debt and borrowings under lines of credit as long-term debt in 1996.
A capital lease obligation of $21,119 was incurred in 1995 when the
Company entered into an equipment lease.
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
General
The consolidated financial statements include the accounts of Roanoke
Gas Company and its wholly-owned subsidiaries (the Company), Bluefield Gas
Company and Diversified Energy Company, trading as Highland Propane Company and
Highland Gas Marketing. Roanoke Gas Company and Bluefield Gas Company are gas
utilities, which distribute and sell natural gas to residential, commercial and
industrial customers within their service areas. The gas utilities are subject
to regulation by the Federal Energy Regulatory Commission and their applicable
state regulatory commissions. Highland Propane Company, which is not a public
utility, distributes and sells propane in southwestern Virginia and southern
West Virginia. Highland Gas Marketing brokers natural gas to several industrial
transportation customers of Roanoke Gas Company and Bluefield Gas Company.
The Company maintains its financial records in accordance with the
accounting policies as prescribed by its regulatory commissions and generally
accepted accounting principles. The Company's regulated operations meet the
criteria, and accordingly, follow the reporting and accounting requirements of
Statement of Financial Accounting Standards No. 71, Accounting for the Effects
of Certain Types of Regulation (Statement 71). Statement 71 sets forth the
application of generally accepted accounting principles to those companies whose
rates are determined by an independent third-party regulator. The economic
effects of regulation can result in regulated companies recording costs that
have been or are expected to be allowed in the rate-setting process in a period
different from the period in which the costs would be charged to expense by an
unregulated enterprise. When this results, costs are deferred as assets in the
consolidated balance sheet (regulatory assets) and recorded as expenses as those
same amounts are reflected in rates. Additionally, regulators can impose
liabilities upon a regulated company for amounts previously collected from
customers and for recovery of costs that are expected to be incurred in the
future (regulatory liabilities).
The amounts recorded by the Company as regulatory assets and regulatory
liabilities follow:
September 30,
- - - --------------------------------------------------------------------------------
1997 1996
- - - --------------------------------------------------------------------------------
Regulatory Assets:
Early retirement incentive plan costs $ 33,481 246,768
Statement 106 implementation cost - 18,884
Rate case costs 6,598 20,879
Franchise negotiation costs - 41,846
LNG tank painting costs - 25,720
Union organization costs - 29,325
Purchased gas adjustments 587,457 1,782,590
Statement 109 implementation - 20,484
Other - 12,938
- - - --------------------------------------------------------------------------------
$ 627,536 2,199,434
- - - --------------------------------------------------------------------------------
Regulatory Liabilities:
Refunds from suppliers - due customers 425,860 23,865
- - - --------------------------------------------------------------------------------
$ 425,860 23,865
- - - --------------------------------------------------------------------------------
F-9
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies (continued)
During 1997, the Company wrote off regulatory assets totaling $132,523
upon management's determination that, for rate-making purposes, recovery of
these costs in future revenues was no longer probable.
All significant intercompany transactions have been eliminated in
consolidation.
Utility Plant
Utility plant is stated at original cost. The cost of additions to
utility plant includes direct labor and overhead. The cost of depreciable
property retired, plus cost of dismantling, less salvage, is charged to
accumulated depreciation. Maintenance, repairs, and minor renewals and
betterments of property are charged to operations.
Depreciation and Amortization
Provisions for depreciation and amortization are computed principally
on composite straight-line rates for financial statement purposes and on
accelerated rates for income tax purposes. Depreciation and amortization for
financial statement purposes are provided on annual composite rates ranging from
2 percent to 20 percent, except for propane plant and certain other utility
plant which are depreciated on a straight-line basis over the assets' estimated
useful lives. The annual composite rates are determined by depreciation studies
performed for rate-making purposes; however, these studies provide estimated
useful lives which are materially consistent with generally accepted accounting
principles, and accordingly, no significant differences in annual depreciation
and amortization expense amounts occur as a result of regulation.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
Inventories
Inventories, which consist primarily of propane gas and natural gas
firm and winter storage, are valued at the lower of cost (average cost) or
market.
Unbilled Revenues
The Company bills most of its customers on a monthly cycle basis,
although certain large industrial customers are billed at or near the end of
each month. The Company records revenue based on service rendered to the end of
the accounting period. The amounts of unbilled revenues receivable included in
accounts receivable on the consolidated balance sheets in 1997 and 1996 were
$915,192 and $863,480, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the years in which those temporary differences are
expected to be recovered or settled.
F-10
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies (continued)
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period that includes the enactment date.
Bond Expenses
Bond expenses are being amortized over the lives of the bonds using the
bonds outstanding method.
Purchased Gas Adjustments
Pursuant to the provisions of the Company's purchased gas adjustment
(PGA) clause, increases or decreases in gas costs are passed on to its
customers. Accordingly, the difference between actual costs incurred and costs
recovered through the application of the PGA is reflected as a net deferred
charge or credit. At the end of the deferral period, the balance of the net
deferred charge or credit is amortized over the next 12-month period and amounts
are reflected in customer billings.
Pension and Other Postretirement Benefit Plans
The Company has a defined benefit pension plan covering substantially
all of its employees. Generally, the Company's funding policy is to contribute
annually an amount equal to that which can be deducted for federal income tax
purposes. Pension costs are computed based upon the provisions of Statement of
Financial Accounting Standards No. 87.
The Company also provides certain health care, supplemental retirement
and life insurance benefits to active and retired employees. Postretirement
benefit costs are computed based upon the provisions of Statement of Financial
Accounting Standards No. 106.
Net Earnings Per Share
Net earnings per share are based on the weighted average number of
shares outstanding during the year (1,503,388 shares in 1997, 1,455,999 shares
in 1996 and 1,408,659 shares in 1995). The calculations of weighted average
shares outstanding for 1997 and 1996 do not include the effect of common stock
equivalents (CSEs), since the impact of including CSEs in the weighted average
shares outstanding is less than three percent.
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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Stock Options
Prior to October 1, 1996, the Company accounted for its stock options
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related
F-11
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies (continued)
interpretations. As such, compensation expense was recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. On October 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (Statement 123),
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, Statement
123 allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net earnings and pro forma net earnings per share
disclosures for stock option grants made in 1996 and future years as if the
fair-value-based method defined in Statement 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of Statement 123.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (Statement 121), on October 1, 1996.
Statement 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. Adoption of Statement 121 in 1997 did not have a material impact
on the Company's consolidated financial position, results of operations or
liquidity.
(2) Allowance for Doubtful Accounts
A summary of the changes in the allowance for doubtful accounts
follows:
<TABLE>
<CAPTION>
<S> <C>
Years Ended September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
Balances, beginning of year $ 279,316 171,947 318,834
Provision for doubtful accounts 660,400 550,777 345,585
Recoveries of accounts written off 125,035 131,499 91,941
Accounts written off (696,406) (574,907) (584,413)
- - - -------------------------------------------------------------------------------------------------------------------
Balances, end of year $ 368,345 279,316 171,947
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Borrowings Under Lines of Credit
The Company had total short-term lines of credit of $20,000,000 in
1997, $18,000,000 in 1996 and $13,000,000 in 1995. The balances outstanding
under these lines of credit at September 30, 1997, 1996 and 1995 were
$7,129,000, $6,652,500 and $1,442,000, respectively. The highest month-end
balances outstanding under these lines of credit were $15,896,000, $7,587,000
and $7,186,000 in 1997, 1996 and 1995, respectively. The average month-end
balances outstanding were approximately $8,098,000, $4,453,000 and $2,809,000 in
1997, 1996 and 1995, respectively. The average interest rates on the lines of
credit were approximately 5.97 percent, 5.84 percent and 6.07 percent for 1997,
1996 and 1995, respectively. The lines are subject to annual renewal and do not
require compensating balances. The average interest rates were 6.14 percent,
5.71 percent and 6.27 percent on balances outstanding at September 30, 1997,
1996 and 1995, respectively.
F-12
<PAGE>
<TABLE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(4) Long-term Debt
Long-term debt consists of the following:
<CAPTION>
<S> <C>
September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Roanoke Gas Company:
First mortgage bonds, collateralized by utility plant:
Series K, 10%, due July 1, 2002, with provision for retirement of
$265,000 each year through 2001, with a final payment of
$290,000 $ 1,350,000 1,615,000
Series L, 10.375%, due April 1, 2004, with provision for retirement
of $334,000 each year through 2003, with a final payment
of $324,000 2,328,000 2,662,000
Term debentures, collateralized by indenture dated October 1, 1991,
with provision for retirement in varying annual payments through
October 1, 2016 and interest rates ranging from 6.75% to 9.625% 7,200,000 7,200,000
Unsecured senior notes payable, with interest rate fixed at 7.66%,
with provision for retirement of $1,600,000 for each year beginning
December 1, 2014 through 2018 8,000,000 8,000,000
Obligations under capital leases, due in aggregate monthly payments
of $3,076, including imputed interest, through August 1998 31,624 64,547
Bluefield Gas Company:
Unsecured installment loan, with interest rate based on prime (8.75%
and 8.25% at September 30, 1997 and 1996, respectively), with
provision for retirement of $50,000 for each year through
1997 and a final payment of $12,500 on October 31, 1997 12,500 50,000
Unsecured note payable, with interest rate fixed at 7.28%,
with provision for retirement of $25,000 quarterly beginning
January 1, 2002 and a final payment of $1,000,000 on
October 1, 2003 1,300,000 1,300,000
- - - -------------------------------------------------------------------------------------------------------------------
Total long-term debt 20,222,124 20,891,547
Less current installments of long-term debt (3,143,124) (669,423)
- - - -------------------------------------------------------------------------------------------------------------------
Total long-term debt, excluding current installments $ 17,079,000 20,222,124
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The above debt obligations contain various provisions including a
minimum interest charge coverage ratio, limitations on debt as a percentage of
total capitalization, and limitations on total liabilities as a percentage of
tangible net worth. The obligations also contain a provision restricting the
payment of dividends, primarily based on the earnings of the Company and
dividends previously paid. At September 30, 1997, approximately $4,400,000 of
retained earnings was available for dividends.
