ROANOKE GAS COMPANY
                      RESTRICTED STOCK PLAN
                      FOR OUTSIDE DIRECTORS


1.   Purpose

     The Roanoke Gas Company Restricted Stock Plan for Outside Directors
(the "Plan") is intended to advance the interests of Roanoke Gas Company, its
shareholders, and its affiliates by encouraging and enabling outside
directors upon whose judgment, initiative and effort the Company relies for
the successful conduct of its business, to acquire and retain a proprietary
interest in the Company by ownership of its stock. 

2.   Definitions

     The following definitions apply to this Plan and to the Election Forms:

     (a)  Beneficiary or Beneficiaries means a person or persons or other
          entity designated on a Beneficiary Designation Form by a
          Participant to receive Company Stock under this Plan if the
          Participant dies.  If there is no valid designation by the
          Participant, or if the designated Beneficiary or Beneficiaries
          fail to survive the Participant, the Participant's Beneficiary is
          the first of the following who survives the Participant:  the
          Participant's spouse (the person legally married to the
          Participant when the Participant dies); the Participant's
          children in equal shares; the Participant's other surviving
          issue, per stirpes; the Participant's parents; and the
          Participant's estate.

     (b)  Beneficiary Designation Form means a form acceptable to the
          Chairman of the Committee or his designee used by a Participant
          according to this Plan to name the Beneficiary or Beneficiaries
          who will receive all the Company Stock under this Plan if the
          Participant dies.

     (c)  Board means the Board of Directors of the Company.

     (d)  Change in Control means a change in control of a nature that
          would be required to be reported (assuming such event has not
          been "previously reported") in response to Item 1(a) of the
          Current Report on Form 8-K, as in effect on the date hereof,
          pursuant to Section 13 or 15(d) of the Securities Exchange Act of
          1934, as amended ("Exchange Act"); provided that, notwithstanding
          the foregoing and without limitation, such a change in control
          shall be deemed to have occurred at such time as (i) any Person
          is or becomes the "beneficial owner" (as defined in Rule 13d-3 or
          Rule 13d-5 under the Exchange Act as in effect on the date
          hereof), directly or indirectly, of 20% or more of the combined
          voting power of the Company's voting securities; (ii) the
          incumbent Board ceases for any reason to constitute at least the
          majority of the Board, provided that any person becoming a
          director subsequent to the date hereof whose election, or
          nomination for election by the Company's shareholders, was
          approved by a vote of at least 75% of the directors comprising
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          the incumbent Board (either by a specific vote or by approval of
          the proxy statement of the Company in which such person is named
          as a nominee for director, without objection to such nomination)
          shall be, for purposes of this clause (ii), considered as though
          such person were a member of the incumbent Board; (iii) all or
          substantially all of the assets of the Company are sold,
          transferred or conveyed by any means, including, but not limited
          to, direct purchase or merger, if the transferee is not
          controlled by the Company, control meaning the ownership of more
          than 50% of the combined voting power of such entity's voting
          securities; or (iv) the Company is merged or consolidated with
          another corporation or entity and as a result of such merger or
          consolidation less than 75% of the outstanding voting securities
          of the surviving or resulting corporation or entity shall be
          owned in the aggregate by the former shareholders of the Company. 
          Notwithstanding anything in the foregoing to the contrary, no
          Change in Control shall be deemed to have occurred for purposes
          of the Plan by virtue of any transaction (i) which results in a
          Participant or a group of Persons which includes the Participant,
          acquiring, directly or indirectly, 20% or more of the combined
          voting power of the Company's voting securities; or (ii) which
          results in the Company, any affiliate of the Company or any
          profit-sharing plan, employee stock ownership plan or employee
          benefit plan of the Company or any of its affiliates (or any
          trustee of or fiduciary with respect to any such plan acting in
          such capacity) acquiring, directly or indirectly, 20% or more of
          the combined voting power of the Company's voting securities.

     (e)  Committee means the Compensation Committee of the Board.

     (f)  Company means Roanoke Gas Company.

     (g)  Company Stock means the common stock, $5 par value of the
          Company.

     (h)  Compensation means a Member's Retainer Fee for the Deferral Year.

     (i)  Election Form means a document governed by the provisions of
          Section 4 of this Plan, including the portion that is the related
          Beneficiary Designation Form, that applies to all of that
          Participant's shares of Restricted Stock under the Plan.

     (j)  Directors means those duly named members of the Board.

     (k)  Election Date means the date established by this Plan as the date
          before which a Member must submit a valid Election Form to the
          Committee.  For each Plan Year, the Election Date is July 31. 
          However, for an individual who becomes a Member during a Plan
          Year, the Election Date is the thirtieth day following the date
          that he becomes a Member.  Despite the two preceding sentences,
          the Committee may set an earlier date as the Election Date for
          any Plan Year.

