EXHIBIT 10.17

                              KATY INDUSTRIES, INC.
                       2002 STOCK APPRECIATION RIGHTS PLAN


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                                TABLE OF CONTENTS

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ARTICLE I      DEFINITIONS.....................................................1

   1.01.    ACCELERATION DATE..................................................1
   1.02.    ADMINISTRATOR......................................................1
   1.03.    BOARD..............................................................1
   1.04.    CAUSE..............................................................1
   1.05.    CHANGE IN CONTROL..................................................1
   1.06.    CODE...............................................................2
   1.07.    COMMITTEE..........................................................2
   1.08.    COMMON STOCK.......................................................2
   1.09.    COMPANY............................................................2
   1.10.    CONTROL CHANGE DATE................................................2
   1.11.    DETRIMENTAL ACTIVITY...............................................2
   1.12.    EMPLOYEE...........................................................3
   1.13.    EXCHANGE ACT.......................................................3
   1.14.    FAIR MARKET VALUE..................................................3
   1.15.    INITIAL VALUE......................................................3
   1.16.    INSIDER............................................................3
   1.17.    PARTICIPANT........................................................3
   1.18.    PLAN...............................................................3
   1.19.    SAR AGREEMENT......................................................3
   1.20.    STOCK APPRECIATION RIGHT OR SAR....................................3
   1.21.    SUBSIDIARY.........................................................4

ARTICLE II     PURPOSES........................................................4

ARTICLE III    ADMINISTRATION..................................................4

ARTICLE IV     ELIGIBILITY.....................................................5

ARTICLE V      STOCK SUBJECT TO PLAN...........................................5

   5.01.    AGGREGATE LIMITS...................................................5
   5.02.    REALLOCATION OF SHARES.............................................5

ARTICLE VI     TERMS AND CONDITIONS OF SARs....................................6

   6.01.    GRANTS.............................................................6
   6.02.    MAXIMUM EXERCISE PERIOD............................................6
   6.03.    NONTRANSFERABILITY.................................................6
   6.04.    CHANGE IN CONTROL..................................................6
   6.05.    EXERCISE...........................................................7
   6.06.    PAYMENT............................................................7
   6.07.    SHAREHOLDER RIGHTS.................................................8
   6.08.    FORFEITURE PROVISIONS..............................................8


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ARTICLE VII    ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SARs..............8

   7.01.    EMPLOYEE OR CONTRACTOR STATUS......................................8
   7.02.    PERFORMANCE OBJECTIVES.............................................8
   7.03.    OTHER CONDITIONS...................................................9

ARTICLE VIII   LIMITATION ON BENEFITS..........................................9

ARTICLE IX     ADJUSTMENT UPON CHANGE IN COMMON STOCK.........................10

ARTICLE X      COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES..........11

   10.01.   COMPLIANCE........................................................11
   10.02.   POSTPONEMENT OF EXERCISE..........................................11
   10.03.   FORFEITURE OF PAYMENT.............................................11

ARTICLE XI     GENERAL PROVISIONS.............................................12

   11.01.   EFFECT ON EMPLOYMENT AND SERVICE..................................12
   11.02.   UNFUNDED PLAN.....................................................12
   11.03.   TAX WITHHOLDING AND REPORTING.....................................12
   11.04.   GOVERNING LAW.....................................................12
   11.05.   OTHER ACTIONS.....................................................12

ARTICLE XII    AMENDMENT and termination......................................12

ARTICLE XIII   DURATION OF PLAN...............................................12

ARTICLE XIV    EFFECTIVE DATE OF PLAN.........................................13

ARTICLE XV     RULES OF CONSTRUCTION..........................................13


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                              KATY INDUSTRIES, INC.
                       2002 STOCK APPRECIATION RIGHTS PLAN

                                   ARTICLE I
                                   DEFINITIONS

      1.01. Acceleration Date means the earlier of (i) the date that the Board
approves a transaction or series of transactions that, if consummated, would
result in a Change in Control or (ii) the date that an agreement is entered into
with respect to a transaction or series of transactions that, if consummated,
would result in a Change in Control.

      1.02. Administrator means the Committee and any delegate of the Committee
that is appointed in accordance with Article III.