F-13
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(4) Long-term Debt (continued)
The aggregate annual maturities of long-term debt, including
obligations under capital leases, subsequent to September 30, 1997 are as
follows:
Years Ending September 30,
- - - ------------------------------------------------------------------------
1998 $ 3,143,124
1999 599,000
2000 599,000
2001 599,000
2002 1,399,000
Thereafter 13,883,000
- - - ------------------------------------------------------------------------
Total $ 20,222,124
- - - ------------------------------------------------------------------------
<TABLE>
(5) Income Taxes
The details of income tax expense (benefit) are as follows:
Years Ended September 30,
- - - -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
<S> <C>
Charged to other operating expenses - gas utilities:
Current:
Federal $ 1,561,779 206,399 1,104,505
State (15,946) (40,248) 48,649
- - - -------------------------------------------------------------------------------------------------------------------
Total current 1,545,833 166,151 1,153,154
- - - -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (668,660) 777,772 (370,870)
State 20,226 58,621 (32,198)
- - - -------------------------------------------------------------------------------------------------------------------
Total deferred (648,434) 836,393 (403,068)
- - - -------------------------------------------------------------------------------------------------------------------
Investment tax credits, net (39,435) (38,649) (38,649)
- - - -------------------------------------------------------------------------------------------------------------------
Total charged to other operating expenses - gas utilities 857,964 963,895 711,437
- - - -------------------------------------------------------------------------------------------------------------------
Charged to other income and deductions - gas utilities:
Current:
Federal 37,787 22,195 14,587
State 105 665 (40)
- - - -------------------------------------------------------------------------------------------------------------------
Total current 37,892 22,860 14,547
- - - -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (340) (374) -
State - - -
- - - -------------------------------------------------------------------------------------------------------------------
Total deferred (340) (374) -
- - - -------------------------------------------------------------------------------------------------------------------
Total charged to other income and deductions - gas utilities 37,552 22,486 14,547
- - - -------------------------------------------------------------------------------------------------------------------
Charged to other operating expenses - propane operations:
Current:
Federal 233,323 153,044 200,022
State 49,057 32,333 44,715
- - - -------------------------------------------------------------------------------------------------------------------
Total current 282,380 185,377 244,737
- - - -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 21,832 (6,052) (15,528)
State 4,925 (2,266) (5,192)
- - - -------------------------------------------------------------------------------------------------------------------
Total deferred 26,757 (8,318) (20,720)
- - - -------------------------------------------------------------------------------------------------------------------
Total charged to other operating expenses - propane operations 309,137 177,059 224,017
- - - -------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 1,204,653 1,163,440 950,001
- - - -------------------------------------------------------------------------------------------------------------------
F-14
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(5) Income Taxes (continued)
Income tax expense for the years ended September 30, 1997, 1996 and 1995
differed from amounts computed by applying the U.S. Federal income tax rate of
34 percent to earnings before income taxes as a result of the following:
<CAPTION>
Years Ended September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings $ 2,309,880 2,196,672 1,777,240
Income tax expense 1,204,653 1,163,440 950,001
- - - -------------------------------------------------------------------------------------------------------------------
Earnings before income taxes $ 3,514,533 3,360,112 2,727,241
- - - -------------------------------------------------------------------------------------------------------------------
Computed "expected" income tax expense 1,194,941 1,142,438 927,262
Increase (reduction) in income tax expense resulting from:
Amortization of deferred investment tax credits (39,435) (38,649) (38,649)
Other, net 49,147 59,651 61,388
- - - -------------------------------------------------------------------------------------------------------------------
Total income tax expense $ 1,204,653 1,163,440 950,001
- - - -------------------------------------------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<CAPTION>
September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 132,818 105,602
Accrued pension and medical benefits, due to accrual for
financial reporting purposes in excess of actual contributions 803,852 682,471
Accrued vacation and bonuses, due to accrual for financial reporting
purposes 173,731 164,542
Purchased gas adjustments, due to accrual for financial reporting
purposes in excess of actual payments to customers 176,972 -
Other 213,976 92,456
- - - -------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,501,349 1,045,071
Less valuation allowance - -
- - - -------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 1,501,349 1,045,071
- - - -------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Utility plant, due to differences in depreciation 3,154,190 2,912,432
Purchased gas adjustments, due to actual payments to
customers in excess of accrual for financial reporting purposes 225,309 620,788
Prepaid expenses and other assets, due to capitalization for financial
reporting purposes 60,787 93,290
- - - -------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 3,440,286 3,626,510
- - - -------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 1,938,937 2,581,439
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(5) Income Taxes (continued)
The Company has determined that a valuation allowance for the gross
deferred tax assets was not necessary at September 30, 1997 and 1996, since
realization of the entire gross deferred tax assets can be supported by the
amount of taxes paid during the carryback period available under current tax
laws, as well as the reversal of the temporary differences which gave rise to
the deferred tax liabilities.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. (6)
Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and employee
compensation. Plan assets are invested principally in cash equivalents and
corporate stocks and bonds. Company contributions are intended to provide not
only for benefits attributed to date, but also for those expected to be earned
in the future.
Pension expense includes the following components:
<TABLE>
<CAPTION>
<S> <C>
Years Ended September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
Service cost for the current year $ 142,467 148,465 127,908
Interest cost on the projected benefit obligation 419,474 397,458 376,147
Actual return on assets held in the plan (1,030,919) (717,703) (988,813)
Net amortization and deferral of unrecognized gains and losses 647,436 372,234 727,706
Special termination benefits cost related to the early retirement
incentive plan - - 168,730
- - - -------------------------------------------------------------------------------------------------------------------
Net pension expense $ 178,458 200,454 411,678
- - - -------------------------------------------------------------------------------------------------------------------
The Plan's funded status is as follows:
<CAPTION>
September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Actuarial present value of accumulated benefit obligation:
Vested $ (4,285,717) (4,241,528)
Nonvested (143,901) (30,872)
- - - -------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (4,429,618) (4,272,400)
Effect of anticipated future compensation levels and other events (1,510,433) (1,343,289)
- - - -------------------------------------------------------------------------------------------------------------------
Projected benefit obligation (5,940,051) (5,615,689)
Fair value of assets held in the plan 6,324,249 5,498,868
- - - -------------------------------------------------------------------------------------------------------------------
Excess (deficiency) of plan assets over projected benefit obligation $ 384,198 (116,821)
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(6) Employee Benefit Plans (continued)
The excess (deficiency) of plan assets over the projected benefit
obligation consists of the following:
<TABLE>
<CAPTION>
<S> <C>
September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Net unrecognized gain from past experience different than assumed $ 1,709,103 1,283,944
Unamortized transition liability (329,977) (435,421)
Unrecognized prior service cost (75,503) (94,377)
Accrued pension cost included in the consolidated balance sheets (919,425) (870,967)
- - - -------------------------------------------------------------------------------------------------------------------
Total $ 384,198 (116,821)
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75 percent for 1997,
1996 and 1995. The rates of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation were
5 percent in 1997 and 4 percent for compensation increases through December 31,
1996 and 5 percent for compensation increases thereafter in 1996 and 1995. The
assumed long-term rate of return on assets was 8.5 percent for 1997, 1996 and
1995.
In addition to pension benefits, the Company has a postretirement benefits
plan which provides certain health care, supplemental retirement and life
insurance benefits to active and retired employees who meet specific age and
service requirements. The plan is contributory. The Company has elected to fund
the plan over future years. Approximately 67 percent of the consolidated annual
cost of the plan is recovered from the Company's customers through rates.
The following table presents the plan's funded status reconciled with the
amounts recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
<S> <C>
September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefits obligation:
Retirees $ 2,846,193 2,448,483
Fully eligible active plan participants 712,308 646,587
Other active plan participants 1,262,063 1,202,667
- - - -------------------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefits obligation 4,820,564 4,297,737
Plan assets at fair value, principally cash equivalents and mutual funds (995,411) (971,630)
- - - -------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefits obligation in excess of plan assets 3,825,153 3,326,107
Unrecognized net gain 938,540 1,322,715
Unrecognized transition obligation (3,796,800) (4,034,100)
- - - -------------------------------------------------------------------------------------------------------------------
Postretirement benefits cost included in accrued expenses $ 966,893 614,722
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(6) Employee Benefit Plans (continued)
Net periodic postretirement benefits cost includes the following
components:
<TABLE>
<CAPTION>
<S> <C>
Years Ended September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- - - -------------------------------------------------------------------------------------------------------------------
Service cost for the current year $ 96,255 89,000 86,613
Interest cost on the accumulated postretirement
benefits obligation 325,036 363,000 320,992
Return on assets held in the plan (89,542) (40,000) (35,000)
Amortization of transition obligation 237,300 237,300 237,300
Net total of other components (25,201) (16,000) (7,583)
Special termination benefits cost related to the early
retirement incentive plan - - 242,319
- - - -------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefits cost $ 543,848 633,300 844,641
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes, 10 percent, 10.5 percent and 11 percent
annual rates of increase in the per capita cost of covered benefits (i.e.,
medical trend rate) were assumed for 1997, 1996 and 1995, respectively; the
rates were assumed to decrease gradually to 6.25 percent by the year 2005 and
remain at that level thereafter. The medical trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
medical cost trend rate by one percentage point each year would increase the
accumulated postretirement benefits obligation as of September 30, 1997 by
approximately $577,834, or 12 percent, and the aggregate of the service and
interest cost components of net postretirement benefits cost by approximately
$68,513, or 16 percent.
The weighted average discount rate used in determining the accumulated
postretirement benefits obligation was 7.75 percent at September 30, 1997, 1996
and 1995.
During 1995, the Company offered a voluntary early retirement incentive
plan to all employees over age 55 who were vested in the Company's pension plan.
Of the 25 eligible employees, 12 accepted the early retirement offer by the
April 26, 1995 deadline. The total cost of the early retirement incentive plan
was $444,367, of which $125,904 was expensed directly in the Company's third
quarter of 1995 and $318,463 was established as a regulatory asset, with
amortization beginning in fiscal year 1996 when rates were placed into effect to
allow recovery of the capitalized costs. The costs expensed during the third
quarter of 1995 related to the portion of the plan costs that would be amortized
during the period between the recognition of the plan costs and the
implementation of new rates, which provided for plan cost recovery, in fiscal
year 1996. The Company recorded $139,482 and $71,695 of amortization expense
related to this regulatory asset during the years ended September 30, 1997 and
1996. The unamortized balance of the regulatory asset of $73,805, excluding the
balance relative to Bluefield Gas Company, was written off in 1997 (see note 1).
The Company also has a defined contribution plan covering all of its
employees who elect to participate. The Company made annual matching
contributions to the plan based on 70 percent in 1997 and 50 percent in 1996 and
1995 of the net participants' basic contributions (from 1 percent to 6 percent
of their total compensation). The annual cost of the plan was $217,466, $134,188
and $132,261 for 1997, 1996 and 1995, respectively.
F-18
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(7) Common Stock Options
During 1996, the Company's stockholders approved the Roanoke Gas
Company Key Employee Stock Option Plan. The plan provides for the issuance of
common stock options to officers and certain other full-time salaried employees
to acquire a maximum of 50,000 shares of the Company's common stock. The plan
requires each option's exercise price per share to equal the fair value of the
Company's common stock as of the date of grant.
The aggregate number of shares under option pursuant to the Roanoke Gas
Company Key Employee Stock Option Plan are as follows:
<TABLE>
<CAPTION>
<S> <C>
Number Of Weighted Average Option Price
Shares Exercise Price Per Share
- - - -------------------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1996 13,000 15.500 15.500
Options granted 21,500 16.875 16.875
- - - -------------------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 1997 34,500 16.357 15.500-16.875
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the terms of the plan, the options become exercisable six months
from the grant date and expire ten years subsequent to the grant date. All
options outstanding were fully vested and exercisable at September 30, 1997.
The per share weighted-average fair values of stock options granted
during 1997 and 1996 were $1.08 and $1.63 on the dates of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: 1997-expected dividend yield of 5.78 percent, risk-free interest
rate of 6.29 percent, expected volatility of 10 percent and an expected life of
10 years; 1996-expected dividend yield of 5.83 percent, risk-free interest rate
of 6.44 percent, expected volatility of 42 percent and an expected life of 10
years.
The Company uses the intrinsic value method of APB Opinion No. 25 for
recognizing stock-based compensation in the consolidated financial statements.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under the provisions of Statement 123, the
Company's net earnings and net earnings per share would have been decreased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
<S> <C>
Years Ended September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings:
As reported $ 2,309,880 2,196,672
Pro forma 2,278,093 2,182,681
Net earnings per share:
As reported $ 1.54 1.51
Pro forma $ 1.52 1.50
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(8) Related Party Transactions
Certain of the Company's directors render business services or sell
products to the Company. The significant services included legal fees of
approximately $182,000, $69,000 and $173,000 in 1997, 1996 and 1995,
respectively. The products included natural gas purchases of approximately
$3,052,000, $1,950,000 and $1,250,000 in 1997, 1996 and 1995, respectively. It
is anticipated that similar services and products will be provided to the
Company in 1998.