     (l)  Employee means an individual with whom either the Company or its
          affiliates has an employer-employee relationship as determined
          for Federal Insurance Contribution Act purposes and Federal
          Unemployment Tax Act purposes, including subsection 3401(c) of
          the Internal Revenue Code and regulations promulgated under that
          subsection.
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     (m)  Members means Directors who are not simultaneously Employees.

     (n)  Participant means a Member during the Plan Year.

     (o)  Plan means the Company's Restricted Stock Plan for Outside
          Directors.

     (p)  Plan Year means a fiscal year ending September 30 during which
          the Plan is in effect and during which a Member receives a
          portion or all of his Compensation in Restricted Stock hereunder.

     (q)  Person means person within the meaning of Sections 3(a)(9) and
          13(d)(3) of the Securities Exchange Act of 1934.

     (r)  Restricted Stock means Company Stock issued to Participants under
          the Plan and subject to the vesting and nontransferability
          provision of the Plan.

     (s)  Retainer Fee means that portion of a Director's Compensation that
          is fixed and paid without regard to his attendance at meetings.

3.   Restricted Stock Payments

     On the first day of each month during each Plan Year, forty percent
(40%) of a Participant's Compensation for the month shall be paid in shares
of Restricted Stock of the Company.  In determining the number of shares to
be issued pursuant to the preceding sentence, the Fair Market Value of the
Restricted Stock under the Plan shall, for each calendar month, be calculated
based on the closing sales price of the Company's common stock on the Nasdaq-
NMS on the first day of the month, if the first day of the month is a trading
day, or if not, the first trading day prior to the first day of the month.

4.   Additional Restricted Stock Election

     (a)  Before each Plan Year's Election Date, each Member will be
          provided with an Election Form and a Beneficiary Designation
          Form.  Subject to approval of the Board or the Committee, a
          Member may elect to receive up to 100% of his Compensation for
          the Plan Year in Restricted Stock.

     (b)  An additional Restricted Stock election is valid when an Election
          Form is completed, signed by the electing Member, received by the
          Committee Chairman and approved by the Board or the Committee on
          or before the Election Date.

     (c)  A Member may not revoke or amend an Election Form after the
          Election Date for the Plan Year.  Any revocation before an
          Election Date is the same as a failure to submit an Election
          Form.  Any writing signed by a Member expressing an intention to
          revoke his Election Form and delivered to a member of the
          Committee before the close of business on the relevant Election
          Date is a revocation.

5.   Vesting

     The shares of Restricted Stock of the Company issued under Section 3
and Section 4 of this Plan shall vest only in the case of a Participant's
death, disability, retirement (including not standing for reelection to the
Board), or in the event of a Change in Control of the Company.  There shall
be no option to take cash in lieu of stock upon vesting of shares under this
Plan.<PAGE>

6.   Nontransferability

     No share of Restricted Stock issued hereunder may be sold, transferred,
assigned, or pledged by the Participant until such share has vested in
accordance of the terms of this Plan.  At the time the Restricted Stock
vests, and, if the Participant has been issued legended certificates of
Restricted Stock, upon the return of such certificates to the Company, a
certificate for such vested shares shall be delivered to the Participant (or
the Beneficiary designated by the Participant in the event of death), free of
restrictive legend (other than any required by applicable securities laws). 
Notwithstanding the foregoing, no vested shares may be sold, transferred,
assigned or pledged by the Participant (or the Beneficiary) unless six months
have elapsed between the date of grant of the shares of Restricted Stock
which have vested and the date of the sale, transfer, assignment or pledge of
such vested shares.

7.   Forfeiture

     The shares of Restricted Stock issued under Section 3 and Section 4 of
this Plan shall be forfeited to the Company upon a Member's voluntary
resignation during his term on the Board, or removal for cause as a Director. 

8.   Stock Certificates

     Stock certificates representing the Restricted Stock, together with
stock powers or other instruments of assignment, each endorsed in blank,
which will permit transfer to the Company of all or any portion of the
Restricted Stock evidenced by such certificate in the event it is forfeited,
shall be deposited by the recipient with the Company.  

9.   Rights as Shareholder

     Subject to the terms of this Plan, the Participant, as the owner of the
Restricted Stock, shall have all rights of a shareholder including, but not
limited to, voting rights, the right to receive cash or stock dividends
thereon, and the right to participate in any capital adjustment of the
Company.  Any distribution with the respect to shares of Restricted Stock
other than in the form of cash shall be held by the Company, and shall be
subject to the same restrictions as the shares with respect to which such
distributions were made.  The Committee may require that any or all dividends
or other distributions paid on shares of Restricted Stock shall be
automatically sequestered and may be reinvested on an immediate or deferred
basis in additional shares of Company stock, which may be subject to the same
restrictions as the Restricted Stock or such other restrictions as the
Committee may determine.

