PURO WATER GROUP INC, SB-2/A, 1997-01-06

PURO WATER GROUP INC
SB-2/A, 1997-01-06
GROCERIES, GENERAL LINE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 6, 1997

REGISTRATION NO. 333-16247

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1
TO

FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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PURO WATER GROUP, INC.

(Name of small business issuer in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 5149 11-325396-8
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
</TABLE>

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56-45 58TH STREET
MASPETH, NEW YORK 11378
(718) 326-7000
(Address and telephone number of Principal Executive Offices)

MR. JACK C. WEST
PURO WATER GROUP, INC.
56-45 58TH STREET
MASPETH, NEW YORK 11378
(718) 326-7000

(Name, address, and telephone number of Agent for Service)

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COPIES OF COMMUNICATIONS TO:

DUANE L. BERLIN, ESQ. STEPHEN IRWIN, ESQ.
ERIC J. DALE, ESQ. JEFFREY S. SPINDLER, ESQ.
Lev, Berlin & Dale, P.C. Olshan Grundman Frome & Rosenzweig LLP
535 Connecticut Avenue 505 Park Avenue
Norwalk, Connecticut 06854 New York, New York 10022

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.

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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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE 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 BE 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.
<PAGE>
PROSPECTUS

SUBJECT TO COMPLETION, DATED JANUARY 6, 1997

[LOGO]

PURO WATER GROUP, INC.

1,350,000 SHARES OF COMMON STOCK
----------------

Puro Water Group, Inc. (the "Company") is hereby offering (the "Offering")
1,350,000 shares (the "Shares") of its common stock, $.0063 par value per share
(the "Common Stock").

Prior to this Offering, there has been no public market for the Common Stock
and no assurance can be given that any such market will develop. It is currently
estimated that the initial public offering price of the Common Stock will be
between $5.50 and $6.50 per Share. For information regarding the factors to be
considered in determining the price to the public in the Offering, see
"Underwriting." The Common Stock has been approved for listing on the American
Stock Exchange under the symbol "HHO," subject to official notice of issuance.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" CONTAINED AT PAGES 8 TO 11 OF
THIS PROSPECTUS AND "DILUTION."

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

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMSSIONS(1) COMPANY (2)
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total (3)............................................ $ $ $
</TABLE>

(1) Does not include the Representatives' non-accountable expense allowance
equal to 3% of the gross proceeds of the Offering or warrants to purchase up
to 135,000 shares of Common Stock issuable to the Representatives. The
Company has agreed to indemnify the Underwriters against certain liabilities
under the Securities Act of 1933, as amended (the "Act"). See
"Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, including
the non-accountable expense allowance, estimated to be $ , or
$ if the Underwriters' over-allotment option is exercised in full.

(3) The Company has granted the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to an additional
202,500 shares of Common Stock upon the same terms as set forth above,
solely to cover over-allotments, if any. If such over-allotment 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 are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to the Underwriters and subject to the right to reject
orders in whole or in part, approval of certain legal matters by counsel and
certain additional conditions. It is expected that delivery of the Shares will
be made against payment therefor at the offices of Laidlaw Equities, Inc., 100
Park Avenue, New York, New York 10017 on or about 1997.

LAIDLAW EQUITIES, INC. GILFORD SECURITIES INCORPORATED

THE DATE OF THIS PROSPECTUS IS , 1997
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PURO WATER GROUP, INC.

The Company brochure photos here

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR THE REPRESENTATIVES' WARRANTS AND
(II) HAS BEEN ADJUSTED TO REFLECT A .4928 TO 1 REVERSE STOCK SPLIT TO BE
EFFECTED PRIOR TO CONSUMMATION OF THIS OFFERING (DECREASING THE NUMBER OF ISSUED
AND OUTSTANDING SHARES FROM 4,315,375 TO 2,126,789). EACH PROSPECTIVE INVESTOR
IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.

THE COMPANY

The Company is a leading bottler and distributor of spring and purified
drinking water, serving commercial and residential users in the metropolitan New
York area. The Company markets its drinking water under the brand names Puro,
American Eagle Spring Water, Nature's Best Spring Water and Lectro-Still. The
Company also rents and services water coolers, filtration systems, and
plumbed-in fountains numbering in excess of 25,000 located in businesses,
factories, and homes in the metropolitan New York area. The Company's facilities
consist of NSF (National Sanitation Foundation) certified bottling plants in
East Orange, New Jersey and Commack, Long Island, New York. In addition, the
Company is an authorized factory service center for all major water cooler
manufacturers and provides warranty repair coverage to many of its competitors.

According to a study prepared by the Beverage Marketing Corporation, bottled
water has been the fastest growing segment of the beverage industry for the past
ten years. Total bottled water consumption in the United States has more than
tripled from 1983 to 1995. Annual consumption increased from 2.8 gallons per
capita in 1980 to 11.0 gallons per capita in 1995 and it is projected to reach
14.2 gallons per capita by the year 2000. Bottled water volume in the United
States has grown significantly, increasing from approximately 1.1 billion
gallons in 1984 to approximately 2.9 billion gallons in 1995; from approximately
$1.3 billion in sales in 1984 to over $3.3 billion in 1995. This growth has been
fueled by increasing public concern about the taste and safety of municipal
water supplies and the desire among today's increasingly diet and health
conscious consumers for an "ideal" beverage.

The Company's strategy is to capitalize on the growing demand for high
quality drinking water through the expansion of its existing customer base and
through the acquisition of regional bottlers and distributors in targeted
geographic markets. The bottled water distribution market is highly fragmented
and composed of many small regional companies, as well as a few larger companies
which own several brands, thus providing the Company with acquisition
opportunities. In addition, the Company continually seeks to grow revenues by
increasing route density through the acquisition and consolidation of new routes
within the existing route structure, thereby minimizing distribution and
administration costs. The continued consolidation of production and distribution
capabilities is a key component of the Company's operating plans, both within
its current markets and any additional markets that it may enter.

The Company is also the manager of a cooperative buying group, Quality
Bottler's Cooperative, Inc. (the "Cooperative"). Membership consists of the
twelve leading regional bottled water companies located throughout the United
States which are similar in size to the Company. Members are contractually
required to purchase all of their coolers, bottles, closures, and other key
items on a group basis. The Company believes that the purchasing power of the
Cooperative permits the group to buy at prices that are no higher than those
charged the largest buyer in the industry, Nestle's Perrier group (whose brands
in the Company's markets include Poland Spring, Great Bear and Deer Park).

RECENT TRANSACTIONS

Consistent with its strategy of acquiring regional water bottlers and
distributors, on January 31, 1996, the Company purchased the assets and assumed
certain liabilities of American Eagle Water/Electrified Co.,

3
<PAGE>
Inc. ("Electrified"). Electrified was a direct competitor of the Company in the
bottled water distribution and water cooler rental business in the New York City
area. The Company's acquisition of Electrified's modern high-speed production
facility in East Orange, New Jersey, together with its new bottling facility in
Commack, Long Island, New York, permits it to absorb additional bottling demand
without a commensurate increase in production costs.

On June 13, 1996, the Company entered into a long-term spring water supply
contract for its Commack, Long Island, New York, bottling facility with
Shawangunk Bulk Spring Water. The agreement provides for "most-favored-customer"
treatment with respect to pricing and priority water rights for the next
forty-five years to the Indian Camp Spring source which is owned by Shawangunk
Bulk Spring Water and located in the foothills of the Catskill Mountains in New
York.

On June 27, 1996, the Company entered into a long-term spring water supply
contract for its East Orange, New Jersey bottling facility with its primary bulk
spring water supplier, Mountainwood Spring Water Co., Inc. ("Mountainwood"). The
agreement provides for "most-favored-customer" treatment with respect to
priority water rights over a forty-three year period. Management believes that
Mountainwood's spring source, in the foothills of the Kittatinny Mountains near
the Delaware Water Gap, is considered the highest volume, free flowing certified
natural spring water source in the northeastern United States. Effective July 1,
1996, the Company also acquired Mountainwood's five-gallon bottled water direct
delivery and bottled water cooler rental routes.

The Company is continuing to pursue mergers and/or acquisitions with
regional water bottlers and distributors, as well as with certain members of the
Cooperative. As of the date of this Prospectus, the Company has thirteen
companies under active review as candidates for acquisition or merger, although
the Company has no agreements, commitments or arrangements with respect to any
proposed mergers or acquisitions. As consideration for any future acquisitions,
the Company may pay cash, incur indebtedness or issue debt or equity securities.
Such acquisitions could result in material changes in the Company's financial
condition and operating results. There can be no assurance that suitable merger
or acquisition opportunities will be available to the Company or that the
Company will be able to consummate any mergers or acquisitions on satisfactory
terms. In addition, there can be no assurance that the Company will be able to
integrate or manage successfully other acquired businesses.

The Company was incorporated in January 1994 and represents the acquisition
of LSL Hydro Corp. and Puro Corporation of America. The Company is organized
under the laws of the State of Delaware. The Company's principal executive
offices are located at 56-45 58th Street, Maspeth, New York 11378 and its
telephone number is (718) 326-7000. After the consummation of this Offering, the
Company intends to move its principal executive offices to 76 Mall Drive,
Commack, Long Island, New York 11725. Its telephone number at such location is
(516) 254-1000. The Company's home page address on the Internet is
www.purowater.com.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered......................... 1,350,000 shares

Common Stock outstanding prior to this
Offering.................................... 2,126,789 shares(1)

Common Stock to be outstanding after this
Offering.................................... 3,476,789 shares(1)

Use of proceeds.............................. Repayment of certain outstanding
indebtedness, and working capital. See "Use
of Proceeds."

Proposed American Stock Exchange symbol...... HHO
</TABLE>

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(1) Includes 56,860 shares of Common Stock issued upon the exercise of warrants
on October 1, 1996 for consideration of $1,000. Does not include (i) 400,000
shares of Common Stock reserved for issuance pursuant to the Company's Stock
Option Plan (none of which options have been granted to date; however, the
Company has committed to grant options to purchase 88,167 shares of Common
Stock at an exercise price equal to the initial public offering price per
share of the Shares offered hereby less underwriting discounts and
commissions pursuant to the Stock Option Plan to two employees of the
Company upon consummation of this Offering), (ii) an aggregate of 123,210
shares of Common Stock reserved for issuance upon the exercise of
outstanding options at an exercise price equal to the initial public
offering price per share of the Shares offered hereby less underwriting
discounts and commissions, and (iii) shares of Common Stock in an amount
equal to the outstanding principal amount of a convertible note ($267,135.66
as of January 1, 1997, which amount is reduced by $1,428.58 per month)
divided by the initial public offering price per share of the Shares offered
hereby, less underwriting discounts and commissions, reserved for issuance
upon conversion of such note.

5
<PAGE>
SUMMARY FINANCIAL INFORMATION

The summary financial information presented below for the period from
inception (February 1, 1994) through December 31, 1994 and as of and for the
year ended December 31, 1995 has been derived from financial statements which
have been audited by Arthur Andersen LLP, independent public accountants, and
are included elsewhere in this Prospectus. The summary financial information for
the nine months ended September 30, 1995 and as of and for the nine months ended
September 30, 1996 has been derived from unaudited financial statements which
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, includes all adjustments of a normal recurring nature
necessary for the fair presentation of the information shown therein. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the full fiscal
year. The information set forth below should be read in conjunction with the
Company's financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
INCEPTION YEAR
(FEBRUARY 1, 1994) ENDED SEPTEMBER 30,
THROUGH DECEMBER 31, --------------------
DECEMBER 31, 1994 1995 1995 1996
------------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Bottled water sales and other revenue........................ $ 2,918 $ 4,175 $ 3,121 $ 6,384
Rental revenue............................................... 1,136 1,326 992 1,684
------ ------ --------- ---------
Total revenue.............................................. 4,054 5,501 4,113 8,068
------ ------ --------- ---------
Costs and expenses:
Costs of goods sold (excluding depreciation)................. 1,147 1,616 1,263 2,293
Operating expenses (excluding depreciation and
amortization)............................................... 1,197 1,306 1,014 1,523
General and administrative expenses.......................... 948 1,309 917 1,892
------ ------ --------- ---------
Total costs and expenses................................... 3,292 4,231 3,194 5,708
------ ------ --------- ---------
Depreciation and amortization:
Cost of goods sold........................................... 106 237 130 337
Operating expenses........................................... 113 214 149 422
------ ------ --------- ---------
Total depreciation and amortization........................ 219 451 279 759
------ ------ --------- ---------
Income from operations.......................................... 543 819 640 1,601
------ ------ --------- ---------
Other income (expense):
Interest expense............................................. (130) (303) (221) (541)
Other income (expense)....................................... 47 119 108 (5)
Plant relocation charges (1)................................. -- -- -- (250)
------ ------ --------- ---------
Total other expense........................................ (83) (184) (113) (796)
------ ------ --------- ---------
Income before provision for income taxes........................ 460 635 527 805
Provision for income taxes...................................... 204 231 190 290
------ ------ --------- ---------
Net income...................................................... $ 256 $ 404 $ 337 $ 515
------ ------ --------- ---------
------ ------ --------- ---------
Earnings per share (2).......................................... $ 0.14 $ 0.21 $ 0.18 $ 0.23
------ ------ --------- ---------
------ ------ --------- ---------
Weighted average common shares outstanding (2).................. 1,843 1,928 1,843 2,238
------ ------ --------- ---------
------ ------ --------- ---------
Pro forma net income (3)........................................ $ 7
------
------
Pro forma earnings per share.................................... $ 0.00
------
------
Pro forma weighted average common shares outstanding............ 1,928
------
------
</TABLE>

6
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<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
------------------- -------------------------
ACTUAL ACTUAL AS ADJUSTED(4)
------------------- --------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash................................................................ $ 689 $ 326 $ 1,326
Working capital (deficit)........................................... 1,049 (248) 1,530
Total assets........................................................ 8,350 17,253 18,253
Long-term debt...................................................... 2,505 7,688 2,966
Total stockholders' equity.......................................... 3,515 4,530 11,030
</TABLE>

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(1) Represents non-recurring charges of $250,000 related to the closing of two
of the Company's bottling plants and the relocation of such production
facilities to the Company's Commack, Long Island, New York and East Orange,
New Jersey facilities.

(2) See Notes 2 and 13 of Notes to Financial Statements appearing elsewhere
herein.

(3) The pro forma statement of operations data for the year ended December 31,
1995 gives effect to the purchase of Electrified as if it had occurred as of
January 1, 1995. The effects of this transaction are set forth below.

(i) Reflects the increase of intangible assets as a result of the purchase
and an increase in the corresponding amortization expense of $272,000
for the year ended December 31, 1995.

(ii) Reflects the increase in interest expense of $342,000 as a result of
the issuance of notes payable to the sellers of Electrified.

(iii) Income taxes have been decreased by $614,000 to reflect the
adjustments described in (i) and (ii) above.

(4) Adjusted to give effect to the sale by the Company of 1,350,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$6.00 per share and the initial application of the net proceeds therefrom.
See "Use of Proceeds".

7
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE SHARES IS HIGHLY SPECULATIVE, INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY THOSE PERSONS WHO ARE ABLE TO AFFORD A
LOSS OF THEIR ENTIRE INVESTMENT. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OFFERED
HEREBY.

RISK ASSOCIATED WITH GROWTH STRATEGY AND RAPID EXPANSION. Implementation of
the Company's proposed expansion will be substantially dependent on, among other
things, the Company's ability to hire and retain skilled management, financial,
marketing and other personnel, and successfully manage growth (including
monitoring operations, controlling costs and maintaining effective quality and
inventory controls). The Company's growth strategy and plans are subject to
change as a result of a number of factors, including progress or delays in the
Company's marketing efforts, changes in market conditions and competitive
factors. There can be no assurance that the Company will be able to successfully
implement its business strategy or otherwise expand its operations. See "Use of
Proceeds."

DEPENDENCE ON OFFERING PROCEEDS TO FINANCE EXPANSION; NEED FOR ADDITIONAL
FINANCING. The Company is dependent on the proceeds of this Offering or other
financing to implement its proposed expansion. The Company anticipates, based on
currently proposed plans and assumptions relating to its operations (including
the costs associated with its proposed expansion), that the net proceeds of this
Offering and cash generated from operations will be sufficient to satisfy its
anticipated cash requirements for at least 12 months following the consummation
of this Offering. In the event that the Company's plans change, its assumptions
change or prove to be inaccurate or the proceeds of this Offering prove to be
insufficient to fund the Company's operations (due to unanticipated expenses,
delays, problems, difficulties or otherwise), the Company would be required to
seek additional financing sooner than anticipated. The Company may determine,
depending upon the opportunities available to it, to seek additional debt or
equity financing to fund the cost of continuing expansion. To the extent that
the Company incurs indebtedness or issues debt securities, the Company will be
subject to risks associated with incurring substantial indebtedness, including
the risks that interest rates may fluctuate and cash flow may be insufficient to
pay principal and interest on any such indebtedness. The Company has no current
arrangements with respect to, or sources of, additional financing. There can be
no assurance that additional financing will be available to the Company on
commercially reasonable terms or at all. If the Company is unable to obtain
additional financing, its current plans for expansion could be materially
adversely affected. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

CONSEQUENCES OF FAILURE TO COMPLY WITH GOVERNMENTAL REGULATION. The
Company's water bottling plants and water coolers are subject to the
jurisdiction of the Federal Food and Drug Administration (FDA) and various state
and local health and other regulatory agencies which regulate the quality of
drinking water and other products. The Company believes that it is in compliance
with all applicable laws and regulations and has all required licenses to
conduct its business. However, no assurances can be given that current laws or
regulations applicable to the Company's business will not change. Any such new
laws or regulations or the Company's expansion into new geographic areas could
subject the Company to substantial costs in order to comply with such applicable
laws or regulations. Any failure by the Company to comply with any new or
existing laws or regulations could subject the Company to substantial penalties.
See "Business -- Regulation."

COMPETITION. The Company competes with numerous well-established companies
which distribute drinking water sold off the shelf at retail (primarily
supermarket) locations. Many of the Company's competitors have achieved
significant national, regional and local brand name and product recognition and
additional competitors have sought to enter the drinking water market.

8
<PAGE>
Company will be subject to increasing competition from companies whose products
or marketing strategies address these consumer preferences. Some of the
Company's competitors and potential competitors possess substantially greater
financial, personnel, marketing and other resources than the Company and have
established reputations for success in the sale of purified water products. See
"Business--Competition."

DEPENDENCE ON KEY PERSONNEL; ATTRACTION AND RETENTION OF KEY PERSONNEL. The
Company is dependent to a great extent, on the experience, abilities and
continued services of Mr. West and Mr. Levy, the Company's President and Chief
Executive Officer, respectively. While the Company's management has substantial
experience in the bottled water distribution business, no assurances can be
given that such prior experience will assure the Company's success. Each of
Messrs. West and Levy has entered into a five year employment agreement with the
Company, each of which employment agreement contains confidentiality and
non-competition provisions. The Company has key-person life insurance policies
on the lives of Messrs. West and Levy in the amount of $500,000 per person.
Prior to consumation of this Offering, the Company will have key-person life
insurance policies on the lives of Messrs. West and Levy in the amount of
$1,000,000 per person. The loss of the services of Messrs. West or Levy could
have a material adverse effect on the Company. The Company's success also
depends upon its ability to attract and retain other qualified personnel. There
can be no assurances that the Company will be able to attract and retain
qualified personnel. See "Management."

CONTROL BY PRINCIPAL STOCKHOLDERS. Upon completion of this Offering, the
Company's directors and officers will beneficially own approximately 63% of the
Company's outstanding shares of Common Stock. These persons will be able to
control actions requiring the consent of stockholders, such as the election of
directors. See "Security Ownership of Management and Others" and "Description of
Securities."

FAILURE TO CONSUMMATE POSSIBLE ACQUISITIONS. It is currently anticipated
that a portion of the Company's future growth will result from acquisitions of
other similar or complementary businesses, although no such acquisitions are
currently pending. There can be no assurance that suitable acquisition
opportunities will be available or that the Company will be able to consummate
acquisition transactions on satisfactory terms. In addition, there can be no
assurance that the Company will be able to integrate or manage successfuly other
acquired businesses.

USE OF PROCEEDS TO REPAY INDEBTEDNESS. The Company intends to use
approximately $5,500,000 or approximately 85% of the net proceeds from this
Offering to repay indebtedness incurred in recent acquisitions.

POTENTIAL LIABILITY; INSURANCE. The Company is engaged in a business which
could expose it to possible liability claims from others, including personal
injury claims. The Company maintains a general liability insurance policy that
is subject to a $1,000,000 per occurrence limit with a $2,000,000 aggregate
limit and a $4,000,000 umbrella liability policy. There can be no assurance,
however, that the Company's insurance will be sufficient to cover potential
claims or that an adequate level of coverage will be available in the future at
a reasonable cost. A partially insured or completely uninsured successful claim
against the Company could have a material adverse effect on the Company. See
"Business -- Product Liability and Insurance."

IMMEDIATE AND SUBSTANTIAL DILUTION; PURCHASE OF COMMON STOCK BY INSIDERS AT
BELOW OFFERING PRICE. The shares of Common Stock held by the Company's current
stockholders were purchased for prices significantly lower than the initial
public offering price. Based on an assumed initial public offering price of
$6.00 per share, a purchaser in this Offering will experience immediate and
substantial dilution of approximately 84% or $5.03 per share. See "Dilution."

NO DIVIDENDS. The Company has never paid a cash dividend on its Common
Stock and does not intend to pay any cash dividends to its stockholders in the
foreseeable future. The Company currently intends to reinvest earnings, if any,
in the development and expansion of its business. See "Dividend Policy."

9
<PAGE>

NO ASSURANCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF MARKET. Prior to this Offering, there has been no public trading
market for the Common Stock. Consequently, the initial public offering price of
the Common Stock has been determined by negotiations between the Company and the
Underwriters and does not necessarily reflect the Company's book value or other
established criteria of valuation. There can be no assurance that a regular
trading market for the Common Stock will develop after this Offering or that, if
developed, it will be sustained. The market price of the Common Stock following
this Offering may be highly volatile as has been the case with the securities of
many emerging companies. Factors such as the Company's operating results and
announcements by the Company or its competitors may significantly impact the
market price of the Company's securities. In addition, in recent years, the
stock market has experienced a high level of price and volume volatility and
market prices for the securities of many companies have experienced wide price
fluctuations not necessarily related to the operating performance of such
companies. Although the Representatives intend to make a market in the Common
Stock, they are not obligated to do so and may cease such market making
activities at any time. See "Underwriting."

POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS AND CONVERTIBLE NOTE,
COMPANY'S STOCK OPTION PLAN AND REPRESENTATIVES' WARRANTS. As of the date of
this Prospectus, (i) options to purchase an aggregate of 123,210 shares of
Common Stock are issued and outstanding which are exercisable at the initial
public offering price of the Shares offered hereby less underwriting discounts
and commissions, and (ii) a convertible note convertible into shares of Common
Stock in an amount equal to the outstanding principal amount of such note
($267,135.66 as of January 1, 1997, which amount is reduced by $1,428.58 per
month) divided by the initial public offering price per share of the Shares
offered hereby less underwriting discounts and commissions is issued and
outstanding. In addition, while no options are presently issued and outstanding
under the Company's Stock Option Plan, the Company may from time to time issue
options under the Stock Option Plan to purchase up to 400,000 shares of Common
Stock. The Company has committed to grant options to purchase 88,167 shares of
Common Stock at an exercise price equal to the initial public offering price of
the Shares offered hereby less underwriting discounts and commissions pursuant
to the Stock Option Plan to two employees of the Company upon consummation of
this Offering. In connection with this Offering, the Company will issue and sell
to the Representatives for nominal consideration Warrants which entitle the
Representatives to purchase an aggregate of 135,000 shares of Common Stock. The
Representatives' Warrants will be exercisable, commencing one year and ending
five years after the date of this Prospectus, at an exercise price of 140% of
the initial public offering price per share of the Shares offered hereby. The
holders of the options and a convertible note presently outstanding, holders of
any subsequently issued options, warrants or other convertible securities of the
Company, as well as the Representatives will have the opportunity to profit from
a rise in the market price of the Company's Common Stock without assuming the
risk of ownership. The sale of Common Stock or other securities held by or
issuable to any such holders, or merely the potential of such sales, could have
an adverse effect on the market price of the Company's Common Stock. The Company
may find it more difficult to raise additional equity capital, if it should be
needed for the business of the Company, while any of such securities are
outstanding. At any time when the holders thereof might be expected to convert
or exercise them, the Company would probably be able to obtain additional equity
capital on terms more favorable than those provided by such securities. To the
extent that any such securities are converted or exercised, as the case may be,
the percentage of ownership interest of the Company's stockholders will be
diluted. See "Dilution" and "Management--1996 Stock Option Plan."

SHARES ELIGIBLE FOR FUTURE SALE. The 2,126,789 shares of Common Stock
outstanding immediately prior to this Offering are "restricted securities"
within the meaning of the Act and, generally, may be sold only in compliance
with Rule 144 under the Act. In addition, all of the 2,126,789 shares are
subject to lockup restrictions described below. Of such restricted securities,
2,069,929 may be sold pursuant to Rule 144 upon the expiration of the lockup
restrictions described below and 56,860 may be sold pursuant to Rule 144 on
October 1, 1998. Under Rule 144, a person who has held restricted securities for
a period to two years may sell a limited number of such securities into the
public market without registration of such securities under the Act. Rule 144
also permits, under certain circumstances, persons who are not affiliates of the
Company

10
<PAGE>

to sell their restricted securities without quantity limitations once they have
satisfied Rule 144(k)'s three-year holding period. In addition, the Securities
and Exchange Commission (the "Commission") has proposed revisions to Rule 144
and Rule 144(k), the effect of which would be to shorten the holding period
under Rule 144 from two years to one year and to shorten the holding period
under Rule 144(k) from three years to two years. Sales made pursuant to Rule 144
by the Company's existing stockholders may have a depressive effect on the price
of the shares of Common Stock in the public market, should a public market for
the shares develop. Such sales could also adversely affect the Company's ability
to raise capital at that time through the sale of its equity securities. All of
the Company's officers, directors and stockholders have agreed not to sell,
assign or transfer any of their shares of Common Stock for a period of eighteen
(18) months from the consummation of this Offering without the Representatives'
prior written consent. The holders of all of the 2,126,789 shares of "restricted
securities" have certain registration rights with respect to such shares. All
such holders have waived such registration rights for a period of eighteen
months from the consummation of this Offering. The holders of the
Representatives' Warrants will have certain registration rights with respect to
the Common Stock underlying such warrants, commencing one year after the
effective date of this Offering. See "Shares Eligible for Future Sale."

FORWARD LOOKING STATEMENTS. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Act, and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
intended to be covered by the safe harbors created thereby. Investors are
cautioned that all forward-looking statements involve risks and uncertainty.
Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.

11
<PAGE>
USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Shares
offered hereby at an assumed initial public offering price of $6.00 per share,
after deducting underwriting discounts and expenses payable by the Company, are
estimated to be $6,500,000 ($7,557,050 if the Underwriters' over-allotment
option is exercised in full).

The Company presently intends to use the net proceeds as follows:

<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS AMOUNT NET PROCEEDS
- -------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Repayment of seller's notes(1)........................................................ $ 3,500,000 54%
Repayment of outstanding loan(2)...................................................... 2,000,000 31
Working capital(3).................................................................... 1,000,000 15
------------ -----
Total........................................................................... $ 6,500,000 100%
------------ -----
------------ -----
</TABLE>

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

(1) Reflects repayment in full of indebtedness incurred in connection with the
acquisition by the Company of certain assets of Electrified. The notes
evidencing the indebtedness were originally issued in January 1996. The
notes bear interest at the prime rate, interest payments only due through
February 1997, and then equal monthly installments of principal and interest
from March 1997 through February 2000.

(2) Reflects repayment of a note payable to European American Bank having an
outstanding principal amount of $2,000,000 bearing interest at an annual
rate of prime plus .25%, due in monthly installments of interest only
through May 31, 1997 at which time the principal plus any accrued and unpaid
interest is due in full. The proceeds of this note were used for acquisition
financing.

(3) The Company may seek to utilize funds allocated to working capital for
business acquisitions. Although the Company has no current plan to acquire
any other business, the Company may seek to acquire, where feasible,
companies whose businesses are compatible with those of the Company. The
Company does not currently have any agreements, commitments or arrangements
with respect to any proposed acquisitions, and no assurance can be given
that any acquisition opportunity will be consummated in the future.

The allocation of the net proceeds of this Offering set forth above
represents the Company's best estimate based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenue and expenditures. The Company reserves the right to reallocate
these proceeds within the above-mentioned categories or to other purposes if
management believes it is in the Company's best interest because of any
unpredictable factors.

Any additional net proceeds realized from the exercise of the Underwriters'
over-allotment option (up to $1,057,050) will be added to the Company's working
capital.

Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds and interest-bearing savings and
management accounts.

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on the Common Stock.
The Company currently intends to reinvest earnings, if any, to finance the
development and expansion of its business and does not intend to declare or pay
any cash dividends in the foreseeable future.

12
<PAGE>
DILUTION

The net tangible book value (deficit) of the Company at September 30, 1996
was $(3,114,759) or $(1.46) per share of Common Stock based on the 2,126,789
shares of Common Stock outstanding. Net tangible book value per share represents
the amount of the Company's total tangible assets less the Company's total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the receipt and initial application of net proceeds (estimated
to be approximately $6,500,000) from the sale of the Shares offered hereby at an
assumed initial public offering price of $6.00 per share, the pro forma net
tangible book value of the Company at September 30, 1996 would have been
$3,386,241 or $.97 per share of Common Stock. This represents an immediate
increase in pro forma net tangible book value of $2.43 per share to existing
stockholders and an immediate, substantial dilution of approximately 84% or
$5.03 per share to purchasers of Common Stock offered hereby. The following
table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 6.00
Net tangible book value (deficit) per share at September 30,
1996.............................................................. $ (1.46)
Increase per share attributable to new investors................... 2.43
---------
Pro forma net tangible book value per share after this Offering...... .97
---------
Dilution per share to new investors.................................. $ 5.03
---------
---------
</TABLE>

The following table, calculated on the same basis as above, sets forth, with
respect to current stockholders and new investors, a comparison of the number of
shares of Common Stock acquired from the Company, the percentage ownership of
such shares, the total consideration paid, the percentage of total consideration
paid and the average price per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current stockholders (1)................................ 2,126,789 61% $ 3,356,114 29% $ 1.58
New investors........................................... 1,350,000 39 8,100,000 71 $ 6.00
---------- --- ------------- ---
3,476,789 100% $ 11,456,114 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>

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

upon conversion of such note.

13
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1996, and as adjusted to reflect the issuance and sale by the
Company of the Shares offered hereby at an assumed initial public offering price
of $6.00 per share and the initial application of the net proceeds therefrom.
This table should be read in conjunction with the Company's financial statements
and pro forma unaudited financial statements of operations and the notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED
------------- -------------
<S> <C> <C>
Total long-term debt (less current portion)(1)..................................... $ 7,687,589 $ 3,200,096
------------- -------------
Stockholders' equity:
Common stock, $.0063 par value; 10,000,000 shares authorized; 2,069,929; issued
and outstanding and 3,476,789, as adjusted, respectively (2);................... 13,041 21,904
Additional paid-in capital....................................................... 3,342,073 9,834,210
Retained earnings................................................................ 1,174,517 1,174,517
------------- -------------
Total stockholders' equity................................................... 4,529,631 11,030,631
------------- -------------
Total capitalization....................................................... $ 12,217,220 $ 14,230,727
------------- -------------
------------- -------------
</TABLE>

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

(1) See Notes 7 and 10 to the Financial Statements included elsewhere herein for
information regarding the Company's long-term debt and other long-term
obligations.

(2) Includes 56,860 shares of Common Stock issued upon the exercise of warrants
on October 1, 1996 for consideration of $1,000. Does not include (i) 400,000
shares of Common Stock reserved for issuance pursuant to the Company's Stock
Option Plan (none of which options have been granted to date; however, the
Company has committed to grant options to purchase 88,167 shares of Common
Stock at an exercise price equal to the initial public offering price per
share of the Shares offered hereby less underwriting discounts and
commissions pursuant to the Stock Option Plan to two employees of the
Company upon consummation of this Offering), (ii) an aggregate of 123,210
shares of Common Stock reserved for issuance upon the exercise of
outstanding options at an exercise price equal to the initial public
offering price per share of the Shares offered hereby less underwriting
discounts and commissions, and (iii) shares of Common Stock in an amount
equal to the outstanding principal amount of a convertible note ($267,135.66
as of January 1, 1997, which amount is reduced by $1,428.58 per month)
divided by the initial public offering price per share of the Shares offered
hereby, less underwriting discounts and commissions, reserved for issuance
upon conversion of such note.

14
<PAGE>
PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma financial information set forth below for the year
ended December 31, 1995, gives effect to the acquisition of Electrified as
though acquired on January 1, 1995. The pro forma statement of operations
information also reflects (a) the increase in amortization expense as a result
of the increase of intangible assets from the acquisition for the year ended
December 31, 1995 and (b) the increase in interest expense for the year ended
December 31, 1995 resulting from the issuance of notes payable to the sellers in
connection with the Electrified transaction. The pro forma financial information
is not necessarily indicative of what the Company's results of operations would
have been had such transaction occurred at the beginning of the period. The pro
forma financial information below should be read in conjunction with the audited
financial statements of the Company and the notes thereto contained elsewhere in
this Prospectus. Pro forma results of operations of the Company for the nine
months ended September 30, 1996 are not provided as the Company's actual results
of operations for the nine months ended September 30, 1996 include the results
of operations of Electrified for the period from February 1, 1996 to September
30, 1996. The acquisition of Electrified was consummated on January 31, 1996.
Electrified's results of operations for the one month ended January 31, 1996
were not material to the Company's overall results of operations.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------
PRO FORMA
PURO ELECTRIFIED COMBINED ADJUSTMENTS(1) COMBINED
------------ ----------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Bottled water sales and other revenue............. $ 4,175 $ 4,425 $ 8,600 $ -- $ 8,600
Rental revenue.................................... 1,326 733 2,059 -- 2,059
------------ ----------- ----------- ----- ------------
Total revenue................................... 5,501 5,158 10,659 -- 10,659
------------ ----------- ----------- ------------

Costs and expenses:
Cost of goods sold (excluding depreciation)....... 1,616 2,615 4,231 -- 4,231
Operating expenses (excluding depreciation and
amortization).................................... 1,306 1,479 2,785 -- 2,785
General and administrative expenses............... 1,309 883 2,192 -- 2,192
------------ ----------- ----------- ----- ------------
Total costs and expenses........................ 4,231 4,977 9,208 -- 9,208
------------ ----------- ----------- ----- ------------
Depreciation and amortization....................... 451 447 898 272 1,170
------------ ----------- ----------- ----- ------------
Income (loss) from operations....................... 819 (266) 553 (272) 281
------------ ----------- ----------- ----- ------------
Other income (expense):

Interest expense.................................. (303) (53) (356) (342) (698)
Other income (expense)............................ 119 310 429 -- 429
Plant relocation charges.......................... -- -- -- -- --
------------ ----------- ----------- ----- ------------
Total other income (expense).................... (184) 257 73 (342) (269)
------------ ----------- ----------- ----- ------------
Income (loss) before provision for income taxes..... 635 (9) 626 (614) 12
Provision for income taxes.......................... 231 9 240 235 5
------------ ----------- ----------- ----- ------------
Net income (loss)................................... $ 404 $ (18) $ 386 $ (379) $ 7
------------ ----------- ----------- ----- ------------
------------ ----------- ----------- ----- ------------
Earnings per share(2)............................... $ 0.21 $ 0.00
------------ ------------
------------ ------------
Weighted average common shares outstanding(2)....... 1,928 1,928
------------ ------------
------------ ------------
</TABLE>

15
<PAGE>
- ------------------------

(1) The pro forma statement of operations data for the year ended December 31,
1995 gives effect to the purchase of Electrified as if it had occurred as of
January 1, 1995. The effects of this transaction are set forth below.

(i) Reflects the increase of intangible assets as a result of the purchase
and an increase in the corresponding amortization expense of $272,000
for the year ended December 31, 1995.

(ii) Reflects the increase in interest expense of $342,000 as a result of
the issuance of notes payable to the sellers of Electrified.

(iii) Income taxes have been decreased by $614,000 to reflect the
adjustments described in (i) and (ii) above.

(2) See Notes 2 and 13 of Notes to Financial Statements appearing elsewhere
herein.