F-19
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(9) Quarterly Financial Information (Unaudited)
Quarterly financial data as previously reported for the years ended
September 30, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- - - -------------------------------------------------------------------------------------------------------------------
Operating revenues $ 22,412,424 24,580,783 9,894,442 8,160,177
- - - -------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) $ 1,840,530 2,394,999 261,537 (93,643)
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,331,276 1,831,756 (247,734) (605,418)
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ .90 1.22 (.16) (.42)
- - - -------------------------------------------------------------------------------------------------------------------
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- - - -------------------------------------------------------------------------------------------------------------------
Operating revenues $ 17,993,759 29,625,390 10,435,031 7,716,693
- - - -------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) $ 1,865,501 2,412,749 38,336 (281,282)
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 1,434,772 1,954,256 (407,940) (784,416)
- - - -------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $ 1.00 1.35 (.28) (.56)
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
The pattern of quarterly earnings is the result of the highly seasonal
nature of the business, as variations in weather conditions generally result in
greater earnings during the winter months.
(10) Business and Credit Concentrations
The primary business of the Company is the distribution of natural gas
to residential, commercial and industrial customers in Roanoke, Virginia;
Bluefield, Virginia; Bluefield, West Virginia; and the surrounding areas. The
Company distributes natural gas to its customers at rates and charges regulated
by the State Corporation Commission in Virginia and the Public Service
Commission in West Virginia. The Company also serves propane customers in
southwestern Virginia and southern West Virginia through its nonregulated
subsidiary.
During 1997, 1996 and 1995, no single customer accounted for more than
5 percent of the Company's sales, and no account receivable from any customer
exceeded 5 percent of the Company's total stockholders' equity at September 30,
1997 and 1996.
(11) Franchises
Roanoke Gas Company (Roanoke Gas) and Commonwealth Public Service
Corporation, a subsidiary of Bluefield Gas Company, currently hold the only
franchises and/or certificates of public convenience and necessity to distribute
natural gas in their respective Virginia service areas. The franchises generally
extend for multi-year periods and are renewable by the municipalities.
Certificates of public convenience and necessity, which are issued by the State
Corporation Commission of Virginia, are of perpetual duration, subject to
compliance with regulatory standards.
F-20
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(11) Franchises (continued)
Management anticipates that the Company will be able to renew all of
its franchises when they expire. There can be no assurance, however, that a
given jurisdiction will not refuse to renew a franchise or will not in
connection with the renewal of a franchise, impose certain restrictions or
conditions that could adversely affect the Company's business operations or
financial condition.
(12) Environmental Matters
Both Roanoke Gas Company and Bluefield Gas Company operated
manufactured gas plants (MGPs) as a source of fuel for lighting and heating
until the early 1950s. The process involved heating coal in a low-oxygen
environment to produce a manufactured gas that could be distributed through the
Company's pipeline system to customers. A by- product of the process was coal
tar, and the potential exists for on-site tar waste contaminants at both former
plant sites. The extent of contaminants at these sites is unknown at this time,
and the Company has not performed a formal analysis at the Roanoke Gas Company
MGP site. An analysis at the Bluefield Gas Company site indicates some
contamination. The Company, with concurrence of legal counsel, does not believe
any events have occurred requiring regulatory reporting. Further, the Company
has not received any notices of violation or liabilities associated with
environmental regulations related to the MGP sites and is not aware of any
off-site contamination or pollution as a result of these prior operations.
Therefore, the Company has no plans for subsurface remediation at either of the
MGP sites. Should the Company eventually be required to remediate either of the
MGP sites, the Company will pursue all prudent and reasonable means to recover
any related costs, including insurance claims and regulatory approval for rate
case recognition of expenses associated with any work required. Based upon prior
orders of the State Corporation Commission of Virginia related to environmental
matters at other companies, the Company believes it will be able to recover
prudently incurred costs. Additionally, a stipulated rate case agreement between
the Company and the West Virginia Public Service Commission recognizes the
Company's right to defer MGP clean-up costs, should any be incurred, and to seek
rate relief for such costs. If the Company eventually incurs costs associated
with a required clean-up of either MGP site, the Company anticipates recording a
regulatory asset for such clean-up costs which are anticipated to be recoverable
in future rates. Based on anticipated regulatory actions and current practices,
management believes that any costs incurred related to the previously-mentioned
environmental matters will not have a material effect on the Company's
consolidated financial position.
(13) Commitments
The Company has nine short-term contracts with seven natural gas
suppliers requiring the purchase of approximately 2,149,000 DTH of natural gas
at varying prices during the period October 1, 1997 through September 30, 1998.
The Company has also provided notice of bid awards to two natural gas suppliers,
and anticipates these notices to result in contracts to purchase an additional
1,703,000 DTH of natural gas at varying prices during fiscal year 1998. In
addition, the Company has short-term contracts with three propane suppliers
requiring the purchase of 2,952,500 gallons of propane during the period October
1, 1997 through September 30, 1998. Management does not anticipate that these
contracts will have a material impact on the Company's fiscal year 1998
consolidated results of operations.
During 1997, the Company entered into a purchase commitment to acquire
certain net assets of an area propane company. The total purchase price under
this commitment will be satisfied through the issuance of 35,097 shares of
Company common stock. The acquisition, which is expected to be consummated in
November 1997, will be accounted for under the purchase method of accounting.
F-21
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(14) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments (Statement 107), requires the Company to
disclose estimated fair values of certain of its financial instruments.
Statement 107 defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate fair value.
Cash and Cash Equivalents
The carrying amount is a reasonable estimate of fair value.
Long-term Debt
The fair value of long-term debt is estimated by discounting the future
cash flows of each instrument at rates currently offered to the Company for
similar debt instruments of comparable maturities.
Borrowings Under Lines of Credit
The carrying amount is a reasonable estimate of fair value since the
rates of interest paid on borrowings under lines of credit approximate market
rates.
The carrying amounts and approximate fair values of the Company's
financial instruments requiring disclosure under Statement 107 at September 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
September 30,
- - - -------------------------------------------------------------------------------------------------------------------
1997 1996
- - - -------------------------------------------------------------------------------------------------------------------
Carrying Approximate Carrying Approximate
Amounts Fair Values Amounts Fair Values
- - - -------------------------------------------------------------------------------------------------------------------
Financial Assets:
Cash and cash equivalents $ 116,045 116,045 633,322 633,322
- - - -------------------------------------------------------------------------------------------------------------------
Total financial assets $ 116,045 116,045 633,322 633,322
- - - -------------------------------------------------------------------------------------------------------------------
Financial Liabilities:
Long-term debt $ 20,222,124 21,384,604 20,891,547 22,057,130
Borrowings under lines of credit 7,129,000 7,129,000 6,652,500 6,652,500
- - - -------------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 27,351,124 28,513,604 27,544,047 28,709,630
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Company's financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment, and therefore, cannot
be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-22
<PAGE>
Roanoke Gas Company and Subsidiaries
Notes To Consolidated Financial Statements
September 30, 1997 and 1996 and Years Ended September 30, 1997, 1996 and 1995
(14) Fair Value of Financial Instruments (continued)
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Significant assets that are not considered financial assets include utility
plant, nonutility property, current deferred income taxes, purchased gas
adjustments and other assets; significant liabilities that are not considered
financial liabilities are refunds from suppliers - due customers, noncurrent
deferred income taxes and deferred investment tax credits. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in the estimates.
F-23
<PAGE>
- - - --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CON-TAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
---------------------------
TABLE OF CONTENTS
Page
Prospectus Summary............................................................3
The Company...................................................................5
Use of Proceeds...............................................................5
Price Range of Common Stock And Dividends.....................................6
Capitalization................................................................6
Selected Consolidated Financial And Operating
Information................................................................8
Management's Discussion And Analysis of
Financial Condition And Results of Operations..............................9
Business.....................................................................14
Security Ownership of Certain Beneficial Owners
And Management............................................................19
Management...................................................................20
Description of Common Stock..................................................22
Underwriting.................................................................24
Legal Opinions...............................................................25
Experts......................................................................25
Available Information........................................................25
Incorporation of Certain Documents by Reference..............................25
Index to Consolidated Financial Statements..................................F-1
- - - --------------------------------------------------------------------------------
165,000 SHARES
ROANOKE GAS COMPANY
COMMON STOCK
------------------------------------
PROSPECTUS
------------------------------------
Scott & Stringfellow, Inc.
- - - --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following sets forth the costs and expenses to be incurred in
connection with the offering. Each amount, except for the SEC registration fee,
is estimated.
SEC registration fee...................................$ 1,055
Accounting fees and expenses........................... 25,000
Blue Sky fees and expenses............................. 2,500
Legal fees and expenses................................ 35,000
Printing, binding and postage.......................... 6,000
Miscellaneous.......................................... 10,445
TOTAL..................................................$ 80,000
Item 15. Indemnification of Officers and Directors.
Section 13.1-692.1 of the Code of Virginia, as amended, places a
limitation on the liability of officers and directors of a corporation in any
proceeding brought by or in the right of the corporation or brought by or on
behalf of shareholders of the corporation. The damages asserted against an
officer or director arising out of a single transaction, occurrence, or course
of conduct shall not exceed the greater of $100,000 or the amount of cash
compensation received by the officer or director from the corporation during the
12 months immediately preceding the act or omission for which liability was
imposed. The statute also authorizes the corporation, in its articles of
incorporation or, if approved by the shareholders, in its bylaws, to provide for
a different specific monetary limit on, or to eliminate entirely, liability. The
liability of an officer or director shall not be limited if the officer or
director engaged in willful misconduct or a knowing violation of the criminal
law or any federal or state securities law. The Company has not taken action to
establish a different limit on liability from that set forth in the statute.
Sections 13.1-697 and 13.1-702(2) of the Code of Virginia, as amended,
permits any Virginia corporation to indemnify an officer or director against
liability incurred in a proceeding if such officer or director conducted himself
in good faith and believed (i) in the case of conduct in his official capacity
with the corporation, that his conduct was in its best interests; and (ii) in
all other cases, that his conduct was at least not opposed to its best
interests. In the case of a criminal proceeding, a corporation may indemnify an
officer or director made a party to such proceeding if he had no reasonable
cause to believe that his conduct was unlawful. A corporation may not indemnify
an officer or director under ss. 13.1-697 (i) in connection with a proceeding by
or in the right of the corporation in which he was adjudged liable to the
corporation; or (ii) in connection with any other proceeding charging improper
personal benefit to him in which he was adjudged liable on the basis that
personal benefit was improperly received by him. Indemnification permitted under
ss. 13.1-697 in connection with a proceeding by or in
II-1
<PAGE>
the right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding. Further, Virginia Code ss.ss. 13.1-698 and
13.1-702(1) provide that, unless limited by its articles of incorporation, a
corporation is required to provide indemnification to an officer or director who
entirely prevails in the defense of any proceeding to which he was a party
because he is or was an officer or director of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
A corporation may pay for or reimburse the reasonable expenses incurred
by an officer or director who is a party to a proceeding in advance of final
disposition of the proceeding if certain statements and undertakings are made by
the officer or director and a determination is made that the facts as then known
would not preclude indemnification. Va. Code ss. 13.1-699. In addition, an
officer or director of the corporation who is a party to a proceeding may apply
for advances or reimbursement of expenses and for indemnification to the court
conducting the proceeding or seek advances, reimbursement, or indemnification in
another court of competent jurisdiction. The court shall order advances,
reimbursement, or indemnification if it determines the officer or director is
entitled to such advances, reimbursement, or indemnification, in which case the
court shall also order the corporation to pay the officer's or director's
reasonable expenses incurred to obtain the order. With respect to a proceeding
by or in the right of the corporation, the court may order indemnification to
the extent of the officer's or director's reasonable expenses if it determines
that, considering all the relevant circumstances, the officer or director is
entitled to indemnification even though he was adjudged liable, and may also
order the corporation to pay the officer's and director's reasonable expenses
incurred to obtain the order. Va. Code ss. 13.1-700.1. In such a proceeding, no
presumption is created by the fact that either the corporation has not
considered the question of indemnification or that the corporation has denied
indemnification. A corporation is given the power to make further indemnity to
any officers or directors that may be authorized by the articles of
incorporation or any bylaw made by the shareholders or any resolution adopted,
before or after the event, by the shareholders, except an indemnity against the
officer's or director's willful misconduct or a knowing violation of the
criminal law. Va. Code ss. 13.1-704.