      1.03. Board means the Board of Directors of the Company.

      1.04. Cause has the same definition as under any employment or service
agreement between the Company or any Subsidiary and the Participant or, if no
such employment or service agreement exists or if such employment or service
agreement does not contain any such definition, Cause means (i) the
Participant's willful and repeated failure to comply with the lawful directives
of the Board, the Board of Directors of any Subsidiary or any supervisory
personnel of the Participant, (ii) any criminal act or act of dishonesty or
willful or gross misconduct by the Participant that has a material adverse
affect on the property, operations, business or reputation of the Company or any
Subsidiary, (iii) the material breach by the Participant of the terms of any
confidentiality, noncompetition, nonsolicitation, employment or service
agreement that the Participant has with the Company or any Subsidiary, (iv) acts
by the Participant of willful malfeasance or gross negligence in a matter of
material importance to the Company or any Subsidiary or a deliberate breach of
any fiduciary duty the Participant owes the Company or any Subsidiary, or (v)
the continued failure of the Participant to perform substantially his or her
duties with the Company or any Subsidiary, but only if such non-performance can
be cured, the Company or any Subsidiary delivers to the Participant a written
demand for substantial performance that specifically identifies the manner in
which the Company or Subsidiary believes that the Participant has not
substantially performed his or her duties and the Participant then fails to
substantially cure such non-performance within thirty (30) days of such written
demand. For purposes of the Plan, in no event shall any termination of
employment or service be deemed for Cause unless the Company's Chief Executive
Officer concludes that the situation warrants a determination that the
Participant's employment or service terminated for Cause; in the case of the
Chief Executive Officer, any determination that the Chief Executive Officer's
employment terminated for Cause shall be made by the Board acting without the
Chief Executive Officer.

      1.05. Change in Control means, and shall be deemed to have occurred upon,
any of the following events: (i) a sale of 100 percent of the Company's
outstanding capital stock, as may be outstanding from time to time; (ii) a sale
of all or substantially


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all of the Company's Operating Subsidiaries or assets; or (iii) a transaction or
series of transactions in which any third party acquires an equity ownership in
the Company greater than that held by KKTY Holding Company, L.L.C. and in which
Kohlberg & Co., L.L.C. relinquishes its right to nominate a majority of the
candidates for election to the Board. For purposes of this Section 1.05,
"Operating Subsidiary" shall mean any Subsidiary owning assets with an aggregate
fair market value in excess of $50,000.

      1.06. Code means the Internal Revenue Code of 1986, as amended.

      1.07. Committee means the Compensation Committee of the Board, if the
Board appoints one to administer the Plan, or the Board itself if no such
Compensation Committee is appointed to administer the Plan. If such Compensation
Committee is appointed, if and to the extent deemed necessary by the Board, such
Compensation Committee shall consist of two or more "non-employee directors"
within the meaning of Rule 16b-3 under the Exchange Act.

      1.08. Common Stock means the common stock, $1.00 par value per share, of
the Company.

      1.09. Company means Katy Industries, Inc., a Delaware corporation.

      1.10. Control Change Date means the date on which a Change in Control
occurs. If a Change in Control occurs on account of a series of transactions,
the "Control Change Date" is the date of the last of such transactions.

      1.11. Detrimental Activity means any of the following: (i) engaging in
competition with any part of the business of the Company or any of its
Subsidiaries, (ii) diverting or attempting to divert from the Company or any of
its Subsidiaries business of any kind, including, without limitation,
interference with any business relationship with suppliers, customers,
licensees, licensors or contractors, (iii) making, causing or attempting to
cause any other person to make a statement, whether written or oral, or
conveying any information about the Company or any Subsidiary, which is
disparaging or which in any way reflects negatively upon the Company or any
Subsidiary, (iv) engaging in any other activity that is contrary or harmful to
the interests of the Company or any Subsidiary, including without limitation,
influencing or advising any person who is employed by or in the service of the
Company or any Subsidiary to leave such employment or service to compete with
the Company or any Subsidiary or to enter into the employment or service of any
actual or prospective competitor of the Company or any Subsidiary or influencing
or advising any competitor of the Company or any Subsidiary to employ or
otherwise engage the services of any person who is employed by the Company or
any Subsidiary or in the service of the Company or any Subsidiary or improperly
disclosing or otherwise misusing any confidential information regarding the
Company or any Subsidiary, or (v) the refusal or failure of the Participant to
provide, upon the request of the Company or any Subsidiary, a written
certification, in a form satisfactory to the Company or any Subsidiary, that
such Participant is not engaging in any of the activities described in (i)
through (iv) above; provided, however, that the


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Committee may provide in the Agreement that only certain of the restrictions
provided above apply for purposes of the applicable SAR.