16
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data presented below for the period from inception
(February 1, 1994) through December 31, 1994 and as of and for the year ended
December 31, 1995 have been derived from financial statements which have been
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this Prospectus. The selected financial data for the nine months
ended September 30, 1995 and as of and for the nine months ended September 30,
1996 has been derived from unaudited financial statements which have been
prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments of a normal recurring nature
necessary for a fair presentation of the information shown therein. The results
of operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the full fiscal year. The
data set forth below should be read in conjunction with the Company's financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(FEBRUARY 1, NINE MONTHS ENDED
1994) THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1994 1995 1995 1996
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Bottled water sales and other revenue:..................... $ 2,918 $ 4,175 $ 3,121 $ 6,384
Rental revenue............................................. 1,136 1,326 992 1,684
------ ------ ----------- -----------
Total revenue.......................................... 4,054 5,501 4,113 8,068
------ ------ ----------- -----------
Costs and expenses:
Cost of goods sold (excluding depreciation)................ 1,147 1,616 1,263 2,293
Operating expenses (excluding depreciation and
amortization)............................................. 1,197 1,306 1,014 1,523
General and administrative expenses........................ 948 1,309 917 1,892
------ ------ ----------- -----------
Total costs and expenses............................... 3,292 4,231 3,194 5,708
------ ------ ----------- -----------
Depreciation and amortization:
Cost of goods sold......................................... 106 237 130 337
Operating expenses......................................... 113 214 149 422
------ ------ ----------- -----------
Total depreciation and amortization.................... 219 451 279 759
------ ------ ----------- -----------
Income from operations....................................... 543 819 640 1,601
------ ------ ----------- -----------
Other income (expense):
Interest expense........................................... (130) (303) (221) (541)
Other income (expense)..................................... 47 119 108 (5)
Plant relocation charges (1)............................... -- -- -- (250)
------ ------ ----------- -----------
Total other expense.................................... (83) (184) (113) (796)
------ ------ ----------- -----------
Income before provision for income taxes..................... 460 635 527 805
Provision for income taxes................................... 204 231 190 290
------ ------ ----------- -----------
Net income................................................... $ 256 $ 404 $ 337 $ 515
------ ------ ----------- -----------
------ ------ ----------- -----------
Earnings per share(2)........................................ $ 0.14 $ 0.21 $ 0.18 $ 0.23
------ ------ ----------- -----------
------ ------ ----------- -----------
Weighted average common shares outstanding(2)................ 1,843 1,928 1,843 2,238
------ ------ ----------- -----------
------ ------ ----------- -----------
Pro forma net income(3)...................................... $ 7
------
------
Pro forma earnings per share................................. $ 0.00
------
------
Pro forma weighted average common shares outstanding......... 1,928
------
------
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- -------------------------
ACTUAL ACTUAL AS ADJUSTED(4)
----------------- --------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash........................................................ $ 689 $ 326 $ 1,326
Working capital (deficit)................................... 1,049 (248) 1,530
Total assets................................................ 8,350 17,253 18,253
Long-term debt.............................................. 2,505 7,688 2,966
Total stockholders' equity.................................. 3,515 4,530 11,030
</TABLE>

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

(2) See Notes 2 and 13 of Notes to Financial Statements appearing elsewhere
herein.

(i) Reflects the increase of intangible assets as a result of the purchase
and an increase in the corresponding amortization expense of $272,000 for
the year ended December 31, 1995.

(ii) Reflects the increase in interest expense of $342,000 as a result of
the issuance of notes payable to the sellers of Electrified.

(iii) Income taxes have been decreased by $614,000 to reflect the
adjustments described in (i) and (ii) above.

(4) Adjusted to give effect to the sale by the Company of the 1,350,000 shares
of Common Stock offered hereby at an assumed initial public offering price
of $6.00 per share and the initial application of the net proceeds
therefrom. See "Use of Proceeds."

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analylsis should be read in conjunction with
the Company's financial statements and the notes thereto included elsewhere in
this Prospectus.

GENERAL BACKGROUND

The Company is a leading bottler and distributor of spring and purified
drinking water, serving commercial and residential users in the metropolitan New
York area. The Company also rents and services water coolers, filtration
systems, and plumbed-in fountains located in businesses, factories, and homes in
the metropolitan New York area.

The Company was formed in January 1994 and represents the acquisition of LSL
Hydro Corp. and Puro Corporation of America. Subsequently, the Company has
acquired eight additional distributors of high quality drinking water in the New
York City, New Jersey and Long Island markets. Since 1994, the Company has grown
from approximately 5,000 water customers to in excess of 25,000.

OVERVIEW

The Company's strategy is to capitalize on the growing demand for high
quality drinking water through the expansion of its existing customer base and
through the acquisition of regional water bottlers and distributors in targeted
geographic markets. The Company's acquisition of Electrified's modern high-speed
production facility enables it to absorb new bottling demand without a
commensurate increase in production costs. Similarly, the new bottling facility
in Commack, Long Island, New York can absorb additional volume with minimum
incremental cost. In addition, management continually seeks to grow revenues by
increasing route density through the acquisition and consolidation of new routes
within its existing route structure, thereby minimizing distribution and
administration costs. The continued consolidation of production and distribution
capabilities is a key component of the Company's operating plans, both within
its current markets and any additional markets it may enter.

RESULTS OF OPERATIONS

The Company derives its revenues from two major sources: bottled water sales
and the rental and service of water coolers, filtration systems and plumbed-in
fountains. While most other bottled water companies sell only pre-packaged
bottled water, the Company also rents water treatment equipment which processes
and dispenses drinking water at the point of use enabling the consumer to enjoy
quality drinking water with reduced contaminants.

Additionally, in contrast to most other water treatment dealers and
distributors that have historically sold their water treatment equipment
outright, the Company creates long-term relationships with its own customers by
renting or placing the equipment under lease/service agreements. These
agreements result in revenue streams which provide the Company with a base of
recurring revenue.

19
<PAGE>
The following table sets forth, for the periods indicated, the percentage
relationship to total revenues of certain items included in the Company's
Statement of Operations.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
PERIOD FROM INCEPTION SEPTEMBER 30,
(FEBRUARY 1, 1994) YEAR ENDED --------------------
THROUGH DECEMBER 31, 1994 DECEMBER 31, 1995 1995 1996
------------------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Bottled water sales and other revenue..................... 72.0 75.9 75.9 79.1
Rental revenue............................................ 28.0 24.1 24.1 20.9
------ ------ --------- ---------
Total revenue........................................... 100.0% 100.0% 100.0% 100.0%
------ ------ --------- ---------
Costs and expenses:
Cost of goods sold (excluding depreciation)............... 28.3 29.4 30.7 28.4
Operating expenses (excluding depreciation and
amortization)........................................... 29.5 23.7 24.7 18.9
General and administrative expenses....................... 23.4 23.8 22.3 23.5(1)
------ ------ --------- ---------
Total costs and expenses................................ 81.2 76.9 77.7 70.8
------ ------ --------- ---------
Depreciation and amortization:
Cost of goods sold........................................ 2.6 4.3 3.2 4.2
Operating expenses........................................ 2.8 3.9 3.6 5.2
------ ------ --------- ---------
Total depreciation and amortization..................... 5.4 8.2 6.8 9.4
------ ------ --------- ---------
Income from operations...................................... 13.4 14.9 15.5 19.8
Other income (expense):
Interest expense.......................................... (3.2) (5.5) (5.4) (6.7)
Other income (expense).................................... 1.1 2.2 2.6 (0.1)
Plant relocation charges(2)............................... 0.0 0.0 0.0 (3.1)
------ ------ --------- ---------
Total other expense..................................... (2.1) (3.3) (2.8) (9.9)
------ ------ --------- ---------
Income before provision for income taxes.................... 11.3 11.6 12.7 9.9
Provision for income taxes.................................. 5.0 4.2 4.6 3.6
------ ------ --------- ---------
Net income.................................................. 6.3% 7.4% 8.1% 6.3%
------ ------ --------- ---------
------ ------ --------- ---------
</TABLE>

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

(1) Includes certain "non-recurring" expenses totaling $47,000 for the nine
months ended September 30, 1996.

(2) Represents non-recurring charges of $250,000 related to the closing of two
of the Company's bottling plants and the relocation of such production
facilities to the Company's Commack, Long Island, New York and East Orange,
New Jersey facilities.

THE PERIOD FROM INCEPTION (FEBRUARY 1, 1994) TO DECEMBER 31, 1994, YEAR ENDED
DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996

REVENUES. Revenues in 1995 increased by 34% to $5.5 million from $4.1
million in the period from inception (February 1, 1994) to December 31, 1994.
The growth in revenues was attributable to the increase in the number of coolers
in operation as well as the acquisition of smaller distributors in the Company's
market area. Revenues for the nine months ended September 30, 1996 increased by
98% to $8.1 million from $4.1 for the nine months ended September 30, 1995. This
increase in revenues reflects the acquisition of Electrified's operations in
East Orange, New Jersey for eight of the nine months and the acquisition of the

20
<PAGE>
five-gallon routes from Mountainwood for three months beginning July 1, 1996.
Moreover, this increase occurred notwithstanding unusually cold spring and
summer seasons in 1996 compared to the heat wave in 1995 and record breaking
snow storms in early 1996.

COST OF GOODS SOLD. Cost of goods sold (excluding depreciation) increased
by 45% to $1.6 million in 1995 from $1.1 million in the period from inception
(February 1, 1994) to December 31, 1994. Cost of goods sold (excluding
depreciation) increased as a percentage of revenues to 29.4% in 1995 from 28.3%
in the period from inception (February 1, 1994) to December 31, 1994. This
increase is reflective of the trend to a higher percentage of natural spring
water sold compared to processed drinking water. Although cost of goods sold
(excluding depreciation) for the nine months ended September 30, 1996 increased
by 77% to $2.3 million from $1.3 million for the nine months ended September 30,
1995, cost of goods sold (excluding depreciation) as a percentage of revenues
for the nine months ended September 30, 1996 fell to 28.4% from 30.7% for the
same period in 1995. This decrease was the result of the production economies
associated with the newly acquired East Orange, New Jersey bottling facility.

OPERATING EXPENSES. Operating expenses (excluding depreciation and
amortization) increased by 8.3% to $1.3 million in 1995 from $1.2 million in the
period from inception (February 1, 1994) to December 31, 1994. However,
operating expenses (excluding depreciation and amortization) decreased as a
percentage of revenues to 23.7% in 1995 from 29.5% in the period from inception
(February 1, 1994) to December 31, 1994. This decrease was due to efficiencies
achieved in the Company's bottling operations, route delivery, and servicing
system -- primarily from the addition of new accounts in existing market areas
that did not cause a commensurate increase in the required number of route
delivery personnel and field technicians. Operating expenses (excluding
depreciation and amortization) increased by 50% to $1.5 million for the nine
months ended September 30, 1996, from $1.0 million for the nine months ended
September 30, 1995. Due to the acquisition of Electrified's operations for eight
of the nine months ended September 30, 1996 and the acquisition of
Mountainwood's delivery routes for the three months beginning July 1, 1996,
operating expenses (excluding depreciation and amortization) as a percentage of
revenues decreased to 18.9% for the nine months ended September 30, 1996
compared to 24.7% for the nine months ended September 30, 1995.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by 44% to $1.3 million in 1995 from $0.9 million in the period from
inception (February 1, 1994) to December 31, 1994. General and administrative
expenses increased as a percentage of revenues to 23.8% in 1995 from 23.4% in
the period from inception (February 1, 1994) to December 31, 1994. This increase
was the result of increased insurance costs associated with an increase in the
number of the Company's delivery vehicles. General and administrative expenses
increased by 111% to $1.9 million in the nine months ended September 30, 1996
from $0.9 million for the same period in 1995. General and administrative
expenses increased as a percentage of revenues to 23.5% for the nine months
ended September 30, 1996 from 22.3% for the same period in 1995. This increase
in general and administrative expenses reflects the addition of occupancy costs
of the East Orange, New Jersey and Commack, Long Island, New York facilities.

TOTAL DEPRECIATION AND AMORTIZATION. Total depreciation and amortization
increased by 150% to $0.5 million in 1995 from $0.2 million in the period from
inception (February 1, 1994) to December 31, 1994. Total depreciation and
amortization increased as a percentage of revenues to 8.2% in 1995 from 5.4% in
the period from inception (February 1, 1994) to December 31, 1994. This increase
was due primarily to the Company's continued investment in new coolers and route
acquisitions. Total depreciation and amortization for the nine month period
ended September 30, 1996 increased by 167% to $0.8 million from $0.3 million for
the same period in 1995. Total depreciation and amortization increased as a
percentage of revenues to 9.4% for the nine months ended September 30, 1996 from
6.8% for the same period in 1995. This increase resulted primarily from the
Electrified acquisition, which included a modern high-capacity bottling facility
and the opening of a new bottling facility in Commack, Long Island, New York.

INCOME FROM OPERATIONS. Income from operations increased by 60% to $0.8
million in 1995 from $0.5 million in the period from inception (February 1,
1994) to December 31, 1994. Income from operations

21
<PAGE>
increased as a percentage of revenues to 14.9% in 1995 from 13.4% in the period
from inception (February 1, 1994) to December 31, 1994. Income from operations
for the nine month period ended September 30, 1996 increased by 167% to $1.6
million from $0.6 million for the same period in 1995. Income from operations as
a percentage of revenues increased to 19.8% for the nine months ended September
30, 1996 from 15.5% for the same period in 1995. This increase was the result of
an increase in sales, the consolidation of production facilities and an
improvement in route densities and scheduling.

INTEREST EXPENSE. Interest expense increased by 200% to $0.3 million in
1995 from $0.1 million in the period from inception (February 1, 1994) to
December 31, 1994. Interest expense increased as a percentage of revenues to
5.5% in 1995 from 3.2% in the period from inception (February 1, 1995) to
December 31, 1994. This increase was primarily due to increased borrowing in
order to fund the Company's expansion. For the nine months ended September 30,
1996, interest expense increased by 150% to $0.5 million from $0.2 million for
the same period in 1995. Interest expense increased as a percentage of revenues
to 6.7% for the nine months ended September 30, 1996 from 5.4% for the same
period in 1995. This increase was due to additional borrowings in connection
with certain acquisitions.

PLANT RELOCATION CHARGES. During the nine months ended September 30, 1996,
the Company relocated all bottled water production from its plants in Maspeth,
New York, and Port Jefferson, New York, to the Electrified facility in East
Orange, New Jersey, and the newly opened bottling plant in Commack, Long Island,
New York. The Maspeth and Port Jefferson bottling plants were subsequently
closed. Non-recurring plant relocation charges of $0.3 million or 3.1% of
revenues for the period ended September 30, 1996 were incurred.

PROVISION FOR INCOME TAXES

The effective income tax rate was 44% for the year ended December 31, 1994
and 36% for the year ended December 31, 1995. The decrease in the effective tax
rate is primarily attributable to the one-time write-off of certain accounts
receivable balances as bad debt expense. These balances were not valued in the
allocation of the purchase price in connection with the merger transaction of
Puro (NY) and LSL Hydro because such amounts were not realizeable.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity and capital resources have been
cash flow from operations, proceeds from the sale of equity securities to the
Company's current stockholders, purchase money financing of business
acquisitions, and borrowing under the Company's bank agreement described below.
During 1995, net cash provided by operating activities was $0.4 million. In
1995, the Company made capital expenditures for coolers, other equipment, and
routes aggregating $2.8 million, which was funded by cash from operations,
private equity placement, purchase money financing of business acquisitions and
borrowings under the Company's bank agreement.

At December 31, 1995, cash totalled $0.7 million, and approximately $1.0
million of additional borrowings were available under the Company's bank
agreement. As of September 30, 1996, cash totalled $0.3 million, and no
additional borrowing was available under the Company's bank agreement.

The Company's bank agreement provides for aggregate long-term borrowings of
up to $3.0 million, approximately all of which is currently outstanding,
maturing between November 1, 1997 and December 31, 2001, bearing interest at the
prime rate plus .25% per annum, secured by substantially all of the assets of
the Company and guaranteed by certain stockholders of the Company. In addition,
the bank agreement contains covenants that include requirements to maintain
certain working capital, debt coverage and other financial ratios and
restrictions and limitations on the payment of dividends, guaranty payments,
additional borrowings and the amount of compensation paid to employees who are
stockholders. The Company is in material compliance with all such covenants.
Approximately $2.0 million of the net proceeds from this Offering will be used
to repay amounts outstanding under the Company's bank agreement.

22
<PAGE>
In addition, approximately $3.5 million of the net proceeds will be used to
repay certain purchase money financing incurred in connection with the
Electrified transaction. Simultaneously with the Electrified transaction, the
Company obtained a letter of credit in the amount of $3,500,000 from European
American Bank to secure such financing. In addition, in connection with the
Mountainwood transaction in June 1996, the Company obtained a letter of credit
in the amount of $500,000 from European American Bank to secure seller financing
of a like amount. Peter T. Dixon, the Company's Chairman of the Board of
Directors and a principal stockholder, secured both of these letters of credit
with personal assets. See "Certain Transactions."

The Company believes that the net proceeds from this Offering, together with
cash provided from operations, will be sufficient to satisfy its anticipated
cash requirements for at least twelve months following the consummation of this
Offering.

The Company is in negotiations with its principal lender regarding an
increase in its borrowing facilities, which may consist of either or both long
and short term borrowings. There can be no assurance that such negotiations will
be successfully completed.

FORWARD LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Act and Section 21E of the Exchange Act, which are
intended to be covered by the safe harbors created thereby. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included in this Prospectus will prove to be accurate. Factors that could cause
actual results to differ from the results discussed in the forward-looking
statements include, but are not limited to, those discussed in "Risk Factors."
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.

23
<PAGE>
BUSINESS

The Company is also the manager of the Quality Bottler's Cooperative, Inc.
(the "Cooperative"). Membership consists of the twelve leading regional bottled
water companies located throughout the United States which are similar in size
to the Company. Members are contractually required to purchase all of their
coolers, bottles, closures, and other key items on a group basis. A management
fee is paid to the Company based on purchase volume. The Company believes that
the purchasing power of the Cooperative permits the group to buy at prices which
are no higher than those charged the largest buyer in the industry.

INDUSTRY OVERVIEW

Bottled water has been the fastest growing segment of the beverage industry
for the last ten years. According to the May 1996 edition of "Bottled Water in
the United States," a study prepared by the Beverage Marketing Corporation (the
"BEVERAGE MARKET SURVEY"), total bottled water consumption in the United States
has more than tripled from 1983 to 1995. Annual consumption increased from 2.8
gallons per capita in 1980 to 11.0 gallons per capita in 1995, and it is
projected to reach 14.2 gallons per capita by the year 2000. Bottled water
volume in the United States has grown significantly, increasing from
approximately 1.1 billion gallons in 1984 to approximately 2.9 billion gallons
in 1995; from approximately $1.3 billion in sales in 1984 to over $3.3 billion
in 1995.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
1995 U.S. BOTTLED WATER SALES
<S> <C> <C>
(AMOUNTS IN MILLIONS)
GALLONS SOLD
NONSPARKLING 2,430.20 84.30%
IMPORTED 97.1 3.40%
SPARKLING 356.2 12.40%
TOTAL2,883.5
DOLLAR SALES
NONSPARKLING $2,121.20 62.90%
IMPORTED $425.00 12.60%
SPARKLING $828.80 24.60%
TOTAL$3,375.0
SOURCE: BEVERAGE MARKET SURVEY
</TABLE>

24
<PAGE>

The bottled water market comprises three segments: non-sparkling (domestic),
sparkling (domestic) and imported water (both sparkling and non-sparkling).
Non-sparkling water, which is consumed as an alternative to tap water, is the
segment in which the Company competes, is the largest of the three segments and
represented 84.3% of the total market in terms of gallons of water sold in 1995.
Sparkling water contains carbonation and is positioned to compete in the broad
"refreshment beverage" category. In 1995, domestic sparkling water accounted for
approximately 12.4% of total bottled water consumption and the remaining 3.4%
consisted of imported bottle water brands.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
NON-SPARKLING SPARKLING IMPORTS
<S> <C> <C> <C>
Millions of Gallons
1977 256.7 85.6 3.2
1978 352.9 113.5 13.4
1979 401.2 133.8 28.1
1980 463.1 155.2 11.4
1981 537.7 175.9 11.6
1982 614.0 196.5 12.9
1983 722.4 210.3 13.6
1984 843.3 230.3 16.5
1985 953.1 254.8 29.8
1986 1070.4 281.6 30.8
1987 1223.4 300.6 37.2
1988 1406.9 316.5 49.7
1989 1623.5 329.5 55.6
1990 1753.3 371.3 73.9
1991 1770.5 368.0 71.4
1992 1839.5 365.9 86.3
1993 1990.5 366.4 92.5
1994 2214.6 366.4 104.0
1995 2430.2 356.2 97.0
Source: Beverage Market Survey
</TABLE>

The Company believes this growth in bottled water consumption is largely a
function of two consumer trends. First, consumers have increasingly turned to
alternative sources of drinking water as a result of growing concerns about the
perceived decline in the quality of the tap water available in their homes and
offices. Second, an increasing diet and health consciousness among consumers has
led many consumers to seek a beverage choice which closely resembles the "ideal"
refreshment beverage. That is, one that has NO CALORIES, NO PRESERVATIVES, NO
ADDITIVES OR SUGAR, NO SODIUM AND NO ALCOHOL. High quality bottled drinking
water meets these demands.

According to the BEVERAGE MARKET SURVEY, the bottled water market has grown
at an average annual rate of 5.5% (1990-1995), and the Beverage Marketing
Corporation projects that it will grow at a slightly higher rate of 6.5% between
1995 and 2000. Bottled water volume in the United States is projected to grow
from approximately 2.9 billion gallons in 1995 to approximately 3.9 billion
gallons by the year 2000. Per capita consumption is projected to reach 14.2
gallons for every person in the United States by the year 2000.

25
<PAGE>
PROJECTED U.S. BOTTLED WATER MARKET
1995-2000

<TABLE>
<CAPTION>
5 YEARS'
AVERAGE
MILLIONS OF ANNUAL GALLONS
YEAR GALLONS GROWTH PER CAPITA
- ------------------------------------ ----------- ------------- -------------
<S> <C> <C> <C>
1995................................ 2,883.5 5.5% 11.0
2000................................ 3,943.2 6.5% 14.2
</TABLE>

- ------------------------
SOURCE: BEVERAGE MARKET SURVEY

Bottled water channels of distribution consists of drinking water purchased
in pre-filled containers from retail locations (primarily supermarkets), water
delivered in pre-filled containers to residential or commercial establishments,
and water sold through a self-service or "vended" format to retail consumers who
fill their own containers. The market share of each of these distribution
channels varies considerably by geographical area. According to the BEVERAGE
MARKET SURVEY, the total share of the national bottled water of these
distribution channels for 1995 was: retail (53.0%), home delivery (20.6%),
commercial delivery (18.4%) and vended (8.0%).

Further impetus for consumers' tap water concern took place on August 6,
1996 when President Clinton signed into law the Safe Drinking Water
Reauthorization Act of 1996. For the first time, federal law requires all local
water utilities to issue annual reports disclosing the chemicals and bacteria
that the tap water contains. The language must be simple and sent directly to
customers with the water utility bills. Especially important is a 24-hour
notification requirement when any contaminant poses a significant risk. The
Company believes that this change in the nation's law will increase the public's
concern over the quality and safety of public water supplies. Usage of high
quality bottled water and drinking water filtration systems can be expected to
benefit from this increased awareness.

BUSINESS STRATEGY

The bottled water distribution market is highly fragmented and composed of
many small regional companies as well as a few larger companies which own
several brands. The Company's strategy is to capitalize on the growing demand
for high quality drinking water resulting from the increasing public concern
about the taste and safety of municipal water supplies and the desire among
today's increasingly diet and health conscious consumers for an "ideal" beverage
through the expansion of its existing customer base and through the acquisition
of regional water bottlers and distributors in targeted geographic markets. In
addition, management continually seeks to grow revenues by increasing route
density through the acquisition and consolidation of new routes within its
existing route structure, thereby minimizing distribution and administration
costs. The continued consolidation of production and distribution capabilities
is a key component of the Company's operating plans, both within its current
markets and any additional markets it may enter.

In support of its growth strategy the Company is continuing to pursue the
acquisition of regional water bottlers and distributors, as well as mergers with
certain members of the Cooperative. As of the date of this Prospectus, the
Company has thirteen companies under active review as candidates for acquisition
or merger, although the Company has no agreements, commitments or arrangements
with respect to any proposed mergers or acquisitions. As consideration for any
future acquisitions, the Company may pay cash, incur indebtedness or issue debt
or equity securities. Such acquisitions could result in material changes in the
Company's financial condition and operating results. There can be no assurance
that suitable merger or acquisition opportunities will be available to the
Company or that the Company will be able to consummate any mergers or
acquisitions on satisfactory terms. In addition, there can be no assurance that
the Company will be able to integrate or manage successfully other acquired
businesses.

26
<PAGE>
BOTTLED WATER PROCESSING

The Company employs a broad spectrum of treatment technologies for its
various bottled waters, ranging from minimum treatment of its natural spring
waters, to extensive treatment of public water sources for its distilled and
drinking waters. Manufacturing practices, quality standards, and labeling of the
Company's bottled water products are regulated by the Federal Food and Drug
Administration ("FDA") as well as the states and some localities in which the
water is distributed. In addition, the Company participates in the International
Bottled Water Association's inspection program which incorporates quality
standards stricter than those prescribed by law.

NATURAL SPRING WATER: As "natural" waters, the Company's state-certified
spring sources may not be subjected to any treatment which alters the mineral
composition of the product. Spring water, by law, may not be derived from a
municipal system or public water supply, and must be derived from an underground
source, free of surface water influence, which flows continuously to the surface
under its own pressure. A hydrogeological report must validate the integrity of
the source and safety of the water-collection operations before any groundwater
source can be certified as a spring. Regular bacteriological and chemical
compliance monitoring of the Company's springs assures that these sources remain
uncontaminated.

The Company's water sources, at Mountainwood Spring and Indian Camp Spring
are located in remote, pristine environments where the spring's recharge areas
have not been encroached by industry, agriculture or housing development.
Consequently, the spring water must be transported to the Company's plants by
stainless steel tanker trucks used solely for its water. At the spring source
the water is filtered and ozonated (see below) prior to loading. This disinfects
the spring water, and the residual ozone in the water disinfects the inside of
the tanker, thereby insuring that bacteria are not transferred from the spring
or the tanker to the Company's bottling plants. Samples for each tanker load are
tested for bacterial safety, consistency, and ozone residual.

Sanitary bulk, stainless tanks at the Company's bottling plants protect the
spring water while it is again ozonated and finally filtered through one-micron
absolute filters immediately before being bottled in sanitized containers. The
Company employs this "multiple barrier" approach to protect its natural spring
water from contaminants, including dangerous protozoan cysts such as
Cryptosporidium which can survive municipal tap water disinfection with
chlorine.

DISTILLED WATER: The Company uses more extensive treatment techniques for
its processed waters. For example, the Company's distilled water is produced by
the recapture of condensed steam, one of the oldest water purification
mechanisms known. Automated distillation units at the Company's East Orange
bottling plant vaporize the local municipal water through heating, leaving
behind impurities of minerals and other compounds. The condensed water vapor
produces a water of extremely high purity and very low mineral content
(typically less than 10mg/liter of total dissolved solids). This level of purity
enables distilled water to be used for pharmaceutical purposes, photographic
processes, humidifiers, and similar applications as well as for drinking.

DRINKING WATER: The processes involved in producing the Company's drinking
waters include particle filtration, carbon adsorption (molecular adhesion),
ultraviolet disinfection, deionization, one-micron absolute filtration, and
ozonation. Public water is initially filtered using a five micron filter to
remove sedimentation. The water is then processed through an activated carbon
bed to remove organic compounds and associated tastes and odors. This step also
removes chlorine which is added as a disinfectant to public supplies. The
by-products of chlorine disinfection, such as trihalomethanes, are also removed
by activated carbon adsorption. Ultraviolet treatment is a precaution against
any microbial contamination which might be transported further along in the
production line. Deionization is used at the Company's East Orange plant to
reduce dissolved minerals in the final drinking water. As is the case with all
of the Company's waters, a one-micron absolute filter is the final filtration
stage prior to ozonation and bottling.

27
<PAGE>
Ozonation involves a special form of oxygen, ozone (O(3)), which is the
strongest disinfectant and oxidizing agent available for water treatment. It is
the standard disinfectant for bottled water processing. A highly unstable gas,
ozone must be generated on site, prior to transport at the spring locations, and
at the Company's bottling plants. Because it is only partially soluble in water,
sufficient ozone contact with the water is established by special contact tanks
and mixing vessels. These extended contact times and the closely monitored ozone
concentrations are the reason that properly ozonated bottled water can be
assured to be free of chlorine-resistant organisms such as the recently
publicized parasitic cyst, Cryptosporidium. A special "hyperozonator" provides a
final disinfecting rinse of ozonated water in the bottle washing and sanitizing
machines at both of the Company's plants.

After the appropriate treatments, the product water is piped to the Clean
Room, which houses the automatic filing and capping equipment. Its design
mandated by the FDA, the Clean Room is totally enclosed with a positive-pressure
ventilation system which feeds filtered, sterilized air into the room. This room
and its equipment are sanitized every day. The final product, whether natural
spring water, distilled, or drinking water, is a high quality, clean bottled
water that is one of the most strictly regulated and reliable pure food products
available to the American consumer.

BOTTLING AND DISTRIBUTION FACILITIES

The Company's offices and plants are located in East Orange, New Jersey,
Commack, Long Island, New York and Maspeth, New York. The following table sets
forth certain information relating to the leased and owned space for each
location.

<TABLE>
<CAPTION>
APPROXIMATE #
OF SQUARE
FEET
LOCATION OF FACILITY OF SPACE LEASE TERM MONTHLY RENT EXPIRES
- ------------------------------------------------------------------ ------------- ---------- ------------ -------
<S> <C> <C> <C> <C>

East Orange, New Jersey........................................... 48,000 10 years $10,000(1) 2007
Commack, Long Island, New York.................................... 23,000 5 years $10,200(2) 2001
Maspeth, New York (3)............................................. 24,000 -- -- --
</TABLE>

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

(1) Rent is fixed through January 31, 2001 and thereafter adjusts annually based
upon the change in the consumer price index.

(2) Commencing November 1, 1997, and continuing through the lease term, rent is
subject to periodic increases averaging approximately $550 per month.

(3) The Company owns this facility and is mortgagee with respect to a mortgage
covering this facility. This mortgage requires monthly payments of $9,941,
including interest at an annual rate of 10.75%. The mortgage provides for a
balloon payment of the entire principal, $886,873, on June 1, 1998.

At the East Orange, New Jersey, facility the Company bottles spring,
purified and distilled water in five and one gallon sizes. This modern
production plant features high-speed sanitizing and filling equipment.
Management believes that this facility contains the only fully automatic five
gallon bottle rack loader in the metropolitan New York area. Additional bottling
volume can be added at low incremental production cost for both the five-gallon
and one-gallon lines.

The Company's most recent 1996 plant inspection at East Orange resulted in a
sanitary compliance rating in excess of 97%, making the facility eligible to
receive the International Bottled Water Association's EXCELLENCE IN
MANUFACTURING recognition.

In addition, the Company performs water cooler servicing and refurbishment
activities at this facility including warranty repairs, filtration system
installation, and renovation of rental units for placement back in service in
the field. This facility services the Company's bottled water and water cooler
customers in Manhattan, the Bronx, Staten Island and New Jersey.

28
<PAGE>

The Company's Long Island bottling plant in Commack was opened in the summer
of 1996 with a modern high-speed five gallon sanitizing and filling line for
spring and purified drinking water. This facility, which replaced a smaller
plant in Port Jefferson, Long Island, New York, serves the Company's Brooklyn,
Queens and Long Island customers. Additional bottling volume can be added at low
incremental production costs.

The Company currently utilizes its Maspeth, New York facility for servicing
of water coolers, limited water distribution and corporate headquarters. The
Company expects to sell its facility in Maspeth, New York. Upon such sale, the
Company intends to move its corporate headquarters to its Commack, Long Island,
New York facility and the business currently conducted from its Maspeth, New
York facility will be allocated between its Commack, Long Island, New York and
East Orange, New Jersey facilities. The Company believes its facilities are
adequate for its present needs.

WATER SUPPLY AGREEMENTS

SPRING WATER SUPPLIERS: On June 13, 1996, the Company entered into a
long-term spring water supply contract for its Commack, Long Island, New York,
bottling facility with Shawangunk Bulk Spring Water. This agreement provides for
"most-favored-customer" treatment with respect to pricing and priority water
rights for the next forty-five years to the Indian Camp Spring source which is
owned by Shawangunk Bulk Spring Water and located in the foothills of the
Catskill Mountains in New York.

On June 27, 1996, the Company entered into a long-term spring water supply
contract for its East Orange, New Jersey bottling facility with its primary bulk
spring water supplier, Mountainwood. The agreement provides for
"most-favored-customer" treatment with respect to priority water rights over a
forty-three year period. Management believes that Mountainwood's spring source,
in the foothills of the Kittatinny Mountains near the Delaware Water Gap, is
considered the highest volume, free flowing certified natural spring water
source in the northeastern United States. Effective July 1, 1996, the Company
also acquired Mountainwood's five-gallon bottled water direct delivery and
bottled water cooler rental routes.

PURIFIED WATER SUPPLIERS: The Company obtains the water for distilled and
purified drinking water from public water sources. The public water source for
the Company's East Orange, New Jersey facility is the East Orange public water
supply and the public water source for the Company's Commack Long Island, New
York facility is the Suffolk County Water Authority.

DRINKING WATER SYSTEMS

In addition to the rapid growth in bottled water consumption, the past
decade has also seen the emergence of water treatment technologies which can
produce high quality water economically at the point of use. These technologies,
including micron filtration, have had a major impact on the growth and
development of water processed at the point of use (rather than delivered in
bottles). The Company's non-bottled water dispensing systems are equipped with
filtration systems which remove substantial amounts of the chlorine, dirt
particles, rust, lead, and other objectionable materials from the source tap
water.

The Company believes that it is the only full-service provider in its market
able to provide its customers with a "one-stop" solution to drinking water
needs. If a customer has neither the space nor the budget for bottled water, the
Company can provide a wide variety of filtration and treatment units to meet any
drinking water needs. A staff of installers and plumbers will assume
responsibility for survey, equipment selection, installation, contract
maintenance, and rental/service. As a factory authorized sales and service
center for all of the major types of drinking fountains and coolers, the Company
can offer the customer a complete choice of models: wall-hung, recessed,
stand-alone, handicapped, under the sink, drainless, counter-top, etc. A
computerized follow-up system insures that cartridge changes and routine service
are performed on a timely basis by the Company's field staff. This reliance upon
the Company for installation, equipment, and maintenance is a firm basis for the
long-term relationship that the Company enjoys with its point of use customers.

29
<PAGE>
Most of the Company's equipment is placed in the customer's home or office
under a standard two-year rental contract which is renewable thereafter on a
month to month basis and is terminable by either party upon 30 days' notice. The
attachment of its point of use equipment to the plumbing makes it less likely
that a customer will request that the equipment be removed.

EQUIPMENT SUPPLY, ASSEMBLY AND RENTAL SERVICES

The Company purchases the various water treatment systems and bottled water
dispensers used in its home and office equipment from major suppliers such as
EBCO Manufacturing Company and Sunroc Corp. through the Cooperative. Once a
customer has chosen a water treatment system and a dispenser, the two components
are connected as a unit, tested and installed by the Company's service
personnel. The Company is not dependent on any single supplier for any of these
components.

The Company rents a broad range of water treatment and dispensing units to
commercial and residential customers. The Company generally rents such units to
customers at prices ranging from $6.00 to $45.00 per month depending on the
components selected. As of September 30, 1996, the Company had in excess of
25,000 water treatment and dispensing units in service, located in the
metropolitan New York area, which accounted for approximately 19% of the
Company's revenues. In addition, from time to time the Company has sold water
treatment and dispensing units to customers upon request; such outright sales
have accounted for less than 5% of revenues in the twelve months ended September
30, 1996.

The Company uses its factory authorized warranty and repair facilities to
recondition most of the rental water coolers which have been returned from the
field. The cost associated with this refurbishment of returned rental units is
expensed on a current basis. The reconditioned units are available for rental
placement in the field at a cost lower than that of newly purchased coolers.

SALES AND MARKETING

The Company markets its commercial and residential water treatment and
dispensing units to commercial customers that are using or have used bottled
water coolers as an alternative to providing tap water to their employees, and
to residential customers who have been introduced to the Company's water
treatment and bottled water units through the Company's commercial customers.
The Company markets its products principally through the effort of salaried and
independent sales personnel as well as through print advertising, telemarketing,
trade shows, its internet website, sponsored community events, field
delivery/service personnel and customer referrals. To date, the Company has
concentrated its marketing efforts on targeting commercial customers in the
metropolitan New York markets where demographic, economic and water consumption
trends, as well as the overall quality of municipal water supplies, indicate a
growing demand for affordable, high quality drinking water. Upon consummation of
this Offering, the Company expects to increase its marketing efforts,
principally through increased print and broadcast media advertising, additional
sales personnel and attendance at additional trade-shows.

CUSTOMERS

Since 1994, the Company has grown from approximately 5,000 water customers
to in excess of 25,000 currently served. The Company's customer base for its
bottled water and water treatment and dispensing units is currently comprised of
approximately 90% commercial accounts and approximately 10% residential
accounts. Through its American Eagle Spring and Lectro-Still retail brands the
Company markets one-gallon natural spring and distilled waters in supermarkets
and pharmacies in the northeastern United States.

In addition, the Company has been selected by several distributors to bottle
under their own label on a contract basis. Given the Company's ability to absorb
such additional volume at its plants with little marginal cost and no disruption
to existing business, management will continue to do such private label bottling
for selected accounts. In the past two years, such five-gallon private label
bottling relationships have resulted in the Company being able to acquire a
number of the distributor's routes and blend them into the Company's

30
<PAGE>
route structure. The East Orange, New Jersey facility will also continue to
provide one-gallon private label water bottling on a select basis for local
supermarket chains and health care stores so long as there is no adverse impact
on the Company's production of its own brands.

COMPETITION

The Company competes with numerous well-established companies, including
Nestle's Perrier group (whose brands in the Company's market include Poland
Spring, Great Bear and Deer Park), which distribute drinking water sold off the
shelf at retail (primarily supermarket) locations. Many of the Company's
competitors have achieved significant national, regional and local brand name
and product recognition and additional competitors have sought to enter the
drinking water market.

In recent years, several companies have introduced drinking water products
positioned to capitalize on the growing consumer preference for purified and
aesthetically pleasing water. It can be expected that the Company will be
subject to increasing competition from companies whose products or marketing
strategies address these consumer preferences. Some of the Company's competitors
and potential competitors possess substantially greater financial, personnel,
marketing and other resources that the Company and have established reputations
for success in the sale of purified water products. The Company believes that it
competes on the basis of quality of service, convenience and price.