Article IV of the Company's Bylaws contains provisions indemnifying
officers, directors, employees and agents of the Company in certain
circumstances against expenses, judgments, fines and amounts paid in settlement
in substantially the same manner provided for under the provisions of Virginia
law summarized above.
The Company maintains a directors' and officers' legal liability
insurance policy in the amount of $2,000,000, issued by the Chubb Group
Insurance Companies. The policy provides coverage up to 100% of its face amount,
subject to certain deductible or retention amounts. In general, the policy
insures (i) the Company's directors and officers against losses by reason of
their wrongful acts, and/or (ii) the Company against claims against the
directors and officers by reasons of their wrongful acts for which the Company
is required to indemnify or pay, all as such terms are defined in the policy and
subject to the terms, conditions and exclusions contained therein.
Item 16. Exhibits
- - - -------- --------
1 Draft form of Underwriting Agreement
4(a) Specimen copy of certificate for Roanoke Gas Company Common
Stock, $5.00 par value (incorporated herein by reference to
Exhibit 4(a) of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1992)
4(b) Article I of the Bylaws of Roanoke Gas Company (incorporated
herein by reference to Exhibit 3(a) of the Annual Report on Form
10-K for the fiscal year ended September 30, 1997)
5 Opinion of Woods, Rogers & Hazlegrove, P.L.C.
II-2
<PAGE>
10(a) Firm Transportation Agreement between East Tennessee Natural
Gas Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(a) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(b) Interruptible Transportation Agreement between East Tennessee
Natural Gas Company and Roanoke Gas Company dated July 1, 1991
(incorporated herein by reference to Exhibit 10(b) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(c) NTS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated October 25, 1994
(incorporated herein by reference to Exhibit 10(c) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(d) SIT Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 30, 1993
(incorporated herein by reference to Exhibit 10(d) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(e) FSS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(e) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(f) FTS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(f) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(g) SST Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(g) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(h) ITS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(h) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(i) FTS-1 Service Agreement between Columbia Gulf Transmission
Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(i) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(j) ITS-1 Service Agreement between Columbia Gulf Transmission
Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(j) of the Annual
Report on Form 10-K for the fiscal year ended September 30, 1994)
10(k) Gas Transportation Agreement, for use under FT-A rate
schedule, between Tennessee Gas Pipeline Company and Roanoke Gas
Company dated November 1, 1993 (incorporated herein by reference
to Exhibit 10(k) of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1994)
10(l) Gas Transportation Agreement, for use under IT rate schedule,
between Tennessee Gas Pipeline Company and Roanoke Gas Company
dated September 1, 1993 (incorporated herein by reference to
Exhibit 10(l) of the Annual Report on Form 10-K for the fiscal
year ended September 30, 1994)
II-3
<PAGE>
10(m) Gas Storage Contract under rate schedule FS (Production Area)
Bear Creek II between Tennessee Gas Pipeline Company and Roanoke
Gas Company dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(m) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1994)
10(n) Gas Storage Contract under rate schedule FS (Production Area)
Bear Creek I between Tennessee Gas Pipeline Company and Roanoke
Gas Company dated September 1, 1993 (incorporated herein by
reference to Exhibit 10(n) of the Annual Report on Form 10-K for
the fiscal year ended September 30, 1994)
10(o) Certificate of Public Convenience and Necessity for Bedford
County dated February 21, 1966 (incorporated herein by reference
to Exhibit 10(o) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on September 19, 1990)
10(p) Certificate of Public Convenience and Necessity for Roanoke
County dated October 19, 1965 (incorporated herein by reference
to Exhibit 10(p) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on September 19, 1990)
10(q) Certificate of Public Convenience and Necessity for Botetourt
County dated August 30, 1966 (incorporated herein by reference to
Exhibit 10(q) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on September 19, 1990)
10(r) Certificate of Public Convenience and Necessity for
Montgomery County dated July 8, 1985 (incorporated herein by
reference to Exhibit 10(r) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the Commission
on September 19, 1990)
10(s) Certificate of Public Convenience and Necessity for Tazewell
County dated March 25, 1968 (incorporated herein by reference to
Exhibit 10(s) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on September 19, 1990)
10(t) Certificate of Public Convenience and Necessity for Franklin
County dated September 8, 1964 (incorporated herein by reference
to Exhibit 10(t) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on September 19, 1990)
10(u) Ordinance of the Town of Bluefield, Virginia dated August 25,
1986 (incorporated herein by reference to Exhibit 10(u) of
Registration Statement No. 33-36605, on Form S-2, filed with the
Commission on August 29, 1990, and amended by Amendment No. 1,
filed with the Commission on September 19, 1990)
10(v) Ordinance of the City of Bluefield, West Virginia dated as of
August 23, 1979 (incorporated herein by reference to Exhibit
10(v) of Registration Statement No. 33-36605, on Form S-2, filed
with the Commission on August 29, 1990, and amended by Amendment
No. 1, filed with the Commission on September 19, 1990)
II-4
<PAGE>
10(w) Resolution of the Council for the Town of Fincastle, Virginia
dated June 8, 1970 (incorporated herein by reference to Exhibit
10(f) of Registration Statement No. 33-11383, on Form S-4, filed
with the Commission on January 16, 1987)
10(x) Resolution of the Council for the Town of Troutville,
Virginia dated November 4, 1968 (incorporated herein by reference
to Exhibit 10(g) of Registration Statement No. E33-11383, on Form
S-4, filed with the Commission on January 16, 1987)
10(y) Consulting Agreement between Albert W. Buckley and Roanoke
Gas Company dated February 20, 1992 (incorporated herein by
reference to Exhibit 10(b)(b) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1992)
10(z) Consulting Contract between A. Anson Jamison and Roanoke Gas
Company dated March 27, 1990 (incorporated herein by reference to
Exhibit 10(c)(c) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended by
Amendment No. 1, filed with the Commission on September 19, 1990)
10(a)(a) Contract between Roanoke Gas Company and Diversified
Energy Services, Inc. dated December 18, 1978 (incorporated
herein by reference to Exhibit 10(e)(e) of Registration Statement
No. 33-36605, on Form S-2, filed with the Commission on August
29, 1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10(b)(b) Service Agreement between Bluefield Gas Company and
Commonwealth Public Service Corporation dated January 1, 1981
(incorporated herein by reference to Exhibit 10(f)(f) of
Registration Statement No. 33-36605, on Form S-2, filed with the
Commission on August 29, 1990, and amended by Amendment No. 1,
filed with the Commission on September 19, 1990)
10(c)(c) Retirement Payment Agreement between Arthur T. Ellett and
Roanoke Gas Company dated April 6, 1972 (incorporated herein by
reference to Exhibit 10(g)(g) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the Commission
on September 19, 1990)
10(d)(d) Consulting Services Agreement between Edward C. Dunbar
and Roanoke Gas Company dated February 25, 1991 (incorporated
herein by reference to Exhibit 10(h)(h) of the Annual Report on
Form 10-K for the fiscal year ended September 30, 1991)
10(e)(e) Consultation Contract between Gordon C. Willis and
Roanoke Gas Company dated April 29, 1991 (incorporated herein by
reference to Exhibit 10(i)(i) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1991)
10(f)(f) Gas Storage Contract under rate schedule FS (Market Area)
Portland between Tennessee Gas Pipeline Company and Roanoke Gas
Company dated November 1, 1993 (incorporated herein by reference
to Exhibit 10(k)(k) of the Annual Report on Form 10-K for the
fiscal year ended September 30, 1994)
10(g)(g) FTS Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(l)(l) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
II-5
<PAGE>
10(h)(h) ITS Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(m)(m) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(i)(i) FSS Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(n)(n) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(j)(j) SST Service Agreement between Columbia Gas Transmission
Corporation and Bluefield Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(o)(o) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(k)(k) FTS-1 Service Agreement between Columbia Gulf
Transmission Company and Bluefield Gas Company dated November 1,
1993 (incorporated herein by reference to Exhibit 10(p)(p) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(l)(l) Roanoke Gas Company Key Employee Stock Option Plan
(incorporated herein by reference to Exhibit 10(q)(q) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1995)
10(m)(m) Roanoke Gas Company Stock Bonus Plan (incorporated herein
by reference to Exhibit 10(r)(r) of the Annual Report on Form
10-K for the fiscal year ended September 30, 1995)
10(n)(n) Gas Franchise Agreement between the Town of Vinton,
Virginia, and Roanoke Gas Company dated July 2, 1996
(incorporated herein by reference to Exhibit 10(n)(n) of Annual
Report on Form 10-K for the fiscal year ended September 30, 1996)
10(o) (o) Gas Franchise Agreement between the City of Salem,
Virginia, and Roanoke Gas Company dated July 9, 1996
(incorporated herein by reference to Exhibit 10(o)(o) of Annual
Report on Form 10-K for the fiscal year ended September 30, 1996)
10(p)(p) Gas Franchise Agreement between the City of Roanoke,
Virginia, and Roanoke Gas Company dated July 12, 1996
(incorporated herein by reference to Exhibit 10(p)(p) of Annual
Report on Form 10-K for the fiscal year ended September 30, 1996)
10(q)(q) Consulting Agreement between W. Bolling Izard and Roanoke
Gas Company dated January 27, 1997 (incorporated herein by
reference to Exhibit 10(q)(q) of Annual Report on Form 10-K for
the fiscal year ended September 30, 1997)
10(r)(r) Roanoke Gas Company Restricted Stock Plan for Outside
Directors (incorporated herein by reference to Exhibit 10(r)(r)
of Annual Report on Form 10-K for the fiscal year ended September
30, 1996)
16 Letter of KPMG Peat Marwick LLP regarding change in accountants
(incorporated herein by reference to Exhibit 99 of Form 8-K dated
December 19, 1997)
23(a) Consent of KPMG Peat Marwick LLP
23(b) Consent of Woods, Rogers & Hazlegrove, P.L.C. (included in
Exhibit 5)
24 Power of Attorney
II-6
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
------------------------------------
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment of the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
------------------------------------
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed by the undersigned, thereunto duly authorized, in the
City of Roanoke, Commonwealth of Virginia on December 31, 1997.
ROANOKE GAS COMPANY
By: s/ FRANK A. FARMER, JR.