      1.12. Employee means any person whom the Company or any Subsidiary employs
under the rules of Section 3401(c) of the Code and the regulations thereunder.

      1.13. Exchange Act means the Securities Exchange Act of 1934, as amended.

      1.14. Fair Market Value means, on any given date, the fair market value of
a share of Common Stock as the Administrator in its discretion shall determine;
provided, however, if the shares of Common Stock are traded on any stock
exchange, the Fair Market Value of a share of Common Stock shall be the closing
price of a share of Common Stock as reported on such stock exchange as of the
immediately preceding date, or if the shares of Common Stock are not traded on
such stock exchange on such immediately preceding date, then on the next
preceding day that the shares of Common Stock were traded on such stock
exchange, or if the shares of Common Stock are not traded on any stock exchange
but are quoted on an automated system, the Fair Market Value of a share of
Common Stock shall be as quoted on such automated system on such immediately
preceding date or if the shares of Common Stock are not quoted on such
immediately preceding date, then on the next preceding date that the Shares of
Common Stock are quoted, all as reported by such source as the Administrator
shall select. The Fair Market Value that the Administrator determines shall be
final, binding and conclusive on the Company, each Subsidiary and each
Participant.

      1.15. Initial Value means, with respect to a SAR, the amount the Committee
determines and specifies in the Agreement, which shall not be less than 25
percent of the Fair Market Value of a share of Common Stock on the date of grant
of the SAR. In the absence of any such specification, Initial Value means, with
respect to a SAR, the Fair Market Value of one share of Common Stock on the date
of grant of the SAR.

      1.16. Insider means an individual who is an officer, director or ten
percent (10%) beneficial owner of any class of the Company's equity securities
that are registered pursuant to Section 12 of the Exchange Act, as more fully
described under Section 16 of the Exchange Act.

      1.17. Participant means an Employee, advisor, consultant or other service
provider of the Company or any Subsidiary who satisfies the requirements of
Article IV and whom the Administrator selects to receive a SAR.

      1.18. Plan means this 2002 Katy Industries, Inc. Stock Appreciation Rights
Plan.

      1.19. SAR Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a SAR granted to the Participant.

      1.20. Stock Appreciation Right or SAR means a stock appreciation right
that entitles the holder to receive, with respect to each share of Common Stock
encompassed by the exercise of such SAR, the amount of cash the Committee


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determines and specifies in an Agreement. In the absence of any such
specification, the holder shall be entitled to receive in cash, with respect to
each share of Common Stock encompassed by the exercise of such SAR, the excess
of the Fair Market Value of such shares on the date of exercise of the SAR over
the Initial Value.

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

                                   ARTICLE II
                                    PURPOSES

      This Plan is intended to assist the Company and its Subsidiaries in
recruiting and retaining individuals with ability and initiative by enabling
such persons to participate in the future success of the Company and to
associate their interests with those of the Company and its shareholders. The
Plan is intended to permit the grant of Stock Appreciation Rights.

                                  ARTICLE III
                                 ADMINISTRATION

      The Administrator shall have the complete authority to grant SARs on such
terms (not inconsistent with the provisions of this Plan), as the Administrator
may consider appropriate. Such terms may include conditions (in addition to
those contained in this Plan) on the exercisability of all or any part of a SAR
or other forfeiture conditions imposed on a SAR. The Administrator also shall
administer the Plan. The Administrator shall have the complete authority to
interpret all provisions of this Plan; to prescribe the form of SAR Agreements;
to accelerate the exercisability of a SAR as a result of a Change in Control or
any other event or circumstances that the Administrator in its sole discretion
deems appropriate (but not to waive the calendar year limitation on the exercise
of a SAR other than as set forth in the Plan); to adopt, amend and rescind rules
and regulations pertaining to the administration of the Plan; and to make all
other determinations necessary or advisable for the administration of this Plan.
The express grant in the Plan of any specific power to the Administrator shall
not be construed as limiting any power or authority of the Administrator. Any
decision or action of the Administrator in connection with the administration of
this Plan shall be final, conclusive and binding on all persons. Neither the
Administrator nor any member of the Committee shall be liable for any act done
or not done in good faith with respect to this Plan or any SAR Agreement. The
Company shall bear all expenses of administering this Plan. The Administrator
may act only by decision of a majority of its members, except that the
Administrator, in its discretion, to the extent applicable law so permits, may
delegate to one or more officers of the Company or another committee of the
Board, all or part of the Administrator's authority and duties with respect to
grants of SARs to Participants. The Administrator may revoke or amend the terms
of such delegation at any time but such action shall not invalidate any prior
actions of the


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Administrator's delegate or delegates that were consistent with the terms of the
Plan. Notwithstanding the two preceding sentences, the Administrator may not
delegate its authority and duties with respect to a SAR to a Participant who is
an Insider. To the extent deemed necessary by the Board, all SARs to an Insider
shall be approved by the Board or by a Committee comprised of two or more
non-employee directors within the meaning of Rule 16b-3 of the Exchange Act.