SEASONALITY

The revenues of the Company have been subject to seasonal variations with
decreased revenues during cold weather months and increased revenues during the
hot weather months.

PATENTS AND TRADEMARKS

The Company holds two patents related to bacteriostatic carbon formulation
and production.

The Company has registered the Puro trademark and service mark in the United
States Patent and Trademark Office. The Company acquired the American Eagle
Spring Water trademark among others in its acquisition of the assets of
Electrified. The Company has no reason to believe that there are any conflicting
rights which might impair the Company's use of its marks outside the United
States; however, there can be no assurance that such conflicting rights do not
exist. The Company believes that the trademarks and service mark are valuable to
the operation of it business. The Company's policy is to pursue registration of
its marks whenever possible and to oppose vigorously any infringement of its
mark.

As is typically the case with drinking water treatment components, the
Company does not believe its business is materially dependent upon obtaining
patent protection for its various systems.

REGULATION

The Company's business is subject to various federal, state and local laws
and regulations, which require the Company, among other things, to obtain
licenses for its business and equipment, to pay annual license and inspection
fees, to comply with certain detailed design and quality standards regarding the
Company's bottling plant and equipment, and to continuously control the quality
and quantity of the water dispensed. Several states have regulations that
require the Company to obtain certification for its bottled water. The Company
believes that it is currently in compliance with these laws and regulations and
has passed all regulatory inspections. In addition, the Company does not believe
that the cost of compliance with applicable government laws and regulations is
material to its business. However, recent media attention has been given to the
health and safety standards and to the degree of governmental oversight in the
drinking water industry. To the extent that additional regulations are imposed
as a result of these or other concerns and such regulations are unreasonably
burdensome, such regulations could significantly increase the costs of
compliance and reduce the ability of the Company to maintain or increase its
customer base.

PRODUCT LIABILITY AND INSURANCE

The Company is engaged in a business which could expose it to possible
claims for personal injury resulting from contamination of water produced by its
bottling plants or dispensing equipment. While the

31
<PAGE>
Company believes that, through regular testing, it carefully monitors the
quality of water produced by its plants, it may be subject to exposure in the
case of customer misuse of a cooler or bottle storage. The Company maintains
blanket "claims made" product liability insurance against liability resulting
from certain types of injuries in amounts that it believes to be adequate.
Additionally, the Company maintains an umbrella policy that it believes to be
adequate to cover claims above the limits of the product liability insurance.
Although no claims have been made against the Company or any of its customers to
date and the Company believes that its current level of insurance is adequate
for its present business operations, there can be no assurance that such claims
will not arise in the future or that the proceeds of the Company's policy will
be sufficient to pay such claims.

EMPLOYEES

As of September 30, 1996, the Company had 110 full-time employees, of which
five are in executive positions, 45 in distribution, 11 in maintenance and
service, 5 in sales, 14 in manufacturing and 30 in administration. Certain of
the Company's employees are represented by Teamsters, Chauffeurs, Warehousemen &
Helpers Local Union No. 560. The Company is a party to a collective bargaining
agreement expiring February 28, 1999. The Company considers its employee
relations to be satisfactory.

LITIGATION

The Company is not a party to any legal proceedings which individually or in
the aggregate are believed to be material to the Company's business.

32
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's directors and executive officers, their ages and present
positions with the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Peter T. Dixon............................. 66 Chairman of the Board
Scott Levy................................. 39 Chief Executive Officer and Director
Jack C. West............................... 55 President and Director
James G. Botti............................. 33 Chief Financial Officer
Stephen Edberg*............................ 44 Director
Wilmer J. Thomas, Jr....................... 69 Director
Leonard D. Rosinski*....................... 45 Director
</TABLE>

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

* These individuals will become directors of the Company upon consummation of
this Offering.

All directors hold office until the next annual meeting of stockholders or
the election and qualification of their successors. The officers of the Company
are elected by and serve at the discretion of the Board of Directors until their
successors are duly chosen and qualified.

The following is a brief summary of the background of each director and
executive officer of the Company:

PETER T. DIXON
Mr. Dixon has served as Chairman of the Board of Directors of the Company
since January 1994. He was the Senior Executive Vice President of Loeb Partners
Corporation, a private investment banking firm from June 1986 to December 1993.
From 1981 to May 1986, Mr. Dixon was Senior Vice President of Shearson, Lehmann
Brothers, and, prior thereto, a partner in Loeb, Rhoades. Mr. Dixon was Chairman
of the Board of Directors and a principal stockholder of Glacier Water Services,
Inc., a public company traded on the American Stock Exchange under the Symbol
HOO, from February 1993 to May 1993, when he sold his stock in Glacier Water
Services, Inc.

SCOTT LEVY
Mr. Levy has been Chief Executive Officer of the Company since November 1,
1996 and a director of the Company since January 1994. From January 1994 to
October 1996, Mr. Levy was Co-President and Co-Chief Executive Officer of the
Company. In 1980, Mr. Levy founded LSL Hydro Systems, and was the President of
LSL Hydro Systems from 1980 to January 1994. LSL Hydro Systems specialized in
point-of-use drinking water systems sales, rentals, installation, service,
bottled water and plumbing contracting. The Company acquired LSL Hydro Systems,
Inc. in January 1994. Mr. Levy is active in the National Coffee Service
Association and instrumental in the administration of the Cooperative.

JACK C. WEST
Mr. West has been President of the Company since November 1, 1996 and a
director of the Company since January 1994. From January 1994 to October 1996,
Mr. West was Co-President and Co-Chief Executive Officer of the Company. Mr.
West was a principal stockholder and vice president of Puro Corporation of
America (New York) from 1979 to January 1994. He is a past president and
director of the International Bottled Water Association (IBWA). He is currently
Vice Chairman of the Drinking Water Research Foundation; Chairman of the New
York Water Bottlers Committee; Chairman of the IBWA Government Relations
Committee; Vice President and Director of the Cooperative; and Member of the
Bottled Water Industry Forum of the National Sanitation Foundation.

JAMES G. BOTTI, CPA

Mr. Botti has been Chief Financial Officer of the Company since October
1996. From October 1995 to October 1996 he was Chief Financial Officer of
Hampshire Securities Corp. in New York City, an investment bank and securities
broker dealer. From April 1992 to October 1995 he was Controller of Laidlaw
Holdings, Inc., an affiliate of Laidlaw Equities, Inc., one of the
Representatives. He was manager of Financial Reporting for Needham & Company,
Inc., from 1991 to 1992, and prior to that worked in the public accounting firms
of Anchin, Block & Anchin, and Pustorino, Puglisi and Co. as an accountant.

33
<PAGE>
STEPHEN C. EDBERG, PHD

Dr. Edberg will become a director of the Company upon consummation of this
Offering. Since 1992, Dr. Edberg has been the Chairman of the Education Policy
and Curriculum Committee of the Yale University School of Medicine where he is a
professor in the Departments of Laboratory Medicine and Internal Medicine. He
also directs the Clinical Microbiology Laboratory of Yale-New Haven Hospital. He
is the inventor of Defined Substrate Technology, the major iteration of which is
Colilert, an EPA-approved test system for monitoring of bacterial contamination
in the nation's drinking water supplies. Since 1990, Dr. Edberg has been a
consultant to IDEXX, Inc., an invitro diagnostics company, the common stock of
which trades on the Nasdaq National Market under the symbol IDXX. Dr. Edberg has
been a Trustee of the Drinking Water Research Foundation since 1991, and has
authored more than 150 publications in the scientific literature.

WILMER J. THOMAS, JR.

Mr. Thomas has been a director of the Company since December 1995. Mr.
Thomas has been a private investor for at least the past five years and is a
member of the Board of Directors of Great Dane Corp., Savannah, Georgia and of
Moore Medical Corp., New Britain, Connecticut.

LEONARD D. ROSINSKI

Mr. Rosinski will become a director of the Company upon consummation of this
Offering. Since March, 1996, Mr. Rosinski has been President and Chief Executive
Officer of In-Store Opportunities, Guilford, Connecticut, a third-party
merchandising firm specializing in frozen food. From January 1994 to March 1996,
Mr. Rosinski was Vice-President and Chief Operating Officer of Pure Fill
Corporation, a bottled water vending company in California and Florida. From
July 1990 to December 1993, Mr. Rosinski was the President of National Water
Services, Inc.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has authorized two standing committees: Audit
Committee and Compensation Committee. Only independent directors will be
appointed to these Committees.

AUDIT COMMITTEE. The Audit Committee of the Board of Directors will review
the results and scope of the annual audit and other services provided by the
Company's independent accountant, review and evaluate the Company's internal
audit and control functions, and monitor transactions between the Company and
its employees, officers and directors.

COMPENSATION COMMITTEE. The Compensation Committee of the Board of
Directors will review and approve the compensation and benefits of the Company's
executive officers and administer the Stock Option Plan.

The number of directors of the Company is currently set at four. All
directors serve terms of one year and hold office until the next annual meeting
of stockholders or until their respective successors are duly elected and
qualified.

EXECUTIVE COMPENSATION

The following table sets forth certain information concerning compensation
of the Company's Chairman, Chief Executive Officer and President during the
fiscal year ended December 31, 1996 (collectively, the "Named Executive
Officers").

<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
-------------------- ----------------------
NAME AND PRINCIPAL POSITION SALARY COMPENSATION
- ------------------------------------------------------------------------ -------------------- ----------------------
<S> <C> <C>
Peter T. Dixon, Chairman(1)............................................. $ 12,000 $ 0.00
Scott Levy, Chief Executive Officer..................................... $ 187,000 $ 1,102.52(2)
Jack C. West, President................................................. $ 100,000 $ 1,325.00(2)
</TABLE>

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

(1) Mr. Dixon has a consulting agreement with the Company pursuant to which he
is paid $1,000 per month.

(2) Represents the dollar value of insurance premiums paid by the Company with
respect to term life insurance.

34
<PAGE>
EMPLOYMENT AND CONSULTING AGREEMENTS

The Company has entered into an employment agreement with each of Messrs.
West, Levy and Botti. Mr. West's agreement provides that he shall be employed as
President of the Company on a full time basis for a term of five years. Mr.
West's agreement may be extended at the sole discretion of the Board of
Directors upon the same terms and conditions. Mr. West receives an annual base
salary of $100,000 for the term of his agreement. In the event that the Board of
Directors does not extend the term of the agreement and a mutually acceptable
alternative agreement cannot be negotiated with the Board of Directors upon the
expiration of this agreement, Mr. West will be entitled to a severance payment
equal to two times his annual base salary. Mr. West's employment agreement
contains a covenant not to compete for a period ending one year after the
expiration or termination of such employment agreement along with
confidentiality and non-solicitation undertakings. Mr. West is required to
devote substantially all of his time and attention to the affairs of the
Company, and is entitled to receive such benefits as are generally provided from
time to time by the Company to its senior management employees.

Mr. Levy's agreement provides that he shall be employed as Chief Executive
Officer of the Company on a full time basis for a term of five years. Mr. Levy's
agreement may be extended at the sole discretion of the Board of Directors upon
the same terms and conditions. Mr. Levy receives an annual base salary of
$187,000 for the term of his agreement. In the event that the Board of Directors
does not extend the term of the agreement and a mutually acceptable alternative
agreement cannot be negotiated with the Board of Directors upon the expiration
of this agreement, Mr. Levy will be entitled to a severance payment equal to
three times his annual base salary. Mr. Levy's employment agreement contains a
covenant not to compete for a period ending one year after the expiration or
termination of such employment agreement along with confidentiality and
non-solicitation undertakings. Mr. Levy is required to devote substantially all
of his time and attention to the affairs of the Company, and is entitled to
receive such benefits as are generally provided from time to time by the Company
to its senior management employees.

Mr. Botti's agreement provides that he shall be employed as Chief Financial
Officer of the Company on a full time basis for a term continuing to October 31,
1997. Mr. Botti receives an annual base salary of $100,000 for the term of his
employment, subject to review of the Board of Directors. Mr. Botti will receive
stock options covering 35,000 shares of Common Stock subject to a five-year
vesting period. Mr. Botti's employment agreement contains a covenant not to
compete for a period ending one year after the expiration or termination of such
employment agreement along with confidentiality and non-solicitation
undertakings. Mr. Botti is required to devote substantially all of his time and
attention to the affairs of the Company, and is entitled to receive such
benefits as are generally provided from time to time by the Company to employees
on a comparable level.

On January 28, 1994, the Company entered into a consulting agreement with
Mr. Dixon pursuant to which Mr. Dixon provides certain consulting services to
the Company. The Company pays Mr. Dixon $1,000 per month pursuant to the
consulting agreement. The consulting agreement expires in January 1999.

The Company has key-person life insurance policies on the lives of Messrs.
West and Levy in the amount of $500,000 per person. Prior to consummation of
this Offering, the Company will have key-person life insurance policies on the
lives of Messrs. West and Levy in the amount of $1,000,000 per person. The
Company is the sole beneficiary under these policies and the Company will keep
such policies in force for a minimum of three years from the completion of this
Offering.

1996 STOCK OPTION PLAN

In 1996, the Company's stockholders approved the Company's 1996 Stock Option
Plan (the "Stock Option Plan"). The purpose of the Stock Option Plan is to
promote the success of the Company by providing a method whereby eligible
employees of the Company may be awarded additional remuneration for services
rendered, thereby increasing their personal interest in the Company. The Stock
Option Plan is also intended to aid in attracting persons of suitable ability to
become employees of the Company and its subsidiaries.

35
<PAGE>

The Stock Option Plan provides that the maximum number of shares of Common
Stock reserved for awards thereunder shall be 400,000. The Stock Option Plan
provides for the grant of incentive stock options (as defined in Section 422 of
the Internal Revenue Code of 1986, as amended) and nonstatutory stock options.
The exercise price of options granted under the Stock Option Plan may be more
than or equal to the fair market value of such shares on the date of grant. Any
options granted under the Stock Option Plan that shall expire, terminate or
otherwise be annulled for any reason without having been exercised shall again
be available for purposes of the Stock Option Plan.

The Stock Option Plan is to be administered by the Compensation Committee
(the "Committee"), each member of which shall be a member of the Company's Board
of Directors who during the one year period prior to service on the Committee
was not, and during such service is not, granted or awarded any equity
securities pursuant to the Stock Option Plan or any other plan of the Company if
such grant or award or participation on such Stock Option Plan would prevent
such member from being a "disinterested person" with respect to the Stock Option
Plan for purposes of Rule 16b-3 under the Exchange Act. The Committee will have
the power and authority to grant to eligible persons options to purchase shares
of the Company's Common Stock under the Stock Option Plan and to determine the
restrictions, terms and conditions of all such options granted as well as to
interpret the provisions of the Stock Option Plan, any agreements relating to
awards granted under the Stock Option Plan, and to supervise the administration
of the Stock Option Plan.

Subject to the provisions of the Stock Option Plan with respect to death,
retirement and termination of employment, the term of each option shall be for
such period as the Committee shall determine as set forth in the applicable
option agreement, but not more than ten years from the date of grant.

DIRECTORS' COMPENSATION

Except for an option in favor of Edberg Associates L.P., of which Stephen C.
Edberg, who will become a director of the Company upon consummation of this
Offering, is a partner, to purchase 49,284 shares of Common Stock of the
Company, directors of the Company do not receive fixed compensation for their
services as directors. However, the Board of Directors may authorize the payment
of a fixed sum to directors for their attendance at regular and special meetings
of the Board of Directors as is customary for similar companies. Directors will
be reimbursed for their reasonable out-of-pocket expenses incurred in connection
with their duties to the Company.

LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION

Pursuant to the Company's Bylaws, the Company must, to the fullest extent
permitted by the Delaware General Corporations Law, as amended from time to time
(the "GCL"), indemnify all persons (e.g., directors and officers) whom it may
indemnify pursuant thereto and to advance expenses incurred in defending any
proceeding for which such right to indemnification is applicable, provided that,
if the GCL so requires, the indemnitee must provide the Company with an
undertaking to repay all amounts advanced if so determined by a final judicial
decision. The Company's Certificate of Incorporation contains a provision
eliminating, to the full extent permitted by Delaware law, the personal
liability of the Company's directors for monetary damages for breach of a
fiduciary duty. By virtue of this provision, under current Delaware law, a
director of the Company will not be personally liable for monetary damages for
breach of his fiduciary duty as director, except for liability for (i) any
breach of his duty of loyalty to the Company or to its stockholders, (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) dividends or stock purchases or redemptions that
are unlawful under Delaware law and (iv) any transactions from which he derives
an improper personal benefit. This provision of the Company's Certificate of
Incorporation pertains only to breaches of duty by directors as directors and
not in any other corporate capacity such as officers, and limits liability only
for breaches of fiduciary duties under Delaware corporate law and not for
violations of other laws such as the federal securities laws. As a result of the
inclusion of such provision, stock holders may be unable to recover monetary
damages against directors for actions taken by them that constitute negligence
or gross negligence or that are in violation of their fiduciary duties, although
it may be possible to obtain injunctive or other equitable relief with respect
to such actions. The inclusion of this provision in the Company's Certificate of
Incorporation may have the effect of reducing

36
<PAGE>

the likelihood of derivative litigation against directors for breach of their
duty of care, even though such an action, if successful, might otherwise have
benefitted the Company and its stockholders. Insofar as indemnification for
liabilities arising under the Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company 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.

37
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS

The following table sets forth information as of the date of this Prospectus
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person (including any group) known to the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each director of the
Company, (iii) each executive officer of the Company and (iv) all directors and
executive officers of the Company as a group. Except as may be indicated in the
footnotes to the table, each such person has the sole voting and investment
power with respect to the shares owned, subject to applicable community property
laws.

<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF CLASS(3)
NATURE OF ------------------------
BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) OFFERING OFFERING
- ------------------------------------------------------------------------------- ------------ ----------- -----------
<S> <C> <C> <C>
Peter T. Dixon(4).............................................................. 1,084,926 49.3% 30.6%
The Trusts Under Article 16 of the Will of W. Palmer Dixon for the Benefit of
Peter T. and Palmer Dixon (the "Dixon Trusts")(5)............................. 981,429 45.1% 27.8%
Beth and Scott Levy............................................................ 425,814 20.0% 12.2%
Jack C. West................................................................... 394,272 18.5% 11.3%
Thomas Limited Partnership(6).................................................. 197,136 9.3% 5.7%
Wilmer J. Thomas, Jr.(6)....................................................... 197,136 9.3% 5.7%
Edberg Associates Limited Partnership(7)....................................... 147,852 6.8% 4.2%
All directors and executive officers as a group (5 persons).................... 2,250,000 100.0% 62.5%
</TABLE>

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

(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company, 56-45 58th Street, Maspeth, New York 11378.

(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities and includes options exercisable within 60 days of the date of
this Prospectus. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.

(3) The percentage of class is calculated in accordance with Rule 13d-3 under
the Exchange Act and assumes that the beneficial owner has exercised any
options or other rights to subscribe which are exercisable within 60 days
and that no other options or rights have been exercised by anyone else.

(4) These shares consist of (i) 78,855 shares of Common Stock held by Peter T.
Dixon, (ii) 932,145 shares of Common Stock held by the Dixon Trusts, and
(iii) 73,926 shares of Common Stock issuable upon the exercise of options
currently outstanding, of which options to purchase 24,642 shares of Common
Stock are held by Peter T. Dixon and options to purchase 49,284 shares of
Common Stock are held by the Dixon Trusts, which shares represent a
one-third interest in options in favor of Peter T. Dixon and the Dixon
Trusts, jointly.

(5) These shares consist of (i) 932,145 held by the Dixon Trusts, and (ii)
49,284 shares of Common Stock issuable upon the exercise of options
currently outstanding, which shares represent a two-thirds interest in
options in favor of Peter T. Dixon and the Dixon Trusts, jointly.

(6) Wilmer J. Thomas, Jr., a partner of Thomas Limited Partnership, is a
director of the Company.

(7) Dr. Stephen C. Edberg, a partner of Edberg Associates Limited Partnership,
will become a director of the Company upon consummation of this Offering.
These shares consist of (i) 98,568 shares of Common Stock, and (ii) 49,284
shares of Common Stock issuable upon the exercise of options currently
outstanding.

38
<PAGE>

Each of the stockholders and the Company is party to a Stockholders'
Agreement dated January 28, 1994, as amended (the "Stockholders' Agreement").
The Stockholders' Agreement addresses, among other things, corporate governance
issues as well as stock transferability. Upon the consummation of this Offering,
the Stockholders' Agreement shall be null and void and of no force or effect.

CERTAIN TRANSACTIONS

On January 28, 1994, the Dixon Trusts loaned the Company $300,000 to be used
for working capital. This loan is callable on demand and bears annual interest
at the rate of prime +.75%. The founders of the Company are Peter T. Dixon, the
Trusts under Article 16 of the Will of Palmer Dixon for the benefit of Peter T.
and Palmer Dixon, Scott and Beth Levy, and Jack C. West. Peter T. Dixon and the
Dixon Trusts purchased from the issuer 1,010,999 shares of Common Stock. In
connection with the acquisition of LSL Hydro Systems, Inc., the Company issued
to Scott and Beth Levy 425,814 shares of Common Stock. In connection with the
acquisition of Puro Corporation of America (New York), the Company issued to
Jack West 394,272 shares of Common Stock. No assets are being acquired from any
of the founders.

On January 28, 1994, the Company entered into a consulting agreement with
Peter T. Dixon, pursuant to which Mr. Dixon provides certain consulting services
to the Company. The Company pays Mr. Dixon $1,000 per month pursuant to the
consulting agreement. The consulting agreement expires in January 1999.

In connection with the Electrified transaction in January 1996, the Company
obtained a letter of credit in the amount of $3,500,000 from European American
Bank to secure seller financing of a like amount. Peter T. Dixon secured the
letter of credit with personal assets. In connection with the Mountainwood
transaction in June 1996, the Company obtained a letter of credit in the amount
$500,000 from European American Bank to secure seller financing of a like
amount. Mr. Dixon also secured that letter of credit with personal assets. In
consideration of pledging his personal assets as described above, the Company
issued to Mr. Dixon and the Dixon Trusts options to purchase 73,926 shares of
Common Stock.

All future transactions and loans with officers, directors and principal
stockholders of the Company will be on terms no less favorable than could be
obtained from independent third parties and will be approved by a majority of
the disinterested directors of the Company.

DESCRIPTION OF SECURITIES

COMMON STOCK

The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation, as amended.

The Company's Certificate of Incorporation, as amended, authorizes the
issuance of 10,000,000 shares of Common Stock, $.0063 par value. As of the date
of this Prospectus, the Company has eight holders of record of its Common Stock
and there are 2,126,789 shares of the Company's Common Stock issued and
outstanding. There will be 3,476,789 shares of Common Stock outstanding after
giving effect to the Offering (3,679,289 if the Underwriters' over-allotment
option is exercised in full). All outstanding shares of Common Stock are, and
the Shares offered hereby will be, validly issued, fully paid and
non-assessable. Holders of Common Stock are entitled to share ratably in such
dividends and distributions as may from time to time be declared by the Board of
Directors of the Company from funds legally available therefor and upon
liquidation will be entitled to share ratably in any assets of the Company
legally available for distribution to holders of the Common Stock. The Company's
Certificate of Incorporation, as amended, and By laws do not confer any
preemptive, subscription, redemption or conversion rights on the holders of
Common Stock. Holders of Common Stock are entitled to cast one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting, which means that holders of a majority of the voting
power may elect all of the directors.

39
<PAGE>
OPTIONS AND CONVERTIBLE SECURITIES

Peter T. Dixon and the Dixon Trusts hold two options to purchase an
aggregate of 73,926 shares of Common Stock at a price per share equal to the
initial public offering price, less underwriting discounts and commissions,
which become exercisable 120 days following the consummation of this Offering.
These options were issued in consideration of the collateralization by the Dixon
Trusts of certain debt obligations of the Company in connection with the
Electrified and Mountainwood business acquisitions. The option to purchase
24,642 shares of Common Stock will expire in April 2001. The option to purchase
49,284 shares of Common Stock will expire in August 2001. Edberg Associates L.P.
holds an option to purchase 49,284 shares of Common Stock at a price per share
equal to the initial public offering price, less underwriting discounts and
commissions, which becomes exercisable 120 days following the consummation of
this Offering. This option was issued in November 1996 as an inducement for an
equity investment by said entity in the Company and to induce Dr. Stephen C.
Edberg to serve as a director of the Company. This option to purchase 49,284
shares of Common Stock will expire in May 2001. In addition, the holder of a
convertible purchase money note arising out of the Nature's Way acquisition has
the option to purchase upon conversion of such note that number of shares of
Common Stock of the Company equal to the outstanding principal amount of a
convertible note ($267,135.66 as of January 1, 1997, which amount is reduced by
$1,428.58 per month) divided by the initial public offering price per share,
less underwriting discounts and commissions, reserved for issuance upon
conversion of such note. Such note shall become convertible 120 days following
the consummation of this Offering.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock will be Continental
Stock Transfer and Trust Company, New York, New York.

DELAWARE ANTI-TAKEOVER LAW

Section 203 of the GCL ("Section 203") provides, in general, that a
stockholder acquiring more than 15% of the outstanding voting shares of a
corporation subject to the statute (an "Interested Stockholder"), but less than
85% of such shares, may not engage in certain "Business Combinations" (as
defined below) with the corporation for a period of three years subsequent to
the date on which the stockholder became an Interested Stockholder unless (i)
prior to such date the corporation's Board of Directors approved either the
Business Combination or the transaction in which the stockholder became an
Interested Stockholder or (ii) the Business Combination is approved by the
corporation's Board of Directors and authorized by a vote of at least two thirds
of the outstanding voting stock of the corporation not owned by the Interested
Stockholder.

Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than on a
PRO RATA basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or transactions in which the Interested Stockholder
receives certain other benefits.

These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate of Incorporation or Bylaws of the Company, may
elect not to be governed by Section 203, effective twelve months after adoption.
Neither the Certificate of Incorporation nor the Bylaws of the Company currently
excludes the Company from the restrictions imposed by Section 203.

SHARES ELIGIBLE FOR FUTURE SALE

Of the 3,476,789 Shares to be outstanding immediately after this Offering,
the 1,350,000 Shares offered hereby will be freely tradeable. The holders of all
of the remaining shares have agreed with the Representatives not to sell such
shares for a period of eighteen months after the date of this Prospectus
pursuant to the terms of lock-up agreements without the Representatives' prior
written consent. Immediately after such

40
<PAGE>
period, 2,069,929 shares of Common Stock will immediately be available for sale
and on October 1, 1998, 56,860 shares of Common Stock will become available for
sale, in each case subject to the resale conditions of Rule 144 promulgated
under the Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for at
least two years, including an affiliate, is entitled to sell within any
three-month period that number of shares equal to the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume of the
Common Stock during the four calendar weeks immediately preceding such sale.
Sales under Rule 144 are also subject to certain requirements as to the number
of shares for sale, notice and availability of current public information
regarding the Company. A person who has not been an affiliate of the Company at
any time during the three months preceding a sale, and who has beneficially
owned shares for at least three years, is entitled to sell such shares under
Rule 144 without regard to the volume limitations, manner of sale provisions or
notice or current public information requirements. Affiliates, however, continue
to be subject to such volume limitations and other requirements. As defined in
Rule 144, an affiliate of an issuer is a person who directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with such issuer and generally includes members of the Board of
Directors and senior management. In addition, the Commission has proposed
revisions to Rule 144 and Rule 144(k), the effect of which would be to shorten
the holding period under Rule 144 from two years to one year and to shorten the
holding period under Rule 144(k) from three years to two years. The foregoing is
a summary of Rule 144 and is not intended to be a complete description.

Prior to this Offering, there has been no public market for the Common Stock
and no prediction can be made as to the effect, if any that market sales of
shares of Common Stock or the availability of such shares for sale to the public
will have on the market price prevailing from time to time. Sales of substantial
amounts of Common Stock following this Offering could adversely affect the
market price of Common Stock.

REGISTRATION RIGHTS

The holders of the Company's outstanding shares of Common Stock have certain
rights to require the Company to register their shares of Common Stock for sale
to the public under the Act. If the Company proposes to register any of its
shares of Common Stock under the Act, such stockholders will be entitled to
require the Company to include all or a portion of their shares in such
registration, provided that the underwriter of any such offering may limit the
number of such shares so registered. In addition, such holders have certain
demand registration rights. Each of the holders of the Company's outstanding
shares of Common Stock having registration rights has waived such rights for a
period of eighteen months from the consummation of this Offering. See "Shares
Eligible for Future Sale" and "Underwriting".

41
<PAGE>
UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Laidlaw
Equities, Inc. and Gilford Securities Incorporated are acting as representatives
(the "Representatives"), have severally agreed, subject to the terms and
conditions contained in the Underwriting Agreement between the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company, and
the Company has agreed to sell to the Underwriters, the number of Shares set
forth opposite their names in the table below at the price set forth on the
cover page of this Prospectus:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Laidlaw Equities, Inc..........................................................................
Gilford Securities Incorporated................................................................
-----------------

Total...................................................................................... 1,350,000
-----------------
-----------------
</TABLE>

A copy of the Underwriting Agreement has been filed as an exhibit to the
Registration Statement to which reference is hereby made. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions. The Underwriters shall be obligated to purchase all of the
Shares if any are purchased.

The Underwriters have advised the Company that the Underwriters propose to
offer the Shares to the public at the public offering price set forth on the
cover page of this Prospectus and that they may allow to certain dealers who are
members of the NASD, and to certain foreign dealers, concessions of not in
excess of $ per share, of which amount a sum not in excess of $ per
share may in turn be reallowed by such dealers to other dealers who are members
of the NASD and to certain foreign dealers. After the commencement of this
Offering, the concessions and the reallowances may be changed by the
Underwriters.

The offering price of the Shares was determined by negotiation between the
Company and the Underwriters. Among the factors considered in such negotiations
were (i) assessment of the Company's future prospects, (ii) the experience of
the Company's management, (iii) the current financial position of the Company,
and (iv) the prevailing conditions in the securities markets, including the
market value of the Company's Common Stock, the market value of publicly-traded
common stock of companies in similar industries, the market conditions for new
offerings of securities and the demand for similar securities of comparable
companies.

The Company has agreed to pay to the Representatives an expense allowance,
on a non-accountable basis, equal to 3.0% of the gross proceeds derived from the
sale of the Shares. The Company has paid an advance on such allowance in the
amount of $50,000. The Company has also agreed to pay all its expenses in
connection with this Offering, including expenses in connection with qualifying
the Shares offered hereby for sale under the laws of such states as the
Representatives may designate. In addition, the Company will sell to the
Representatives, or to their designees, for nominal consideration, warrants to
purchase an aggregate of 135,000 shares of Common Stock exercisable at 140% of
the offering price. See "Underwriting -- Representatives' Warrants." The Company
has agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Act, and to contribute to payments the Underwriters may be
required to make in respect thereof.

42
<PAGE>

All directors, officers, and stockholders of the Company have agreed not to
sell or otherwise dispose of their shares of Common Stock to the public without
the prior consent of the Representatives for a period of eighteen (18) months
from the date of this Prospectus. In addition, the Company has agreed that for a
period of eighteen (18) months after the date of this Prospectus, it will not
sell any shares of Common Stock, or options to purchase Common Stock other than
options to purchase shares of Common Stock which may be granted under the Stock
Option Plan without the Representatives' prior written consent.

OVER-ALLOTMENT OPTION

The Company has granted the Underwriters an option, exercisable during the
45-day period commencing on the date of this Prospectus to purchase up to
202,500 shares of Common Stock solely to cover over-allotments. The purchase
price per share will be the public offering price, less underwriting discounts
and the non-accountable expense allowance. After the commencement of this
Offering, the Underwriters may confirm sales of shares of Common Stock subject
to the over-allotment option.

REPRESENTATIVES' WARRANTS

In connection with this Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, Warrants to purchase 135,000 shares
of Common Stock. The Representatives' Warrants are exercisable for a period of
four years commencing one year from the date hereof at an exercise price per
share ("Exercise Price") of 140% of the public offering price per share. The
Representatives' Warrants may not be sold, transferred, assigned, pledged, or
hypothecated for a period of twelve (12) months from the date of this Prospectus
except to officers or partners of the Representatives and other members of the
underwriting or selling group and officers or partners thereof in compliance
with the applicable provisions of the Corporate Financing Rules of the NASD. The
Representatives' Warrants contain anti-dilution provisions providing for
adjustment of the Exercise Price upon the occurrence of certain events,
including recapitalizations, mergers, consolidations and combinations. The
holders of the Representatives' Warrants have no voting, dividend, or other
rights as stockholders of the Company with respect to shares of Common Stock
underlying the Representatives' Warrants, unless the Representatives' Warrants
have been exercised.

A new registration statement or post-effective amendment to the Registration
Statement will be required to be filed and declared effective before
distribution to the public of the shares of Common Stock issuable upon exercise
of the Representatives' Warrants (the "Warrant Shares"). The Company has agreed,
on one occasion when requested and at its expense, to make all necessary filings
to permit a public offering of the Warrant Shares during the period beginning
one year after the date hereof and ending four years thereafter and to use its
best efforts to cause such filing to become effective under the Act and remain
effective under such Act for a period of at least twelve (12) months. In
addition, the Company has agreed for the period starting at the beginning of the
second year after the date hereof and ending at the conclusion of the fifth year
after the date hereof to give advance notice to holders of the Representatives'
Warrants and Warrant Shares of its intention to file a registration statement,
and in such case, the holders shall have the right to require the Company to
include the Representatives' Warrants and Warrant Shares in such registration
statement at the Company's expense.

During the period that the Representatives' Warrants are exercisable, the
Representatives and any transferee will have the opportunity to profit from a
rise in the market price of Common Stock with a resulting dilution in the
interest of other stockholders. In addition, the terms on which the Company will
be able to obtain additional capital during the exercise period may be adversely
affected insofar as the Representatives are likely to exercise the
Representatives' Warrants at a time when the Company would, in all likelihood,
be able to obtain capital by a new offering of securities on terms more
favorable than those provided by the terms of the Representatives' Warrants.

OBSERVER OF THE BOARD OF DIRECTORS

In connection with this Offering, the Company has agreed that, for the
three-year period commencing on the date of this Prospectus, Laidlaw Equities,
Inc. has the right to appoint a designee as an observer at all

43
<PAGE>

meetings of the Company's Board of Directors. This designee has the right to
attend all meetings of the Board of Directors and shall be entitled to receive
the same reimbursement for all expenses of attendance at such meetings. Laidlaw
Equities, Inc. has not yet selected a designee and Laidlaw Equities, Inc. may
designate different individuals to serve in this capacity from time to time. In
addition, the Company has agreed to purchase directors and officers liability
insurance in an amount not less than $1,000,000.

The foregoing summary of the principal terms of the Underwriting Agreement
and the Representatives' Warrants does not purport to be complete and is
qualified in its entirety by reference to the form of Underwriting Agreement and
the form of Representatives' Warrants, which have been filed as exhibits to the
Registration Statement.

LEGAL MATTERS

The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Lev, Berlin & Dale, P.C.,
Norwalk, Connecticut. Certain legal matters relating to the Offering will be
passed upon for the Underwriters by Olshan Grundman Frome & Rosenzweig LLP, New
York, New York.

EXPERTS

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

ADDITIONAL INFORMATION

The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form SB-2 under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Certain items are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules files as a part thereof.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, if such contract or document is filed as an exhibit, reference is made
to the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
to such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, NY 10048, and copies of all or any part thereof may be obtained
from such office after payment of fees prescribed by the Commission. Such
material may also be accessed electronically by the means of the Commission's
home page on the Internet at http://www.sec.gov. In addition, the Common Stock
has been approved for listing on the American Stock Exchange (AMEX), subject to
official notice of issuance . Reports and other information concerning the
Company may be inspected at the offices of AMEX, 86 Trinity Street, New York,
New York 10006.

The Company intends to furnish its stockholders with annual reports
containing financial statements which will be audited by its independent public
accounting firm, and such other periodic reports as the Company may determine to
be appropriate or as may be required by law.

44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PURO WATER GROUP, INC.

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Stockholders' Equity......................................................................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>

ELECTRIFIED COMPANIES, INC.

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-17
Balance Sheet.............................................................................................. F-18
Statements of Operations................................................................................... F-19
Statements of Stockholders' Equity......................................................................... F-20
Statements of Cash Flows................................................................................... F-21
Notes to Financial Statements.............................................................................. F-22
</TABLE>

F-1
<PAGE>
After the reverse stock split discussed in Note 13 to the Puro Water Group,
Inc.'s financial statements is effected, we expect to be in a position to render
the following audit report.

Arthur Andersen LLP

January 2, 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Puro Water Group, Inc.:

We have audited the accompanying balance sheet of Puro Water Group, Inc. (a
Delaware corporation) as of December 31, 1995, and the related statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1995 and for the period from inception (February 1, 1994) to December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Puro Water Group, Inc. as of
December 31, 1995 and the results of its operations and its cash flows for the
year ended December 31, 1995 and for the period from inception (February 1,
1994) to December 31, 1994, in conformity with generally accepted accounting
principles.