------------------------
Frank A. Farmer, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of December 31, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
s/ FRANK A. FARMER, JR. President, Chief Executive Officer
- - - -------------------------------- and Director
(Frank A. Farmer, Jr.)
s/ JOHN B. WILLIAMSON, III Vice President-Rates and Finance
- - - -------------------------------- (Principal Financial Officer)
(John B. Williamson, III)
s/ ROGER L. BAUMGARDNER Vice President, Secretary and Treasurer
- - - -------------------------------- (Principal Accounting Officer)
(Roger L. Baumgardner)
s/ LYNN D. AVIS * Director
- - - --------------------------------
(Lynn D. Avis)
s/ ABNEY S. BOXLEY, III * Director
- - - --------------------------------
(Abney S. Boxley, III)
s/ FRANK T. ELLETT * Director
- - - --------------------------------
(Frank T. Ellett)
s/ WILBUR L. HAZLEGROVE * Director
- - - --------------------------------
(Wilbur L. Hazlegrove)
</TABLE>
II-8
<PAGE>
s/ J. ALLEN LAYMAN * Director
- - - --------------------------------
(J. Allen Layman)
s/ JOHN H. PARROTT * Director
- - - --------------------------------
(John H. Parrott)
Director
- - - --------------------------------
(Thomas L. Robertson)
s/ S. FRANK SMITH * Director
- - - --------------------------------
(S. Frank Smith)
*By John B. Williamson, III
- - - --------------------------------
John B. Williamson, III
Attorney-in-fact
II-9
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
- - - ----------- -----------
1 Draft form of Underwriting Agreement
4(a) Specimen copy of certificate for Roanoke Gas Company
Common Stock, $5.00 par value (incorporated herein by
reference to Exhibit 4(a) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1992)
4(b) Article I of the Bylaws of Roanoke Gas Company
(incorporated herein by reference to Exhibit 3(a) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1997)
5 Opinion of Woods, Rogers & Hazlegrove, P.L.C.
10(a) Firm Transportation Agreement between East Tennessee
Natural Gas Company and Roanoke Gas Company dated November 1,
1993 (incorporated herein by reference to Exhibit 10(a) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(b) Interruptible Transportation Agreement between East
Tennessee Natural Gas Company and Roanoke Gas Company dated
July 1, 1991 (incorporated herein by reference to Exhibit
10(b) of the Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10(c) NTS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated October 25, 1994
(incorporated herein by reference to Exhibit 10(c) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(d) SIT Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 30, 1993
(incorporated herein by reference to Exhibit 10(d) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(e) FSS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(e) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(f) FTS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(f) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(g) SST Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(g) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(h) ITS Service Agreement between Columbia Gas Transmission
Corporation and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(h) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(i) FTS-1 Service Agreement between Columbia Gulf Transmission
Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(i) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
<PAGE>
10(j) ITS-1 Service Agreement between Columbia Gulf Transmission
Company and Roanoke Gas Company dated November 1, 1993
(incorporated herein by reference to Exhibit 10(j) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1994)
10(k) Gas Transportation Agreement, for use under FT-A rate
schedule, between Tennessee Gas Pipeline Company and Roanoke
Gas Company dated November 1, 1993 (incorporated herein by
reference to Exhibit 10(k) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10(l) Gas Transportation Agreement, for use under IT rate
schedule, between Tennessee Gas Pipeline Company and Roanoke
Gas Company dated September 1, 1993 (incorporated herein by
reference to Exhibit 10(l) of the Annual Report on Form 10-K
for the fiscal year ended September 30, 1994)
10(m) Gas Storage Contract under rate schedule FS (Production
Area) Bear Creek II between Tennessee Gas Pipeline Company and
Roanoke Gas Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(m) of the Annual Report on
Form 10-K for the fiscal year ended September 30, 1994)
10(n) Gas Storage Contract under rate schedule FS (Production
Area) Bear Creek I between Tennessee Gas Pipeline Company and
Roanoke Gas Company dated September 1, 1993 (incorporated
herein by reference to Exhibit 10(n) of the Annual Report on
Form 10-K for the fiscal year ended September 30, 1994)
10(o) Certificate of Public Convenience and Necessity for
Bedford County dated February 21, 1966 (incorporated herein by
reference to Exhibit 10(o) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10(p) Certificate of Public Convenience and Necessity for
Roanoke County dated October 19, 1965 (incorporated herein by
reference to Exhibit 10(p) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10(q) Certificate of Public Convenience and Necessity for
Botetourt County dated August 30, 1966 (incorporated herein by
reference to Exhibit 10(q) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10(r) Certificate of Public Convenience and Necessity for
Montgomery County dated July 8, 1985 (incorporated herein by
reference to Exhibit 10(r) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10(s) Certificate of Public Convenience and Necessity for
Tazewell County dated March 25, 1968 (incorporated herein by
reference to Exhibit 10(s) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10(t) Certificate of Public Convenience and Necessity for
Franklin County dated September 8, 1964 (incorporated herein
by reference to Exhibit 10(t) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
<PAGE>
10(u) Ordinance of the Town of Bluefield, Virginia dated August
25, 1986 (incorporated herein by reference to Exhibit 10(u) of
Registration Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by Amendment
No. 1, filed with the Commission on September 19, 1990)
10(v) Ordinance of the City of Bluefield, West Virginia dated as
of August 23, 1979 (incorporated herein by reference to
Exhibit 10(v) of Registration Statement No. 33-36605, on Form
S-2, filed with the Commission on August 29, 1990, and amended
by Amendment No. 1, filed with the Commission on September 19,
1990)
10(w) Resolution of the Council for the Town of Fincastle,
Virginia dated June 8, 1970 (incorporated herein by reference
to Exhibit 10(f) of Registration Statement No. 33-11383, on
Form S-4, filed with the Commission on January 16, 1987)
10(x) Resolution of the Council for the Town of Troutville,
Virginia dated November 4, 1968 (incorporated herein by
reference to Exhibit 10(g) of Registration Statement No.
E33-11383, on Form S-4, filed with the Commission on January
16, 1987)
10(y) Consulting Agreement between Albert W. Buckley and Roanoke
Gas Company dated February 20, 1992 (incorporated herein by
reference to Exhibit 10(b)(b) of the Annual Report on Form
10-K for the fiscal year ended September 30, 1992)
10(z) Consulting Contract between A. Anson Jamison and Roanoke
Gas Company dated March 27, 1990 (incorporated herein by
reference to Exhibit 10(c)(c) of Registration Statement No.
33-36605, on Form S-2, filed with the Commission on August 29,
1990, and amended by Amendment No. 1, filed with the
Commission on September 19, 1990)
10(a)(a) Contract between Roanoke Gas Company and Diversified
Energy Services, Inc. dated December 18, 1978 (incorporated
herein by reference to Exhibit 10(e)(e) of Registration
Statement No. 33-36605, on Form S-2, filed with the Commission
on August 29, 1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10(b)(b) Service Agreement between Bluefield Gas Company and
Commonwealth Public Service Corporation dated January 1, 1981
(incorporated herein by reference to Exhibit 10(f)(f) of
Registration Statement No. 33-36605, on Form S-2, filed with
the Commission on August 29, 1990, and amended by Amendment
No. 1, filed with the Commission on September 19, 1990)
10(c)(c) Retirement Payment Agreement between Arthur T. Ellett
and Roanoke Gas Company dated April 6, 1972 (incorporated
herein by reference to Exhibit 10(g)(g) of Registration
Statement No. 33-36605, on Form S-2, filed with the Commission
on August 29, 1990, and amended by Amendment No. 1, filed with
the Commission on September 19, 1990)
10(d)(d) Consulting Services Agreement between Edward C. Dunbar
and Roanoke Gas Company dated February 25, 1991 (incorporated
herein by reference to Exhibit 10(h)(h) of the Annual Report
on Form 10-K for the fiscal year ended September 30, 1991)
10(e)(e) Consultation Contract between Gordon C. Willis and
Roanoke Gas Company dated April 29, 1991 (incorporated herein
by reference to Exhibit 10(i)(i) of the Annual Report on Form
10-K for the fiscal year ended September 30, 1991)
<PAGE>
10(f)(f) Gas Storage Contract under rate schedule FS (Market
Area) Portland between Tennessee Gas Pipeline Company and
Roanoke Gas Company dated November 1, 1993 (incorporated
herein by reference to Exhibit 10(k)(k) of the Annual Report
on Form 10-K for the fiscal year ended September 30, 1994)
10(g)(g) FTS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company dated
November 1, 1993 (incorporated herein by reference to Exhibit
10(l)(l) of the Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10(h)(h) ITS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company dated
November 1, 1993 (incorporated herein by reference to Exhibit
10(m)(m) of the Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10(i)(i) FSS Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company dated
November 1, 1993 (incorporated herein by reference to Exhibit
10(n)(n) of the Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10(j)(j) SST Service Agreement between Columbia Gas
Transmission Corporation and Bluefield Gas Company dated
November 1, 1993 (incorporated herein by reference to Exhibit
10(o)(o) of the Annual Report on Form 10-K for the fiscal year
ended September 30, 1994)
10(k)(k) FTS-1 Service Agreement between Columbia Gulf
Transmission Company and Bluefield Gas Company dated November
1, 1993 (incorporated herein by reference to Exhibit 10(p)(p)
of the Annual Report on Form 10-K for the fiscal year ended
September 30, 1994)
10(l)(l) Roanoke Gas Company Key Employee Stock Option Plan
(incorporated herein by reference to Exhibit 10(q)(q) of the
Annual Report on Form 10-K for the fiscal year ended September
30, 1995)
10(m)(m) Roanoke Gas Company Stock Bonus Plan (incorporated
herein by reference to Exhibit 10(r)(r) of the Annual Report
on Form 10-K for the fiscal year ended September 30, 1995)
10(n)(n) Gas Franchise Agreement between the Town of Vinton,
Virginia, and Roanoke Gas Company dated July 2, 1996
(incorporated herein by reference to Exhibit 10(n)(n) of
Annual Report on Form 10-K for the fiscal year ended September
30, 1996)
10(o)(o) Gas Franchise Agreement between the City of Salem,
Virginia, and Roanoke Gas Company dated July 9, 1996
(incorporated herein by reference to Exhibit 10(o)(o) of
Annual Report on Form 10-K for the fiscal year ended September
30, 1996)
10(p)(p) Gas Franchise Agreement between the City of Roanoke,
Virginia, and Roanoke Gas Company dated July 12, 1996
(incorporated herein by reference to Exhibit 10(p)(p) of
Annual Report on Form 10-K for the fiscal year ended September
30, 1996)
10(q)(q) Consulting Agreement between W. Bolling Izard and
Roanoke Gas Company dated January 27, 1997 (incorporated
herein by reference to Exhibit 10(q)(q) of Annual Report on
Form 10-K for the fiscal year ended September 30, 1997)
10(r)(r) Roanoke Gas Company Restricted Stock Plan for Outside
Directors (incorporated herein by reference to Exhibit
10(r)(r) of Annual Report on Form 10-K for the fiscal year
ended September 30, 1996)
16 Letter of KPMG Peat Marwick LLP regarding change in
accountants (incorporated herein by reference to Exhibit 99 of
Form 8-K dated December 19, 1997)
<PAGE>
23(a) Consent of KPMG Peat Marwick LLP
23(b) Consent of Woods, Rogers & Hazlegrove, P.L.C. (included in
Exhibit 5)
24 Power of Attorney
Draft of December 29, 1997
165,000 SHARES
ROANOKE GAS COMPANY
COMMON STOCK
--------------------
UNDERWRITING AGREEMENT
--------------------
SCOTT & STRINGFELLOW, INC.
909 East Main Street
Richmond, Virginia 23219
January __, 1998
Ladies and Gentlemen:
Roanoke Gas Company, a Virginia corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to Scott & Stringfellow, Inc. (the "Underwriter") an aggregate of 165,000 shares
of common stock, $5.00 par value per share, of the Company (the "Common Stock")
and, at the election of the Underwriter, up to an aggregate of 16,500 additional
shares. The aggregate of 165,000 shares to be sold by the Company are herein
called the "Firm Securities," and the aggregate of 16,500 additional shares to
be sold by the Company are herein called the "Optional Securities." The Firm
Securities and the Optional Securities that the Underwriter elects to purchase
pursuant to Section 2 hereof are collectively called the "Securities."