10.  Claims against Participant's Restricted Stock

     The shares of Restricted Stock issued pursuant to this Plan are not
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, or charge, and any attempt to do so is void. 
Moreover, the shares are not subject to attachment or legal process for a
Participant's debts or other obligations.  Nothing contained in this Plan
gives any Participant any interest, lien, or claim against any specific asset
of the Company.
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11.  Amendment or Termination

     The Board may at any time suspend or terminate the Plan or may amend it
from time to time in such respects as the Board may deem advisable in order
that the Restricted Stock issued hereunder may conform to any changes in the
law or any other respect with which the Board may deem to be in the best
interests of the Company.  No such suspension, termination or amendment of
the Plan shall require approval of the shareholders unless shareholder
approval is required by applicable law or stock exchange requirements.

12.  Notices

     Notices and elections under this Plan must be in writing.  A notice or
election is deemed delivered if it is delivered personally or if it is mailed
by registered or certified mail to the person at his last known business
address.

13.  Waiver

     The waiver of a breach of any provision in this Plan does not operate
as and may not be construed as a waiver of any later breach.

14.  Construction

     This Plan is created, adopted, and maintained according to the laws of
the Commonwealth of Virginia (except its choice-of-law rules).  It is
governed by those laws in all respects.  Headings and captions are only for
convenience; they do not have substantive meaning.  If a provision of this
Plan is not valid or not enforceable, that fact in no way affects the
validity or enforceability of any other provision.  Use of the one gender
includes all, and the singular and plural include each other.

15.  Adjustments For Changes in Capitalization

     In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution,
merger, consolidation, spin off, sale of assets, payment of an extraordinary
cash dividend, or any other change in or affecting the corporate structure or
capitalization of the Company, the Committee shall make appropriate
adjustments in the number, price or kind of shares of Restricted Stock
authorized to be issued under this Plan, and in any outstanding shares of
Restricted Stock issued hereunder.

16.  Withholding Taxes

     Whenever the Company is required to issue or transfer shares of
Restricted Stock under this Plan, the Company shall have the right to require
the recipient of such Restricted Stock to remit to the Company an amount
sufficient to satisfy any federal, state or local withholding tax liability
prior to the delivery of any certificate for such shares.  Whenever under the
Plan payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy any federal, state or local withholding tax liability.

17.  Indemnification

     The Company shall indemnify and hold harmless each person who is or has
been a member of the Committee, or of the Board of Directors, against and
from any and all loss, expense, liability, or costs (including reasonable
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attorneys' fees) that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit or proceedings to
which he may be a party or in which he may be involved by reason of any
action taken or failure to act under the Plan, and against and from any and
all amounts paid by him in settlement thereof with the Company's approval or
paid by him in satisfaction of a final judgment against him in such action,
suit, or proceedings, provided he shall give the Company an opportunity, at
its own expense to handle and defend the same before he undertakes to handle
defense on his own behalf.  The right of indemnification herein set forth
shall not be exclusive of any other rights of indemnification to which such
person may be entitled under the Company's Articles of Incorporation, or code
or regulations, as a matter of law, or otherwise, or any power that the
Company may have to indemnify him or to hold him harmless.  It is the
Company's intention that all expenses incurred in connection with the
administration of the Plan shall be borne by the Company rather than by any
member of the Committee or the Board of Directors.

18.  Effective Date of the Plan

     The Plan is subject to approval by the shareholders of the Company. 
The Plan will become effective on the date so approved.

19.  Shares Subject to the Plan

     The aggregate number of shares of Company Stock which may be issued in
respect to Restricted Stock shall not exceed 50,000 shares.  All shares
distributed pursuant to the Plan shall consist of authorized but unissued
shares of the Company.

20.  Power of the Committee

     The Committee shall have authority to interpret conclusively the
provisions of the Plan, to adopt such rules and regulations for carrying out
the Plan as it may deem advisable, to decide conclusively all questions of
fact arising in the application of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. 
All decisions and acts of the Committee shall be final and binding upon all
affected Plan Participants.

21.  Miscellaneous

     Transactions under this Plan are intended to comply with Rule 16b-3 (or
its successor), as amended from time to time, promulgated pursuant to the
Securities Exchange Act of 1934.  Therefore, to the extent any provision of
the Plan or action by a person administering the Plan fails to so comply, it
shall be deemed null and void ab initio to the extent permitted by law and
deemed advisable by the Committee.

     As evidence of its adoption and approval of this Plan and approval of
the terms and conditions of each Participant transaction hereunder, the Board
has caused this document to be executed on its behalf, and on behalf of the
Company, this 23 day of September, 1996.  



                                        By   s/F. A. Farmer
                                             ----------------------
                                             Chairman of the Board
                                             and President of
                                             Roanoke Gas Company
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