New York, New York
May 1, 1996 (except for the
matters described in Note 13,
as to which the date
is )

F-2
<PAGE>
PURO WATER GROUP, INC.
BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1995 1996
----------------- -------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash............................................................................... $ 689,332 $ 326,285
Accounts receivable, less allowance for doubtful accounts of $195,905 and $157,320,
respectively..................................................................... 1,149,187 2,495,156
Inventory.......................................................................... 348,960 442,592
Prepaid expenses................................................................... 89,912 314,003
----------------- -------------
Total current assets............................................................. 2,277,391 3,578,036
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $385,044 and
$734,763, respectively (Note 4).................................................... 3,404,240 5,652,429
INTANGIBLE ASSETS, net of accumulated amortization of $285,619 and $687,948,
respectively (Note 5).............................................................. 2,607,336 7,644,390
DEFERRED REGISTRATION COSTS -- 198,800
OTHER ASSETS......................................................................... 61,359 179,212
----------------- -------------
TOTAL ASSETS..................................................................... $8,350,326 $ 17,252,867
----------------- -------------
----------------- -------------
</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable................................................................... $ 288,810 $ 619,106
Accrued expenses and other current liabilities..................................... 191,074 316,442
Deferred income.................................................................... 116,466 248,874
Short-term borrowings (Note 6)..................................................... 50,000 1,050,000
Current portion of long-term debt (Note 7)......................................... 415,775 1,380,726
Current portion of capital lease obligations (Note 10)............................. 166,262 210,865
----------------- -------------
Total current liabilities........................................................ 1,228,387 3,826,013
LONG-TERM LIABILITIES:
Long-term debt (Note 7)............................................................ 2,505,090 7,687,589
Capital lease obligations (Note 10)................................................ 317,423 234,731
Deferred tax liability............................................................. 372,000 603,655
Other liabilities.................................................................. 412,584 371,248
----------------- -------------
Total long-term liabilities...................................................... 3,607,097 8,897,223
COMMITMENTS (Note 12)
STOCKHOLDERS' EQUITY:
Common stock, $.0063 par value, 10,000,000 shares authorized; and 1,971,361 and
2,069,929 shares issued and outstanding, respectively............................ 12,420 13,041
Additional paid-in capital......................................................... 2,842,694 3,342,073
Retained earnings.................................................................. 659,728 1,174,517
----------------- -------------
Total stockholders' equity....................................................... 3,514,842 4,529,631
----------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....................................... $8,350,326 $ 17,252,867
----------------- -------------
----------------- -------------
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE>

PURO WATER GROUP, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION FOR THE FOR THE FOR THE
(FEBRUARY 1, 1994) YEAR NINE MONTHS NINE MONTHS
TO DECEMBER 31, ENDED ENDED ENDED
1994 DECEMBER 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUE:
Bottled water sales and other
revenue.............................. $ 2,918,844 $ 4,175,395 $ 3,121,054 $ 6,383,653
Rental revenue....................... 1,135,624 1,325,769 992,157 1,684,092
------------------- ----------------- ------------------ ------------------
4,054,468 5,501,164 4,113,211 8,067,745

COST OF GOODS SOLD:
Cost of goods sold (excluding
depreciation)........................ 1,146,789 1,615,228 1,262,876 2,292,550
Depreciation......................... 106,178 237,518 130,160 336,440
------------------- ----------------- ------------------ ------------------
GROSS PROFIT........................... 2,801,501 3,648,418 2,720,175 5,438,755

OPERATING EXPENSES:
Operating expenses (excluding
depreciation and amortization)....... 1,196,894 1,305,786 1,013,959 1,523,137
General and administrative
expenses............................. 948,358 1,309,478 917,177 1,892,384
Depreciation and amortization........ 113,112 213,855 148,714 422,277
------------------- ----------------- ------------------ ------------------
Total operating expenses............. 2,258,364 2,829,119 2,079,850 3,837,798
------------------- ----------------- ------------------ ------------------

INCOME FROM OPERATIONS................. 543,137 819,299 640,325 1,600,957

OTHER INCOME (EXPENSE):
Other income (expense)............... 46,933 118,577 107,520 (5,335)
Interest expense..................... (130,245) (302,973) (220,864) (541,264)
Plant relocation charges............. -- -- -- (250,000)
------------------- ----------------- ------------------ ------------------
(83,312) (184,396) (113,344) (796,599)
------------------- ----------------- ------------------ ------------------

INCOME BEFORE PROVISION FOR INCOME
TAXES................................ 459,825 634,903 526,981 804,358

PROVISION FOR INCOME TAXES............. 204,000 231,000 189,713 289,569
------------------- ----------------- ------------------ ------------------

NET INCOME............................. $ 255,825 $ 403,903 $ 337,268 $ 514,789
------------------- ----------------- ------------------ ------------------
------------------- ----------------- ------------------ ------------------

PER SHARE INFORMATION:
Earnings per share (Note 2).......... $ 0.14 $ 0.21 $ 0.18 $ 0.23
------------------- ----------------- ------------------ ------------------
------------------- ----------------- ------------------ ------------------
Weighted average common shares
outstanding (Note 2)................. 1,843,407 1,927,662 1,843,407 2,237,679
------------------- ----------------- ------------------ ------------------
------------------- ----------------- ------------------ ------------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE>
PURO WATER GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL
NUMBER OF PAID-IN- RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION
(February 1, 1994)............................ -- $ -- $ -- $ -- $ --
Issuance of common stock (Note 1).............. 1,577,089 9,936 845,178 -- 855,114
Net income..................................... -- -- -- 255,825 255,825
---------- ----------- ------------ ------------ ------------

BALANCE, December 31, 1994..................... 1,577,089 9,936 845,178 255,825 1,110,939
Issuance of common stock....................... 394,272 2,484 1,997,516 -- 2,000,000
Net income..................................... -- -- -- 403,903 403,903
---------- ----------- ------------ ------------ ------------

BALANCE, December 31, 1995..................... 1,971,361 12,420 2,842,694 659,728 3,514,842
Issuance of common stock (Note 13)............. 98,568 621 499,379 -- 500,000
Net income (unaudited)......................... -- -- -- 514,789 514,789
---------- ----------- ------------ ------------ ------------
BALANCE, September 30, 1996 (unaudited)........ 2,069,929 $ 13,041 $ 3,342,073 $ 1,174,517 $ 4,529,631
---------- ----------- ------------ ------------ ------------
---------- ----------- ------------ ------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE>
PURO WATER GROUP, INC.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE
FROM INCEPTION YEAR FOR THE FOR THE
(FEBRUARY 1, 1994) ENDED NINE MONTHS NINE MONTHS
TO DECEMBER ENDED ENDED
DECEMBER 31, 1994 31, 1995 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 255,825 $ 403,903 $ 337,268 $ 514,789
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 219,290 451,373 278,874 758,717
Deferred taxes............................. 185,000 187,000 40,980 231,655
Provision for allowance for doubtful
accounts................................. 86,920 (11,026) 20,978 (38,585)
Changes in Assets and Liabilities..........
Decrease (increase) in accounts
receivable............................. 10,214 (535,069) (450,063) (1,307,384)
Increase in inventory.................... (52,242) (91,960) (4,100) (93,632)
Increase in prepaid expenses and other
assets................................. (114,755) (36,516) (33,487) (341,944)
Increase in deferred registration
costs.................................. -- -- -- (198,800)
Increase (decrease) in accounts payable,
accrued expenses and other
liabilities............................ 198,072 (1,363) 247,733 414,328
(Decrease) increase in deferred income... (561,174) 26,386 (28,157) 132,408
-------- ----------- ------------------ ------------------
Net cash provided by operating
activities........................... 227,150 392,728 410,026 71,552
-------- ----------- ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and
equipment................................ (453,540) (1,143,105) (629,628) (2,517,503)
Net assets acquired (Note 2)............... -- (1,683,135) (999,051) (5,446,052)
-------- ----------- ------------------ ------------------
Net cash (used in) investing
activities........................... (453,540) (2,826,240) (1,628,679) (7,963,555)
-------- ----------- ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings...................... 150,000 (100,000) 400,000 1,000,000
Repayment of capital lease obligations..... (36,465) (149,623) (140,638) (118,494)
Repayment of long-term debt................ (211,262) (373,517) (280,138) (280,138)
Proceeds from long-term debt............... 277,040 1,686,386 1,249,799 6,427,588
Proceeds from sale of common stock......... -- 2,000,000 -- 500,000
-------- ----------- ------------------ ------------------
Net cash provided by financing
activities........................... 179,313 3,063,246 1,229,023 7,528,956
-------- ----------- ------------------ ------------------
NET (DECREASE) INCREASE IN CASH.............. (47,077) 629,734 10,370 (363,047)
CASH, beginning of period.................... 106,675 59,598 59,598 689,332
-------- ----------- ------------------ ------------------
CASH, end of period.......................... $ 59,598 $ 689,332 $ 69,968 $ 326,285
-------- ----------- ------------------ ------------------
-------- ----------- ------------------ ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest................................... $ 146,995 $ 302,973 $ 182,214 $ 521,019
Income taxes............................... $ 6,887 $ 121,039 $ -- $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES:
Capital lease obligations incurred......... $ 415,728 $ 113,041 $ 113,041 $ 80,405
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995

1. ORGANIZATION AND BUSINESS
Puro Water Group, Inc. (the "Company"), a Delaware corporation, formerly The
Puro Corporation of America, is a bottler and distributor of spring and purified
drinking water, serving commercial and residential users in the metropolitan New
York area. The Company markets its drinking water under the brand names Puro,
American Eagle Spring Water, Nature's Best Spring Water and Lectro-Still. The
Company also rents and services water coolers, filtration systems, and
plumbed-in fountains located in businesses, factories and homes in the
metropolitan New York area.

On February 1, 1994, the Company, a holding company, completed the
acquisition of all of the outstanding common stock of The Puro Corporation of
America, a New York corporation ("Puro NY"), and LSL Hydro Systems, Inc.
("Hydro"). Immediately prior to the acquisition, Puro NY and Hydro purchased
stock owned by certain stockholders which represented ownership of 50% of each
of the companies for cash of $1,000,000 and the issuance of $100,000 in notes
payable. The transaction was accounted for under the purchase method with the
purchase price deemed to be $1,500,000 based on the ultimate ownership and
management's estimate of fair value at the time of the acquisition. Such
purchase price was in excess of the net assets acquired in the amount of
approximately $1,200,000. Because Hydro and Puro NY had a common control group,
that portion of the assets of the Company attributable to the control group
(approximately 26%), were accounted for as having been acquired at a carryover
historical basis of $31,000. The purchase has been allocated to the fair market
value of the assets acquired and liabilities assumed which resulted in goodwill
of approximately $1,200,000. This amount is being amortized over fifteen years.
The individual predecessor financial statements as of and for the one month
ended January 31, 1994 are not presented as this information is not material to
the Company's overall results of operations.

2. SIGNIFICANT ACCOUNTING POLICIES

MANAGEMENT ESTIMATES

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

INVENTORY

Inventory is stated at the lower of cost or market and cost is determined
using the first-in, first-out method. Inventory is comprised of water coolers
and parts, office refreshment supplies and water.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at historical cost. The building is
depreciated utilizing the straight-line method over 40 years and equipment is
depreciated utilizing the straight-line method over the estimated useful lives
of 8 to 25 years. Equipment held under capital leases are amortized utilizing
the straight-line method over the lesser of the lease or estimated useful life
of the asset in accordance with Statement of Financial Accounting Standards
("SFAS") No. 13 "Accounting for Leases."

F-7
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS

Intangible assets are recorded based on the value of certain assets obtained
in the acquisition of other companies and are amortized on the straight-line
method over the following periods:

<TABLE>
<S> <C>
Goodwill........................................ 15 years
Customer lists.................................. 6 years
Covenants-not-to-compete........................ 3 - 7 years
</TABLE>

Subsequent to its acquisitions, the Company continually evaluates whether later
events and circumstances have occurred that indicate the remaining estimated
useful life of the intangible assets may warrant revision or that the remaining
balance may not be recoverable. When factors indicate that intangible assets
should be evaluated for possible impairment, the Company uses an estimate of the
undiscounted net income over the remaining life of the intangible assets in
measuring whether it is recoverable.

REVENUE RECOGNITION

Revenue on sales of bottled water and coolers is recognized upon delivery.
Leases of water coolers and filters are accounted for under the operating method
and, accordingly, rental income is reported over the terms of the leases.

INCOME TAXES

The Company accounts for its income taxes under SFAS No. 109, "Accounting
for Income Taxes", which requires recognition of deferred tax liabilities and
assets for the estimated future tax effects of events that have been recognized
in the financial statements or income tax returns. Under this method, deferred
tax liabilities and assets are determined based on differences between the
financial accounting and income tax bases of assets and liabilities, and the use
of carryforwards, if any, using enacted tax rates in effect for the years in
which the differences and carryforwards are expected to reverse and be utilized.

EARNINGS PER SHARE

Earnings per share was computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding during
the respective periods, which includes for all periods, (i) the retroactive
effect of the April 1996 stock split (Note 13) and the reverse stock split,
which will occur prior to the consummation of the Company's initial public
offering (Note 13), (ii) the sale of 98,568 shares of common stock in May 1996
(Note 13), (iii) the impact of options, held by two stockholders, to purchase
123,210 shares of Common Stock at the initial offering price, less underwriting
discounts and commissions (Note 13) and (iv) the impact of the exercise of
56,860 warrants (Note 13).

NEW ACCOUNTING PRONOUNCEMENTS

During March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which is effective for the fiscal year
beginning after December 15, 1995. The Company does not expect the adoption of
this standard to have a material effect on the Company's financial position or
results of operations.

During October 1995, the FASB issued SFAS No. 123, "Accounting for Stock
Based Compensation". This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS No. 123
encourages entities to adopt a fair value based method of accounting for stock

F-8
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
compensation plans. However, SFAS No. 123 also permits the Company to continue
to measure compensation costs under pre-existing accounting pronouncements. If
the fair value based method of accounting is not adopted, SFAS No. 123 requires
pro forma disclosures of net income and net income per common share in the notes
to financial statements. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years that begin after
December 15, 1995, though they may be adopted on issuance. The disclosure
requirements of SFAS No. 123 are effective for financial statements for fiscal
years beginning after December 15, 1995, or for an earlier fiscal year for which
SFAS No. 123 is initially adopted for recognizing compensation cost. The Company
does not expect the adoption of this statement to have a material effect on the
Company's financial position or results of operations.

INTERIM PERIODS PRESENTED

The interim financial statements for the nine months ended September 30,
1996 and the nine months ended September 30, 1995 are unaudited. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principals for complete financial statements. In the opinion
of the Company, these unaudited financial statements reflect all adjustments
necessary, consisting of normal recurring adjustments, for a fair presentation
of such data on a basis consistent with that of the audited data presented
herein. The results of operations for interim periods are not necessarily
indicative of the results for a full year.

3. ACQUISITIONS
During 1994 and 1995, the Company acquired certain assets and assumed
certain liabilities of several companies operating in the bottled water
industry. The acquisitions were paid for with cash and the issuance of notes
(Note 7). All acquisitions have been accounted for under the purchase method and
therefore operations of the companies acquired have been included in the
accompanying Statements of Operations from their respective dates of
acquisition. Although the individual acquisitions were not material to the
Company's financial position or results of operations, the total purchase price
for all of the Company's 1995 acquisitions was approximately $2,200,000. Pro
Forma results of operations have not been provided as the information was not
material to the Company's overall results of operations. Additionally, the
Company incurred certain non-recurring expenses associated with these
acquisitions which have been reflected in the Company's Statements of Operations
for the years ended December 31, 1995 and for the period from inception to
December 31, 1994.

In accordance with one of the purchase agreements, the seller has the option
to convert the unpaid principal of the note into shares of Common Stock of the
Company in the event of an Initial Public Offering ("IPO") of the Common Stock
of the Company, at the Offering price less underwriting discounts and
commissions.

F-9
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Land and building............................................... $ 946,088 $ 946,088
Building improvements........................................... 67,488 180,406
Rental equipment................................................ 1,418,106 2,142,794
Vehicles held under capital leases.............................. 669,775 750,170
Vehicles........................................................ 126,826 363,826
Bottles and crates.............................................. 304,388 475,894
Machinery and equipment......................................... 128,585 1,341,234
Furniture and fixtures.......................................... 128,028 186,780
------------ -------------
3,789,284 6,387,192
Less: Accumulated depreciation.................................. 385,044 734,763
------------ -------------
Property, plant and equipment, net.......................... $3,404,240 $ 5,652,429
------------ -------------
------------ -------------
</TABLE>

Depreciation aggregated $262,074 and $122,970, respectively, for the year ended
December 31, 1995 and for the period from inception to December 31, 1994.

5. INTANGIBLE ASSETS

Intangible assets are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMER 30,
1995 1996
------------ -------------
<S> <C> <C>
Goodwill........................................................ $2,290,408 $ 7,729,791
Covenants-not-to-compete........................................ 338,333 338,333
Customer lists.................................................. 264,214 264,214
------------ -------------
2,892,955 8,332,338
Less: Accumulated amortization.................................. 285,619 687,948
------------ -------------
Intangible assets, net...................................... $2,607,336 $ 7,644,390
------------ -------------
------------ -------------
</TABLE>

Amortization on intangible assets aggregated $189,299 and $96,320, respectively,
for the year ended December 31, 1995 and for the period from inception to
December 31, 1994.

6. SHORT-TERM BORROWINGS

The Company has a line of credit available with a bank for $3,000,000 and a
subordinated line of credit with a bank for $4,000,000 as of September 30, 1996
and had a $1,000,000 line of credit with a bank at December 31, 1995. The
Company had $2,500,000 outstanding on the $3,000,000 line which was converted
into two notes with the bank (see Note 7) as of September 30, 1996 (unaudited).
There were no amounts

F-10
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

6. SHORT-TERM BORROWINGS (CONTINUED)

outstanding on the $4,000,000 subordinated line of credit as of September 30,
1996 and no amounts were outstanding on the $1,000,000 line of credit as of
December 31, 1995. The outstanding amounts on short-term borrowings as of
September 30, 1996 (unaudited) and December 31, 1995 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Demand notes with stockholder with interest at prime plus
.75%........................................................... $ 50,000 $ 1,050,000
------------ -------------
$ 50,000 $ 1,050,000
------------ -------------
------------ -------------
</TABLE>

The prime rate was 8.25% and 8.50% as of September 30, 1996 and December 31,
1995, respectively.

7. LONG-TERM DEBT

Long-term debt consists of the following:

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

<S> <C> <C>
BANK FINANCING
Mortgage payable, due in monthly installments of $9,941 including interest at
10.75%, balloon payment of $886,873 due June 1, 1998............................... $ 939,190 $ 925,042
Promissory note payable to bank, bearing interest at prime plus .50%, due in monthly
installments through October 2003.................................................. -- 1,500,000
Promissory note payable to bank, bearing interest at prime plus .25%, monthly
interest payments only through September 1999 and then balloon payment of full
principal due September 1999....................................................... -- 1,000,000
Promissory note payable to bank, bearing interest at prime plus 1.50%, due in
monthly installments through February 1999......................................... 257,291 --
Promissory note payable to bank, bearing interest at prime plus 1.50%, due in
monthly installments through April 1999............................................ 52,500 --
ACQUISITION FINANCING (NOTES 3 AND 13)
Note payable to seller of $500,000, related to Mountainwood acquisition, bearing
interest at 8%, monthly interest payments only through July 1, 1999 principal
payment of $125,000 on July 1, 1999, and then equal monthly installments through
July 1, 2003....................................................................... -- 500,000
Note payable to seller of $250,000, related to Mountainwood acquisition, bearing
interest at 8%, monthly interest payments only through June 30, 1999 and then
balloon payment of full principal due on June 30, 1999............................. -- 250,000
Notes payable to seller of $2,900,000 and $600,000, related to Electrified
Companies, Inc. bearing interest at prime rate, interest payments only due through
February 1997, and then equal monthly installments from March 1997 through February
2000............................................................................... -- 3,500,000
Notes payable to sellers associated with 1995 and 1994 acquisitions, bearing
interest at rates ranging from 8-9% (certain non-interest bearing notes include
interest at rates reflecting the Company's incremental borrowing rate), due in
monthly installments through January 2001.......................................... 1,345,334 1,136,811
</TABLE>

F-11
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

7. LONG-TERM DEBT (CONTINUED)

<TABLE>
<S> <C> <C>
STOCKHOLDER NOTES PAYABLE
Loan from stockholder, bearing interest at prime plus .75% due in equal monthly
installments commencing April 1997 through January 2001............................ $ 250,000 $ 250,000
Notes payable to former stockholders, non-interest bearing, due in three equal
installments of $33,333, through February 1997..................................... 66,667 --
OTHER
Other notes payable bearing interest at 9%, due in monthly varying installments
through January 1998............................................................... 9,883 6,462
------------ -------------
Total............................................................................... 2,920,865 9,068,315
Less: current portion............................................................... 415,775 1,380,726
------------ -------------
Long-term debt...................................................................... $2,505,090 $ 7,687,589
------------ -------------
------------ -------------
</TABLE>

Maturities of long-term debt over the next five years are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1996.................................................. $ 415,775
1997.................................................. 492,383
1998.................................................. 1,369,363
1999.................................................. 341,631
2000 and thereafter................................... 301,713
---------
$2,920,865
---------
---------
</TABLE>

8. INCOME TAXES
Components of the income tax provision for the year ended December 31, 1995
and from the period from inception (February 1, 1994) through December 31, 1994
are as follows:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
1995:
Federal......................................... $ 20,000 $ 152,000 $ 172,000
State and local................................. 24,000 35,000 59,000
--------- ---------- ----------
$ 44,000 $ 187,000 $ 231,000
--------- ---------- ----------
--------- ---------- ----------

1994:
Federal......................................... $ -- $ 149,000 $ 149,000
State and local................................. 19,000 36,000 55,000
--------- ---------- ----------
$ 19,000 $ 185,000 $ 204,000
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

F-12
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

8. INCOME TAXES (CONTINUED)
The actual tax expense differed from the "expected" amounts by applying the U.S.
Federal income tax rate of 34% as follows:

<TABLE>
<CAPTION>
1995 1994
---- ----

<S> <C> <C>
Federal income tax at statutory rate............................................ 34% 34%
Purchase accounting............................................................. (3) --
State income taxes net of federal...............................................
income tax benefit.......................................................... 6 8
Other........................................................................... (1) 2
---- ----
Actual income tax provision................................................. 36% 44%
---- ----
---- ----
</TABLE>

The net deferred tax liability at December 31, 1995 primarily consists of the
differences between depreciation recorded for tax and book purposes.

9. STOCKHOLDERS' EQUITY
In October 1995, the Company entered into a Stock Purchase Agreement with
certain stockholders of the Company to purchase 394,272 shares of the Company's
stock for an aggregate purchase price of $2,000,000.

10. CAPITAL LEASE OBLIGATIONS
The Company is the lessee of certain fixed assets under capital leases
expiring through 1999. The assets and liabilities under capital leases are
recorded at the lower of the present value of minimum lease payments or the fair
market value of the asset. The assets are depreciated over their estimated
useful lives. Interest rates on capital leases vary from 3.5% to 7.0%.

Future minimum payments under these lease agreements for the next four years
are as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1996.......................................... $ 188,363
1997.......................................... 188,363
1998.......................................... 144,237
1999.......................................... 10,868
---------
Total minimum lease payments.......................... 531,831

Less: Amount representing interest.................... 48,146
---------
Present value of net minimum lease payments....... $ 483,685
---------
---------
</TABLE>

11. BENEFIT PLANS
The Company's noncontributory pension plan provides benefits upon the death
or retirement of eligible employees. The Company's policy is to fund the annual
amount deductible for Federal income tax purposes. During 1995, the Company
elected to freeze the plan and, accordingly, no further contributions will be
made on behalf of the Company.

F-13
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

11. BENEFIT PLANS (CONTINUED)
The Company maintains a defined contribution pension plan for eligible
employees pursuant to Section 401(k) of the Internal Revenue Code ("IRC").
Pursuant to the plan, employees can contribute a maximum established by the IRC.
Although the Company is not obligated to contribute to the plan, for the year
ended December 31, 1995, the Company contributed approximately $2,300.

12. COMMITMENTS

LEASES

As of December 31, 1995, the Company had leased certain office and warehouse
space. Leases for this space expire through March 2001, and call for annual rent
with insignificant escalations through the end of the leases. The Company has
also entered into several operating leases for office equipment.

Future minimum payments for operating leases at December 31, 1995 are as
follows:

<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1996............................................. $ 64,000
1997............................................. 64,533
1998............................................. 67,760
1999............................................. 71,148
2000 and thereafter.............................. 92,610
</TABLE>

Rental expense for the year ended December 31, 1995 and the period from
inception to December 31, 1994 was $139,660 and $42,381, respectively.

EMPLOYMENT AGREEMENTS

Prior to the consummation of the initial public offering (Note 13), the
Company will enter into employment agreements with its President and Chief
Executive Officer. The President's agreement will provide for an annual base
salary of $100,000 for a term of five years. The agreement may be extended at
the sole discretion of the Board of Directors upon the same terms and
conditions. In the event that the Board of Directors does not extend the term of
the agreement and a mutually acceptable alternative agreement cannot be
negotiated with the Board of Directors upon the expiration of this agreement,
the President will be entitled to a severance payment equal to two times his
annual base salary. The Chief Executive Officer's agreement will provide for an
annual base salary of $187,000 for a term of five years. The agreement may be
extended at the sole discretion of the Board of Directors upon the same terms
and conditions. In the event that the Board of Directors does not extend the
term of the agreement and a mutually acceptable alternative agreement cannot be
negotiated with the Board of Directors upon the expiration of this agreement,
the Chief Executive Officer will be entitled to a severance payment equal to
three times his annual base salary.

13. SUBSEQUENT EVENTS

ACQUISITION

On January 31, 1996, the Company acquired the net assets of Electrified
Companies, Inc., a company operating in the bottled water industry. The purchase
agreement called for total payments to be made to the seller in the aggregate
amount of $5,000,000, including payments totaling $437,801 to satisfy two bank
loans of the seller and certain consideration for other outstanding liabilities.
The $5,000,000 is to be paid through a cash payment of $1,000,000 at the
closing, a $500,000 note payable, which has been paid, and two notes

F-14
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

13. SUBSEQUENT EVENTS (CONTINUED)
payable for $2,900,000 and $600,000, respectively, bearing interest at the prime
rate. Interest payments only are due through February 1997, and then equal
monthly installments will be made from March 1997 through February 2000.

Summarized below is the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 as though this acquisition had
occurred on January 1, 1995. Adjustments have been made for pro forma income
taxes, amortization of intangible assets related to this acquisition and
interest expense as a result of this acquisition. Pro Forma results of
operations of the Company, for the nine months ended September 30, 1996, are not
provided as the information was not material to the Company's overall results of
operations.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1995
------------------
<S> <C>
Pro Forma:
Revenues................................................................ $ 10,659,418
Net income.............................................................. $ 7,000
Earnings per share...................................................... $ 0.00
</TABLE>

These pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisition been
made at the beginning of 1995, or of results which may occur in the future.

On June 27, 1996, the Company entered into an agreement to acquire certain
assets of Mountain Spring Water Co., Inc., and White Mountain Company, Inc.,
(collectively "Mountainwood") both operating in the bottled water industry.
Under the terms of the agreement, the acquisition is effective as of July 1,
1996. The purchase agreement called for total payments to be made to the seller
in the aggregate amount of $1,250,000. The $1,250,000 purchase price is
comprised of a cash payment of $500,000 at the closing on June 27, 1996, and two
separate notes payable for $500,000 and $250,000 bearing interest at 8%. The
note of $500,000 will have interest payments only through July 1, 1999, at which
time a $125,000 principal payment will be made. Thereafter, through July 1,
2003, monthly principal payments of $10,000 will be paid. The principal and
interest on the $250,000 note shall be paid through monthly payments of interest
only through June 30, 1999, at which time the entire unpaid principal and
interest is due. The $500,000 cash payment was borrowed from the Company's
majority shareholder and is included in short-term borrowings in the
accompanying balance sheet (unaudited) as of September 30, 1996.

In connection with these two acquisitions, the Company incurred certain
non-recurring expenses of approximately $47,000, which have been reflected in
the Company's unaudited Statement of Operations for the nine months ended
September 30, 1996.

INITIAL PUBLIC OFFERING

The Company is pursuing an initial public offering of its securities. The
proposed offering presently contemplates the sale of 1,350,000 shares of common
stock at $6.00 per share. The Company plans to use a portion of the proceeds of
the proposed offering to repay approximately $5,500,000 of the acquisition and
bank financing, described in Note 7, outstanding at September 30, 1996. The
supplementary earnings per share for the nine months ended September 30, 1996
(unaudited), which follows, gives supplemental effect to the issuance of 586,359
shares of common stock for the entire period during which the acquisition and
bank financing was outstanding, which is the number of shares to be issued in
the proposed initial public offering, the proceeds of which would be used to
repay approximately $5,500,000 of debt outstanding at

F-15
<PAGE>
PURO WATER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

13. SUBSEQUENT EVENTS (CONTINUED)
September 30, 1996, as well as to effect the reduction of related interest
expense in that period. These shares are presumed outstanding for supplementary
purposes only, and were neither issued nor outstanding for any purpose during
the nine months ended September 30, 1996.

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
------------------------
<S> <C>
(UNAUDITED)
Supplementary earnings per share............................... $ 0.29
-----------
-----------
Supplementary weighted average common shares
outstanding.................................................. 2,824,038
-----------
-----------
</TABLE>

STOCK SPLIT

In April 1996, the Company approved an increase in the amount of authorized
common stock from 2,000,000 to 10,000,000 shares and a change in the Common
Stock par value from $.01 to $.003125. Immediately thereafter, the Company
authorized a 3.2 for 1 stock split on all common stock outstanding. All
information in the accompanying financial statements has been retroactvely
restated to give effect to the stock split.

SALE OF COMMON STOCK

In May, 1996, a third party investor purchased 98,568 shares of Common Stock
for an aggregate purchase price of $500,000. In November 1996, the investor was
also granted options to purchase 49,284 shares of the Company's Common Stock at
the IPO price less underwriting discounts and commissions in the event of an
initial public offering. These options are still outstanding.

EXERCISE OF STOCK WARRANTS

In October 1996, certain entities, under the control of the Chairman of the
Board of Directors and a principal stockholder of the Company, exercised stock
warrants for an aggregate 2.5% of the outstanding Common Stock and stock options
of the Company, immediately after said exercise, for a total of $1,000. Said
warrants were issued on January 28, 1994, in connection with the initial
capitalization of the Company and the investment in the Company by the holder.
The fair market value of the stock underlying the warrants was $31,000 at the
time of issuance. The warrants were not subject to any restrictions. Pursuant to
the exercise of the aforementioned warrants, the stockholder received a total of
56,860 shares of Common Stock.

STOCK OPTION GRANTS

In November 1996, the Company granted options to purchase 49,284 shares of
Common Stock and 24,642 shares of Common Stock, respectively, to the Chairman of
the Board of Directors and a principal stockholder of the Company and entities
controlled by him. These options may be exercised over fifty-four and
fifty-seven month periods from the grant date and are exercisable at the IPO
price per share of the Company's Common Stock less underwriter's discounts and
commissions. All of these options are still outstanding.

REVERSE STOCK SPLIT AND RECAPITALIZATION

In connection with the pending initial public offering described above, the
Company will effect a recapitalization whereby the presently outstanding Common
Stock will be converted to shares of Common Stock on a .4928 to 1 share basis
and the common stock par value will be converted from $.003125 to $.0063. All
information contained in the accompanying financial statements and footnotes has
been retroactively restated to give effect to these transactions.

F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Electrified Companies, Inc.:

We have audited the accompanying balance sheet of Electrified Companies,
Inc. (a New Jersey corporation) as of December 31, 1995, and the related
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Electrified Companies, Inc.
as of December 31, 1995, and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1994 in conformity with generally
accepted accounting principles.

New York, New York Arthur Andersen LLP
May 1, 1996

F-17
<PAGE>
ELECTRIFIED COMPANIES, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1995

<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash.......................................................................... $ 10,459
Accounts receivable, less allowance for doubtful accounts of $116,112......... 361,420
Inventory..................................................................... 112,240
Note receivable, current portion.............................................. 37,308
Other current assets.......................................................... 7,495
---------
Total current assets...................................................... 528,922

PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $4,463,494 (Note 4)........................................... 1,444,527
NOTE RECEIVABLE, net of current portion......................................... 112,151
OTHER ASSETS.................................................................... 4,736
---------
TOTAL ASSETS.............................................................. $2,090,336
---------
---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable.............................................................. $ 208,426
Accrued expenses and other current liabilities................................ 28,284
Deferred income............................................................... 144,982
Short-term borrowings (Note 5)................................................ 5,000
Current portion of long-term debt (Note 6).................................... 189,125
---------
Total current liabilities................................................. 575,817

OTHER LIABILITIES:
Long-term debt (Note 6)....................................................... 262,218
Other liabilities............................................................. 81,607
---------

Total liabilities..................................................... 919,642

COMMITMENTS (Note 9)

STOCKHOLDERS' EQUITY:
Common stock, $100 par value; 2,000 shares authorized; 1,860 shares
issued and outstanding...................................................... 186,000
Retained earnings............................................................. 984,694
---------
Total stockholders' equity................................................ 1,170,694
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................ $2,090,336
---------
---------
</TABLE>

The accompanying notes are an integral part of this balance sheet.

F-18
<PAGE>
ELECTRIFIED COMPANIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995

<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
REVENUE:
Bottled water sales and other revenue............................................... $ 4,339,486 $ 4,425,501
Rental revenue...................................................................... 691,656 732,753
------------ ------------
5,031,142 5,158,254
COST OF GOODS SOLD.................................................................... 2,500,949 2,615,267
------------ ------------
GROSS PROFIT.......................................................................... 2,530,193 2,542,987

OPERATING EXPENSES:
Operating expenses.................................................................. 1,381,882 1,478,912
General and administrative expenses................................................. 994,872 883,160
Depreciation and amortization....................................................... 448,128 447,118
------------ ------------
Total operating expenses.......................................................... 2,824,882 2,809,190
------------ ------------
Loss from operations.................................................................. (294,689) (266,203)

OTHER INCOME (EXPENSE)
Other income........................................................................ 165,888 310,023
Interest expense.................................................................... (54,433) (53,116)
------------ ------------
111,455 256,907
------------ ------------
LOSS BEFORE PROVISION FOR INCOME TAX.................................................. (183,234) (9,296)
PROVISION FOR INCOME TAXES............................................................ 1,332 9,366
------------ ------------
NET LOSS.............................................................................. $ (184,566) $ (18,662)
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-19
<PAGE>
ELECTRIFIED COMPANIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
<S> <C> <C> <C> <C>
NUMBER OF
SHARES PAR VALUE RETAINED EARNINGS TOTAL
----------- ---------- ----------------- ------------
BALANCE, January 1, 1994................................ 1,860 $ 186,000 $ 1,210,547 $ 1,396,547
Net (loss)............................................ -- -- (184,566) (184,566)
----- ---------- ----------------- ------------
BALANCE, December 31, 1994.............................. 1,860 186,000 1,025,981 1,211,981
Dividend distribution................................. -- -- (22,625) (22,625)
Net (loss)............................................ -- -- (18,662) (18,662)
----- ---------- ----------------- ------------
BALANCE, December 31, 1995.............................. 1,860 $ 186,000 $ 984,694 $ 1,170,694
----- ---------- ----------------- ------------
----- ---------- ----------------- ------------
</TABLE>

The accompanying notes are an integral part of these statements.

F-20
<PAGE>
ELECTRIFIED COMPANIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995

<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................................. $ (184,566) $ (18,662)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 448,128 447,118
Provision for allowance for doubtful accounts......................................... 133,329 (17,217)
Gain on sale of fixed assets.......................................................... (153,000) --
Changes in assets and liabilities:
Decrease in accounts receivable....................................................... 28,095 82,649
Decrease in inventory................................................................. 40,155 297
(Increase) decrease in other current assets........................................... (3,415) 115
Decrease in accounts payable.......................................................... (74,404) (57,261)
Decrease in accrued expenses and other current liabilities............................ (83,261) (18,143)
Increase in other liabilities......................................................... 57,334 3,445
Increase (decrease) in deferred income................................................ 160,050 (15,068)
----------- -----------
Net cash provided by operating activities....................................... 368,445 407,273
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment, net........................................ (721,619) (217,739)
Payments received on note receivable.................................................. 11,687 38,854
----------- -----------
Net cash used in investing activities........................................... (709,932) (178,885)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net............................................................ 35,000 (35,000)
Repayment of long-term debt........................................................... (382,782) (189,125)
Proceeds from long-term debt.......................................................... 686,500 --
Dividend distributions................................................................ -- (22,625)
----------- -----------
Net cash (used in) provided by financing activities............................. 338,718 (246,750)
----------- -----------
NET DECREASE IN CASH.................................................................... (2,769) (18,362)

CASH, BEGINNING OF YEAR................................................................. 31,590 28,821
----------- -----------

CASH, END OF YEAR....................................................................... $ 28,821 $ 10,459
----------- -----------
----------- -----------

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest............................................................................ $ 54,433 $ 53,115
Taxes............................................................................... -- --
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
In 1994, the Company sold the fixed assets associated with its ice machine business in
exchange for a note receivable in the amount of $200,000.
</TABLE>

The accompanying notes are an integral part of these statements.

F-21
<PAGE>
ELECTRIFIED COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995

1. ORGANIZATION AND BUSINESS:
Electrified Companies, Inc. (the "Company") is engaged in the sale of
purified bottled water and related activities including sales and rentals of
water coolers and sales of coffee and office refreshment supplies throughout the
New Jersey - New York metropolitan area. The Company's sales and rentals are
divided among residential and corporate customers.

2. SIGNIFICANT ACCOUNTING POLICIES:

MANAGEMENT ESTIMATES

INVENTORY

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at historical cost and is
depreciated on the straight-line basis and accelerated methods based on the
estimated useful lives.

REVENUE RECOGNITION

Revenue on sales of bottled water and coolers is recognized upon delivery.

Leases of water coolers and filters are accounted for under the operating
method and, accordingly, rental income is reported over the terms of the leases.

INCOME TAXES

The Company accounts for its income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which
requires recognition of deferred tax liabilities and assets for the estimated
future tax effects of events that have been recognized in the financial
statements or income tax returns. Under this method, deferred tax liabilities
and assets are determined based on differences between the financial accounting
and income tax bases of assets and liabilities, and the use of carry-forwards,
if any, using enacted tax rates in effect for the years in which the differences
and carry-forwards are expected to reverse and be utilized.