<PAGE>
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with, the
Underwriter that:
(i) A registration statement in respect of the Securities on
Form S-2 (File No. 333-____) under the Securities Act of 1933, as
amended (the "Act"), and as a part thereof a preliminary prospectus, in
respect of the Securities has been filed with the Securities and
Exchange Commission (the "Commission") in the form heretofore delivered
to you, and, excluding exhibits thereto, for each of the other
Underwriter; such registration statement, as amended, has been declared
effective by the Commission; no other document with respect to such
registration statement (other than those documents incorporated into
such registration statement by reference) has heretofore been filed
with the Commission other than in accordance with Section 5(a) of this
Agreement; and no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that
purpose has been instituted or threatened by the Commission (any
preliminary prospectus included in such registration statement or filed
with the Commission pursuant to Rule 424 of the rules and regulations
of the Commission under the Act being hereinafter called a "Preliminary
Prospectus", the various parts of such registration statement,
including (i) all exhibits thereto, and including the information
contained in the form of final prospectus filed with the Commission
pursuant to Rule 424(b) under the Act in accordance with Section 5(a)
of this Agreement and deemed by virtue of Rule 430A under the Act to be
part of the registration statement at the time it was declared
effective and (ii) the documents incorporated by reference in the
registration statement at the time it was declared effective, each as
amended at the time such part became effective, being herein called
collectively the "Registration Statement," and the final prospectus, in
the form first filed pursuant to Rule 424(b), being hereinafter called
the "Prospectus"); any reference herein to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Form S-2 under the Act;
and the terms "supplement" and "amendment" or "amend" as used in this
Agreement shall include all documents subsequently filed by the Company
with the Commission pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are deemed to be incorporated by
reference in the Prospectus;
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by the Underwriter expressly for use therein;
(iii) Each document incorporated by reference in the
Prospectus when they were filed, or to be filed, with the Commission,
conformed in all material respects to the requirements of the Exchange
Act and the rules and regulations of the Commission thereunder, and, as
of their filing date, none of such documents contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(iv) The Registration Statement conforms, and the Prospectus
and any amendments or supplements thereto will conform, in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder and do not and will not as of the
applicable effective date as to the Registration Statement and any
amendment thereto and as of the applicable filing date as to the
Prospectus and any amendment or supplement thereto contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by the Underwriter expressly for use therein;
(v) Neither the Company nor any of its direct or indirect
subsidiaries, a complete and correct list of which is attached hereto
as Schedule I (the "Subsidiaries"), has sustained since the date of the
latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any
change in the outstanding capital stock or long-term debt of the
Company or any of the Subsidiaries or any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and the
Subsidiaries taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(vi) The Company and each of its Subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all material items of personal property owned by
them, free and clear of all liens, encumbrances and defects except such
as are described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and the
Subsidiaries; and any real property and buildings held under lease by
the Company or any of the Subsidiaries are held by it under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company or such Subsidiaries;
(vii) The Company and each of its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, with
power and authority (corporate and other) to own or lease their
respective properties and conduct their respective businesses as
described in the Prospectus, and each has been duly qualified as a
foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not result
in a material adverse effect on consolidated financial position,
shareholders' equity or results of operations the Company and the
Subsidiaries taken as a whole;
(viii) The Company has an authorized capitalization as set
forth in the Prospectus; all of the issued shares of capital stock of
the Company have been duly and validly authorized and issued, are fully
paid and nonassessable and conform to the description of the capital
stock of the Company contained in the Prospectus; there are no
preemptive or other similar rights to subscribe for or to purchase any
securities of the Company; except as described in the Prospectus, there
are no warrants, options or other similar rights to purchase any
securities of the Company; neither the filing of the Registration
Statement nor the offering or sale of the Securities as contemplated by
this Agreement gives rise to any rights for or relating to the
registration of any securities of the Company with respect to such
filing, offering or sale, other than rights which have been waived or
satisfied;
(ix) The Company owns 100% of the issued and outstanding
shares of capital stock of each of the Subsidiaries as described on
Schedule I free and clear of any perfected security interest and any
other security interests, claims, liens or encumbrances and all of such
capital stock has been duly and validly authorized and issued and is
fully paid and non-assessable;
(x) The Securities have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein,
will be duly and validly issued and fully paid and nonassessable and
will conform to the description of the Securities contained in the
Prospectus as amended or supplemented;
(xi) The issue and sale of the Securities by the Company and
the performance of this Agreement and the consummation by the Company
of the other transactions herein contemplated will not conflict with or
result in a breach or violation of any terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which any of the property or
assets of the Company or any of the Subsidiaries is bound or to which
any of the property or assets of the Company or any of the Subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Articles of Incorporation or bylaws of the Company
(each as amended to date the "Charter" and "Bylaws", respectively) or
the articles of incorporation or bylaws of any of the Subsidiaries or
any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
of the Subsidiaries or any of their properties or activities; and no
consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required
for the issue and sale of the Securities or the consummation by the
Company of the transactions contemplated by this Agreement, except such
consents, approvals, authorizations, registrations or qualifications as
may be required under the Act and under state securities or Blue Sky
laws in connection with the purchase and distribution of the Securities
by the Underwriter and the clearance of such offering with the National
Association of Securities Dealers, Inc. ("NASD");
(xii) There are no legal or governmental proceedings pending
to which the Company or any of its Subsidiaries is a party or of which
any property of the Company or any of its Subsidiaries is the subject
other than as set forth or contemplated in the Prospectus, which, if
determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
financial position, shareholders' equity or results of operations of
the Company or of the Company and the Subsidiaries taken as a whole
and, to the best of the Company's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or by others;
(xiii) KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company and the Subsidiaries, are
independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(xiv) All employee benefit plans (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) established, maintained or contributed to by the Company or
any of the Subsidiaries comply in all material respects with the
requirements of ERISA and no employee pension benefit plan (as defined
in Section 3(2) of ERISA) has incurred or assumed an "accumulated
funding deficiency" within the meaning of Section 302 of ERISA or has
incurred or assumed any material liability (other than for the payment
of premiums) to the Pension Benefit Guaranty Corporation;
(xv) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes, as set forth in the
Registration Statement present fairly the consolidated financial
position and the results of operations of the Company and the
Subsidiaries at the indicated dates and for the indicated periods; such
financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied throughout the
periods presented except as noted in the notes thereon, and all
adjustments necessary for a fair presentation of results for such
periods have been made; and the selected financial information included
in the Prospectus presents fairly the information shown therein and has
been compiled on a basis consistent with the financial statements
presented therein;
(xvi) The Company and each of the Subsidiaries have filed all
federal, state and foreign income tax returns which have been required
to be filed (or has received an extension with respect thereto), and
has paid, or made adequate reserves for, all taxes indicated by said
returns and all assessments received by them to the extent that such
taxes have become due and are not being contested in good faith;
(xvii) Neither the Company nor any of the Subsidiaries is in
violation of any international, federal or state law, regulation, or
treaty relating to the storage, handling, transportation, treatment or
disposal of hazardous substances (as defined in 42 U.S.C. Section 9601)
or hazardous materials (as defined by any international, federal or
state law or regulation) or other waste products, which violation is
reasonably likely to result in a material adverse effect on the
financial condition or business operations or properties of the Company
and the Subsidiaries taken as a whole, and the Company and each of the
Subsidiaries have received all material permits, licenses or other
approvals as may be required of them under applicable international,
federal and state environmental laws and regulations to conduct their
business as described in the Prospectus; and the Company and each of
the Subsidiaries are in compliance in all material respects with the
terms and conditions of any such permit, license or approval; neither
the Company nor any of the Subsidiaries has received any notices or
claims that it is a responsible party or a potentially responsible
party in connection with any claim or notice asserted pursuant to 42
U.S.C. Section 9601 et seq. or any state superfund law; and the
disposal by the Company or any Subsidiary of any of the Company's and
each Subsidiary's hazardous substances, hazardous materials and other
waste products has been lawful;
(xviii) No relationship, direct or indirect, exists between
or among the Company or any of the Subsidiaries, on the one hand, and
the directors, officers, shareholders, customers or suppliers of the
Company or any of the Subsidiaries on the other hand, that is required
by the Act or the Exchange Act, or by the rules and regulations under
either of such Acts to be described in the Registration Statement and
the Prospectus or documents incorporated by reference therein that is
not so described;
(xix) Neither the Company nor any of the Subsidiaries has
taken and none of such entities will take, directly or indirectly, any
action that is designed to or that has constituted or that might
reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities;
(xx) Each of the Company and the Subsidiaries owns or
possesses, or can acquire on reasonable terms, adequate licenses,
copyrights, trademarks, service marks and trade names (collectively,
"intellectual property") necessary to carry on its business as
presently operated by it, except where the failure to own or possess or
have the ability to acquire any such intellectual property would not,
individually or in the aggregate, have a material adverse effect on the
Company and the Subsidiaries taken as a whole, and neither the Company
nor any of the Subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any intellectual property or of any facts which would
render any intellectual property invalid or inadequate to protect the
interest of the Company or any of the Subsidiaries therein and which
infringement or conflict could have a material adverse effect on the
Company and the Subsidiaries taken as a whole;
(xxi) Except as described in the Prospectus, the Company and
the Subsidiaries maintain insurance of the types and in the amounts
that are reasonable or required for the business operated by them, all
of which insurance is in full force and effect;
(xxii) The Company and each of the Subsidiaries holds and are
operating in compliance, in all material respects, with all franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of their respective businesses as presently
being conducted ("licenses") and all licenses are valid and in full
force and effect, and the Company, and each of the Subsidiaries are in
compliance, in all material respects, with all laws, regulations,
orders and decrees applicable to them;
(xxiii) This Agreement has been duly authorized, executed and
delivered by the Company;
(xxiv) The Securities are approved for listing on the Nasdaq
National Market;
(xxv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences;
(xxvi) There is no document or contract of a character
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed as required; all such contracts to
which the Company or a Subsidiary is a party constitute valid and
binding agreements of the Company;
(xxvii) The Company is not a "holding company" or a
"subsidiary company" of a "public utility company" or of a "holding
company" or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended (the "Holding Company
Act");
(xxviii) Neither the Company nor any of the Subsidiaries are
involved in any material labor dispute nor, to the knowledge of the
Company, is any such dispute threatened;
(xxix) Each approval, consent, order, authorization,
designation, declaration or filing by or with the State Corporation
Commission of Virginia and the Public Service Commission of West
Virginia necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions
contemplated herein has been obtained or made and is in full force and
effect and final and non-appealable; and no further authorization,
approval, consent or order of any governmental authority or agency is
legally required in connection with the authorization, issuance and
sale of the Securities by the Company pursuant to this Agreement (other
than qualification under the state securities or Blue Sky laws and
clearance of such offering with the NASD);
(xxx) Each of the Company and the Subsidiaries has valid and
sufficient grants, franchises, miscellaneous permits and easements free
from unduly burdensome restrictions, adequate for the conduct of its
business in the territories in which it is now conducting such business
and the ownership of the properties now owned by it; and
(xxxi) The conditions for use of registration statements on
Form S-2 set forth in the General Instructions on Form S-2 have been
satisfied and the Company is entitled to use such form for the
transaction contemplated herein.
2. Purchase and Sale.
Subject to the terms and conditions herein set forth, (a) the Company
agrees to sell to the Underwriter, and the Underwriter agrees to purchase from
the Company, at a purchase price per share of $ . , the Firm Securities and (b)
in the event and to the extent that the Underwriter shall exercise the election
to purchase Optional Securities as provided below, the Company agrees to sell to
the Underwriter, and the Underwriter agrees to purchase from the Company, at the
purchase price set forth in clause (a) of this Section 2, that portion of the
number of Optional Securities as to which such election shall have been
exercised (to be adjusted by you so as to eliminate fractional securities).
The Company hereby grants to the Underwriter the right to purchase at
its election up to 16,500 Optional Securities at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
over-allotments in the sale of the Firm Securities. Any such election to
purchase Optional Securities may be exercised no more than once by written
notice from you to the Company, given within a period of 30 days after the date
of this Agreement, setting forth the aggregate amount of Optional Securities to
be purchased and the date on which such Optional Securities are to be delivered,
as determined by you but in no event earlier than the First Delivery Date (as
defined in Section 4 hereof) or, unless you otherwise agree in writing, earlier
than two or later than 10 business days after the date of such notice.
3. Offering by the Underwriter.
Upon the authorization by you of the release of the Firm Securities,
the Underwriter proposes to offer the Firm Securities for sale upon the terms
and conditions set forth in the Prospectus.
