dated as of August 22, 2003



                                      among



                               GW MERGERCO, INC.,



                          GLACIER WATER SERVICES, INC.,



                                       and



                               WATER ISLAND, INC.







{PAGE}









     AGREEMENT AND PLAN OF MERGER (together with the Schedules and Exhibits

hereto, the "Agreement"), dated as of August 22, 2003, among GW Mergerco, Inc.,

an Indiana corporation ("GW"), Glacier Water Services, Inc., a Delaware

corporation ("Parent"), and Water Island, Inc., an Indiana corporation (the

"Company").



     The Board of Directors of each of the Company and GW believes that it is in

the best interests of each company and their respective shareholders that the

Company and GW combine into a single company through the statutory merger of GW

with and into the Company (the "Merger") and, in furtherance thereof, along with

the sole shareholder of GW, have approved the Merger.



     Pursuant to the Merger, among other things, the outstanding shares of

Company Common Stock shall be converted into the right to receive cash as

determined herein.



     The Company, Parent and GW desire to make certain representations and

warranties and other agreements in connection with the Merger.



     Certain capitalized terms used herein are defined in Exhibit A.

Additionally, Exhibit A references the sections in which other capitalized terms

are defined throughout this Agreement.



     In consideration of the premises and the mutual representations,

warranties, covenants and agreements contained herein, and for other good and

valuable consideration, the receipt and sufficiency of which is hereby

acknowledged, and intending to be legally bound hereby, the parties hereto

hereby agree as follows:





                                    ARTICLE I

                                   THE MERGER



     Section 1.1. The Merger. At the Effective Time (as defined in Section 1.2)

and on the terms and subject to conditions of this Agreement, GW shall be merged

with and into the Company, the separate corporate existence of GW shall cease

and the Company shall continue as the surviving corporation. The Company as the

surviving corporation after the Merger is hereinafter sometimes referred to as

the "Surviving Corporation."



     Section 1.2. Effective Time. On October 6, 2003, or such later date

mutually satisfactory to the Company and GW which is no later than the fifth

Business Day after the satisfaction or waiver of the conditions set forth in

Article V, the parties hereto shall cause the Merger to be consummated by

executing the Plan of Merger attached hereto as Exhibit D and by filing Articles

of Merger, with such Plan of Merger attached thereto, with the Secretary of

State of the State of Indiana, in such form as required by, and executed in

accordance with the relevant provisions of, Indiana Law (the time of such filing

with the Secretary of the State of Indiana being the "Effective Time"). The

closing of the transactions contemplated hereby (the "Closing") shall take place

at 10:00 a.m. at the offices of Kayne Anderson Investment Management, Inc., 1800

Avenue of the Stars, Suite 200, Los Angeles, California 90067 on the date of the

Effective Time (the "Closing Date").



     Section 1.3. Effect of the Merger. At the Effective Time, the effect of the

Merger shall be as provided under Indiana Law. Without limiting the generality

of the foregoing, and subject thereto, at the Effective Time all the property,

rights, privileges, powers and franchises of the Company and GW shall vest in

the Surviving Corporation, and all debts, liabilities and duties of the Company

and GW shall become the debts, liabilities and duties of the Surviving

Corporation.



                                       1

{PAGE}





     Section 1.4. Articles of Incorporation; By-laws.

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



               (a) Unless otherwise determined by Parent prior to the Effective

          Time, at the Effective Time the Articles of Incorporation of GW as in

          effect, immediately prior to the Effective Time, shall be the Articles

          of Incorporation of the Surviving Corporation until thereafter amended

          as provided by Law and such Articles of Incorporation.



               (b) The by-laws of GW, as in effect immediately prior to the

          Effective Time, shall be the by-laws of the Surviving Corporation

          until thereafter amended.



     Section 1.5. Directors and Officers.

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



               The directors of GW immediately prior to the Effective Time shall

          be the initial directors of the Surviving Corporation, each to hold

          office in accordance with the Articles of Incorporation and by-laws of

          the Surviving Corporation, and the officers of GW immediately prior to

          the Effective Time shall be the initial officers of the Surviving

          Corporation, in each case until their respective successors are duly

          elected or appointed and qualified.



     Section 1.6. Effect of the Merger on the Capital Stock of the Company.

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



               At the Effective Time, (a) each share of Company Common Stock

          other than Dissenting Shares will be converted into the right to

          receive, upon surrender of the certificates representing shares of

          Company Common Stock by the holders thereof in the manner provided in

          Section 1.11, cash payable by Parent and/or the Surviving Corporation

          to the holders thereof at the times and in the amounts determined

          pursuant to Sections 1.8, 1.9 and 1.10 hereof, and (b) each Dissenting

          Share shall be converted into the right to receive the "fair value"

          thereof as determined under the applicable provisions of the Indiana

          Business Corporation Law, I.C. 23-1-44.



     Section 1.7. Effect of the Merger on the Capital Stock of GW.

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



               Each share of common stock of GW issued and outstanding

          immediately prior to the Effective Time shall be converted into one

          validly issued, fully paid and non-assessable share of common stock of

          the Surviving Corporation. Each stock certificate of GW evidencing

          ownership of any such shares shall continue to evidence ownership of

          such shares of capital stock of the Surviving Corporation.



     Section 1.8. Merger Consideration.

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



               (a) Prior to any adjustments thereto in accordance with the

          remainder of this Section 1.8, the amount of cash to be paid by Parent

          and/or the Surviving Corporation to the record holders of issued and

          outstanding shares of Company Common Stock for each of their shares

          held as of the Closing, excluding Dissenting Shares, upon surrender of

          the certificates for such shares, is the per-share amount determined

          by dividing $5,284,861 by the number of issued and outstanding shares

          of Company Common Stock as of the Closing (the "Preliminary Closing

          Merger Consideration"). The Preliminary Closing Merger Consideration

          shall be adjusted upward or downward as provided in the remainder of

          this Section 1.8, and the resulting amount after such adjustments is

          the amount that Parent and/or the Surviving Corporation will pay to

          such holders of shares of Company Common Stock (excluding Dissenting

          Shares) upon surrender of their certificates for such shares at or

          after the Closing (the "Final Closing Merger Consideration").



                                       2

{PAGE}





               (b) At least five Business Days prior to the Closing Date, the

          Company shall deliver to Parent its good faith written estimate of the

          Closing Working Capital, which Parent shall have the right to approve

          in the good faith exercise of its judgment (the "Estimated Closing

          Working Capital"). The Company shall make available to Parent all work

          papers and other books and records utilized in preparing the Estimated

          Closing Working Capital and shall make available to Parent the

          appropriate personnel involved in the preparation of such estimate.

          The Preliminary Closing Merger Consideration (i) shall be decreased by

          the amount, if any, by which the Estimated Closing Working Capital is

          less than $500,000 (the "Estimated Deficiency"), or (ii) shall be

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