The Company operates under Subchapter S of the Internal Revenue Code and,
consequently, is not subject to Federal and certain state income taxes. The
stockholders include their pro rata share of the Company's income in their
personal income tax returns. It is the Company's policy to reimburse its
stockholders for any tax liability resulting from their inclusion of the
Company's income in their respective tax returns. The amounts distributed for
such purposes in 1995 and 1994 were $22,625 and $-0-, respectively.

NEW ACCOUNTING PRONOUNCEMENTS

During March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which is effective for fiscal years
beginning after December 15, 1995. The Company does not expect the adoption of
this standard to have a material effect on its financial position or results of
operations.

F-22
<PAGE>
ELECTRIFIED COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

3. SALE OF ICE MACHINE BUSINESS:
On June 1, 1994, the Company sold the assets relating to its ice machine
business with a book value of approximately $41,000 for $200,000. The Company
received a promissory note for $200,000, payable monthly, plus interest at 2%
above the prime rate for a period of 60 months. The note is secured by the
assets sold and all other assets of the purchaser.

4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is comprised of the following as of December
31, 1995:

<TABLE>
<S> <C>
Leasehold improvements........................................... $ 136,279
Rental equipment................................................. 1,710,333
Vehicles......................................................... 1,017,078
Machinery and equipment.......................................... 2,649,752
Furniture and fixtures........................................... 394,579
----------
5,908,021
Less: Accumulated depreciation................................... 4,463,494
----------
Fixed assets, net.............................................. $1,444,527
----------
----------
</TABLE>

Depreciation aggregated $446,041 and $448,128, respectively, for the years
ended December 31, 1995 and 1994.

5. SHORT-TERM BORROWINGS:
The Company has a line of credit available with a bank for $100,000, as of
December 31, 1995. There were no outstanding amounts as of December 31, 1995.

The outstanding amounts on all other short-term borrowings as of December
31, 1995 are as follows:

<TABLE>
<S> <C>
Shareholder loan.................................................... $ 5,000
---------
---------
</TABLE>

The prime rate was 8.50% as of December 31, 1995.

6. LONG-TERM DEBT:
A summary of long-term debt follows as of December 31, 1995:

<TABLE>
<CAPTION>
DESCRIPTION INTEREST RATE
- -------------------------------------------------------------- -----------------
<S> <C> <C>
Installment note, payable monthly through September 1998 .5% over prime
($9,510 per month plus interest)............................ $ 313,843
Installment note, payable monthly through October, 1997 .5% over prime
($6,250 per month, plus interest) collateral-vehicles used
in business................................................. 137,500
----------
451,343
Less: current portion......................................... 189,125
----------
$ 262,218
----------
----------
</TABLE>

All of the bank obligations are guaranteed by the officers of the Company.

F-23
<PAGE>
ELECTRIFIED COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1995

6. LONG-TERM DEBT: (CONTINUED)
Maturities of long-term debt over the next three years are as follows:

<TABLE>
<S> <C>
Year ending December 31,
1996............................................................ $ 189,125
1997............................................................ 176,625
1998............................................................ 85,593
---------
$ 451,343
---------
---------
</TABLE>

7. RELATED PARTY TRANSACTIONS:
The Company rents, on a year-to-year basis, its premises from a partnership,
the partners of which are the stockholders of the Company. Rent expense was
$60,000 and $64,000 for the years ended December 31, 1995 and 1994,
respectively.

8. BENEFIT PLANS:
The Company maintains a profit sharing plan which covers those employees not
covered by the union negotiated contract. Contributions to the plan are at the
discretion of the Board of Directors. Contributions to the plan for each of the
years ended December 31, 1995 and 1994 amounted to approximately $40,000,
respectively.

9. COMMITMENTS:
As of December 31, 1995, the Company had entered into operating leases for
warehouse space and office equipment.

Future minimum payments for operating leases at December 31, 1995 are as
follows:

<TABLE>
<S> <C>
Year Ended December 31,
1996............................................................ $ 110,000
1997............................................................ 120,000
1998............................................................ 120,000
1999............................................................ 120,000
2000 and thereafter............................................. 850,000
</TABLE>

Rent expense, excluding the amounts discussed in Note 7, for the years ended
December 31, 1995 and 1994 was $65,599 and $65,163, respectively.

10. SUBSEQUENT EVENTS:
On January 31, 1996, all of the Company's assets were acquired and certain
liabilities assumed by Puro Water Group, Inc. The purchase agreement called for
total payments to be made to the owners of the Company in the aggregate amount
of $5,000,000, payments totaling $437,801 to satisfy two bank loans of the
Company and certain consideration for other outstanding liabilities. The
$5,000,000 is to be paid via a cash payment of $1,000,000 at the closing and
three notes payable for $2,900,000, $600,000 and $500,000, respectively, bearing
interest at the prime rate, for which only interest payments are due through
February 1997 and then equal monthly installments commencing March 1997 through
February 2000.

F-24
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE COMMON STOCK TO WHICH IT RELATES OR AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AT ANY TIME AFTER THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 12
Dividend Policy................................ 12
Dilution....................................... 13
Capitalization................................. 14
Pro Forma Financial Information................ 15
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business....................................... 24
Management..................................... 33
Security Ownership of Management and Others.... 38
Certain Transactions........................... 39
Description of Securities...................... 39
Shares Eligible for Future Sale................ 40
Underwriting................................... 42
Legal Matters.................................. 44
Experts........................................ 44
Additional Information......................... 44
Index to Financial Statements.................. F-1
</TABLE>

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

UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

[LOGO]

PURO WATER GROUP, INC.

1,350,000 SHARES OF
COMMON STOCK

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

PROSPECTUS
---------------------

LAIDLAW EQUITIES, INC.

GILFORD SECURITIES INCORPORATED

, 1997

ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 145 of the Delaware General Corporation Law ("Section 145")
authorizes a court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article 7 of the Company's Certificate of
Incorporation provides as follows: "A director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit." This provisions does not
eliminate a director's fiduciary duty, and in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts and omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provisions also do not affect a director's responsibilities under any other law,
such as the federal securities laws or state or federal environmental laws. In
addition, the Company has obtained liability insurance for its officers and
directors.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses (other than underwriting
discounts and commissions) which will be paid by the Registrant in connection
with the issuance and distribution of the securities being registered. With the
exception of the SEC registration fee and the NASD filing fee, all amounts shown
are estimates.

<TABLE>
<CAPTION>
SEC registration fee........................................... $ 3,377.08
<S> <C>
NASD filing fee................................................ 1,614.44
American Stock Exchange listing expenses....................... 25,000.00
Blue Sky fees and expenses (including legal and filing fees)... 5,000.00
Printing expenses (other than stock certificates).............. 150,000.00
Printing and engraving of stock certificates................... 3,500.00
Transfer and Registrar fees and expenses....................... 1,500.00
Accounting fees and expenses................................... 240,000.00
Legal fees and expenses (other than Blue Sky).................. 110,000.00
Miscellaneous expenses......................................... 7,008.48
----------
Total.......................................................... $547,000.00
----------
----------
</TABLE>

II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

In the last three years, the Company has issued and sold the following
securities (as adjusted to reflect a 3.2 to 1 stock split effected as of April
29, 1996 and a .4928 to 1 stock split to be effected prior to the effectiveness
hereof):

1. On January 28, 1994, the Company issued to (i) The Trust Under Article 16
of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon 378,470 shares
of common stock, (ii) The Trust Under Article 16 of the Will of W. Palmer Dixon
for the benefit of Palmer Dixon 378,470 shares of common stock; (iii) Scott and
Beth Levy 425,779 shares of common stock, and (iv) Jack West 394,240 shares of
common voting stock. No underwriter was used for these transactions. The
foregoing transaction was exempt from registration under the Act based upon
section 4(2) thereof and Rule 152.

2. On October 16, 1995, the Company issued to (i) The Trust Under Article 16
of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon 98,568 shares
of common stock; (ii) The Trust Under Article 16 of the Will of W. Palmer Dixon
for the benefit of Palmer Dixon 19,712 shares of common stock; (iii) Peter T.
Dixon 78,848 shares of common stock. The consideration for this issuance was One
Million Dollars ($1,000,000). No underwriter was used for these transactions.
The foregoing transation was exempt from registration under the Act based upon
section 4(2) thereof and Rule 152.

3. On December 29, 1995, the Company issued to Thomas Limited Partnership
197,120 shares of common stock. The consideration for this issuance was One
Million Dollars ($1,000,000). No underwriter was used for this transaction. The
foregoing transaction was exempt from registration under the Act based upon
section 4(2) thereof and Rule 152.

4. On May 1, 1996, the Company issued to Edberg Associates Limited
Partnership 98,560 shares of common stock. The consideration for this issuance
was Five Hundred Thousand Dollars ($500,000). No underwriter was used for this
transaction. The foregoing transaction was exempt from registration under the
Act based upon section 4(2) thereof and Rule 152.

5. On October 1, 1996, the Company issued to (i) The Trust Under Article 16
of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon 28,430 shares
of common stock; and (ii) The Trust Under Article 16 of the Will of W. Palmer
Dixon for the benefit of Palmer Dixon 28,430 shares of common stock, each
issuance being pursuant to the exercise of Warrants issued on January 28, 1994.
The aggregate consideration for this issuance was One Thousand Dollars ($1,000).
No underwriter was used for these transactions. The foregoing transaction was
exempt from registration under the Act based upon section 4(2) thereof and Rule
152.

II-2
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL DATA SCHEDULES

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
<C> <S>
*1.1. Form of Underwriting Agreement between the Company, Laidlaw Equities, Inc. and Gilford Securities
Incorporated.
*1.2 Form of Selected Dealer Agreement.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Amended and Restated By-laws of the Company.
*4.1 Specimen Certificate of the Company's Common Stock.
4.2 Form of Underwriter's Common Stock Purchase Warrant.
*4.3 1996 Stock Option Plan.
4.4 Stockholders Agreement dated January 28, 1994, as amended by First Amendment to Stockholders
Agreement dated as of October 16, 1995, Second Amendment to Stockholders Agreement dated as of
December 29, 1995, Third Amendment to Stockholders Agreement dated as of May 1, 1996, and Fourth
Amendment to Stockholders Agreement dated as of November 11, 1996.
*5.1 Opinion of Lev, Berlin & Dale, P.C.
10.1 Asset Purchase Agreement between the Company and Glenn Downing, Gary Downing and Downmorr Water
Corporation dated August 26, 1995.
10.2 Amendment to Asset Purchase Agreement by Glenn Downing and Gary Downing dated November 12, 1996.
10.3 Asset Purchase Agreement between the Company and Kenneth Gelber and Bark Water Company Ltd. d/b/a/
Nature's Way dated January 30, 1995.
10.4 Amendment to Asset Purchase Agreement by Kenneth Gelber and Bark Water Company Ltd. dated November
12, 1996.
10.5 Asset Purchase Agreement between the Company and Edward and Rita Worfler and National Ozone Water
Corp. dated April 28, 1995.
10.6 Asset Purchase Agreement between the Company and Peter Nicholas, Anthony Bonventure and Nature's
Best Water Company, Inc. dated April 28, 1995.
10.7 Waiver of right to convert debt issued in connection with the Asset Purchase Agreement by Nature's
Best Water Company, Inc. dated November 8, 1996.
10.8 Asset Purchase Agreement between the Company and Waters Filter & Cooler, Inc. and Transition
Agreement between Alan Waters and the Company, each dated October 31, 1995, as amended pursuant
to Amendment dated March 29, 1996, as revised pursuant to Revision dated May 23, 1996.
10.9 Asset Purchase Agreement between the Company and Rainbow Coffee Service Inc. d/b/a/ Rainbow Water
Service dated October 31, 1995, as amended by Amendment dated March 29, 1996.
10.10 Asset Purchase Agreement between the Company and Mountainwood Spring Water Co., Inc. and White
Mountain Co., Inc. dated as of June 30, 1995.
10.11 Waiver of option granted in connection with the Asset Purchase Agreement by Mountainwood Spring
Water Co., Inc. and White Mountain Co., Inc. dated November 7, 1996.
10.12 Asset Purchase Agreement between the Company and Robert Brundage, Lyle Brundage and Electrified
Companies, Inc. dated January 31, 1996.
10.13 Net Lease, dated January 31, 1996, between the Company and R&L Properties Company covering premises
in East Orange, New Jersey.
*10.14 Employment Agreement between the Company and Jack West dated as of November 1, 1996.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
*10.15 Employment Agreement between the Company and Scott Levy dated as of November 1, 1996.
<C> <S>
*10.16 Employment Agreement between the Company and James Botti dated as of November 1, 1996.
10.17 Lease, dated October 9, 1995, between the Company and Stabal Realty Corp. covering 76-78 Mall
Drive, Commack, Long Island, New York facility, as modified by Lease Modification dated February
15, 1996.
10.18 Balloon Mortgage on the Maspeth, New York facility dated May 24, 1988, with Bond and Extension and
Consolidation Agreement of same date.
10.19 Supply Agreement dated June 27, 1996 between the Company and Mountainwood Spring Water Co., Inc.
10.20 Long-term Supply Agreement dated June 13, 1996 between the Company and Shawangunk Bulk Springwater
Corp.
10.21 Stock Purchase Agreement dated as of December 29, 1995 between the Company and Thomas Limited
Partnership.
10.22 Stock Purchase Agreement dated as of May 1, 1996 between the Company and Edberg Associates Limited
Partnership.
10.23 Stock Purchase Agreement dated as of October 16, 1995 between the Company and Peter T. Dixon and
the Trust under Article 16 of the Will of W. Palmer Dixon for the benefit of Peter and Palmer
Dixon.
10.24 Registration Rights Agreement dated as of December 29, 1995 between the Company and Thomas Limited
Partnership.
10.25 Registration Rights Agreement dated as of May 1, 1996 between the Company and Edberg Associates
Limited Partnership.
10.26 Registration Rights Agreement dated as of October 16, 1995 between the Company and Peter T. Dixon
and the Trusts Under Article 16 of the Will of W. Palmer Dixon for the benefit of Peter and
Palmer Dixon.
10.27 Registration Rights Agreement dated January 28, 1994 between the Company and the Trusts Under
Article 16 of the Will of W. Palmer Dixon for the benefit of Peter and Palmer Dixon.
10.28 Registration Rights Agreement dated January 28, 1994 between the Company and Jack C. West and Scott
and Beth Levy.
10.29 Master Note in principal amount of $2 million with European American Bank dated September 13, 1996.
10.30 Commercial Note in the original principal amount of $1.5 million with European American Bank dated
September 13, 1996.
10.31 General Security Agreement with European American Bank dated July 31, 1996.
10.32 Agreement of Subordination and Assignment dated as of January 31, 1996 between the Trusts under
Article 16 of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon and Palmer Dixon, and
the Company in favor of European American Bank.
10.33 Pledge Agreement dated January 31, 1996 between the Trusts under the Will of W. Palmer Dixon for
the benefit of Peter T. Dixon and Palmer Dixon in favor of European American Bank.
10.34 Guaranty of All Liability dated as of February 5, 1996, by Peter T. Dixon in favor of European
American Bank.
10.35 Secured Note in original principal amount of $250,000 dated January 28, 1994 in favor of the Trusts
under Article 16 of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon and Palmer
Dixon.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------
10.36 Standby Secured Note in orginal principal amount of $50,000 dated January 28, 1994 in favor of the
Trusts under Article 16 of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon and
Palmer Dixon.
<C> <S>
10.37 Letter of Credit in the amount of $500,000 with European American Bank dated June 27, 1996.
10.38 Letter of Credit in the amount of $4,000,000 with European American Bank dated January 31, 1996.
10.39 Consulting Agreement between the Company and Peter T. Dixon dated January 28, 1994.
10.40 Waiver of Transaction Fee by Peter T. Dixon dated November 14, 1996.
10.41 Option to Purchase Common Stock dated November 9, 1996 in favor of Edberg Associates Limited
Partnership.
10.42 Option to Purchase Common Stock dated November 9, 1996 in favor of Peter T. Dixon and the Trusts
under Article 16 of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon and Palmer
Dixon.
10.43 Option to Purchase Common Stock dated November 9, 1996 in favor of Peter T. Dixon and the Trusts
under Article 16 of the Will of W. Palmer Dixon for the benefit of Peter T. Dixon and Palmer
Dixon.
*11.1 Supplemental Earnings Per Share Computation.
*23.1 Consent of Lev, Berlin & Dale, P.C.
*23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Dr. Stephen C. Edberg.
23.4 Consent of Leonard D. Rosinski.
24.1 Powers of Attorney (included on the signature page to this Registration Statement).
27.1 Financial Data Schedule.
</TABLE>

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

* Filed herewith.

ITEM 28. UNDERTAKINGS

The Company hereby undertakes that it will: 1. file, during any period in
which it offers or sells securities, a post-effective amendment to this
Registration Statement to:

(i) include any prospectus required by Section 10(a)(3) of the Securities
Act;

(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information on the registration
statement; and notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a Twenty Percent (20%)
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;

(iii) include any additional or changed material information on the plan of
distribution. 2. for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering. 3. file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering. 4. provide
to the underwriter at the closing specified in the underwriting agreement
certificates in such denominations and registered names as required by the
underwriter to permit prompt delivery to each purchaser.

II-5
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the By-laws of the Company, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for such indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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
offered hereunder, the Company 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 of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The Company hereby undertakes that it will:

(i) for determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(i), or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective;

(ii) for determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in that registration
statement, and that offering such securities at that time as the initial bona
fide offering of these securities; and

(iii) provide to the Underwriter at the closing of the Offering certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.

II-6
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on this 3rd day of January 1997.

PURO WATER GROUP, INC.

By: /s/ JACK C. WEST
------------------------------------------
Jack C. West
President

By: *
------------------------------------------
Scott Levy
Chief Executive Officer

In accordance with the requirements of the Securities Act of 1933, as
amended, Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE NAME AND TITLE DATE
- -------------------------------------------- -------------------------------------------- ----------------------

<S> <C> <C>
/s/ JACK C. WEST President and Director (principal executive
---------------------------------- officer) January 3, 1997
Jack C. West

*
---------------------------------- Chief Executive Officer and Director January 3, 1997
Scott Levy

*
---------------------------------- Chairman of the Board January 3, 1997
Peter T. Dixon

* Chief Financial Officer (principal financial
---------------------------------- and accounting officer) January 3, 1997
James G. Botti

*
---------------------------------- Director January 3, 1997
Wilmer J. Thomas

*By: /s/ JACK C. WEST
--------------------------------
Jack C. West
ATTORNEY-IN-FACT
</TABLE>

II-7

<PAGE>

UNDERWRITING AGREEMENT

among

PURO WATER GROUP, INC.

LAIDLAW EQUITIES, INC.

and

GILFORD SECURITIES INCORPORATED

Dated: January , 1997

<PAGE>

TABLE OF CONTENTS

Page
----
1. Purchase and Sale of Securities.......................................... 1
1.1 Firm Shares.................................................... 1
1.1.1 Purchase of Firm Shares........................................ 1
1.1.2 Delivery and Payment........................................... 1
1.2 Overallotment Option........................................... 2
1.2.1 Grant of Option................................................ 2
1.2.2 Exercise of Option............................................. 2
1.2.3 Delivery and Payment........................................... 2
1.3 Underwriter's Warrants......................................... 3
1.3.1 Purchase and Sale.............................................. 3
1.3.2 Delivery and Payment........................................... 3

2. Representations and Warranties of the Company............................ 3
2.1 Filings under Securities Laws.................................. 3
2.1.1 Pursuant to the Act............................................ 3
2.1.2 Pursuant to the Exchange Act................................... 4
2.2 No Stop or Other Orders........................................ 4
2.3 Disclosures in Registration Statement.......................... 4
2.3.1 Representation as to Contents.................................. 4
2.3.2 Disclosure Regarding Contracts................................. 4
2.3.3 Prior Securities Transactions.................................. 5
2.4 Changes After Dates in Registration Statement.................. 5
2.4.1 No Material Adverse Change..................................... 5
2.4.2 Recent Securities Transactions, Etc............................ 5
2.5 Independent Accountants........................................ 5
2.6 Financial Statements........................................... 6
2.7 Capitalization................................................. 6
2.8 Representations Regarding Securities........................... 6
2.8.1 Outstanding Securities......................................... 6
2.8.2 Securities Sold Hereunder...................................... 7
2.9 No Registration Rights......................................... 7
2.10 Representations Regarding This Agreement and the
Underwriter's Warrant Agreement................................ 7
2.11 No Improper Payments........................................... 8
2.12 No Defaults; Violations........................................ 8
2.13 Corporate Power; Licenses; Consents............................ 9
2.13.1 Conduct of Business............................................ 9
2.13.2 Required Consents.............................................. 9
2.14 Title to Property; Insurance................................... 9
2.15 Litigation; Governmental Proceedings........................... 9
2.16 Organization; Good Standing.................................... 9
2.17 Taxes.......................................................... 10
2.18 Transactions Affecting Disclosure to NASD...................... 10
2.18.1 Finders' Fees.................................................. 10
2.18.2 Payments Within Twelve (12) Months............................. 10
2.18.3 Use of Proceeds................................................ 11
2.18.4 Insiders' NASD Affiliation..................................... 11
2.19 Internal Accounting Controls................................... 11
2.20 AMEX Listing................................................... 11
2.21 Intangibles.................................................... 11
2.22 Employee Matters............................................... 11

(i)
<PAGE>

Page
----
2.22.1 Relations With Employees....................................... 11
2.22.2 Employee Benefit Plans......................................... 12
2.23 Investment Company Representations............................. 12
2.24 Officers' Certificate.......................................... 12
2.25 Lock-Up Agreements With Insiders............................... 13
2.26 No Stabilization or Manipulation............................... 13
2.27 Subsidiaries................................................... 13

3. Covenants of the Company................................................. 13
3.1 Amendments to Registration Statement........................... 13
3.2 Federal Securities Laws........................................ 13
3.2.1 Compliance..................................................... 14
3.2.2 Filing of Final Prospectus..................................... 14
3.2.3 Exchange Act Registration...................................... 14
3.3 Blue Sky Filings............................................... 14
3.4 Delivery of Filings to Underwriter............................. 14
3.5 Effectiveness and Events Requiring Notice to the
Underwriter.................................................... 15
3.6 Unaudited Financials........................................... 15
3.7 Reports to the Underwriter..................................... 15
3.7.1 Periodic Reports, Etc.......................................... 15
3.7.2 Transfer Sheets................................................ 16
3.8 Delivery of Underwriter's Warrants............................. 16
3.9 Payment of Expenses............................................ 16
3.9.1 General Expenses............................................... 16
3.9.2 Underwriter's Expenses......................................... 17
3.10 Application of Net Proceeds.................................... 17
3.11 Delivery of Earnings Statements to Security Holders............ 18
3.12 Reservation of Shares.......................................... 18
3.13 Board of Directors............................................. 18
3.14 Press Releases................................................. 18
3.15 Secondary Market Trading and Standard & Poor's................. 18
3.16 AMEX Maintenance............................................... 19
3.17 Key Person Life Insurance...................................... 19
3.18 Disqualification on Form S-1 (or other appropriate
form).......................................................... 19
3.19 Accountants.................................................... 19
3.20 Sale of Securities............................................. 19
3.21 Exercise Price of Options/Warrants............................. 19

4. Conditions of the Underwriter's Obligations.............................. 20
4.1 Regulatory Matters............................................. 21
4.1.1 Effectiveness of Registration Statement........................ 21
4.1.2 NASD Clearance................................................. 21
4.1.3 No Blue Sky Stop Orders........................................ 21
4.2 Company Counsel Matters........................................ 21
4.2.1 Closing Date Opinion of Counsel................................ 21
4.2.2 Option Closing Date Opinion of Counsel......................... 26
4.2.3 Reliance....................................................... 26
4.3 Cold Comfort Letter............................................ 27
4.4 Certificates................................................... 28
4.4.1 Officers' Certificates......................................... 28

(ii)
<PAGE>

Page
----
4.4.2 Secretary's Certificate........................................ 29
4.5 No Material Changes............................................ 29
4.6 Delivery of Underwriter's Warrants............................. 30
4.7 Opinion of Counsel for the Underwriter......................... 30

5. Indemnification.......................................................... 30
5.1 Indemnification of the Underwriter............................. 30
5.1.1 General........................................................ 30
5.1.2 Procedure...................................................... 31
5.2 Indemnification of the Company................................. 32
5.3 Contribution................................................... 32
5.3.1 Contribution Rights............................................ 32
5.3.2 Contribution Procedure......................................... 33

6. Representations and Agreements to Survive Delivery....................... 33

7. Effective Date of This Agreement and Termination Thereof................. 34
7.1 Effective Date................................................. 34
7.2 Termination.................................................... 34
7.3 Notice......................................................... 35
7.4 Expenses....................................................... 35
7.5 Indemnification................................................ 35

8. Miscellaneous............................................................ 35
8.1 Notices........................................................ 35
8.2 Headings....................................................... 36
8.3 Amendment...................................................... 36
8.4 Entire Agreement............................................... 36
8.5 Binding Effect................................................. 36
8.6 Governing Law.................................................. 36
8.7 Execution in Counterparts...................................... 37
8.8 Waiver, Etc.................................................... 37

(iii)
<PAGE>

INDEX OF DEFINITIONS

Term Section
- ---- -------
Act...................................................................... 2.1.1
AMEX..................................................................... 2.2.0
Application.............................................................. 5.1.1
Closing Date............................................................. 1.1.2
Code.................................................................... 2.22.2
Commission............................................................... 2.1.1
Common Stock............................................................. 1.1.1
Company................................................. Introductory Paragraph
Controlling Person....................................................... 5.1.1
Effective Date........................................................... 1.1.2
ERISA....................................................................2.22.2
ERISA Plan...............................................................2.22.2
Exchange Act............................................................. 2.1.2
Filing Date..............................................................2.18.2
Firm Shares.............................................................. 1.1.1
Insiders................................................................. 2.25
Intangibles.............................................................. 2.21
NASD.....................................................................2.18.1
Option Closing Date...................................................... 1.2.2
Option Shares............................................................ 1.2.1
Overallotment Option..................................................... 1.2.1
Preliminary Prospectus................................................... 2.1.1
Principal Shareholders................................................... 3.22
Prospectus............................................................... 2.1.1
Registration Statement................................................... 2.1.1
Regulations.............................................................. 2.1.1
Returns.................................................................. 2.17
Right of First Refusal................................................... 3.22
Secondary Offering....................................................... 3.22
Subsequent Company Offering.............................................. 3.22
Underwriter............................................. Introductory Paragraph
Underwriter's Securities................................................. 1.3.1
Underwriter's Warrant Agreement.......................................... 2.10
Underwriter's Warrants................................................... 1.3.1
Securities............................................................... 1.3.1
Shares................................................................... 1.2.1
Subsidiaries............................................................. 2.27
Taxes.................................................................... 2.17
Unaudited Financials..................................................... 3.6
You..................................................... Introductory Paragraph

(iv)

<PAGE>

1,350,000 SHARES

PURO WATER GROUP, INC.

Common Stock

UNDERWRITING AGREEMENT

New York, New York
January , 1997

Laidlaw Equities, Inc.
Gilford Securities Incorporated
as Representatives of the
Several Underwriters
c/o Laidlaw Equities, Inc.
100 Park Avenue
New York, New York 10017

Dear Sirs:

The undersigned, Puro Water Group, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with you and the other underwriters
named in Schedule I annexed hereto (the "Underwriters") for whom you are acting
as representatives (the "Representatives" or "you") as follows:

1. Purchase and Sale of Securities.

1.1 Firm Shares.

1.1.1 PURCHASE OF FIRM SHARES. On the basis of the
representations and warranties and subject to the terms and conditions contained
herein, the Company agrees to issue and sell to the Underwriters 1,350,000
shares (the "Firm Shares") of the Company's Common Stock, $.0063 par value per
share (the "Common Stock"), and the Underwriters, severally and not jointly,
agree to purchase from the Company the respective number of Firm Shares set
forth opposite their names on Schedule I annexed hereto, at a purchase price of
[$________] per Firm Share.

1.1.2 DELIVERY AND PAYMENT. Delivery and payment for the Firm
Shares shall be made at 10:00 A.M., New York time, on or before the third full
business day following the effective date (the "Effective Date") of the
Registration Statement (as hereinafter defined), or at such other time as shall
be agreed upon by the Representatives and the Company, at the offices of Laidlaw
Equities, Inc. or at such other place as shall be agreed upon by the
Representatives and the Company. The date of delivery and payment for the Firm
Shares is called the "Closing Date." Payment

<PAGE>

for the Firm Shares shall be made on the Closing Date by certified or bank
cashier's check(s) in New York Clearing House (next day) funds, payable to the
order of the Company upon delivery to the Underwriters of certificates (in form
and substance complying with applicable law) representing the Firm Shares. The
Firm Shares shall be registered in such names and shall be in such denominations
as the Representatives may request in writing at least two (2) full business
days prior to the Closing Date. The Company shall permit the Representatives to
examine and package the Firm Shares for delivery, at least one (1) full business
day prior to the Closing Date. The Company shall not be obligated to sell or
deliver the Firm Shares, except upon tender of payment by the Underwriters for
all the Firm Shares.

1.2 OVERALLOTMENT OPTION.

1.2.1 GRANT OF OPTION. For the purposes of covering any
overallotments in connection with the distribution and sale of the Firm Shares,
the Underwriters, severally and not jointly, are hereby granted an option (the
"Overallotment Option") to purchase up to an additional 202,500 shares of Common
Stock (the "Option Shares") from the Company. The Firm Shares and the Option
Shares are hereinafter collectively referred to as the "Shares." The purchase
price to be paid for each Option Share shall be the same as the price paid for
each Firm Share pursuant to Section 1.1.1 hereof.

1.2.2 EXERCISE OF OPTION. The Overallotment Option may be
exercised by the Representatives on behalf of the Underwriters as to all or any
part of the Option Shares at any time, from time to time, within forty-five (45)
days after the Effective Date. The Underwriters shall not be under any
obligation to purchase any Option Shares prior to the exercise of the
Overallotment Option. The Overallotment Option granted hereby may be exercised
by the giving of written or telegraphic notice to the Company by the
Representatives setting forth the number of Option Shares to be purchased, the
date and time for delivery of and payment for the Option Shares and stating that
the Option Shares referred to therein are to be used for the purpose of covering
overallotments in connection with the distribution and sale of the Firm Shares.
If such notice is given two (2) full business days prior to the Closing Date,
the date set forth therein for such delivery and payment shall be the Closing
Date. If such notice is given thereafter, the date set forth therein for such
delivery and payment shall not be earlier than three (3) full business days
after the date of the notice. If such delivery and payment for the Option
Shares does not occur on the closing Date, the date and time of the closing for
such Option Shares shall be as set forth in the notice (the "Option Closing
Date"). Upon exercise of the Overallotment Option, the Company shall become
obligated to convey to the Underwriters the number of Option Shares specified in
such notice, and, subject to the terms and conditions set forth herein,

-2-

<PAGE>

each Underwriter shall be obligated to purchase that percentage of the Option
Shares as is equal to the percentage of Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives so as to avoid fractional shares.

1.2.3 DELIVERY AND PAYMENT. Payment for the Option Shares shall
be made by certified or bank cashier's check(s) in New York Clearing House (next
day) funds, payable to the order of the Company and shall be made at the offices
of Laidlaw Equities, Inc. or at such other place as shall be agreed upon by the
Representatives and the Company, upon delivery to you of certificates
representing the Option Shares being purchased. The certificates representing
the Option Shares to be delivered shall be in such denominations and registered
in such names as the Representatives request not less than two (2) full business
days prior to the Closing Date or the Option Closing Date, as the case may be,
and shall be made available to the Representatives for inspection, checking and
packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one (1) full business day prior to such Closing
Date.

1.3 REPRESENTATIVES' WARRANTS.

1.3.1 PURCHASE AND SALE. The Company hereby agrees to issue and
to sell to you and/or to such persons as you may designate, on the Closing Date,
warrants for the purchase of an aggregate of 135,000 shares of Common Stock (the
"Representatives' Warrants") for an aggregate purchase price of $135.00. The
Representatives' Warrants and the shares of Common Stock issuable upon exercise
of the Representatives' Warrants are hereinafter referred to collectively as the
"Representatives' Securities." The Shares and the Representatives' Securities
are hereinafter referred to collectively as the "Securities."

1.3.2 DELIVERY AND PAYMENT. Delivery and payment for the
Representatives' Warrants shall be made on the Closing Date. The Company shall
deliver to the Representatives, upon payment therefor, certificates for the
Representatives' Warrants in the name or names and in such denominations as the
Representatives may request. The Representatives' Warrants shall be exercisable
for a period of four (4) years commencing one (1) year after the Effective Date
at an initial exercise price per share of 140% of the per share initial public
offering price for the Shares and shall be substantially in the form of the
Representatives' common stock purchase warrant filed as an exhibit to the
Registration Statement.

2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Underwriters that:

-3-

<PAGE>

2.1 FILINGS UNDER SECURITIES LAWS.

2.1.1 PURSUANT TO THE ACT. The Company has filed with the
Securities and Exchange Commission (the "Commission") a registration statement
and an amendment or amendments thereto, on Form SB-2 (Registration No.
333-16247), including any related preliminary prospectus (a "Preliminary
Prospectus"), for the registration of the Securities under the Securities Act of
1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the rules and regulations of the Commission under the Act (the
"Regulations"). Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time the registration
statement becomes effective (including the prospectus, financial statements,
schedules, exhibits and all other documents filed as a part thereof or
incorporated therein and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430A of the Regulations), is hereinafter
called the "Registration Statement," and the form of the final prospectus dated
the Effective Date (or, if applicable, the form of final prospectus filed with
the Commission pursuant to Rule 424 of the Regulations), is hereinafter called
the "Prospectus."

2.1.2 PURSUANT TO THE EXCHANGE ACT. The Company has filed with
the Commission a Form 8-A Registration Statement (File No. _______) providing
for the registration under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of the shares of Common Stock. The registration of the Common
Stock has been or will be declared effective by the Commission on the date
hereof.

2.2 NO STOP OR OTHER ORDERS. Neither the Commission, nor any state
regulatory authority, has issued any order preventing or suspending the use of
any Preliminary Prospectus or has instituted or threatened to institute any
proceedings with respect to such an order.

2.3 DISCLOSURES IN REGISTRATION STATEMENT.

2.3.1 REPRESENTATION AS TO CONTENTS. At the time the Registration
Statement became effective and at all times subsequent thereto up to the Closing
Date and any Option Closing Date, the Registration Statement and the Prospectus
shall contain all material statements that are required to be stated therein in
accordance with the Act and the Regulations, and shall in all material respects
conform to the requirements of the Act and the Regulations; neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, on such dates, shall contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under

-4-

<PAGE>

which they were made, not misleading. The representation and warranty made in
this Section 2.3.1 does not apply to statements made or statements omitted in
reliance upon and in conformity with written information furnished to the
Company by the Underwriters expressly for use in the Registration Statement or
Prospectus or any amendment thereof or supplement thereto. The Company
acknowledges that such information consists solely of the information under the
heading "Underwriting" in the Prospectus.

2.3.2 DISCLOSURE REGARDING CONTRACTS. The description in the
Registration Statement and the Prospectus of contracts, instruments and other
documents is accurate in all material respects. There are no contracts,
instruments or other documents of a character required to be described in the
Registration Statement or the Prospectus or to be filed with the Commission as
exhibits to the Registration Statement, which have not been so described or
filed. Each contract, instrument and other document (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and which is referred to in the Prospectus, or is
material to the Company's business, has been duly and validly executed, is in
full force and effect and is enforceable against the parties thereto in
accordance with its terms. Neither the Company nor, to the best knowledge of
the Company, any other party thereto is in default thereunder and no event has
occurred which, with the lapse of time or the giving of notice, or both, would
constitute a default by the Company thereunder.

2.3.3 PRIOR SECURITIES TRANSACTIONS. No securities of the Company
have been sold by the Company or by or on behalf of, or for the benefit of, any
person or persons controlling, controlled by, or under common control with the
Company, within three (3) years prior to the date hereof, except as disclosed in
the Registration Statement.

2.4 CHANGES AFTER DATES IN REGISTRATION STATEMENT.

2.4.1 NO MATERIAL ADVERSE CHANGE. Since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
except as otherwise specifically stated therein, (i) there has been no material
adverse change in the condition, financial or otherwise, or in the results of
operations, assets, properties, business or business prospects of the Company,
including, but not limited to, any material loss or interference with its
business from fire, storm, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, whether or not arising in the ordinary course of business, and
(ii) there have been no transactions entered into by the Company, other than
those in the ordinary course of business, which are material with respect to the
condition, financial or otherwise, or to the

-5-

<PAGE>

results of operations, business or business prospects of the Company.

2.4.2 RECENT SECURITIES TRANSACTIONS, ETC. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect to
its capital stock.

2.5 INDEPENDENT ACCOUNTANTS. To the best knowledge of the Company, Arthur
Andersen LLP, whose report is filed with the Commission as part of the
Registration Statement, are independent accountants as required by the Act and
the Regulations. The statements included in the Registration Statement with
respect to such accountants are true and correct in all material respects.

2.6 FINANCIAL STATEMENTS. The financial statements, including the notes
thereto and supporting schedules, if any, included in the Registration Statement
and Prospectus fairly present the financial position, the results of operations
and cash flows of the Company at the dates and for the periods to which they
apply; and, except as otherwise indicated in the Registration Statement, such
financial statements have been prepared in conformity with United States
generally accepted accounting principles, consistently applied throughout the
periods involved; and the supporting schedules, if any, included in the
Registration Statement present fairly the information required to be stated
therein. No other financial statements or schedules are required to be included
in the Registration Statement. The selected financial data set forth in the
Prospectus under the captions "Summary Financial Information," "Capitalization,"
"Pro Forma Financial Information" and "Selected Financial Data" fairly present
the information set forth therein on the basis stated in the Registration
Statement.