4. Delivery and Payment.
Certificates in definitive form for the Securities to be purchased by
the Underwriter hereunder, and in such denominations and registered in such
names as Scott & Stringfellow, Inc. may request upon at least two business days'
prior notice to the Company, shall be delivered by or on behalf of the Company,
to Scott & Stringfellow, Inc., for the account of the Underwriter, against
payment by the Underwriter or on its behalf of the purchase price therefor.
Payment of the purchase price for the Securities shall be made by certified or
official bank check in next day funds or, at the option of Scott & Stringfellow,
Inc., by wire transfer of immediately available funds all at the offices of
Scott & Stringfellow, Inc., 909 East Main Street, Richmond, Virginia. The time
and date of such delivery and payment shall be, with respect to the Firm
Securities, 10:00 a.m., Richmond, Virginia time, on _______________, 1998 or at
such other time and date as you and the Company may agree upon in writing, and,
with respect to the Optional Securities, 10:00 a.m., Richmond, Virginia time, on
the date specified by you in the written notice given by you (consistent with
Section 2 hereof) of the Underwriter's election to purchase such Optional
Securities, or at such other time and date as you and the Company may agree upon
in writing. Such time and date for delivery of the Firm Securities is herein
called the "First Delivery Date," such time and date for delivery of the
Optional Securities, if not the First Delivery Date, is herein called the
"Second Delivery Date," and each such time and date for delivery is herein
called a "Delivery Date." Such certificates will be made available for checking
and packaging at least twenty-four hours prior to each Delivery Date at the
offices of Scott & Stringfellow, Inc. at the address set forth above or such
other location designated by the Underwriter to the Company.
5. Agreements of the Company.
The Company agrees with the Underwriter:
(a) To prepare the Prospectus in a form reasonably approved by you and
to file such Prospectus (or a term sheet as permitted by Rule 434(c)) pursuant
to Rule 424(b) under the Act not later than the Commission's close of business
on the second business day following the execution and delivery of this
Agreement or, if applicable, such earlier time as may be required by Rule
430A(a)(3) under the Act; to make no amendment or supplement to the Registration
Statement or Prospectus prior to any Delivery Date which shall be reasonably
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and for so long as the delivery of a
Prospectus is required in connection with the offering or sale of the
Securities; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, of any request by the Commission for the amending or supplementing of
the Registration Statement or Prospectus or for additional information and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or suspending
any such qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) Promptly from time to time to take such actions as you may
reasonably request to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution of
the Securities, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction;
(c) To furnish the Underwriter with copies of the Registration
Statement and the Prospectus in such quantities as you may from time to time
reasonably request during such period following the date hereof that a
prospectus is required to be delivered in connection with offers or sales of
Securities, and, if the delivery of a prospectus is required during this period
and if at such time any event shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made when such Prospectus is delivered, not misleading, or, if for any other
reason it shall be necessary during such period to amend or supplement the
Prospectus to comply with the Act, to notify you and upon your request to file
such document and to prepare and furnish without charge to you and to any dealer
in securities as many copies as you may from time to time reasonably request of
an amended Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance;
(d) As soon as practicable after the effective date of the
Registration Statement, to make generally available to its shareholders and to
deliver to you, an earnings statement of the Company, conforming with the
requirements of Section 11(a) of the Act and Rule 158 under the Act, covering a
period of at least 12 months beginning after the effective date of the
Registration Statement;
(e) For a period of 180 days from the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than the Securities or pursuant to employee stock option plans or
pursuant to options, warrants or rights outstanding on the date of this
Agreement or pursuant to bona fide gifts to persons who agree in writing with
the donor to be bound by this restriction), without your prior written consent;
(f) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to shareholders, and deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request; and
(g) To apply the net proceeds from the sale of the Securities for the
purposes set forth in the Prospectus.
6. Payment of Expenses.
The Company covenants and agrees with the Underwriter that the Company
will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Securities under the Act and all other expenses in
connection with the preparation, printing and filing of the Registration
Statement, any Preliminary Prospectus and the Prospectus and amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Underwriter and dealers; (ii) the cost of reproducing this Agreement, the Blue
Sky Survey and any other documents in connection with the offering, purchase,
sale and delivery of the Securities; (iii) all expenses in connection with the
qualification of the Securities for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriter in connection with such qualification and in
connection with the Blue Sky Survey; (iv) the filing fees incident to securing
any required review by the National Association of Securities Dealers, Inc. of
the terms of the sale of the Securities; (v) the cost of preparing stock
certificates; (vi) the costs or expenses of any transfer agent or registrar; and
(vii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section. It is understood, however, that except as provided in Section 8 and
Section 10 hereof, the Underwriter will pay all its own costs and expenses,
including the fees of its counsel, stock transfer taxes on resale of any of the
Securities by it and any advertising expenses connected with any offers they may
make.
7. Conditions to Obligations of Underwriters.
The obligations of the Underwriter hereunder, as to the Securities to
be delivered at each Delivery Date, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Delivery Date, true and correct, the
condition that the Company shall have performed all of its obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) under the Act within the applicable time period prescribed for
such filing by the rules and regulations under the Act and in accordance with
Section 5(a) of this Agreement; no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to your reasonable satisfaction;
(b) Hunton & Williams, counsel for the Underwriter, shall have
furnished to you such opinion or opinions, dated such Delivery Date, with
respect to the incorporation of the Company, the validity of the Securities
being issued at such Delivery Date, the Registration Statement, the Prospectus,
and other related matters as you may reasonably request, and such counsel shall
have received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(c) Woods, Rogers & Hazlegrove, P.L.C., counsel for the Company, shall
have furnished to you their written opinion, dated such Delivery Date, in form
reasonably satisfactory to you, to the effect that:
(i) The Company and each of its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, with
corporate power and authority to own or lease their respective
properties and conduct their respective businesses as described in the
Prospectus;
(ii) The Company and each of its Subsidiaries have been duly
qualified as foreign corporations for the transaction of business and
are in good standing under the laws of every other jurisdiction in
which they own or lease properties, or conduct any business, so as to
require such qualification, except where the failure to so qualify will
not result in a material adverse effect on the Company or the Company
and the Subsidiaries taken as a whole;
(iii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock
of the Company have been duly and validly authorized and issued, are
fully paid and nonassessable and conform to the description of the
capital stock contained in the Prospectus; there are no preemptive or
other similar rights to subscribe for or to purchase any securities of
the Company; to such counsel's knowledge, except as described in the
Prospectus, there are no warrants or options to purchase any securities
of the Company; to such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any rights for or relating
to the registration of any securities of the Company with respect to
such filing, offering or sale, other than rights which have been waived
or satisfied; and the form of the certificates evidencing the
Securities comply with all formal requirements of Virginia law;
(iv) All of the issued shares of capital stock of the
Subsidiaries have been duly and validly authorized and issued and are
fully paid and nonassessable; and except as otherwise set forth in the
Prospectus, all outstanding shares of capital stock of the Subsidiaries
are directly owned by the Company free and clear of any security
interests, claims, liens or encumbrances;
(v) The Securities have been duly authorized, and the
Securities being issued as of such Delivery Date will be, when issued,
validly issued, fully paid and nonassessable and conform to the
description of the Securities contained in the Prospectus as amended or
supplemented;
(vi) To such counsel's knowledge, there is no legal or
governmental proceeding pending to which the Company or any of the
Subsidiaries is a party or of which any property of the Company or any
of the Subsidiaries is the subject, other than as set forth or
contemplated in the Prospectus, that, if determined adversely, would
individually or in the aggregate have a material adverse effect on the
financial position, shareholders' equity or results of operations of
the Company and the Subsidiaries taken as a whole, and, to such
counsel's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(vii) The issue and sale of the Securities being issued at
such Delivery Date by the Company and the performance of this Agreement
by the Company and the consummation by the Company of the other
transactions herein contemplated will not conflict with or result in a
breach or violation of any terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries is bound or to which any of the property or assets of the
Company or any of the Subsidiaries is subject, nor will such action
result in any violation of the provisions of the Charter or Bylaws of
the Company or the articles of incorporation or the bylaws of any of
the Subsidiaries or of any statute, order, rule or regulation known to
such counsel of any court or governmental agency or body having
jurisdiction over the Company or any of the Subsidiaries or any of
their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Securities by
the Company or the consummation by the Company of the other
transactions contemplated by this Agreement, except such as have been
obtained under the Act and from the Virginia State Corporation
Commission with respect to the issuance of additional shares of capital
stock and such as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Securities
by the Underwriters and the clearance of such offering with the
National Association of Securities Dealers, Inc.;
(ix) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements and related
schedules and data, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder; such counsel has no
reason to believe that, as of the effective date of the Registration
Statement and as of such Delivery Date, either the Registration
Statement or the Prospectus (other than the financial statements and
related schedules and data) (or, as of its date, any further amendment
or supplement thereto made by the Company prior to such Delivery Date)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and such counsel does not know of any contracts
or other documents of a character required to be filed as an exhibit to
the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or
described as required;
(x) The documents incorporated by reference in the Prospectus
(other than the financial statements and the related schedules therein,
as to which such counsel need express no opinion), when they were filed
with the Commission, complied as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations of
the Commission thereunder;
(xi) The descriptions in the Registration Statement and
Prospectus and any further amendments or supplements thereto of
statutes, legal and governmental proceedings and contracts and other
documents are accurate and fairly present the information required to
be shown;
(xii) This Agreement has been duly authorized, executed and
delivered by the Company;
(xiii) The Company and each of the Subsidiaries holds and are
operating in compliance, in all material respects, with all franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of their respective businesses as presently
being conducted ("licenses") and all licenses are valid and in full
force and effect, and the Company, and each of the Subsidiaries are in
compliance, in all material respects, with all laws, regulations,
orders and decrees applicable to them;
(xiv) The Company is not a "holding company" or a "subsidiary
company" of a "public utility company" or of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company" as such terms are defined in the Holding Company Act;
(xv) Each approval, consent, order, authorization,
designation, declaration or filing by or with the State Corporation
Commission of Virginia and the Public Service Commission of West
Virginia necessary in connection with the execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated herein has been obtained or made, and to the best of such
counsel's knowledge, said order is in full force and effect and final
and non-appealable; and no further authorization, approval, consent or
order of any governmental authority or agency is legally required in
connection with the authorization, issuance and sale of the Securities
by the Company pursuant to this Agreement (other than qualification
under state securities or Blue Sky laws and clearance of such offering
with the NASD); and
(xvi) Each of the Company and the Subsidiaries has valid and
sufficient grants, franchises, miscellaneous permits and easements free
from unduly burdensome restrictions, adequate for the conduct of its
business in the territories in which it is now conducting such business
and the ownership of the properties now owned by it.
Such opinion may be furnished subject to such stated assumptions,
limitations and qualifications as shall be acceptable to Hunton & Williams,
counsel for the Underwriters.