2.7 CAPITALIZATION. The Company had at the date or dates indicated in the
Registration Statement and Prospectus duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement and the Prospectus, on the Effective Date and on the Closing Date and
any Option Closing Date, there will be no options, warrants, or other rights to
purchase or otherwise acquire any authorized but unissued shares of Common
Stock, preferred stock of the Company, if any, or any security convertible into
shares of Common Stock or preferred stock, or any contracts or commitments to
issue or sell shares of Common Stock or preferred

-6-

<PAGE>

stock or any such options, warrants, rights or convertible securities.

2.8 REPRESENTATIONS REGARDING SECURITIES.

2.8.1 OUTSTANDING SECURITIES. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holder of any security of the Company or similar
contractual rights granted by the Company. The outstanding options and
warrants, if any, to purchase shares of Common Stock constitute the valid and
binding obligations of the Company, enforceable in accordance with their terms.
The authorized Common Stock and any outstanding options and warrants to purchase
shares of Common Stock conform to all statements relating thereto contained in
the Registration Statement and the Prospectus. The offers and sales of the
outstanding Common Stock, and any options and warrants to purchase shares of
Common Stock, were at all relevant times either registered under the Act and
applicable state securities or Blue Sky Laws or were exempt from such
registration requirements.

2.8.2 SECURITIES SOLD HEREUNDER. The Securities have been duly
authorized and, when issued and paid for, will be validly issued, fully paid and
non-assessable and the holders thereof are not and will not be subject to
personal liability by reason of being such holders; the Securities are not and
will not be subject to the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; and all
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken. When issued, the
Representatives' Warrants will constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby and the
Representatives' Warrants are enforceable against the Company in accordance with
their respective terms.

2.9 NO REGISTRATION RIGHTS. No holder of any securities of the Company or
of any options or warrants of the Company exercisable for or convertible or
exchangeable into securities of the Company has the right to require the Company
to register any such securities of the Company under the Act or to include any
such securities in a registration statement to be filed by the Company,
including the Registration Statement, except as disclosed in the Prospectus.

2.10 REPRESENTATIONS REGARDING THIS AGREEMENT AND THE REPRESENTATIVES'
WARRANT AGREEMENT. The Company has full power and

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authority, corporate and otherwise, to enter into this Agreement and the
Agreement governing the Representatives' Warrants (the "Representatives' Warrant
Agreement") and to carry out the provisions and conditions hereof and thereof.
This Agreement and the Representatives' Warrant Agreement have been duly and
validly authorized by the Company and constitute, or when executed and
delivered, will constitute valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms,
except (a) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws offering creditors' rights generally, (b) as
enforceability of any indemnification and contribution provision may be limited
under the federal and state securities laws, and (c) that, the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. The execution, delivery and performance
by the Company of this Agreement and the Representatives' Warrant Agreement, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms and conditions hereof and
thereof have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time or both,
(i) result in a breach of, or conflict with any of the terms and provisions of,
or constitute a default under, or result in the creation, modification,
termination or imposition of any lien, charge or encumbrance upon any property
or assets of the Company pursuant to the terms of any indenture, mortgage, deed
of trust, note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the property or assets of the Company is subject; (ii) result
in any violation of the provisions of the Certificate of Incorporation or the
By-Laws of the Company; (iii) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business; or (iv) have a material adverse effect on any permit,
license, certificate, registration, approval, consent or franchise concerning
the Company.

2.11 NO IMPROPER PAYMENTS. Neither the Company nor any director, officer,
employee or agent of the Company has made any payment of funds of the Company or
received or retained any funds in violation of any law, rule or regulation or of
a character required to be disclosed in the Prospectus.

2.12 NO DEFAULTS; VIOLATIONS. Except as set forth in the Prospectus, no
default exists in the due performance and observance of any material term,
covenant or condition of any license, contract, indenture, mortgage, deed of
trust, note, loan or credit agreement, or any other agreement or instrument
evidencing an

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obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
properties or assets of the Company is subject. The Company is not in violation
of any term or provision of its Certificate of Incorporation or By-Laws. The
Company is not in violation of any franchise, license, permit, applicable law,
rule, regulation, judgment or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business, which violation would result in a material adverse
change in the condition (financial or other), business, prospects or properties
of the Company.

2.13 CORPORATE POWER; LICENSES; CONSENTS.

2.13.1 CONDUCT OF BUSINESS. The Company has all requisite
corporate power and authority, and has all necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulatory officials and bodies to own or lease its properties and conduct its
business as described in the Prospectus, and the Company is and has been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates and permits and all federal, state and local laws, rules
and regulations.

2.13.2 REQUIRED CONSENTS. The Company has obtained all consents,
authorizations, approvals and orders required in connection with the execution
and delivery of this Agreement and the Representatives' Warrant Agreement and
the performance of its obligations hereunder and thereunder. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the valid issuance, sale and delivery of the
Securities pursuant to this Agreement and the Representatives' Warrant Agreement
and as contemplated by the Prospectus, except those required under applicable
federal and state securities laws.

2.14 TITLE TO PROPERTY; INSURANCE. The Company has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus. The Company has adequately insured its properties against loss
or damage by fire or other casualty and maintains such other insurance as is
usually maintained by companies engaged in the same business or in similar
businesses.

2.15 LITIGATION; GOVERNMENTAL PROCEEDINGS. Except as set forth in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or threatened
against, or involving the properties or business of, the Company which would
materially and adversely affect the financial position, prospects, value or the

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operation or the properties or the business of the Company, or which question
the validity of the capital stock of the Company or this Agreement or of any
action taken or to be taken by the Company pursuant to, or in connection with,
this Agreement. There are no outstanding orders, judgments or decrees of any
court, governmental agency or other tribunal naming the Company and enjoining
the Company from taking, or requiring the Company to take, any action, or to
which the Company, its properties or business, is bound or subject.

2.16 ORGANIZATION; GOOD STANDING. The Company has been duly organized and
is validly existing as a corporation and is in good standing under the laws of
its state of incorporation. The Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which ownership
or leasing of any properties or the character of its operations requires such
qualification or licensing.

2.17 TAXES. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof. The Company has paid
all taxes (as hereinafter defined) shown as due on such returns that were filed
and has paid all taxes imposed on or assessed against the Company. No issues
have been raised (and are currently pending) by any taxing authority in
connection with any of the returns or taxes asserted as due from the Company,
and no waivers of statutes of limitation with respect to the returns or
collection of taxes have been given by or requested from the Company or any
subsidiary. The term "taxes" mean all federal, state, local, foreign, and other
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property, windfall
profits, customs, duties or other taxes, fees, assessments, or charges or any
kind whatever, together with any interest and any penalties, additions to tax,
or additional amounts with respect thereto. The term "returns" means all
returns, declarations, reports, statements, and other documents required to be
filed in respect to taxes.

2.18 TRANSACTIONS AFFECTING DISCLOSURE TO NASD.

2.18.1 FINDERS' FEES. Except as described in the Prospectus, there
are no claims, payments, issuances, arrangements or understandings for services
in the nature of finders' or origination fees with respect to the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company that may affect the
Underwriters' compensation, as determined by the National Association of
Securities Dealers, Inc. (the "NASD").

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2.18.2 PAYMENTS WITHIN TWELVE (12) MONTHS. The Company has not
made any direct or indirect payments (in cash, securities or otherwise) to (i)
any person, as a finder's fee, investing fee or otherwise, in consideration of
such person raising capital for the Company or introducing to the Company
persons who provided capital to the Company, (ii) to any NASD member, or (iii)
to any person or entity that has any direct or indirect affiliation within the
twelve month period to November 15, 1996, the date on which the Registration
Statement was filed with the Commission (the "Filing Date") or thereafter, other
than payments to the Representatives.

2.18.3 USE OF PROCEEDS. None of the net proceeds of the offering
will be paid by the Company to any participating NASD member or any of its
affiliates.

2.18.4 INSIDERS' NASD AFFILIATION. No officer, director or holder
of five percent (5%) or more of any class of securities of the Company has any
direct or indirect affiliation or association with any NASD member. No
beneficial owner of the Company's unregistered securities has any direct or
indirect affiliation or association with any NASD member.

2.19 INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting control 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.

2.20 AMEX LISTING. As of the Effective Date, the Shares have been
approved for listing on the American Stock Exchange ("AMEX").

2.21 INTANGIBLES. The Company owns or possesses the requisite licenses or
rights to use all trademarks, service marks, service names, trade names, patents
and patent applications, copyrights and other rights (collectively, the
"Intangibles") owned or used by it. The Company's Intangibles which have been
registered in the United States Patent and Trademark Office and/or the United
States Copyright office have been fully maintained and are in full force and
effect. There is no claim or action by any person, or proceeding pending or, to
the Company's knowledge, threatened, and the Company has not received any notice
of conflict with the asserted rights of others, which challenges the exclusive
right of the Company with respect to any Intangibles used in the conduct of the
Company's business. Neither the Company's Intangibles, nor the

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Company's current products, services and processes infringe on any Intangibles
held by any third party. No others have infringed or are infringing upon the
Intangibles of the Company.

2.22 EMPLOYEE MATTERS.

2.22.1 RELATIONS WITH EMPLOYEES. The Company has generally enjoyed
a satisfactory relationship with its employees and is in compliance with all
federal, state and local laws and regulations respecting the employment of its
employees and employment practices, terms and conditions of employment and wages
and hours relating thereto. There are no pending investigations involving the
Company by the U.S. Department of Labor or any other governmental agency
responsible for the enforcement of such federal, state or local laws and
regulations. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or any predecessor entity, and none has ever occurred.
No issue concerning representation exists respecting the employees of the
Company and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. No grievance or arbitration
proceeding is pending or threatened under any expired or existing collective
bargaining agreement of the Company, if any.

2.22.2 EMPLOYEE BENEFIT PLANS. Other than as set forth in the
Registration Statement, the Company neither maintains, sponsors nor contributes
to, nor is it required to maintain, sponsor or contribute to, any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a, "multi-employer plan" (each, an "ERISA Plan") as such terms
are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Company does
not, and has at no time, maintained or contributed to a defined benefit plan, as
defined in Section 3(35) of ERISA. If the Company does maintain or contribute
to a defined benefit plan, any termination of the plan on the date hereof would
not give rise to liability under Title IV of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the meaning
of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), which could subject the Company to any tax penalty for
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan that is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multi-employer
plan."

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2.23 INVESTMENT COMPANY REPRESENTATIONS. The Company is not an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.

2.24 OFFICERS' CERTIFICATE. Any Certificate signed by any duly authorized
officer or the Company and delivered to you or to your counsel shall be deemed a
representation and warranty by the Company to the Representatives as to the
matters covered thereby.

2.25 LOCK-UP AGREEMENTS WITH INSIDERS. The Company has caused to be duly
executed a legally binding and enforceable agreement pursuant to which all
officers, all directors, all stockholders who own 5% or more of the outstanding
Common Stock of the Company or options, warrants or other securities convertible
into 5% or more of the Company's Common Stock and Edberg Associates, LP and
their family members and affiliates (as defined in the securities laws)
(collectively, the "Insiders") agree not to sell any shares of Common Stock or
warrants or options to purchase Common Stock or securities convertible into
Common Stock owned by them (either pursuant to Rule 144 of the Regulations or
otherwise) for a period of eighteen (18) months following the Effective Date,
except with the consent of the Representatives (other than by the laws of
descent and distribution). In order to enforce such agreements, the Company
shall impose stop transfer instructions with respect to all such shares of
Common Stock or warrants or options to purchase Common Stock or securities
convertible into Common Stock until the end of such period.

2.26 NO STABILIZATION OR MANIPULATION. Neither the Company, nor any of its
officers, directors or controlling persons, has taken or will take, directly or
indirectly, any action designed, or which reasonably might be expected, to cause
or result, under the Act or otherwise, in, or that has constituted,
stabilization or manipulation of the price of any Security or to facilitate the
sale or resale of the Shares.

2.27 SUBSIDIARIES. The representations and warranties made by the Company
in this Agreement shall, in the event that the Company has one or more
subsidiaries (the "subsidiaries") also apply and be true with respect to each
subsidiary, individually (except as the context otherwise requires) and taken as
a whole with the Company and all other subsidiaries, as if each representation
and warranty contained herein made specific reference to each subsidiary each
time the term "Company" was used. Except as described in the Prospectus, the
Company does not own any interest in any corporation, partnership, joint
venture, trust or other business entity.

3. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees with the
Underwriters as follows:

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3.1 AMENDMENTS TO REGISTRATION STATEMENT. The Company shall deliver to
the Representatives, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and shall not file any such amendment or supplement to which the
Representatives shall reasonably object.

3.2 FEDERAL SECURITIES LAWS.

3.2.1 COMPLIANCE. During the time when a Prospectus is required
to be delivered under the Act, the Company shall use all reasonable efforts to
comply with all requirements imposed upon it by the Act, the Regulations and the
Exchange Act and by the regulations under the Exchange Act, as from time to time
in force, so far as necessary to permit the continuance of sales of or dealings
in the Shares in accordance with the provisions hereof and the Prospectus. If
at any time when a Prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which, in the
opinion of counsel for the Company or counsel for the Underwriters, the
Prospectus, as then amended or supplemented, includes any untrue statement of a
material fact or omits to state any 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, or if it is necessary at any time to amend
the Prospectus to comply with the Act, the Company shall notify the
Representatives promptly and prepare and file with the Commission, subject to
Section 3.1 hereof, an appropriate amendment or supplement in accordance with
Section 10 of the Act.

3.2.2 FILING OF FINAL PROSPECTUS. The Company shall file the
Final Prospectus (in form and substance satisfactory to the Representatives)
with the Commission pursuant to the requirements of Rule 424 of the Regulations.

3.2.3 EXCHANGE ACT REGISTRATION. For a period of five years from
the Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock under the provisions of the Exchange Act.

3.3 BLUE SKY FILINGS. The Company shall endeavor in good faith, in
cooperation with the Representatives and their counsel, at or prior to the time
the Registration Statement becomes effective, to qualify the Shares for offering
and sale under the securities laws of such jurisdictions as the Representatives
may reasonably designate, provided that no such qualification shall be required
in any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or would be required to qualify to do business as a
foreign corporation. In each jurisdiction where such qualification shall be
effected, the Company shall, unless the Representatives agree that such action
is not at the time necessary or advisable, use all reasonable efforts

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to file and make such statements or reports at such times as are or may be
required by the laws of such jurisdiction.

3.4 DELIVERY OF FILINGS TO UNDERWRITERS. The Company shall deliver to the
Underwriters, without charge, from time to time during the period when the
Prospectus is required to be delivered under the Act, such number of copies of
each Preliminary Prospectus and the Prospectus as the Underwriters may
reasonably request and, immediately after the Registration Statement or any
amendment or supplement thereto is filed, deliver to the Representatives two (2)
original executed Registration Statements, including exhibits, and all
post-effective amendments thereto and copies of documents filed therewith or
incorporated therein by reference and all original executed consents of
certified experts.

3.5 EFFECTIVENESS AND EVENTS REQUIRING NOTICE TO THE REPRESENTATIVES. The
Company shall cause the Registration Statement to remain effective until the
later of the completion by the Underwriters of the distribution of the Shares
(but in no event more than 9 months after the date on which the Registration
Statement shall have been declared effective) or 25 days after the date on which
the Registration Statement shall have been declared effective and shall notify
the Representatives immediately and shall promptly confirm the notice in writing
of (i) the effectiveness of the Registration Statement and any amendment
thereto, (ii) the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding for that purpose, (iii) the
issuance by any state securities commission of any proceedings for the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose, (iv) the mailing and delivery to the Commission for filing of any
amendment or supplement to the Registration Statement or Prospectus, (v) the
receipt of any comments or request for any additional information from the
Commission, and (vi) the happening of any event during the period described in
Section 3.4 hereof that makes any statement of a material fact made in the
Registration Statement or the Prospectus untrue or that requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If the Commission or any state securities commission shall
enter a stop order or suspend such qualification at any time, the Company shall
make every reasonable effort to obtain promptly the lifting of such order.

3.6 FINANCIAL STATEMENTS.

3.6.1 UNAUDITED FINANCIALS. The Company shall furnish to the
Representatives as early as practicable prior to the date hereof and the Closing
Date, but no later than two (2) full business days prior thereto, a copy of the
latest available unaudited interim financial statements (the "Unaudited
Financials")

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of the Company (which in no event shall be as of a date more than ninety (90)
days prior to the Effective Date) which have been read by the Company's
independent accountants, as stated in their letter to be furnished pursuant to
Section 4.3 hereof.

3.7 REPORTS TO THE REPRESENTATIVES.

3.7.1 PERIODIC REPORTS, ETC.. For a period of five years from the
Effective Date, the Company will furnish to the Representatives, and to each
other Underwriter who may so request, copies of such financial statements and
other periodic and special reports as the Company from time to time furnishes
generally to holders of any class of its securities, and promptly furnish to the
Representatives (i) a copy of each periodic report the Company shall be required
to file with the Commission, (ii) a copy of every press release and every news
item and article with respect to the Company or its affairs which was released
by the Company, (iii) copies of each Form SR, (iv) a copy of each Form 8-K or
Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared by the Company, and (v)
such additional documents and information with respect to the Company and the
affairs of any future subsidiaries of the Company as the Representatives may
from time to time reasonably request.

3.7.2 TRANSFER SHEETS. For a period of three years from the
Closing Date, the Company will furnish to the Representatives, at the Company's
sole expense such transfer sheets of the Company's securities as the
Representatives may request, including the daily, weekly and monthly
consolidated transfer sheets of the transfer agent of the Company.

3.8 DELIVERY OF REPRESENTATIVES' WARRANTS. On the Closing Date, the
Company shall execute and deliver to the Representatives the Representatives'
Warrants substantially in the form filed as an exhibit to the Registration
Statement.

3.9 PAYMENT OF EXPENSES.

3.9.1 GENERAL EXPENSES. The Company shall pay on each of the
Closing Date and any Option Closing Date to the extent not paid at the Closing
Date, all expenses incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, (i) the preparation,
printing, filing and mailing (including the payment of postage with respect to
such mailing) of the Registration Statement, the Preliminary Prospectuses and
the Prospectus and the printing and mailing of this Agreement and related
documents, including the cost of all copies thereof and any amendments or
supplements thereto supplied to the Representatives in quantities as may be
required by the Underwriters, (ii) the printing, engraving, issuance and
delivery of the Shares and the Representatives' Warrants, including any transfer
taxes and other taxes payable thereon, (iii) the qualification of the Shares
under state or foreign securities or

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Blue Sky laws, including the costs of printing and mailing the "Preliminary Blue
Sky Memorandum," and all amendments and supplements thereto, fees and
disbursements for the Underwriters' counsel and fees and disbursements of local
counsel, if any, retained for such purpose, (iv) costs associated with
applications for assignments of a rating of the Shares by qualified rating
agencies, (v) filing fees incurred in registering the offering with the NASD,
(vi) costs of placing "tombstone" advertisements in publications that shall be
selected by the Representatives, (vii) fees and disbursements of the transfer
agent, (viii) the Company's expenses associated with "due diligence" meetings
arranged by the Representatives and "road show" expenses; (ix) the preparation,
binding and delivery of seven (7) transaction "bibles" for the Representatives,
(x) any listing of the Shares on the AMEX or any listing in Standard & Poor's,
and (xi) all other costs and expenses incident to the performance of its
obligations hereunder that are not otherwise specifically provided for in this
Section 3.9.1. Since an important part of the public offering process is for
the Company to appropriately and accurately describe both the background of the
principals of the Company and the Company's competitive position in its
industry, the Company has engaged and will pay for an investigative search firm
of the Representatives' choice to conduct an investigation of principals of the
Company mutually selected by the Representatives and the Company. The
Representatives may deduct from the net proceeds of the offering payable to the
Company on the Closing Date or any Option Closing Date the expenses set forth
herein to be paid by the Company to the Representatives and/or to third parties.
If this Agreement shall not be carried out for any reason whatsoever, the
Company shall remain liable for all of its actual out-of-pocket expenses
pursuant to this Section 3.9.1.

3.9.2 UNDERWRITERS' EXPENSES. The Company further agrees that, in
addition to the expenses payable pursuant to Section 3.9.1, upon the sale of the
Firm Shares or any of the Option Shares, it shall pay to the Representatives, as
a non-accountable expense allowance, an amount equal to 3% of the gross proceeds
payable to the Company from the sale of the Firm Shares and the Option Shares,
if any are sold to the Underwriters, of which $50,000 has been paid to date, and
it shall pay the balance on the Closing Date as to the Firm Shares and any
Option Closing Date as to Option Shares, by certified or bank cashier's check
or, at the election of the Representatives, by deduction from the proceeds of
the offering contemplated hereby. If the offering contemplated by this
Agreement is not consummated for any reason, the Company shall be liable for the
accountable expenses of the Representatives, including, but not limited to,
legal fees, Blue Sky counsel fees, "road show" and due diligence expenses. The
Representatives shall retain such part of the non-accountable expense allowance
previously paid as shall equal its actual out-of-pocket expenses. If the amount
previously paid is insufficient to cover such actual out-of-pocket expenses, the
Company shall remain

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liable for and promptly pay any other actual out-of-pocket expenses. If the
amount previously paid exceeds the amount of the actual out-of-pocket expenses,
the Representatives shall promptly remit to the Company any such excess.

3.10 APPLICATION OF NET PROCEEDS. The Company shall apply the net proceeds
from the offering received by it in a manner consistent with the application
described under the caption "Use of Proceeds" in the Prospectus and shall file
such reports with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required pursuant to Rule 463
under the Act.

3.11 DELIVERY OF EARNINGS STATEMENTS TO SECURITY HOLDERS. The Company
shall make generally available to its security holders as soon as practicable,
but not later than the first day of the fifteenth full calendar month following
the Effective Date, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under Section 11(a) of the Act) covering a period of at least twelve (12)
consecutive months beginning on the date immediately after the Effective Date.

3.12 RESERVATION OF SHARES. The Company shall reserve and keep available
that maximum number of its authorized but unissued shares of Common Stock as is
issuable upon the exercise of the Representatives' Warrants.

3.13 BOARD OF DIRECTORS. For a period of three (3) years after the
Effective Date, Laidlaw Equities, Inc. shall have the right to appoint a
designee as an observer to the Company's Board of Directors. Such observer
shall have the right to attend all meetings of the Board of Directors. Such
observer shall be entitled to receive reimbursement for all reasonable
out-of-pocket expenses incurred in attending such meetings, including, but not
limited to, food, lodging, transportation, and any fees paid to a non-management
director for attending meetings. Laidlaw Equities, Inc. shall be given notice
of such meetings at the same time and in the same manner as Directors of the
Company are informed. Subject to the provisions of applicable law, Laidlaw
Equities, Inc. and such observer shall be indemnified to the same extent as the
other Directors. The Company shall purchase Directors and Officers insurance in
an amount of not less than $2,000,000, with a deductible of not more than
$250,000 and maintain such insurance for a period of four years, provided,
however, that the Company shall not be required to pay more than $30,000 per
year after the first year in order to maintain such insurance, and if insurance
in such amount is not available at such cost, the Company shall purchase that
amount of such insurance that is available at a cost of $30,000 per year.

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3.14 PRESS RELEASES. The Company shall not issue a press release or engage
in any other publicity until twenty-five (25) days after the Effective Date,
without the Representatives' prior written consent, which consent shall not be
unreasonably withheld.

3.15 SECONDARY MARKET TRADING AND STANDARD & POOR'S. The Company will take
all necessary and appropriate actions to be included in Standard and Poor's
Daily News and Corporation Records Corporate Descriptions for a period of five
years from the Effective Date, including the payment of any necessary fees and
expenses. The Company shall take such action as may be reasonably requested by
the Representatives to obtain a secondary market trading exemption in such
States as may be requested by the Representatives, including the payment of any
necessary fees and expenses and the filing of a Form (e.g., 25101(b)) for
secondary market trading in the State of California on the Effective Date.

3.16 AMEX MAINTENANCE. For a period of five years from the date hereof,
the Company will use its best efforts to maintain the listing by AMEX of the
Common Stock.

3.17 KEY PERSON LIFE INSURANCE. The Company will maintain key person life
insurance with an insurance company which is reasonably satisfactory to the
Representatives in an amount no less than $2,000,000 on the lives of each of
Messrs. Peter Dixon, Jack West and Scott Levy, naming the Company as the sole
beneficiary thereof, for at least three years following the Effective Date.

3.18 DISQUALIFICATION ON FORM S-1 (OR OTHER APPROPRIATE FORM). For a
period equal to seven years from the date hereof, the Company will not take any
action or actions which may prevent or disqualify the Company's use of Form S-1
(or other appropriate form) for the registration of the shares underlying
Representatives' Warrants under the Act.

3.19 ACCOUNTANTS. For a period of three years from the Effective Date, the
Company will not effect a change in its accounting firm without the prior
written consent of the Representatives, which consent will not be unreasonably
withheld, except that no such consent is required if the new firm is a member of
the so-called "Big-Six."

3.20 SALE OF SECURITIES. The Company agrees not to permit or cause a
private or public sale or private or public offering of any of its securities
(in any manner, including pursuant to Rule 144 under the Act) owned nominally or
beneficially by the Insiders for a period of 18 months following the Effective
Date without obtaining the prior written consent of the Representatives.

3.21 EXERCISE PRICE OF OPTIONS/WARRANTS. For a period of 24 months after
the Effective Date, the Company will not grant or issue options or warrants
except for options to purchase no more

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<PAGE>

than 400,000 shares of the Company's Common Stock pursuant to the Company's
Stock Option Plan, and the exercise price of such options shall not be less than
the fair market value of the Common Stock on the date of the grant.

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4. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Shares, as provided herein, shall be
subject to the continuing accuracy of the representations and warranties of the
Company as of the date hereof and as of each of the Closing Date and any Option
Closing Date to the accuracy of the statements of officers of the Company made
pursuant to the provisions hereof and to the performance by the Company of its
obligations hereunder and to the following conditions:

4.1 REGULATORY MATTERS.

4.1.1 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective not later than 5:00 P.M., New York time,
on the date of this Agreement or such later date and time as shall be consented
to in writing by you, and, at each of the Closing Date and any Option Closing
Date, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for the purpose shall have been
instituted or shall be pending or contemplated by the Commission and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Olshan Grundman Frome &
Rosenzweig LLP, counsel to the Underwriters.

4.1.2 NASD CLEARANCE. On or before the Effective Date, the
Underwriters shall have received clearance from the NASD as to the amount of
compensation allowable or payable to the Underwriters as described in the
Registration Statement.

4.1.3 NO BLUE SKY STOP ORDERS. No order suspending the sale of
the Shares in any jurisdiction designated by you pursuant to Section 3.3 hereof
shall have been issued either on the Closing Date or any Option Closing Date,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.

4.2 COMPANY COUNSEL MATTERS.

4.2.1 CLOSING DATE OPINION OF COUNSEL. On the Closing Date, the
Underwriters shall have received the favorable opinion of Lev, Berlin & Dale,
P.C., counsel to the Company, dated the Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Olshan Grundman Frome &
Rosenzweig LLP, counsel to the Underwriters, to the effect that:

(i) The Company and each of its subsidiaries has been duly
organized and is validly existing as a corporation and is in good standing under
the laws of its respective state of incorporation. The Company and each of its
subsidiaries is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any of its
respective properties or the character of its

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respective operations requires such qualification or licensing (except where the
failure to be so qualified or licensed would not have a material adverse effect
on the Company and its subsidiaries (taken as a whole).

(ii) The Company and each of its subsidiaries has all
requisite corporate power and authority, and has all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental or regulatory officials and bodies to own or lease its properties
and to conduct its business as described in the Prospectus, and the Company and
each of its subsidiaries is in compliance with all such authorizations,
approvals, orders, licenses, certificates and permits and all federal, state and
local laws, rules and regulations. The Company has all requisite corporate
power and authority to enter into this Agreement and to carry out the terms and
conditions hereof. No consents, approvals, authorizations or orders of, and no
filing with any court or governmental agency or body (other than such as may be
required under the Act and applicable Blue Sky laws), is required for the valid
authorization, issuance, sale and delivery of the Securities, and the
consummation of the transactions and agreements contemplated by this Agreement
and the Representatives' Warrants, and as contemplated by the Prospectus or, if
required, all such authorizations, approvals, consents, orders, registrations,
licenses and permits have been duly obtained and are in full force and effect
and have been disclosed to the Representative.

(iii) All issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission with respect thereto, and are
not subject to personal liability by reason of being such holders; and none of
such securities were issued in violation of the preemptive rights of any holders
of any security of the Company or similar contractual rights granted by the
Company. The outstanding options and warrants, if any, to purchase shares of
Common Stock constitute the valid and binding obligations of the Company,
enforceable in accordance with their respective terms, except (a) as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally, (b) as enforceability of any
indemnification and contribution provision may be limited under the federal and
state securities laws, and (c) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The offers and sales of the outstanding Common Stock and, if
any, options and warrants to purchase shares of Common Stock, have been at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky Laws or exempt from such registration requirements.

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<PAGE>

The authorized and outstanding capital stock of the Company is as set forth
under the caption "Capitalization" in the Prospectus.

(iv) The Securities have been duly authorized and when issued
and delivered in accordance herewith will be, validly issued, fully paid and
non-assessable; the holders thereof are not and will not be subject to personal
liability by reason of being such holders. The Securities are not and will not
be subject to the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company. All corporate
action required to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken. When issued, the Representatives'
Warrants will constitute valid and binding obligations of the Company to issue
and sell, upon exercise thereof and payment therefor, the number and type of
securities of the Company called for thereby and the Representatives' Warrants,
when issued, will be enforceable against the Company in accordance with their
terms, except (a) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, (b) as enforceability of any indemnification and contribution
provision may be limited under federal and state securities laws, and (c) that
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The certificates
representing the Securities are in due and proper form.

(v) Except as set forth in the Prospectus, no holders of any
securities of the Company or of any options, warrants or securities of the
Company exercisable for or convertible or exchangeable into securities of the
Company have the right to require the Company to register any such securities of
the Company under the Act or to include any such securities in a registration
statement to be filed by the Company.

(vi) The Shares have been approved for listing on AMEX.

(vii) This Agreement and the Representatives' Warrants have
each been duly and validly authorized and when executed and delivered by the
Company will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
except (a) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (b) as
enforceability of any indemnification provisions may be limited under federal
and state securities laws and (c) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.

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<PAGE>

(viii) The execution, delivery and performance of this Agreement
and the Representatives' Warrants, the issuance and sale of the Securities, the
consummation of the transactions contemplated hereby and thereby and the
compliance by the Company with the terms and provisions hereof and thereof, do
not and will not, with or without the giving of notice or the lapse of time, or
both, (a) conflict with, or result in a breach of, any of the terms or
provisions of, or constitute a default under, or result in the creation or
modification of any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company pursuant to the terms of, any material
mortgage, deed of trust, note, indenture, loan, contract, commitment or other
material agreement or instrument, to which the Company is a party or by which
the Company or any of its properties or assets may be bound, (b) result in any
violation of any of the provisions of the Certificate of Incorporation or the
By-Laws of the Company, (c) violate any statute or any judgment, order or
decree, rule or regulation applicable to the Company of any court, domestic or
foreign, or of any federal, state or other regulatory authority or other
governmental body having jurisdiction over the Company, its properties or
assets, or (d) have a material effect on any permit, certification,
registration, approval, consent, license or franchise of the Company.

(ix) The Registration Statement, each Preliminary Prospectus
and the Prospectus and any post-effective amendments or supplements thereto
(other than the financial statements and notes thereto and other financial data
included therein or omitted therefrom, as to which no opinion need be rendered)
comply as to form in all material respects with the requirements of the Act and
the Regulations. The Securities and all other securities issued or issuable by
the Company conform in all respects to the description thereof contained in the
Registration Statement and the Prospectus. All statements in the Prospectus
(other than those set forth under the caption "Underwriting"), have been
reviewed by such counsel and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations have been reviewed by
such counsel and are correct in all material respects. No statute or regulation
or legal or governmental proceeding required to be described in the Prospectus
is not described as required, nor are any contracts, instruments or other
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement not
so described or filed as required.

(x) Such counsel has participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company, the Representatives and counsel
to the Underwriters at which the contents of the Registration Statement and
Prospectus and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the

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<PAGE>

accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus (except as otherwise expressly set forth
in its opinion), on the basis of the foregoing (relying as to the factual
matters upon the statements of officers and other representatives of the Company
and state officials) no facts have come to the attention of such counsel that
caused it to believe that the Registration Statement as amended or supplemented
(other than the financial statements and notes thereto and other financial data
included therein, or omitted therefrom, as to which no opinion is requested or
need be rendered) at the time such Registration Statement became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (other than information omitted therefrom in reliance on Rule
430A under the Act) or the Prospectus (other than the financial statements and
notes thereto and other financial data included therein, or omitted therefrom,
as to which no opinion is requested or need be rendered) as amended or
supplemented, as of its date, the date of this Agreement and as of the date of
its opinion, contained an untrue statement of material fact or omitted to state
a material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.

(xi) The Registration Statement is effective under the Act and
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act or applicable state securities laws.

(xii) There is no claim or action by any person pertaining to,
or proceeding, pending or threatened, which challenges the exclusive rights of
the Company with respect to any Intangibles used in the conduct of its business
(including, but not limited to, any such licenses or rights described in the
Prospectus as being owned or possessed by the Company).

(xiii) Except as described in the Prospectus, no default exists
in the due performance and observance of any term, covenant or condition of any
material license, contract, indenture, mortgage, deed of trust, note, loan or
credit agreement, or any other material agreement, instrument or other document
evidencing an obligation for borrowed money, or any other material agreement,
instrument or other document to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries may be bound or to
which any of the properties or assets of the Company or any of its subsidiaries
is subject. Neither the Company nor any of its subsidiaries is not in violation
of any term or provision of its respective Certificate of Incorporation or
By-Laws, or any material franchise, license, permit, applicable law, rule,
regulation, judgment or decree of any governmental agency or court, domestic or
foreign, having

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jurisdiction over the Company or any of its subsidiaries or any of their
respective properties or businesses, except as described in the Prospectus.

(xiv) There are no claims, payments, issuances, arrangements or
understandings for services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial consulting
arrangements or any other arrangements, agreements, understandings, payments or
issuances that may affect the Underwriters' compensation, as determined by the
NASD.

(xv) Except as described in the Prospectus, the Company does
not own any interest in any corporation, partnership, joint venture, trust or
other business entity.

(xvi) Except as set forth in the Prospectus, there is no
action, suit or proceeding before or by any court of governmental agency or
body, domestic or foreign, now pending, or threatened against the Company or any
of its subsidiaries, which would have a material adverse effect on the Company.

(xvii) The Company and each of its subsidiaries owns or
possesses, free and clear of all liens or encumbrances and rights thereto or
therein by third parties, other than as described in the Prospectus, the
requisite licenses or other rights to use Intangibles owned or used by the
Company and each of its subsidiaries (including, but not limited to, any such
licenses or right described in the prospectus as being owned or possessed by the
Company); except as set forth in the Prospectus, there is no action, suite or
proceeding before or by any court or governmental agency or body, domestic or
foreign, now pending, or threatened against the Company or any of its
subsidiaries, that might result in any material adverse change in the condition
(financial or other), business, prospects or properties of the Company and its
subsidiaries taken as a whole.

The opinion of counsel for the Company and any opinion relied
upon by such counsel shall include a statement to the effect that it may be
relied upon by counsel for the Underwriters in their opinion delivered to the
Underwriters.

4.2.2 OPTION CLOSING DATE OPINION OF COUNSEL. On the Option
Closing Date, if any, the Representatives shall have received the favorable
opinion of Lev, Berlin & Dale, P.C., counsel to the Company, and dated the
Option Closing Date, addressed to the Underwriters and in form and substance
reasonably satisfactory to Olshan Grundman Frome & Rosenzweig LLP, counsel to
the Underwriters, confirming, as of the Option Closing Date, the statements made
by such counsel for the Company in their opinion delivered on the Closing Date.

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4.2.3 RELIANCE. In rendering such opinions, such counsel may rely
(i) as to matters involving the application of laws other than the laws of the
United States, the Delaware General Corporation Law and jurisdictions in which
they are admitted, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in form and
substance satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel, familiar with the applicable laws, and (ii)
as to matters of fact, to the extent they deem proper, (a) on certificates or
other written statements of responsible officers of the Company and (b) on
certificates or other written statements of officers of departments of various
jurisdiction having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriters' counsel. Such opinions of
counsel shall include a statement to the effect that they may be relied upon by
counsel for the Underwriters. Such opinion may assume the due authorization,
execution and delivery of all documentation referred to therein by the parties
thereto other than the Company.

4.3 COLD COMFORT LETTER. At the time this Agreement is executed, and at
each of the Closing Date and any Option Closing Date, you shall have received a
letter, addressed to the Underwriters and in form and substance satisfactory in
all respects (including the non-material nature of the changes or decreases, if
any, referred to in clause (iii) below) to you and to Olshan Grundman Frome &
Rosenzweig LLP, counsel to the Underwriters, from Arthur Andersen LLP, dated,
respectively, as of the date of this Agreement, as of the Closing Date and as of
any Option Closing Date:

(i) Confirming that they are independent accountants with
respect to the Company within the meaning of the Act and the applicable
Regulations;

(ii) Stating that in their opinion the financial statements of
the Company included in the Registration Statement and Prospectus comply as to
form in all material respects with the applicable accounting requirements of the
Act and the Regulations thereunder;

(iii) Stating that, based on the performance of procedures
specified by the American Institute of Certified Public Accountants for a review
of the latest available unaudited interim financial statements of the Company
(as defined in SAS No. 71 Interim Financial Interpretation) with an indication
of the date of such unaudited financial statements, a reading of the latest
available minutes of the stockholders and Board of Directors of the Company and
the various committees of the Board of Directors of the Company, consultations
with officers and other employees of the Company responsible for financial and
accounting matters and other

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specified procedures and inquiries, nothing has come to their attention which
would lead them to believe that (a) the unaudited financials of the Company
included in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
Regulations or any material modification should be made to the unaudited interim
financial statements included in the registration statement for them to be in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements of the
Company included in the Registration Statement, (b) at a date not later than
five (5) days prior to the Effective Date, Closing Date or any Option Closing
Date, as the case may be, there was any change in the capital stock or long-term
debt of the Company, or any decrease in the stockholders' equity of the Company
as compared with amounts shown in the most recent balance sheet included in the
Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any decrease, setting forth the amount
of such decrease, and (c) during the period from [October 1, 1996] to a
specified date not later than five (5) days prior to the Effective Date, Closing
Date or Option Closing Date, if any, as the case may be, there was any decrease
in revenues, net earnings or net earnings per share of Common Stock, in each
case as compared with the corresponding period in the preceding year, and as
compared with the corresponding period in the preceding quarter other than as
set forth in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;

(iv) Setting forth, at a date not later than five days prior
to the Effective Date, the amount of liability of the Company (including a
break-down of commercial papers and notes payable to banks);

(v) Stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and

(vi) Stating that they have not during the immediately
preceding five year period brought to the attention of the Company's management
any reportable condition related to internal structure, design or operation as
defined in the Statement on Auditing Standards No. 60 -- "Communication of
Internal Control

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Structure Related Matters Noted in an Audit," in the Company's internal
controls; and

(vii) Statements as to such other matters incident to the
transactions contemplated hereby as you may reasonably request.

4.4 CERTIFICATES.

4.4.1 OFFICERS' CERTIFICATES. At each of the Closing Date and any
Option Closing Date the Representatives shall have received a certificate of the
Company signed by each of the President and the Chief Financial Officer of the
Company, dated the Closing Date or any Option Closing Date, as the case may be,
respectively, to the effect that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to and as of the Closing Date, or any Option
Closing Date, as the case may be, and that the conditions set forth in Section
4.5 hereof have been satisfied as of such date and that, as of Closing Date and
any Option Closing Date, as the case may be, the representations and warranties
of the Company set forth in Section 2 hereof are true and correct. In addition,
the Representatives shall have received such other and further certificates of
officers of the Company as the Representatives may reasonably request.

4.4.2 SECRETARY'S CERTIFICATE. At each of the Closing Date and
the Option Closing Date, if any, the Representatives shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or any Option Closing Date, as the case may be, respectively,
certifying (i) that the Certificate of Incorporation and By-Laws, as amended, of
the Company are true and complete, have not been modified and are in full force
and effect, (ii) that the resolutions relating to the offering contemplated by
this Agreement are in full force and effect and have not been modified, (iii)
all correspondence between the Company or its counsel and the Commission, (iv)
all correspondence between the Company or its counsel and AMEX and (v) as to the
incumbency of the officers of the Company. The documents referred to in such
certificate shall be attached to such certificate.

4.5 NO MATERIAL CHANGES. Prior to and on each of the Closing Date and any
Option Closing Date, (i) there shall have been no material adverse change or
development involving a prospective material change in the condition or
prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus which is or might be
materially adverse to the Company, (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness
which default would have a material adverse effect on the Company, (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement

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and Prospectus, (v) no action, suit or proceeding, at law or in equity, shall be
pending or threatened against the Company or affecting any of its property or
business before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto shall contain all material statements that are
required to be stated therein in accordance with the Act and the Regulations and
shall conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto shall contain any untrue statement of a material
fact or omit to state any 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.

4.6 DELIVERY OF REPRESENTATIVES' WARRANTS. The Company shall have
delivered to the Representatives executed copies of the Representatives'
Warrants, registered in such names and in such denominations as the
Representatives shall have requested.

4.7 OPINION OF COUNSEL FOR THE UNDERWRITERS. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to Olshan Grundman Frome & Rosenzweig LLP, counsel to the Underwriters, and you
shall have received from such counsel a favorable opinion, dated the Closing
Date and any Option Closing Date, with respect to such of these proceedings as
you may reasonably require. On or prior to the Effective Date, the Closing Date
and any Option Closing Date, as the case may be, counsel for the Underwriters
shall have been furnished with such documents, certificates and opinions as they
may reasonably require for the purpose of enabling them to review or pass upon
the matters referred to in this Section 4.7, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions herein contained.

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5. INDEMNIFICATION.

5.1 INDEMNIFICATION OF THE UNDERWRITERS.

5.1.1 GENERAL. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless each of the Underwriters, their
directors, officers and employees and each person, if any, who controls each
Underwriter (a "controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
legal or other expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever) to which they or any of them may become subject under the Act, the
Exchange Act or any other statute or at common law or otherwise or under the
laws of foreign countries, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in (i) the Registration
Statement, any Preliminary Prospectus or the Prospectus (as from time to time
each may be amended or supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the
Representatives' Warrants; or (iii) any application or other document or written
communication (in this Section 5 collectively called "application") executed by
the Company or based upon written information furnished by the Company in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
or AMEX or any securities exchange; or the omission or alleged omission
therefrom of 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, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriters by or on behalf of the Underwriters expressly for
use in any Preliminary Prospectus, the Registration Statement or the Prospectus,
or any amendment or supplement thereto, or in any application, as the case may
be. The Company agrees promptly to notify the Representatives of the
commencement of any litigation or proceedings against the Company or any of its
officers, directors or controlling persons in connection with the issue and sale
of the Securities or in connection with the Registration Statement or the
Prospectus.

5.1.2 PROCEDURE. If any action is brought against any Underwriter
or controlling person in respect of which indemnity may be sought against the
Company pursuant to Section 5.1.1, such Underwriter shall promptly notify the
Company in writing of the institution of such action, but the failure to so
notify the Company shall not relieve them from any liability they may have
hereunder, unless such failure results in the forfeiture by the

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Company of material substantive rights and defenses and the Company shall assume
the defense of such action, including the employment and fees of counsel
(subject to the reasonable approval of such Underwriter) and payment of actual
expenses incurred in connection therewith. Such Underwriter or controlling
person shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
Underwriter or such controlling person unless (i) the employment of such counsel
shall have been authorized in writing by the Company in connection with the
defense of such action, (ii) the Company shall not have employed counsel to have
charge of the defense of such action, or (iii) such indemnified party or parties
shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to the Company
(in which case the Company shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events the fees and expenses of not more than one additional firm of attorneys
selected by such Underwriter and/or controlling person shall be borne by the
Company. Notwithstanding anything to the contrary contained herein, if such
Underwriter or controlling person shall assume the defense of such action as
provided above, the Company shall have the right to approve the terms of any
settlement of such action which approval shall not be unreasonably withheld.

5.2 INDEMNIFICATION OF THE COMPANY. Each Underwriter severally agrees to
indemnify and hold harmless the Company against any and all loss, liability,
claim, damage and expense described in the foregoing indemnity from the Company
to the Underwriters, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions directly relating to the
transactions effected by the Underwriters in connection with this offering made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment or supplement thereto or in any application in reliance upon, and
in strict conformity with, written information furnished to the Company by the
Underwriters expressly for use in such Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto or in any
such application. In case any action shall be brought against the Company or
any other person so indemnified based on any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment or supplement thereto or
any application, and in respect of which indemnity may be sought against the
Underwriters, the Underwriters shall have the rights and duties given to the
Company, and the Company, and each other person so indemnified shall have the
rights and duties given to the Underwriters by the provisions of Section 5.1.2.

5.3 CONTRIBUTION.

5.3.1 CONTRIBUTION RIGHTS. In order to provide for just and
equitable contribution under the Act in any case in which

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<PAGE>

(i) any person entitled to indemnification under this Section 5 makes claim for
indemnification pursuant hereto but it is judicially determined (by the entry of
a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 5 provides for indemnification in such case, or (ii)
contribution under the Act, the Exchange Act or otherwise may be required on the
part of any such person in circumstances for which indemnification is provided
under this Section 5, then, and in each such case, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by said indemnity agreement
incurred by the Company and the Underwriters, as incurred, in such proportions
that the Underwriters are responsible for that portion represented by the
percentage that the underwriting discount appearing on the cover page of the
Prospectus bears to the initial offering price appearing thereon and the Company
is responsible for the balance; provided, however, that, 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. Notwithstanding the provisions of this Section
5.3, no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section 5, each respective director, officer and employee of any Underwriter,
and each respective person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
such Underwriter.

5.3.2 CONTRIBUTION PROCEDURE. Within fifteen (15) days after
receipt by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party (the
contributing party), notify the contributing party of the commencement thereof,
but the omission to so notify the contributing party will not relieve it from
any liability which it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party or its representative of the
commencement thereof within the aforesaid (15) fifteen days, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified. Any such contributing party shall
not be liable to any party seeking contribution on account of any settlement of
any

-33-

<PAGE>

claim, action or proceeding effected by such party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The contribution provisions contained in this Section 5 are intended to
supersede, to the extent permitted by law, any right to contribution under the
Act, the Exchange Act or otherwise available.

6. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the context
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Date and any Option Closing Date, and such representations,
warranties and agreements of the Underwriters and the Company, including the
indemnity agreements contained in Section 5 hereof, shall remain operative and
in full force and effect regardless of any investigation made by or on behalf of
the Underwriters, the Company or any controlling person, and shall survive
termination of this Agreement or the issuance and delivery of the Shares to the
Underwriters.

7. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall
default in its or their obligations to purchase Firm Shares hereunder on the
Closing Date and the aggregate number of Firm Shares which such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of Firm Shares that the Underwriters are obligated to purchase
at the Closing Date, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Firm
Shares that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If any Underwriter or Underwriters shall so default and the aggregate
number of Firm Shares with respect to which such default or defaults occur is
more than 10% of the total number of Firm Shares and arrangements satisfactory
to the Representatives and the Company for the purchase of Firm Shares by other
persons are not made within 48 hours of such default, this Agreement shall
terminate.

If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or part of the Firm Shares of a defaulting
Underwriter or Underwriters as provided in this Section 7, (i) the Company shall
have the right to postpone the Closing Date for a period of not more than five
full business days, in order that the Company may effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or in
any other documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of Firm Shares to
be purchased by the remaining Underwriters or substituted underwriters shall be
taken as the basis of their underwriting obligation for all purposes of this
Agreement. Nothing herein contained shall relieve

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<PAGE>

any defaulting Underwriter of its liability to the Company or the Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 7 shall be without liability on the part of
any non-defaulting Underwriter or the Company, except for expenses to be paid or
reimbursed pursuant to Section 3.9 hereof and except for the provisions of
Section 5 hereof.

8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.

8.1 EFFECTIVE DATE. This Agreement shall become effective upon its
execution, except that you may, at your option, delay its effectiveness until
11:00 A.M., New York time, on the first full business day following the
Effective Date or at the time of the initial public offering of the Shares,
whichever is earlier. The time of the initial public offering, for the purpose
of this Section 8 shall mean the time, after the Registration Statement becomes
effective, of the release by you for publication of the first newspaper
advertisement which is subsequently published relating to the Shares or the
time, after the Registration Statement becomes effective, when the Shares are
first released by you for offering by the Underwriters or dealers by letter or
telegram, whichever shall first occur. You may prevent this Agreement from
becoming effective without liability to any other party, except as noted below,
by giving the notice indicated below in this Section 8 before the time this
Agreement becomes effective. You agree to give the undersigned notice of the
commencement of the offering described herein.

8.2 TERMINATION. You shall have the right to terminate this Agreement at
any time prior to the Closing Date, (i) if any domestic or international event
or act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, general securities markets in the United
States; (ii) if trading on the New York Stock Exchange or the American Stock
Exchange, or in the over-the-counter market shall have been suspended, or
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall have been required in the over-the-counter
market by the NASD or by order of the Commission or any other government
authority having jurisdiction, (iii) if the United States shall have become
involved in a war or material hostilities, (iv) if a banking moratorium has been
declared by a New York State or federal authority, (v) if a moratorium on
foreign exchange trading has been declared which materially adversely impacts
the United States securities market, (vi) if the Company shall have sustained a
material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage
or other calamity or malicious act which, whether or not such loss shall have
been insured, will, in your opinion, make it inadvisable to proceed with the
delivery of the Shares, (vii) if Peter Dixon, Jack West or Scott Levy shall no
longer serve the Company in their present capacities, (viii) if the Company has
breached any of its

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<PAGE>

representations, warranties or obligations hereunder, or failed to expeditiously
proceed with the offering or to cooperate with you in requesting effectiveness
of the Registration Statement at such time as you may deem appropriate, or (ix)
if any Underwriter shall have become aware after the date hereof of such a
material adverse change in the condition (financial or otherwise), business or
prospects of the Company, or such material adverse change in general market
conditions as in your judgment would make it impracticable to proceed with the
offering, sale and/or delivery of the Shares or to enforce contracts made by the
Underwriters for the sale of the Shares.

8.3 NOTICE. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 8, the
Company shall be notified on the same day as such election is made by you by
telephone or telecopy, confirmed by letter.

8.4 EXPENSES. In the event that this Agreement shall not be carried out
for any reason whatsoever within the time specified herein or any extensions
thereof pursuant to the terms herein, the obligations of the Company to pay the
expenses related to the transactions contemplated herein shall be governed by
Section 3.9 hereof.

8.5 INDEMNIFICATION. Notwithstanding any contrary provision contained in
this Agreement, any election hereunder or any termination of this Agreement, and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by, such election or termination or
failure to carry out the terms of this Agreement or any part hereof.

9. MISCELLANEOUS.

9.1 NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed:

If to the Underwriters:

Laidlaw Equities, Inc.
100 Park Avenue
New York, New York 10017
Attention: Andrew J. Cahill, Managing Director

Copy to: Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022

Attention: Stephen Irwin, Esq.

-36-

<PAGE>

If to the Company:

Puro Water Group, Inc.
56-45 58th Street
Maspeth, New York 11378
Attention: Jack West, President

Copy to: Lev, Berlin & Dale, P.C.
535 Connecticut Avenue
Norwalk, Connecticut 06854

Attention: Duane L. Berlin, Esq.

9.2 HEADINGS. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.

9.3 AMENDMENT. This Agreement may only be amended by a written instrument
executed by each of the parties hereto.

9.4 ENTIRE AGREEMENT. This Agreement (together with the other agreements
and documents being delivered pursuant to or in connection with this Agreement)
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersede all prior agreements and understandings of
the parties, oral and written, with respect to the subject matter hereof.

9.5 BINDING EFFECT. This Agreement shall inure solely to the benefit of
and shall be binding upon, the Underwriters, the Company, and the controlling
persons, directors and officers referred to in Section 5 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained.

9.6 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to conflict of laws rules of such State. Any action, proceeding or claim
against any of the parties hereto arising out of, relating in any way to, this
Agreement shall be brought and enforced in the courts of the State of New York
or the federal court for the Southern District of New York, and the parties
hereto irrevocably submit to such jurisdiction, which jurisdiction shall be
exclusive. The parties hereto hereby waive any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Except as
otherwise provided in this Agreement, the prevailing party(ies) in any such
action shall be entitled to recover from the other party(ies) all of its
reasonable attorneys' fees and expenses relating to such action or

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<PAGE>

proceeding and/or incurred in connection with the preparation therefor.

9.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement, and shall become effective when one
or more counterparts has been signed by each of the parties hereto and delivered
to each of the other parties hereto.

9.8 WAIVER, ETC. The failure of any of the parties hereto to at any time
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way effect the validity of
this Agreement or any provision hereof or the right of any of the parties hereto
to thereafter enforce each and every provision of this Agreement. No waiver of
any breach, non-compliance or non-fulfillment of any of the provisions of this
Agreement shall be effective unless set forth in a written instrument executed
by the party or parties against whom or which enforcement of such waiver is
sought; and no waiver of any such breach, non-compliance or non-fulfillment
shall be construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.

-38-

<PAGE>

If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.

Very truly yours,

PURO WATER GROUP, INC.

By:
---------------------------
Name: Jack West
Title: President

Accepted as of the date first
above written.

New York, New York

LAIDLAW EQUITIES, INC.
GILFORD SECURITIES INCORPORATED
Acting on behalf of themselves and as
the Representatives
of the other several
Underwriters named in
Schedule I hereof.

By: LAIDLAW EQUITIES, INC.

By:
------------------------------------
Name: Andrew J. Cahill
Title: Managing Director

By: GILFORD SECURITIES INCORPORATED

By:
-----------------------------------
Name:
Title:

-39-

<PAGE>

SCHEDULE I

Number of Firm
Name of Underwriter Shares to be Purchased
------------------- ----------------------

Laidlaw Equities, Inc. . . . . . .
Gilford Securities
Incorporated

Total . . . . . . . . . . . 1,350,000
---------
---------

-40-

<PAGE>

1,350,000 SHARES

PURO WATER GROUP, INC.

COMMON STOCK

SELECTED DEALER AGREEMENT

Ladies and Gentlemen:

1. We and the other Underwriters named in the Prospectus referred to
below (the "Underwriters"), acting through us as Representatives (the
"Representatives"), have severally agreed to purchase, subject to the terms and
conditions set forth in the Underwriting Agreement referred to in the Prospectus
(the "Underwriting Agreement"), from Puro Water Group, Inc., a Delaware
corporation (the "Company"), an aggregate of 1,350,000 shares ("Company
Shares"). In addition, the several Underwriters have been granted an option to
purchase from the Company up to an aggregate of an additional 202,500 shares
(the "Option Shares"), solely to cover overallotments in connection with the
sale of the Company Shares. The Company Shares and the Option Shares are
hereinafter collectively called the "Shares." The Shares and the terms upon
which they are to be offered for sale by the several Underwriters are more
particularly described in the enclosed Prospectus.

2. The Shares are to be offered to the public by the several Underwriters
at a price of $______ per share (hereinafter called the "Public Offering Price")
and in accordance with the terms of the offering set forth in the Prospectus.

3. Some or all of the several Underwriters are severally offering,
subject to the terms and conditions hereof, a portion of the Shares for sale to
(i) certain dealers that are members of the National Association of Securities
Dealers, Inc. (the "NASD") and that agree to comply with the provisions of
Section 24 of Article III of the Rules of Fair Practice of the NASD, and (ii)
foreign dealers or institutions ineligible for membership in the NASD that agree
(a) not to resell the Shares to purchasers in, or to persons who are nationals
or residents of, the United States of America, or when there is a public demand
for the Shares, to persons specified as those to whom members of the NASD
participating in a distribution may not sell and (b) to comply, as though such
foreign dealer or institution were a member of the NASD, with the NASD's
interpretation with respect to free-riding and withholding and with Sections 8,
24 and 25 of such Rules, to the extent applicable to foreign nonmember brokers
or dealers, and Section 36 of such Rules (such dealers and institutions agreeing
to purchase Shares hereunder being hereinafter referred to as "Selected
Dealers") at the Public Offering Price, less a selling concession of $_______
per share, payable as hereinafter provided, out of which concession an amount
not exceeding $________ per share may be reallowed by Selected Dealers to
members of the NASD or to foreign dealers or institutions ineligible for
membership therein which agree as aforesaid. The offering of the

<PAGE>

Shares is made subject to delivery of the Shares and their acceptance by us, to
the approval of all legal matters by counsel and to the terms and conditions
herein set forth. Some or all of the Underwriters may be included among the
Selected Dealers. Each of the Underwriters has agreed that, during the term of
this Agreement, it will be governed by the terms and conditions hereof whether
or not such Underwriter is included among the Selected Dealers.

4. We, acting as Representatives, and with our consent, any Underwriter,
may buy Shares from, or sell Shares to, any Selected Dealer, or any other
Underwriter, and any Selected Dealer may buy Shares from, or sell Shares to, any
other Selected Dealer or any Underwriter at the Public Offering Price, less all
or any part of the concession. We, acting as Representatives, after the initial
public offering may change the Public Offering Price, the concession and the
reallowance.

5. If, prior to the termination of this Agreement, we purchase or
contract to purchase, in the open market or otherwise, for the account of any
Underwriter any Shares purchased by you hereunder, you agree to pay us, on
demand, for the accounts of the several Underwriters an amount equal to the
concession on such Shares. In addition, we may charge you with any transfer
taxes and broker's commission or dealer's mark-up paid in connection with such
purchase or contract to purchase.

6. We shall act on behalf of the Underwriters under this Agreement and
shall have full authority to take such action as we may deem advisable in
respect of all matters pertaining to the public offering of the Shares.

7. If you desire to purchase any of the Shares, your indication of
interest should reach us promptly by telephone or facsimile at the offices of
Laidlaw Equities, Inc., 100 Park Avenue, New York, New York 10017. We reserve
the right to reject all subscriptions in whole or in part, to make allotments
and to close the subscription books at any time without notice. The Shares
allotted to you will be confirmed, subject to the terms and conditions of this
Agreement.

8. The privilege of purchasing the Shares is extended to you only on
behalf of the several Underwriters, if any, that may lawfully sell the Shares to
dealers in your state.

9. Any of the Shares purchased by you under the terms of this Agreement
may be immediately reoffered to the public in accordance with the terms of the
offering thereof set forth herein and in the Prospectus, subject to the
securities laws of the various states. Neither you nor any other person is or
has been authorized to give any information or to make any representations in
connection with the sale of the Shares other than as contained in the
Prospectus.

10. This Agreement will terminate when we shall have determined that the
public offering of the Shares has been completed and upon facsimile notice to
you of such termination, but, if not previously terminated, this Agreement will
terminate at the close of business on the 45th full business day after the date
hereof.

-2-
<PAGE>

11. For the purpose of stabilizing the market in the Common Stock of the
Company, we have been authorized to make purchases and sales thereof, in the
open market or otherwise, and, in arranging for sale of the Shares, to
overallot.

12. You agree to advise us, from time to time upon request, prior to the
termination of this Agreement, of the number of Shares purchased by you
hereunder and remaining unsold at the time of such request, and, if, in our
opinion, any such Shares shall be needed to make delivery of the Shares sold or
overallotted for the account of one or more of the Underwriters, you will,
forthwith upon our request, grant to us for the account or accounts of such
Underwriter or Underwriters, the right, exercisable promptly after receipt of
notice from you that such right has been granted, to purchase, at the Public
Offering Price, less the selling concession or such part thereof as we shall
determine, such number of Shares owned by you as shall have been specified in
our request.

13. On becoming a Selected Dealer, and in offering and selling the Shares,
you agree (which agreement shall also be for the benefit of the Company) to
comply with all applicable requirements of the Securities Act of 1933, as
amended (the "Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). You confirm that you are familiar with Rule 15c2-8 under the
Exchange Act relating to the distribution of preliminary and final prospectuses
for securities of an issuer and confirm that you have complied and will comply
therewith.

14. Upon request, you will be informed as to the jurisdictions in which we
have been advised that the Shares have been qualified for sale under the
respective securities or Blue Sky laws of such jurisdictions, but neither we nor
any of the Underwriters assume any obligation or responsibility as to the right
of any Selected Dealer to sell the Shares in any jurisdiction or as to any sale
therein. You authorize us to file on your behalf a New York State Notice, if
required.

15. Additional copies of the Prospectus will be supplied to you in
reasonable quantities upon request.

16. No Selected Dealer is authorized to act as our agent or as agent for
the Underwriters, or otherwise to act on our behalf or on behalf of the
Underwriters, in offering or selling the Shares to the public or otherwise.

17. We and the several Underwriters shall not be under any liability for
or in respect of the value, validity or form of the Shares, or delivery of the
certificates for the Shares, or the performance by anyone of any agreement on
his part, or the qualification of the Shares for sale under the laws of any
jurisdiction, or for or in respect of any matter connected with this Agreement,
except for lack of good faith and for obligations expressly assumed by us or by
the several Underwriters in this Agreement. The foregoing provisions shall not
be deemed a waiver of any liability imposed under the Act.

-3-
<PAGE>

18. Payment for the Shares sold to you hereunder is to be made at the
Public Offering Price, less selling concession, on or about __________, 1997, or
such later date as we may advise, by certified or official bank check, payable
to the order of Laidlaw Equities, Inc., in current funds, at such place as we
shall specify on one day's notice to you against delivery of certificates for
the Shares.

19. Except as indicated below, neither the undersigned nor any of its
directors, officers or partners or any "associate" (as defined in Regulation C
promulgated under the Act) thereof, to the knowledge of the undersigned, owns of
record or beneficially, any securities of the Company.

20. Notice to us should be addressed to us c/o Laidlaw Equities, Inc., 100
Park Avenue, New York, New York 10017. Notices to you shall be deemed to have
been duly given if transmitted by facsimile or mailed to you at the address to
which this letter is addressed.

21. If you desire to purchase any of the Shares, please confirm your
subscription by signing and returning to us your confirmation overleaf on the
duplicate copy of this letter enclosed herewith; such confirmation shall be
required even though you have previously advised us thereof by telephone or
facsimile.

Very truly yours,

LAIDLAW EQUITIES, INC., As
Representative

_______________________, 1997 By: _______________________________

GILFORD SECURITIES INCORPORATED, as
Representative

_______________________, 1997 By: _______________________________

-4-
<PAGE>

CONFIRMATION

Laidlaw Equities, Inc.
100 Park Avenue
New York, New York 10017

Gilford Securities Incorporated
850 Third Avenue
New York, NY 10022

We confirm our agreement to purchase ____________ shares of Common Stock of
Puro Water Group, Inc. (the "Shares"), subject to all the terms and conditions
set forth in the foregoing Agreement. We acknowledge receipt of the Prospectus.
We further state that, in purchasing the Shares, we have relied upon the
Prospectus and upon no other statement whatsoever, written or oral. We hereby
confirm that we are a dealer actually engaged in the investment banking or
securities business and that we are either (a) a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or (b) a dealer
with its principal place of business located outside the United States, its
territories and its possessions and not registered as a broker or dealer under
the Securities Exchange Act of 1934, as amended, who hereby agrees not to make
any sales within the United States, its territories or its possessions or to
persons who are nationals thereof or residents therein. We hereby agree to
comply with the provisions of Section 24 of Article III of the Rules of Fair
Practice of the NASD and, if we are a foreign dealer and not a member of the
NASD, we also agree to comply with the NASD's interpretation with respect to
free-riding and withholding, to comply, as though we were a member of the NASD,
with the provisions of Sections 8 and 36 of Article III of such Rules of Fair
Practice, and to comply with Section 25 of Article III thereof as that Section
applies to non-member foreign dealers.

Dated:____________________, 1997. ____________________________________________
(Print corporate or firm name of Selected
Dealer)

____________________________________________
(Signature of authorized officer or partner)

____________________________________________
(Print name of person signing)

Address:

____________________________________________

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<PAGE>
[LOGO]
- ---------------------- ----------------------

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

SEE REVERSE FOR
CERTAIN DEFINITIONS

INCORPORATED UNDER THE LAWS CUSIP
OF THE STATE OF DELAWARE

- --------------------------------------------------------------------------------
THIS CERTIFIES THAT

IS THE OWNER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.0063 EACH
OF THE COMMON STOCK OF

- ----------------------------PURO WATER GROUP, INC.------------------------------

transferable on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed.

CERTIFICATE OF STOCK

This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signature of its duly authorized officers.

Dated:

[SEAL]
PRESIDENT SECRETARY

COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT
AND REGISTRAR.

AUTHORIZED OFFICER

<PAGE>

The Corporation will furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock series
thereof and the qualificatons, limitations or restrictions of such
preferences and/or rights.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.

TEN COM -- as tenants in common UNIF GIFT MIN ACT --...Custodian...
TEN ENT -- as tenants by the entiredee (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors Act
of survivorship and not as
tenants in common -----------------------------------
(Signed)

Additional abbreviations may also be used though not in the above list.

For Value Received, _____________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------

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

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

- --------------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated
---------------------------------

-------------------------------------------------------
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.

Signature(s) Guaranteed:

- ---------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT
TO S.E.C. RULE 17Ad-15

<PAGE>
Exhibit 4.3

PURO WATER GROUP, INC.

1996 STOCK OPTION PLAN

As Adopted as of November 1, 1996

1. PURPOSE. This 1996 Stock Option Plan ("Plan") is established as a
compensatory plan to attract, retain and provide equity incentives to selected
persons to promote the financial success of Puro Water Group, Inc. (the
"Company"). Capitalized terms not previously defined herein are defined in
Section 17 of this Plan.

2. TYPES OF OPTIONS AND SHARES. Options granted under this Plan
(the "Options") may be either (a) incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or (b) nonqualified stock options (NQSOs"), as designated at the time
of the grant. The shares of stock that may be purchased upon exercise of
Options granted under this Plan (the "Shares") are shares of the Common Stock of
the Company.

3. NUMBER OF SHARES. The maximum number of Shares that may be
issued pursuant to Options granted under this Plan shall not exceed 400,000 in
total (following a proposed .492840172 for 1 stock split) subject to adjustment
as provided in this Plan. If any Option is terminated for any reason without
being exercised in whole or in part, the Shares thereby released from such
Option shall be available for purchase under other Options subsequently granted
under this Plan. At all times during the term of this Plan, the Company shall
reserve and keep available such number of Shares as shall be required to satisfy
the requirements of outstanding Options under this Plan.

4. ELIGIBILITY. Options may be granted to employees, officers,
directors, consultants, independent contractors and advisors of the Company or
any Parent, Subsidiary or Affiliate of the Company. ISOs may be granted only to
employees (including officers and directors who are also employees) of the
Company or a Parent or Subsidiary of the Company. The Committee (as defined in
Section 14) in its sole discretion shall select the recipients of Options
("Optionees"). An Optionee may be granted more than one Option under this Plan.

5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:

5.1 FORM OF OPTION GRANT. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant (the "Grant") in such form
(which need not be the same for each Optionee) as the Committee shall from time
to time approve.

<PAGE>

5.2 DATE OF GRANT. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee. The Grant representing the Option will be
delivered to the Optionee with a copy of this Plan within a reasonable time
after the date of grant.

5.3 EXERCISE PRICE. The exercise price of an Option shall be
not less than 100% of the Fair Market Value of the Shares on the date the Option
is granted. The exercise price of any Option granted to a person owning more
than 10% of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary of the Company ("Ten Percent Shareholder")
shall not be less than 110% of the Fair Market Value of the Shares on the date
the Option is granted.

5.4 EXERCISE PERIOD. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Grant;
provided, however, that no Option shall be exercisable after the expiration of
ten (10) years from the date the Option is granted, and provided further that no
Option granted to a Ten Percent Shareholder shall be exercisable after the
expiration of five (5) years from the date of the Option is granted.

5.5 LIMITATIONS ON ISOS. The aggregate Fair Market Value
(determined as of the time of Option is granted) of stock with respect to which
ISOs are exercisable for the first time by an Optionee during any calendar year
(under this Plan or under any other incentive stock option plan of the Company
or any Parent or Subsidiary of the Company) shall not exceed $100,000. If the
Fair Market Value of stock with respect to which ISOs are exercisable for the
first time by an Optionee during any calendar year exceeds $100,000, the Options
for the first $100,000 worth of stock to become exercisable in such year shall
be ISOs and the Options for the amount in excess of $100,000 that becomes
exercisable in the year shall be NQSOs. In the event that the Code or the
regulations promulgated thereunder are amended after the effective date of this
Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment.

5.6 OPTIONS NON-TRANSFERABLE. Options granted under this Plan,
and any interest therein, shall not be transferable or assignable by the
Optionee, and may not be made subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act, or the rules thereunder, and
shall be exercisable during the lifetime of the Optionee only by the Optionee;
provided that NQSOs held by an Optionee who is not an officer or director of the
Company or other person (in each case, an "Insider") whose transactions in the
Company's Common Stock are subject to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), may be transferred to such family
members, trusts and charitable institutions as the Committee, in its sole
discretion, shall approve at the time of the grant of such Option.

<PAGE>
6. EXERCISE OF OPTIONS.

6.1 NOTICE. Options may be exercised only by delivery to the
Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.

6.2 PAYMENT. Payment for the Shares may be made in cash (by
check) or, where approved by the Committee in its sole discretion at the time of
grant and where permitted by law: (a) by cancellation of indebtedness of the
Company to the Optionee; (b) by surrender of shares of Common Stock of the
Company that have been owned by the Optionee for more than six (6) months (and
which have been paid for within the meaning of Securities and Exchange
Commission Rule 144 and, if such Shares were purchased from the Company by use
of a promissory note, such note has been fully paid with respect to such shares)
or were obtained by the Optionee in the open public market having a Fair Market
Value equal to the exercise price of the Option; (c) by instructing the Company
to withhold Shares otherwise issuable pursuant to an exercise of the Option
having a Fair Market Value equal to the exercise price of the Option (including
the withheld Shares); (d) by waiver of compensation due or accrued to Optionee
for services rendered; (e) provided that a public market for the Company's stock
exists, through a "same day sale" commitment from the Optionee and a
broker-dealer that is a member of the National Association of Securities Dealers
(an "NASD Dealer") whereby the Optionee irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to pay for the exercise
price and whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the exercise price directly to the Company; (f) provided that
a public market for the Company's stock exists, through a "margin" commitment
from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to
exercise the Option and to pledge the Shares so purchased to the NASD Dealer in
a margin account as security for a loan from the NASD Dealer in the amount of
the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company; or (g) by
any combination of the foregoing.

6.3 WITHHOLDING TAXES. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable. Where
approved by the Committee in its sole discretion, the Optionee may provide for
payment of withholding taxes upon exercise of the Option by requesting that the
Company retain Shares with a Fair Market Value equal to the minimum amount of
taxes required to be withheld. In such case, the Company shall issue the net
number of Shares to the Optionee by deducting the Shares retained from the
Shares exercised. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
in accordance with Section 83 of the Code (the "Tax Date"). All elections by

3
<PAGE>

Optionees to have shares withheld for this purpose shall be made in writing in a
form acceptable to the Committee and shall be subject to the following
restrictions:

(a) the election must be made on or prior to the applicable Tax
Date;

(b) once made, the election shall be irrevocable as to the
particular Shares as to which the election is made;

(d) if the Optionee is an Insider, and if the Company is subject
to Section 16(b) of the Exchange Act, the election may not be made within six
(6) months of the date of grant of the Option; provided, however, that this
limitation shall not apply in the event that death or disability of the Optionee
occurs prior to the expiration of the six (6) month period; and

(e) if the Optionee is an Insider, and if the Company is subject
to Section 16(b) of the Exchange Act, the election must be made either six (6)
months prior to the Tax Date or in the 10-day period beginning on the third day
following the public release of the Company's quarterly or annual summary
statement of operations.

In the event the election to have Shares withheld is made by an Optionee who is
an Insider, the Company is subject to Section 16(b) of the Exchange Act, and the
Tax Date is deferred until six (6) months after exercise of the Option because
no election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option is exercised, but
such Optionee shall be unconditionally obligated to tender back to the Company
the proper number of Shares on the Tax Date.

6.4 LIMITATIONS ON EXERCISE. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:

(a) If an Optionee ceases to be employed by the Company or
any Parent, Subsidiary or Affiliate of the Company for any reason except death
or disability, the Optionee may exercise such Optionee's ISOs to the extent (and
only to the extent) that it would have been exercisable upon the date of
termination, within three (3) months after the date of termination (or such
shorter time period as may be specified in the Grant), provided that, if
Optionee is an Insider and the Company is subject to Section 16(b) of the
Exchange Act, the Optionee's Option will be exercisable for a period of time
sufficient to allow such Optionee from having a matching purchase and sale under
Section 16(b), with any extension beyond three (3) months from termination of
employment deemed to be as an NQSO, and provided further that in no event may an
Option be exercisable later than the expiration date of the Option.

<PAGE>

(b) If an Optionee's employment with the Company or any
Parent, Subsidiary or Affiliate of the Company is terminated because of the
death of the Optionee or disability of Optionee within the meaning of Section
22(e)(3) of the Code, such Optionee's ISOs may be exercised to the extent (and
only to that extent) that it would have been exercisable by the Optionee on the
date of termination, by the Optionee (or the Optionee's legal representative)
within twelve (12) months after the date of termination (or such shorter time
period as may be specified in the Grant), but in any event no later than the
expiration date of the ISOs.

(c) The Committee shall have discretion to determine
whether the Optionee has ceased to be employed by the Company or any Parent,
Subsidiary or Affiliate of the Company and the effective date on which such
employment terminated.

(d) In the case of an Optionee who is a director,
independent consultant, contractor or advisor, the Committee will have the
discretion to determine whether the Optionee is "employed by the Company or any
Parent, Subsidiary or Affiliate of the Company" pursuant to the foregoing
Sections.

(e) The Committee may specify a reasonable minimum number
of Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent the Optionee from exercising the full number of
Shares as to which the Option is then exercisable.

(f) An Option shall not be exercisable unless such exercise
is in compliance with the Securities Act of 1933, as amended (the "1933 Act"),
all applicable state securities laws and the requirements of any stock exchange
or national market system upon which the Shares may then be listed, as they are
in effect on the date of exercise. The Company shall be under no obligation to
register the Shares with the SEC or to effect compliance with the registration,
qualifications or listing requirements of any state securities laws or stock
exchange, and the Company shall have no liability for any inability or failure
to do so.

6.5 INFORMATION TO OPTIONEES. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company prior to such
Optionee's exercise of the Option, and to each Optionee annually during the
period such Optionee has Options outstanding, at such time after the close of
each fiscal year of the Company as such statements are released by the Company
to its shareholders; provided, however, the Company shall not be required to
provide such financial statements to Optionees whose services in connection with
the Company assure them access to equivalent information.

7. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) a right to
repurchase a portion of all Shares held by an Optionee upon the Optionee's
termination of employment or service with the Company or its Parent, Subsidiary
or Affiliate of the

<PAGE>

Company for any reason within a specified time as determined by the Committee at
the time of grant at (a) the Optionee's original purchase price, (b) the Fair
Market Value of such Shares or (c) a price determined by a formula or other
provision set forth in the Grant.

8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. The Committee
shall have the power to modify, extend or renew outstanding Options and to
authorize the grant of new Options in substitution therefor, provided that any
such action may not, without the written consent of the Optionee, impair any
rights under any Option previously granted. Any outstanding ISO that is
modified, extended, renewed or otherwise altered shall be treated in accordance
with Section 424(h) of the Code. The Committee shall have the power to reduce
the exercise price of outstanding options; provided, however, that the exercise
price per share may not be reduced below the minimum exercise price that would
be permitted under Section 5.3 of this Plan for options granted on the date the
action is taken to reduce the exercise price.

9. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan.

10. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option
granted under this Plan shall confer on any Optionee any right to continue in
the employ of, or other relationship with, the Company or any Parent, Subsidiary
or Affiliate of the Company or limit in any way the rights of the Company or any
Parent, Subsidiary or Affiliate of the Company to terminate the Optionee's
employment or other relationship at any time, with or without cause.

11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company
without consideration, or if a substantial portion of the assets of the Company
are distributed, without consideration, in a spin-off or similar transaction, to
the shareholders of the Company, the number of Shares available under this Plan
and the number of Shares subject to outstanding Options and the exercise price
per share of such Options shall be proportionately adjusted, subject to any
required action by the Board of Directors (the "Board") or shareholders of the
Company and compliance with applicable securities laws; provided, however, that
a fractional share shall not be issued upon exercise of any Option and any
fractions of a Share that would have resulted shall either be cashed out at Fair
Market Value or the number of shares issuable under the Option shall be rounded
up to the nearest whole number, as determined by the Committee; and provided
further that the exercise price may not be decreased to below the par value, if
any, for the Shares.

<PAGE>

12. ASSUMPTION OF OPTIONS BY SUCCESSORS.

12.1 ASSUMPTION OR REPLACEMENT OF OPTIONS BY SUCCESSOR. In the
event of (a) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation with a wholly-owned
subsidiary, a reincorporation of the Company in a different jurisdiction, or
other transaction in which there is no substantial change in the shareholders of
the Company and the Options granted under the Plan are assumed or replaced by
the successor corporation, which assumption shall be binding on all Optionees),
(b) a dissolution or liquidation of the Company, (c) the sale of substantially
all of the assets of the Company, or (d) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(EXCEPT for the acquisition, sale or transfer of all or substantially all of the
outstanding shares of the Company), any or all outstanding Options may be
assumed by the successor corporation, which assumption shall be binding on all
Optionees. In the alternative, the successor corporation may substitute
equivalent Options or provide substantially similar consideration to Optionees
as was provided to shareholders (after taking into account the existing
provisions of the Options). The successor corporation may also issue, in place
of outstanding Shares of the Company held by the Optionee, substantially similar
shares or other property subject to repurchase restrictions no less favorable to
the Optionee.

12.2 EXPIRATION OF OPTIONS. In the event such successor
corporation, if any, refuses to assume or substitute the Options, as provided
above, pursuant to a transaction described in Subsection 12.1(a) above, such
Options shall expire on (and, if the Company has reserved to itself a right to
repurchase Shares issued pursuant to an Option, such right shall terminate on)
the consummation of such transaction at such time and on such conditions as the
Board shall determine. In the event such successor corporation, if any, refuses
to assume or substitute the Options as provided above, pursuant to a transaction
described in Subsections 12.1(a), (b) or (c) above, or there is no successor
corporation, and if the Company ceases to exist as a separate corporate entity,
then, notwithstanding any contrary terms in the Option Grant, the Options shall
expire on a date at least twenty (20) days after the Board gives written notice
to Optionees specifying the terms and conditions of such termination.

12.3 OTHER TREATMENT OF OPTIONS. Subject to any greater rights
granted to Optionees under the foregoing provisions of this Section 12, in the
event of the occurrence of any transaction described in Section 12.1, any
outstanding Options shall be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, sale or assets or other
"corporate transaction."

12.4 ASSUMPTION OF OPTIONS BY THE COMPANY. The Company, from time
to time, also may substitute or assume outstanding options granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either (a) granting an Option under the Plan in substitution of
such other company's option, or (b) assuming such option as if it had been
granted under the Plan if the terms of such assumed option could be applied to
an Option granted under the Plan. Such substitution or assumption shall be
permissible if the holder of the

<PAGE>

substituted or assumed option would have been eligible to be granted an Option
under the Plan if the other company had applied the rules of the Plan to such
grant. In the event the Company assumes an option by another company, the terms
and conditions of such option shall remain unchanged (except that the exercise
price and the number and nature of Shares issuable upon exercise of any such
option will be adjusted appropriately pursuant to Section 424(a) of the Code).
In the event the Company elects to grant a new Option rather than assuming an
existing option, such new Option may be granted with a similarly adjusted
Exercise Price.

13. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become
effective on the date that it is adopted by the Board of the Company (the
"Effective Date"). This Plan shall be approved by the shareholders of the
Company, in any manner permitted by applicable corporate law, within twelve (12)
months before or after the Effective Date. Upon the Effective Date, the Board
may grant Options pursuant to the Plan; provided, however, that: (a) no Option
may be exercised prior to initial shareholder approval of the Plan; (b) no
Option shall be exercised prior to the time an increase in the number of shares
has been approved by the shareholders of the Company; and (c) in the event that
shareholder approval is not obtained within the time period provided herein all
Options granted hereunder and any Shares issued pursuant to any Option shall be
rescinded. After the Company becomes subject to Section 16(b) of the Exchange
Act, the Company will comply with the requirements of Rule 16b-3 (or its
successor), as amended, with respect to shareholder approval.

14. ADMINISTRATION. This Plan may be administered by the Board or a
Committee appointed by the Board (the "Committee"). If, at the time the Company
registers under the Exchange Act, a majority of the Board is not comprised of
Disinterested Persons, the Board shall appoint a Committee consisting of not
less than two directors, each of whom is a Disinterested Person. As used in
this Plan, references to the "Committee" shall mean either such Committee or the
Board if no committee has been established. After registration of the Company
under the Exchange Act, Board members who are not Disinterested Persons may not
vote on any matters affecting the administration of this Plan or on the grant of
any Options pursuant to this Plan to Insiders, but any such member may be
counted for determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to Options or administration of this
Plan and may vote on the grant of any Options pursuant to this Plan otherwise
than to Insiders. The interpretation by the Committee of any of the provisions
of this Plan or any Option granted under this Plan shall be final and binding
upon the Company and all persons having an interest in any Option or any Shares
purchased pursuant to an Option. The Committee may delegate the authority to
grant Options under this Plan to Optionees who are not Insiders of the Company
to officers of the Company.

15. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years after the earlier of the date on
which this Plan is adopted by the Board or the date this Plan is approved by the
shareholders of the Company.

16. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan in any respect including (but not limited to)
amendment of any form of Grant, exercise agreement or instrument to be executed
pursuant to this Plan; provided, however, that the Committee shall not, without
the approval of the holders of a majority of the outstanding voting shares of
the Company, amend this Plain in any manner that requires such

<PAGE>

shareholder approval pursuant to the Code or the regulations promulgated
thereunder as such provisions apply to ISO plans or pursuant to the Exchange Act
or Rule 16b-3 (or its successor) promulgated thereunder.

17. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:

17.1 "PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.

17.2 "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.

17.3 "AFFILIATE" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with another corporation, where "control" (including the
terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.

17.4 "DISINTERESTED PERSON" shall have the meaning set forth in
Rule 16b-3(c)(2)(i) as promulgated by the SEC under Section 16(b) of the
Exchange Act, as such rule is amended from time to time and as interpreted by
the SEC.

17.5 "FAIR MARKET VALUE" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the price of the last trade on each of the six business days immediately
prior to the date of determination or, in the event the Common Stock of the
Company is listed on a stock exchange or on the NASDAQ National Market System,
the Fair Market Value shall be the closing price on such exchange or quotation
system on the last trading day prior to the date of determination.

<PAGE>
Exhibit 5.1

January 3, 1997

Puro Water Group, Inc.
56-45 58th Street
Maspeth, New York 11378

Re: Registration Statement on Form SB-2
SEC File No. 333-16247
-----------------------------------

Gentlemen:

At your request, we have examined the Registration Statement on Form SB-2
of Puro Water Group, Inc. (the "Company") filed by you with the Securities and
Exchange Commission ("SEC") on this date (Registration No. 333-16247), including
exhibits and amendments thereto (the "Registration Statement") in connection
with the registration under the Securities Act of 1933, as amended, of 1,350,000
shares of common stock of the Company, par value $.0063 per share (the
"Shares"), all of which are authorized but heretofore unissued (following
proposed stock split which shall be effected prior to the consummation of the
instant offering) and an over-allotment option for 202,500 Shares held by the
underwriters which will be purchased from the Company. The Shares are to be
sold to the underwriters for resale to the public as described in the
Registration Statement and pursuant to the Underwriting Agreement filed as an
exhibit thereto. As your counsel, we have examined the proceedings proposed to
be taken in connection with said sale and issuance of the Shares.

For purposes of this opinion, we have examined such matters of law and
originals, or copies certified or otherwise identified to our satisfaction, of
such documents, corporate records and other instruments as we have deemed
necessary. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as certified,
photostatic or conformed copies, and the authenticity of originals of all such
latter documents. We have also assumed the due execution and delivery of all
documents where due execution and delivery are prerequisites to the
effectiveness thereof. We have relied upon certificates of public officials and
certificates of officers of the Company for the accuracy of material factual
matters contained therein which were not independently established.

<PAGE>

Puro Water Group, Inc.
January 3, 1997
Page Two

Based on the foregoing, it is our opinion that, subject to effectiveness
with the SEC and to registration or qualification under the securities laws of
the states in which Shares may be sold, the Shares are duly and validly
authorized and, upon the sale and issuance thereof in the manner referred to in
the Registration Statement, and upon payment therefor, will be legally issued,
fully paid and nonassessable.

Very truly yours,

LEV, BERLIN & DALE, P.C.

<PAGE>

Exhibit 10.14

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of November
1996, by and between Puro Water Group, Inc., a Delaware corporation (the
"Company") and Jack C. West (the "Employee").

WHEREAS, the Company believes it is in the Company's best interest to
employ the Employee as its President and the Employee desires to be employed by
the Company in such capacity; and

WHEREAS, the Company and Employee desire to set forth the terms and
conditions on which Employee shall be employed by and provide his services to
the Company;

NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto do hereby agree as
follows:

1. EMPLOYMENT. The Company hereby employs Employee in its business and
the Employee hereby accepts such employment, all upon the terms and conditions
hereinafter set forth.

2. TERM. Unless sooner terminated pursuant to the provisions of this
Agreement, the term of employment under this Agreement shall be for a period
commencing on November 1, 1996 and ending on the close of business on October
31, 2001 (the "Employment Period"). The Employment Period may be extended at
the option of the Company for one (1) additional five (5) year period by notice
to Employee not less than Six (6) months prior to the expiration of the initial
Employment Period, such successive period, if any, being included in the term
"Employment Period" for the purposes of this Agreement. In the event that the
Company does

<PAGE>

not exercise its option to extend the initial Employment Period and a mutually
acceptable alternative agreement is not reached not less than Six (6) months
prior to the expiration of the initial Employment Period, the Company shall make
a severance payment to Employee upon the expiration of the initial Employment
Period, equal to two (2) times his annual base salary by certified or bank check
or wire transfer of funds. Notwithstanding the foregoing, in the event that
the Company's currently proposed initial public offering of common stock is not
effective on or prior to March 31, 1997, then this Agreement shall be null and
void and of no further force or effect and that certain Employment Agreement
dated as of January 28, 1994 between the Company and the Employee shall be and
remain in full force and effect.

3. SALARY. Employee shall be entitled to receive a minimum annual base
salary during the Employment Period equal to One Hundred Thousand Dollars
($100,000). Such salary shall be (i) subject to cost of living adjustments and
periodic reviews and increases at the discretion of the Board of Directors, (ii)
payable in accordance with the normal payroll policies of the Company, and (iii)
subject to all appropriate withholding taxes.

4. VACATION. Employee shall be entitled to an annual paid vacation of at
least three (3) calendar weeks during the Employment Period.

5. OTHER BENEFITS. Employee agrees that the salary set forth in Section 3
hereof and the vacation time specified in Section 4 hereof are the sole and
exclusive compensation of the Employee for his duties hereunder; PROVIDED,
HOWEVER, that the Company shall maintain, at no cost to Employee, term life
insurance covering Employee in the face amount of Three Hundred Thousand Dollars
($300,000), payable to any beneficiary he may so designate from time to time,

<PAGE>

and all employee benefits, including without limitation, family hospital,
medical and health until Employee reaches Sixty Five (65) years of age,
disability insurance, and other benefits provided at any time by the Company to
any of its senior management employees in the sole and absolute discretion of
the Board of Directors of the Company.

6. BUSINESS EXPENSES AND REIMBURSEMENTS. Employee shall be entitled to
reimbursement by the Company for ordinary and necessary business expenses
incurred by Employee in the performance of his duties, including without
limitation the use of a Company-paid automobile (initially a Ford Crown
Victoria), which types of expenditures shall be determined and approved by the
Company, and further provided that:

(a) The Board of Directors must unanimously approve any reimbursement
of expenses in excess of Two Thousand Eighty Three Dollars ($2,083) per month.

(b) Each such expenditure is of a nature qualifying it as a proper
deduction on the Federal and State income tax returns of the Company as a
business expense and not as deductible compensation to the Employee; and

(c) Employee furnish the Company with adequate records and other
documentary evidence required by federal and state statutes and regulations for
the substantiation of such expenditures as deductible business expenses of the
Company and not as deductible compensation to the Employee.

Employee agrees that, if at any time, any payment made to the Employee by
the Company, whether for salary or as a business expense reimbursement, shall be
disallowed in

<PAGE>

whole or in part as a deductible expense to Company by the appropriate taxing
authorities, Employee shall reimburse the Company to the full extent of such
disallowance.

7. DUTIES. During the Employment Period:

(a) Employee shall report directly to the Board of Directors of the
Company and shall furnish all manner of services in connection with his position
and duties as President of the Company.

(b) Employee shall devote full time, energy and skill to the service
of the Company and the promotion of its interests, and shall use his best
efforts in the performance of his services hereunder. The parties agree that
Employee may not, during the Employment Period, be engaged in any other business
activity whether or not such activity is pursued for gain, profit, or other
pecuniary advantage; PROVIDED, HOWEVER, Employee may invest his personal assets
in businesses where the form or manner of such investment will not require
services on the part of the Employee conflicting with the duties of the Employee
under this Agreement in the operation of the affairs of the business in which
such investments are made. Employee agrees to abide by all By-Laws, rules and
regulations established from time to time by the Company, its shareholders
and/or its Board of Directors.

8. DEATH OR INCAPACITY. In the event of the death or incapacity
("incapacity" being defined as the involuntary failure of Employee to devote
full time to the service of the Company for a period of One Hundred Eighty (180)
consecutive days), during the Employment Period, or longer period as determined
in the sole discretion of the Board of Directors, the Employee's employment
hereunder shall terminate immediately upon such death or determination of
incapacity. The Company shall pay to the Employee or Employee's estate all
amounts owed to the Employee hereunder which have accrued until the date of
death or determination of incapacity, including without limitation, the salary
and vested stock options due under Section 3, and shall continue to pay to
Employee or Employee's estate the amount of salary and vested stock options
payable to Employee pursuant to Section 3 hereof immediately prior to the date
of such death or determination of

<PAGE>

incapacity for a period of three months subsequent to the date of death or
determination of incapacity. Such amounts shall be payable at such times and in
the manner set forth in Section 3 herein.

9. TERMINATION BY COMPANY. The Employee may be terminated by the Company
only for cause, "cause" being defined as adjudicated criminal misconduct, gross
negligence, malfeasance or misfeasance or breach of this Agreement by Employee.
In the event Employee is terminated for cause, the Company shall be obligated to
pay to Employee the salary and vested stock options accrued through the date of
termination. In the event the Company terminates Employee without cause, in
addition to any other rights and remedies the Employee may have,
the Company shall pay to Employee all amounts required to be paid pursuant to
this Agreement at the times and in the manner set forth herein.

<PAGE>

and which the Company considers proprietary and desires to maintain confidential
regardless of whether a patent or copyright may be obtained for the Information.

During the Employment Period and at all times thereafter, the Employee
shall not in any manner, either directly or indirectly, divulge, disclose or
communicate to any person or firm, except to or for the Company's benefit as
directed by the Company any of the Information which he may have acquired in the
course of or as an incident to his employment by the Company, the parties
agreeing that such Information affects the successful and effective conduct of
the Company's business and its goodwill, and that any breach of the terms of
this Section is a material breach of this Agreement.

<PAGE>

principal, licensor, member or shareholder. If, in any legal proceedings, a
court or arbitration board of competent jurisdiction shall refuse to enforce the
covenants included in this Section 11, then such unenforceable covenants shall
be amended by such court or arbitration board to relate to such lesser period or
any geographical area as shall be enforceable. Employee hereby acknowledges
that the restrictions on his activity as contained in this Agreement are
required for the reasonable protection of the Company and its subsidiaries,
affiliates and successors, if any. Employee hereby agrees that in the event of
the violation by him of any of the provisions of this Agreement, the Company and
its subsidiaries, affiliates and successors, if any, will be entitled if any so
elects, to institute and prosecute proceedings at law and/or in equity to obtain
damages with respect to such violation and/or to enforce the specific
performance of this Agreement by Employee and/or to enjoin Employee from
engaging in any activity in violation hereof. In the event Company or its
subsidiaries, affiliates or successors, if any, is determined to be the
prevailing party in any legal action or other proceeding for the enforcement of
this Section 11, the time for calculating the term of the covenants in this
Section 11 shall not include the period of time commencing with the filing of
legal action or other proceeding to enforce the terms hereof through the date of
final judgment or final resolution, including all appeals, if any, of such legal
action or other proceeding.

12. ENTIRE AGREEMENT. Except as provided in Section 2 hereinabove, this
Agreement represents the entire understanding and agreement between the parties
with respect to the subject matter hereof, and supersedes all other
negotiations, understandings and representations (if any) made by and between
such parties.

<PAGE>

13. AMENDMENTS. The provisions of this Agreement may not be amended,
supplemented, waived or changed orally, but only by a writing signed by the
parties hereto.

14. BINDING EFFECT. All of the terms and provisions of this Agreement,
whether so expressed or not, shall be binding upon, inure to the benefit of, and
be enforceable by the parties and their respective administrators, executors,
legal representatives, heirs, successors and permitted assigns.

15. SEVERABILITY. If any part of this Agreement or any other agreement
entered into pursuant hereto is contrary to, prohibited by or deemed invalid
under applicable law or regulation, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible.

16. WAIVERS. The failure or delay of the Company at any time to require
performance by the Employee of any provision of this Agreement, even if known,
shall not affect the right of the Company to require performance of that
provision or to exercise any right, power or remedy hereunder, and any waiver by
the Company of any breach of any provision of this Agreement should not be
construed as a waiver or any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right, power or remedy
under this Agreement. No notice to or demand on the Employee in any case shall,
of itself, entitle such party to any other or future notice or demand in similar
or other circumstances.

17. NOTICES. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including
facsimile) and shall be (as elected

<PAGE>

by the person giving such notice) by hand delivery by messenger or courier
service, facsimile, or United States Postal Service (airmail if international)
by registered or certified mail (postage prepaid), return receipt requested,
addressed to:

If to Company: Puro Water Group, Inc.
56-45 58th Street
Maspeth, New York 11378
Attention: Mr. Jack C. West, President

If to Employee: Mr. Jack C. West
3207 Victoria Drive
Mt. Kisco, New York 10549

In each case with
a copy to: Lev, Berlin & Dale, P.C.
535 Connecticut Avenue
Norwalk, Connecticut 06854
Attention: Duane L. Berlin, Esq.

Each such notice, request, consent and other communication shall be deemed
delivered (a) on the date delivered if by personal delivery, (b) on the date of
telecopy transmission if confirmed by telephone, and (c) on the date upon which
the return receipt is signed or delivery is refused or the notice is designated
by the postal authorities as not deliverable, as the case may be, if mailed.

9
<PAGE>

18. GOVERNING LAW. This Agreement and all transactions contemplated by
this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York without regard to principles of
conflicts of laws.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

PURO WATER GROUP, INC.

By: /s/ Scott Levy
----------------------------------
Scott Levy
Its Chief Executive Officer
Hereunto Duly Authorized

/s/ Jack C. West
----------------------------------
Jack C. West

<PAGE>

Exhibit 10.15

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of November
1996, by and between Puro Water Group, Inc., a Delaware corporation (the
"Company") and Scott Levy (the "Employee").

WHEREAS, the Company believes it is in the Company's best interest to
employ the Employee as its Chief Executive Officer and the Employee desires to
be employed by the Company in such capacity; and

WHEREAS, the Company and Employee desire to set forth the terms and
conditions on which Employee shall be employed by and provide his services to
the Company;

NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto do hereby agree as
follows:

1. EMPLOYMENT. The Company hereby employs Employee in its business and
the Employee hereby accepts such employment, all upon the terms and conditions
hereinafter set forth.

2. TERM. Unless sooner terminated pursuant to the provisions of this
Agreement, the term of employment under this Agreement shall be for a period
commencing on November 1, 1996 and ending on the close of business on October
31, 2001 (the "Employment Period"). The Employment Period may be extended at
the option of the Company for one (1) additional five (5) year period by notice
to Employee not less than Six (6) months prior to the expiration of the
preceding Employment Period, such successive period, if any, being included in
the term and the "Employment Period" for the purposes of this Agreement. In the
event that the Company does

<PAGE>

not exercise its option to extend the initial Employment Period and a mutually
acceptable alternative agreement is not reached not less than Six (6) months
prior to the expiration of the initial Employment Period, the Company shall make
a severance payment to Employee upon the expiration of the initial Employment
Period, equal to three (3) times his annual base salary by certified or bank
check or wire transfer of funds. Notwithstanding the foregoing, in the event
that the Company's currently proposed initial public offering of common stock is
not effective on or prior to March 31, 1997, then this Agreement shall be null
and void and of no further force or effect and that certain Employment Agreement
dated as of January 28, 1994 between the Company and the Employee shall be and
remain in full force and effect.

3. COMPENSATION.

SALARY. Employee shall be entitled to receive a minimum annual base salary
during the Employment Period equal to One Hundred Eighty Seven Thousand Dollars
($187,000). Such salary shall be (i) subject to cost of living adjustments and
periodic reviews and increases at the discretion of the Board of Directors, (ii)
payable in accordance with the normal payroll policies of the Company, (iii)
subject to all appropriate withholding taxes.

4. VACATION. Employee shall be entitled to an annual paid vacation of at
least three (3) calendar weeks during the Employment Period.

<PAGE>

Dollars ($1,000,000), payable to any beneficiary he may so designate from time
to time, and all employee benefits, including without limitation, family
hospital, medical and health for so long as he shall be employed by the Company,
disability insurance, and other benefits provided at any time by the Company to
any of its senior management employees in the sole and absolute discretion of
the Board of Directors of the Company.

6. BUSINESS EXPENSES AND REIMBURSEMENTS. Employee shall be entitled to
reimbursement by the Company for ordinary and necessary business expenses
incurred by Employee in the performance of his duties, which types of
expenditures shall be determined and approved by the Company, and further
provided that:

(a) The Board of Directors must unanimously approve any reimbursement
of expenses in excess of Two Thousand Five Hundred Dollars ($2,500) per month.

Employee agrees that, if at any time, any payment made to the Employee by
the Company, whether for salary or as a business expense reimbursement, shall be
disallowed in

<PAGE>

whole or in part as a deductible expense to Company by the appropriate taxing
authorities, Employee shall reimburse the Company to the full extent of such
disallowance.

7. DUTIES. During the Employment Period:

(a) Employee shall report directly to the Board of Directors of the
Company and shall furnish all manner of services in connection with his position
and duties as Chief Executive Officer of the Company.

<PAGE>

incapacity. The Company shall pay to the Employee or Employee's estate all
amounts owed to the Employee hereunder which have accrued until the date of
death or determination of incapacity, including without limitation, the salary
and vested stock options due under Section 3, and shall continue to pay to
Employee or Employee's estate the amount of salary and vested stock options
payable to Employee pursuant to Section 3 hereof immediately prior to the date
of such death or determination of incapacity for a period of three months
subsequent to the date of death or determination of incapacity. Such amounts
shall be payable at such times and in the manner set forth in Section 3 herein.

9. TERMINATION BY COMPANY. The Employee may be terminated by the Company
only for cause, "cause" being defined as adjudicated criminal misconduct, gross
negligence, malfeasance or misfeasance or breach of this Agreement by Employee.
In the event Employee is terminated for cause, the Company shall be obligated to
pay to Employee the salary and vested stock options accrued through the date of
termination. In the event the Company terminates Employee without cause, in
addition to any other rights and remedies the Employee may have, the Company
shall pay to Employee all amounts required to be paid pursuant to this Agreement
at the times and in the manner set forth herein.

10. CONFIDENTIALITY. In the course of his employment, the Company may
disclose or make know to the Employee, and the Employee may be given access to
or may become acquainted with, certain information, trade secrets, customers,
policies, and other information and know-how, all relating to or useful in the
Company's business (collectively "Information"),

<PAGE>

and which the Company considers proprietary and desires to maintain confidential
regardless of whether a patent or copyright may be obtained for the Information.

<PAGE>

13. AMENDMENTS. The provisions of this Agreement may not be amended,
supplemented, waived or changed orally, but only by a writing signed by the
parties hereto.

17. NOTICES. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including
facsimile) and shall be (as elected

<PAGE>

If to Company: Puro Water Group, Inc.
56-45 58th Street
Maspeth, New York 11378
Attention: Mr. Jack C. West, President

If to Employee: Mr. Scott Levy
32 Morewood Oaks
Port Washington, New York 11050

In each case with
a copy to: Lev, Berlin & Dale, P.C.
535 Connecticut Avenue
Norwalk, Connecticut 06854
Attention: Duane L. Berlin, Esq.

9
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

PURO WATER GROUP, INC.

By: /s/ Jack C. West
------------------------------------
Jack C. West
Its President
Hereunto Duly Authorized

/s/ Scott Levy
-------------------------------------
Scott Levy

<PAGE>

Exhibit 10.16

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") made as of the 1st day of November
1996 by and between Puro Water Group, Inc., a Delaware corporation (the
"Company") and James G. Botti (the "Employee").

WHEREAS, the Company believes it is in the Company's best interest to
employ the Employee as its Chief Financial Officer and Employee desires to be
employed by the Company in such capacity; and

WHEREAS, the Company and Employee desire to set forth the terms and
conditions on which Employee shall be employed by and provide his services to
the Company;

NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto do hereby agree as
follows:

1. EMPLOYMENT. The Company hereby employs Employee in its business and
the Employee hereby accepts such employment, all upon the terms and conditions
hereinafter set forth.

3. COMPENSATION.

(a) SALARY. Employee shall be entitled to receive an annual salary during
the Employment Period of One Hundred Thousand Dollars ($100,000). Such salary
shall be payable in accordance with the normal payroll policies of the Company
and shall be subject to all

<PAGE>

appropriate withholding taxes. Employee's salary shall be reviewed by the Board
of Directors of the Company at the end of six (6) months following the
commencement of the Employment Period.

(b) STOCK OPTION PLAN. Employee shall be entitled to options covering up
to Thirty Five Thousand (35,000) shares of common stock of the Company from the
Company's 1996 Stock Option Plan (the "Plan"). Said options shall vest in
accordance with the terms of and shall be exercisable at a price per share as
set forth in the Plan.

4. VACATION. Employee shall be entitled to an annual paid vacation of at
least two (2 ) calendar weeks during the Employment Period.

5. OTHER BENEFITS. Employee agrees that the compensation set forth in
Section 3 hereof, and the vacation time specified in Section 4 hereof, are the
sole and exclusive compensation of the Employee for his duties hereunder;
PROVIDED, HOWEVER, that Employee shall receive group medical and dental
insurance for himself and his dependents, and all employee benefits, including
without limitation, hospital, medical, health and disability insurance, provided
at any time by the Company to any of its executive-level employees as well as
life insurance. Employee shall also have the right to participate in the
Company's 401(k) plan. The benefits offered by the Company are subject to
change from time to time as determined in the sole and absolute discretion of
the Board of Directors of the Company.

<PAGE>

paid automobile (initially an Infinity G20), which types of expenditures shall
be determined and approved by the Company, and further provided that:

(a) The Board of Directors must unanimously approve any reimbursement
of expenses in excess of Two Hundred Fifty Dollars ($250) per month.

(c) Employee furnishes the Company with adequate records and other
documentary evidence required by federal and state statutes and regulations for
the substantiation of such expenditures as deductible business expenses of the
Company and not as deductible compensation to the Employee.

Employee agrees that, if at any time, any payment made to the Employee by
the Company, whether for salary or as a business expense reimbursement, shall be
disallowed in whole or in part as a deductible expense to Company by the
appropriate taxing authorities, Employee shall reimburse the Company to the full
extent of such disallowance.

7. DUTIES. During the Employment Period:

(a) Employee shall report directly to the Chief Executive Officer and
the President of the Company and shall furnish all manner of services in
connection with his position and duties as Chief Financial Officer of the
Company.

(b) Employee shall devote full time, energy and skill to the service
of the Company and the promotion of its interests, and shall use his best
efforts in the performance of

<PAGE>

his services hereunder. The parties agree that Employee may not, during the
Employment Period, be engaged in any other business activity whether or not such
activity is pursued for gain, profit, or other pecuniary advantage; PROVIDED,
HOWEVER, Employee may invest his personal assets in businesses where the form or
manner of such investment will not require services on the part of the Employee
conflicting with the duties of the Employee under this Agreement in the
operation of the affairs of the business in which such investments are made.
Employee agrees to abide by all Bylaws, rules and regulations established from
time to time by the Company, its shareholders and/or its Board of Directors.

8. DEATH OR INCAPACITY. In the event of the death or incapacity
("incapacity" being defined as the involuntary failure of Employee to devote
full time to the service of the Company for a period of Thirty (30) consecutive
days), during the Employment Period, or longer period as determined in the sole
discretion of the Board of Directors, the Employee's employment hereunder shall
terminate immediately upon such death or determination of incapacity. The
Company shall pay to the Employee or Employee's estate all amounts owed to the
Employee hereunder which have accrued until the date of death or determination
of incapacity, including without limitation, the salary and vested stock options
due under Section 3, and shall continue to pay to Employee or Employee's estate
the amount of salary payable to Employee pursuant to Section 3 hereof
immediately prior to the date of such death or determination of incapacity for a
period of three months subsequent to the date of death or determination of
incapacity. Such amounts shall be payable at such times and in the manner set
forth in Section 3 herein.

<PAGE>

9. TERMINATION BY COMPANY. The Employee may be terminated by the Company
only for cause, "cause" being defined as adjudicated criminal misconduct, gross
negligence, malfeasance or misfeasance or breach of this Agreement by Employee.
In the event Employee is terminated for cause, the Company shall be obligated to
pay to Employee the salary and vested stock options accrued through the date of
termination. In the event the Company terminates Employee without cause, in
addition to any other rights and remedies the Employee may have, the Company
shall continue to pay the Employee the salary specified under Section 3, in the
same manner and at the same times required under such section, until the first
to occur of (a) the expiration of the Employment Period, or (b) alternate
employment arrangements are secured by Employee using his best efforts to secure
same.

10. CONFIDENTIALITY. In the course of his employment, the Company may
disclose or make known to the Employee, and the Employee may be given access to
or may become acquainted with, certain information, trade secrets, customers,
policies, and other information and know-how, all relating to or useful in the
Company's business (collectively "Information"), and which the Company considers
proprietary and desires to maintain confidential regardless of whether a patent
or copyright may be obtained for the Information.

<PAGE>

Company's business and its goodwill, and that any breach of the terms of this
Section is a material breach of this Agreement.

11. RESTRICTIVE COVENANTS. The Employee acknowledges that the Information
is unique in character and is of particular significance to the Company and that
the Company is in a competitive business. Therefore, during the Employment
Period and for a period of One (1) year thereafter, Employee shall not directly
or indirectly, as owner, partner, joint venturer, lender, employee, broker,
agent, corporate officer, principal, licensor, member, shareholder or in any
other capacity whatsoever, engage in or make preparation to engage or become
interested in or have any connection with any business competitive with the
business of the Company, or any of its subsidiaries, affiliates or successors,
if any as are conducted during said period (hereinafter a "Competitive
Business") which is located within Fifty (50) miles of any person or entity with
which the Company has done business within the previous Three (3) year period,
nor shall the Employee solicit any other employee of the Company for the purpose
of hiring or engaging such other employee in connection with any business of
which Employee is an owner, partner, joint venturer, vender, employee, broker,
agent, officer, principal, licensor or shareholder. If, in any legal
proceedings, a court or arbitration board shall refuse to enforce the covenants
included in this Section, then such unenforceable covenants shall be amended by
such court or arbitration board to relate to such lesser period or geographical
area as shall be enforceable. Employee hereby acknowledges that the
restrictions on his activity as contained in this Agreement are required for the
reasonable protection of the Company and its subsidiaries, affiliates and
successors, if any. Employee hereby agrees that in the event of the violation
by him of any of the

<PAGE>

provisions of this Agreement, the Company and its subsidiaries, affiliates and
successors, if any, will be entitled if any so elects, to institute and
prosecute proceedings at law or in equity to obtain damages with respect to such
violation or to enforce the specific performance of this Agreement by Employee
or to enjoin Employee from engaging in any activity in violation hereof. In the
event Company or its subsidiaries, affiliates or successors, if any, is
determined to be the prevailing party in any legal action or other proceeding
for the enforcement of this Section 11, the time for calculating the term of the
covenants in this Section 11 shall not include the period of time commencing
with the filing of legal action or other proceeding to enforce the terms hereof
through the date of final judgment or final resolution, including all appeals,
if any, of such legal action or other proceeding.

12. INTENTIONALLY OMITTED.

13. AMENDMENTS. The provisions of this Agreement may not be amended,
supplemented, waived or changed orally, but only by a writing signed by the
party as to whom enforcement of any such amendment, supplement, waiver or
modification is sought and making specific reference to this Agreement.

<PAGE>

15. SEVERABILITY. If any part of this Agreement or any other Agreement
entered into pursuant hereto is contrary to, prohibited by or deemed invalid
under applicable law or regulation, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible.

17. NOTICES. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including
facsimile) and shall be (as elected by the person giving such notice) by hand
delivery by messenger or courier service, facsimile, or United States Postal
Service (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:

If to Company: Puro Water Group, Inc.
56-45 58th Street
Maspeth, New York 11378
Attention: Mr. Jack C. West, President

<PAGE>

If to Employee: Mr. James G. Botti
9019 Wall Street
North Bergen, New Jersey 07047

In each case with
a copy to: Lev, Berlin & Dale, P.C.
535 Connecticut Avenue
Norwalk, Connecticut 06854
Attention: Duane L. Berlin, Esq.

18. GOVERNING LAW. This Agreement and all transactions contemplated by
this Agreement shall be governed by, and construed and enforced in accordance
with, the internal laws of the State of New York without regard to principles of
conflicts of laws.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

PURO WATER GROUP, INC.

By: /s/ Jack C. West
-------------------------------------
Jack C. West
Its President
Hereunto Duly Authorized

/s/ James G. Botti
----------------------------------------
James G. Botti

<PAGE>

EXHIBIT 11.1

PURO WATER GROUP, INC.
SUPPLEMENTAL EARNINGS
PER SHARE COMPUTATION

<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
(UNAUDITED)
CALCULATION OF SUPPLEMENTAL SHARES OUTSTANDING:
Debt to be repaid by offering proceeds........................................................ $ 5,500,000
Proceeds per share............................................................................ 6.00
------------------
Additional shares assumed outstanding......................................................... 916,667
------------------
Additional weighted average common shares outstanding......................................... 586,359
Weighted average common shares outstanding.................................................... 2,237,679
------------------
Supplemental weighted average common shares outstanding....................................... 2,824,038
------------------
------------------
SUPPLEMENTAL EARNINGS PER SHARE:
Net income.................................................................................... $ 514,789
Pro forma impact of use of proceeds on interest expense....................................... 299,190
------------------
Supplemental net income....................................................................... 813,979
Supplemental weighted average common shares outstanding....................................... 2,824,038
------------------
Supplemental earnings per share............................................................... $ 0.29
------------------
------------------
</TABLE>

<PAGE>

Exhibit 23.1

January 3, 1997

Puro Water Group, Inc.
56-45 58th Street
Maspeth, New York 11378

Re: Registration Statement on Form SB-2
SEC File No. 333-16247
-----------------------------------

Gentlemen:

We hereby consent to the use of our opinion as an exhibit to the
Registration Statement and to the reference to our firm name under the caption
"Legal Matters" in the Prospectus which constitutes part of the Registration
Statement.

Very truly yours,

LEV, BERLIN & DALE, P.C.

<PAGE>

EXHIBIT 23.2

After the reverse stock split discussed in Note 13 to the Puro Water Group,
Inc.'s financial statements is effected, we expect to be in a position to render
the following consent.

Arthur Andersen LLP

January 2, 1997

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports dated May 1, 1996 (except for the matters described in Note 13, as to
which the date is , 1997) and May 1, 1996 and to all references to
our Firm included in or made a part of this registration statement.

New York, New York
, 1996