(d) At 10:00 a.m., Richmond, Virginia, time, on the date of this
Agreement and the effective date of the most recently filed post-effective
amendment to the Registration Statement and also at each Delivery Date, KPMG
Peat Marwick shall have furnished to you a letter or letters, dated the
respective date of delivery thereof, in form and substance reasonably
satisfactory to you, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information relating
to the Company and its Subsidiaries contained in the Registration Statement and
the Prospectus;
(e) (i) Neither the Company nor any of the Subsidiaries shall have
sustained, since the date of the latest audited financial statements included in
the Prospectus, any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the outstanding capital stock or long-term debt of the Company or any
of the Subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company or any of the
Subsidiaries otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii) is in your
reasonable judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities being delivered at such Delivery Date on the terms and in the manner
contemplated by the Prospectus;
(f) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading of any of the
securities of the Company on the National Association of Securities Dealers,
Inc. Automated Quotation System; (ii) any United States federal or state
statute, regulation, rule or order of any court, legislative body, agency or
other governmental authority shall have been enacted, published, decreed or
promulgated or any proceeding or investigation shall have been commenced which,
in your reasonable judgment, materially and adversely affects the business or
operations of the Company; (iii) a suspension or material limitation in trading
in securities generally on the New York Stock Exchange or the National
Association of Securities Dealers, Inc. Automated Quotation System; (iv) a
general moratorium on commercial banking activities in New York or Virginia
declared by either federal or New York or Virginia authorities; (v) the outbreak
or escalation of hostilities involving the United States or the declaration by
the United States of a national emergency or war, if any such event specified in
this clause (v) would have such a materially adverse effect, in your reasonable
judgment, as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Securities being delivered at such Delivery Date
on the terms and in the manner contemplated in the Prospectus; or (vi) such a
material adverse change in general economic, political, financial or
international conditions affecting financial markets in the United States having
a material adverse impact on trading prices of securities in general, as, in
your reasonable judgment, makes it inadvisable to proceed with the payment for
and delivery of the Securities;
(g) The Company shall have furnished to you copies of agreements
between the Company and the directors and executive officers and certain
stockholders of the Company, in form and content reasonably satisfactory to you,
pursuant to which such persons agree not to offer, sell, or contract to sell, or
otherwise dispose of, any shares of Common Stock beneficially owned by them or
any securities convertible into, or exchangeable for, Common Stock, on or before
the 180th day after the date of this Agreement without your prior written
consent; and
(h) The Company shall have furnished or caused to be furnished to you
at such Delivery Date certificates of officers of the Company reasonably
satisfactory to you as to the accuracy of the respective representations and
warranties of the Company herein at and as of such Delivery Date, as to the
performance by the Company of all of its obligations hereunder to be performed
at or prior to such Delivery Date, as to the matters set forth in subsections
(a) and (e) of this Section and as to such other matters as you may reasonably
request.
8. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless the Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
the Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will promptly reimburse the Underwriter for any
legal or other expenses reasonably incurred by such Underwriter in connection
with investigating, preparing to defend or defending, or appearing as a
third-party witness in connection with, any such action or claim; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus, the Registration Statement or Prospectus or
any such amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use
therein; provided, further, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of the Underwriter
from whom the person asserting any such losses, claims, damages or liabilities
purchased Securities, or any person controlling such Underwriter, if a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Securities
to such person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or liabilities.
(b) The Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in any
preliminary prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by the Underwriter expressly for use
therein; and will reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating, preparing
to defend or defending, or appearing as a third-party witness in connection
with, any such action or claim. The Company acknowledges that the statements set
forth in the last paragraph of the cover page, the [last two] paragraphs on the
inside front cover page and the third, fifth and sixth paragraphs under the
heading "Underwriting" in the preliminary prospectus and the Prospectus
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the preliminary prospectus or the Prospectus, and
you, as the Representatives, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have been advised by
counsel that representation of such indemnified party and the indemnifying party
may be inappropriate under applicable standards of professional conduct due to
actual or potential differing interests between them, the indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. It is understood that the
indemnifying party shall, in connection with any such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys together with appropriate
local counsel at any time for all indemnified parties unless such firm of
attorneys shall have reasonably concluded that one or more indemnified parties
has actual differing interests with other indemnified parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its election so
to appoint counsel to defend such action and approval by the indemnified party
of such counsel, the indemnifying party will not be liable for any settlement
entered into without its written consent and will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party; and except that, if clause (i) or (iii) is
applicable, such liability shall be only in respect of the counsel referred to
in such clause (i) or (iii). Notwithstanding the immediately preceding sentence
and the first sentence of this paragraph, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriter on the other from the offering of the Securities.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company on the one hand and the Underwriter on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (after deducting the total underwriting discount, but before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriter, in each case as set forth
in the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriter on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined by
pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to above in this subsection
(e). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this subsection (e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Underwriter within the meaning of the Act; and the obligations of the
Underwriter under this Section 8 shall be in addition to any liability which the
Underwriter may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Act.
9. Representations and Indemnities to Survive.
The respective indemnities, agreements, representations, warranties and
other statements of the Company and the Underwriter, as set forth in this
Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any termination
or cancellation of this Agreement or any investigation (or any statement as to
the results thereof) made by or on behalf of the Underwriter or any controlling
person of any Underwriter, or the Company, or any officer or director or
controlling person of the Company or each of the Selling Shareholders, and shall
survive delivery of and payment for the Securities.
10. Termination and Payment of Expenses.
If for any reason any Securities are not delivered by or on behalf of
the Company as provided herein, the Company will reimburse the Underwriter for
all out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred by the Underwriter in making preparations for the purchase,
sale and delivery of the Securities not so delivered, but the Company shall not
then be under further liability to any Underwriter except as provided in Section
6 and Section 8 hereof.
11. Notices.
All statements, requests, notices and agreements hereunder shall be in
writing or by telegram if promptly confirmed in writing, and if to the
Underwriter shall be sufficient in all respects if delivered or sent by reliable
courier, first-class mail, telex or facsimile transmission to Scott &
Stringfellow, Inc., 909 East Main Street, Richmond, Virginia 23219, Attention:
Corporate Finance Department; if to the Company shall be sufficient in all
respects if delivered or sent by reliable courier, first-class mail, telex, or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: John B. Williamson, III, with a copy (which
shall not constitute notice) to Woods, Rogers & Hazelgrove, P.L.C. Any such
statements, requests, notices or agreements shall take effect upon receipt
thereof.
12. Successors.
This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriter and the Company and, to the extent provided in Sections 8
and 9 hereof, the officers and directors of the Company and each person who
controls the Company or the Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Securities from the Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
13. Time of the Essence.
Time shall be of the essence in this Agreement.
14. Business Day.
As used herein, the term "business day" shall mean any day when the
Commission's office in Washington, D.C. is open for business.
15. Applicable Law.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Virginia.
16. Captions.
The captions included in this Agreement are included solely for
convenience of reference and shall not be deemed to be a part of this Agreement.
17. Counterparts.
This Agreement may be executed by any one or more of the parties in any
number of counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and return to us four counterparts hereof, and upon the acceptance hereof by
you, this letter and such acceptance hereof shall constitute a binding agreement
between the Underwriter and the Company.
Very truly yours,
ROANOKE GAS COMPANY
By: ___________________________________
Name: John B. Williamson, III
Title:
Accepted as of the date hereof at Richmond, Virginia:
SCOTT & STRINGFELLOW, INC.
By: _______________________________________
Name:
Title:
<PAGE>
SCHEDULE I
SUBSIDIARIES OF ROANOKE GAS COMPANY
Name of Subsidiary State of
------------------ Incorporation
-------------
Bluefield Gas Company West Virginia
Commonwealth Public Service Corporation* Virginia
Diversified Energy Company Virginia
- - - ---------------
* A wholly owned subsidiary of Bluefield Gas Company.
Exhibit 5
[WOODS, ROGERS & HAZLEGROVE, P.L.C. LETTERHEAD]
WOODS, ROGERS
& HAZLEGROVE PLC
Attorneys at Law
FAITH M. WILSON
540 983-7633
INTERNET: [email protected]
December 31, 1997
Board of Directors
Roanoke Gas Company
P.O. Box 13007
Roanoke, Virginia 24030-3007
In re: Registration Statement on Form S-2 with respect
to 181,500 shares of Common Stock of Roanoke Gas
Company (the "Company")
Gentlemen:
We have acted as counsel for you in connection with preparation of the
registration statement on Form S-2 (the "Registration Statement"), pursuant to
the provisions of the Securities Act of 1933, as amended, being filed with the
Securities and Exchange Commission on December 31, 1997, or as soon thereafter
as possible, in respect of 181,500 shares of Company Common Stock, and as such,
have examined the same and the exhibits being filed therewith.
We are generally familiar with your corporate affairs, including your
organization and the conduct of the corporate proceedings relating thereto. We
also have examined such of your corporate records as we have deemed necessary as
the basis for this opinion. Based upon the foregoing, it is our opinion that:
i. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of the Commonwealth of Virginia.
ii. The 181,500 shares of Company Common Stock which are
the subject of the Registration Statement have been
duly and validly authorized, and when issued pursuant
to proper resolution of the Board of Directors of the
Company and upon the terms as set forth in the
Registration Statement, will be legally issued, fully
paid and non-assessable.
<PAGE>
Board of Directors
Roanoke Gas Company
December 31, 1997
Page 2
The foregoing opinion is contingent upon the Registration Statement
becoming effective. We consent to its use as an exhibit to the Registration
Statement and to reference to this firm in the Prospectus, the Registration
Statement and any amendments thereto.
Very truly yours,
s/Woods, Rogers & Hazlegrove, P.L.C.
WOODS, ROGERS & HAZLEGROVE, P.L.C.
Exhibit 23(a)
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Roanoke Gas Company:
We consent to the use of our report included herein and incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
prospectus.
s/KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Roanoke, Virginia
December 31, 1997
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and/or directors of Roanoke Gas Company, a Virginia corporation (the "Company"),
does hereby constitute and appoint Frank A. Farmer, Jr., John B. Williamson, III
and Roger L. Baumgardner, and each of them (with full power to each of them to
act alone), his true and lawful Attorneys in Fact and Agents for him and on his
behalf and in his name, place and stead in any and all capacities and
particularly as an officer and/or director of the Company to sign, execute and
affix his seal thereto and file any of the documents referred to below relating
to the registration of up to 182,000 shares of its common stock, $5 par value
("Common Stock"):
A Registration Statement of the Company respecting the Common
Stock on an appropriate form under the Securities Act of 1933,
as amended, and any amendments thereto, including amendments
increasing or decreasing the amount of Common Stock for which
registration is being sought, with all exhibits and any and
all documents required to be filed with respect thereto with
the Securities and Exchange Commission and/or any regulatory
authority for any State in the United States of America;
granting unto said Attorneys and each of them full power and authority to do and
perform every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully, to all intents and purposes,
as he himself might or could do if personally present, hereby ratifying and
confirming all that said Attorneys in Fact and Agents or each of them may
lawfully do or cause to be done by virtue hereof.
WITNESS the signatures and seals of the undersigned this 22nd day of
December, 1997.
s/Frank T. Ellett (SEAL)
---------------------------------
s/John H. Parrott (SEAL)
---------------------------------
s/Lynn D. Avis (SEAL)
---------------------------------
s/Wilbur L. Hazlegrove (SEAL)
---------------------------------
s/Abney S. Boxley, III (SEAL)
---------------------------------
<PAGE>
s/J. Allen Layman (SEAL)
---------------------------------
s/S. Frank Smith (SEAL)
---------------------------------
s/John B. Williamson, III (SEAL)
---------------------------------
s/Roger L. Baumgardner (SEAL)
---------------------------------
s/Frank A. Farmer (SEAL)
---------------------------------
____________________________(SEAL)
____________________________(SEAL)
<PAGE>
STATE OF VIRGINIA )
) to-wit:
CITY OF ROANOKE )
I, Susan E. Miller, a Notary Public in and for the City of Roanoke, in
the State of Virginia, do hereby certify that
Frank T. Ellett S. Frank Smith
- - - ------------------------- ----------------------------
John H. Parrott John B. Williamson, III
- - - ------------------------- ----------------------------
Lynn D. Avis Roger L. Baumgardner
- - - ------------------------- ----------------------------
Wilbur L. Hazlegrove Frank A. Farmer
- - - ------------------------- ----------------------------
Abney S. Boxley, III
- - - ------------------------- ----------------------------
J. Allen Layman
- - - ------------------------- ----------------------------
whose names are signed to the foregoing writing bearing date the 22nd day of
December, 1997, this day personally appeared before me and acknowledged the same
in my City and State aforesaid.
GIVEN under my hand and seal this 22nd day of December, 1997.
s/Susan E. Miller
-------------------------------
Notary Public
My Commission Expires:
April 30, 2001
(SEAL)