      Each person who is or shall have been a member of any Board or Committee
acting as the Administrator or any delegate of such, shall be indemnified and
held harmless by the Company against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by such person in
connection with or resulting from any claim, action, suit, or proceeding to
which such person may be a party or in which such person may be involved by
reason of any action taken or not taken under the Plan and against and from any
and all amounts paid by such person in settlement thereof, with the Company's
approval, or paid by such person in satisfaction of any judgment in any such
action, suit, or proceeding against, provided he or she shall give the Company
an opportunity, at its own expense, to handle and defend the same before he or
she undertakes to handle and defend it on his or her own behalf. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation or Bylaws, as a matter of law or otherwise, or under
any other power that the Company may have to indemnify such person or hold him
or her harmless.

                                   ARTICLE IV
                                   ELIGIBILITY

      Any Employee, advisor, consultant or other service provider of the Company
or any Subsidiary (including a corporation that becomes a Subsidiary after the
adoption of this Plan) is eligible to receive SARs if the Administrator, in its
sole discretion, determines that such person has contributed significantly or
can be expected to contribute significantly to the profits or growth of the
Company or any Subsidiary. A director of the Company or any Subsidiary who is an
employee of the Company or any Subsidiary may be awarded SARs under the Plan,
except that a director who is a member of the Committee serving as the
Administrator of the Plan may not receive a SAR under the Plan.

                                   ARTICLE V
                              STOCK SUBJECT TO PLAN

      5.01. Aggregate Limits. The maximum number of shares of Common Stock to
which SARs may be granted is 1,000,000 shares of Common Stock, subject to
adjustment as provided in Article IX.

      5.02. Reallocation of Shares. If a SAR is terminated, in whole or in part,
for any reason other than its exercise, the number of shares of Common Stock
allocated to the SAR or the terminated portion thereof may be reallocated to
other SARs to be granted under this Plan, subject to the limit described above.


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                                   ARTICLE VI
                              TERMS AND CONDITIONS
                                     OF SARs

      6.01. Grants. In accordance with the provisions of Article IV, the
Administrator will designate each individual to whom a SAR is to be granted and
will specify the number of shares of Common Stock encompassed by such grant. The
date a SAR is granted shall be the date on which the Administrator has approved
the terms and conditions of the SAR and has determined the recipient of the SAR
and the number of shares of Common Stock covered by the SAR. Each SAR granted
under the Plan shall be evidenced by a SAR Agreement in such form and containing
such terms, conditions and restrictions (not inconsistent with this Plan) as the
Administrator shall determine. Notwithstanding any other provision of the Plan,
except to the extent an Agreement provides otherwise, payment to a Participant
upon the exercise of a SAR may not be for more than the excess of the Fair
Market Value of the Common Stock encompassed by the portion of the SAR that is
being exercised over the Initial Value.

      6.02. Maximum Exercise Period. The Administrator on the date of grant
shall determine the maximum period in which a SAR may be exercised, except that
no SAR shall be exercisable after the expiration of 10 years from the date such
SAR is granted. The terms of a SAR may provide that it is exercisable for a
period less than such maximum period.

      6.03. Nontransferability. Each SAR granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer of a SAR, the SAR must be transferred in its
entirety to the same person or persons or entity or entities. During the
lifetime of the Participant to whom the SAR is granted, only the Participant may
exercise the SAR. No right or interest of a Participant in any SAR shall be
liable for, or subject to, any lien, obligation or liability of such
Participant.

      6.04. Change in Control. Notwithstanding any provision of any SAR
Agreement to the contrary, in the event of or in anticipation of a Change in
Control, the Administrator in its discretion (i) may declare that some or all
outstanding SARs previously granted under the Plan shall terminate as of a date
on or after an Acceleration Date or before or on the Control Change Date without
any payment to the holder of the SAR, provided the Administrator gives prior
written notice to the Participants of such termination and gives such
Participants the right to exercise their outstanding SARs at least 15 days
before such termination date to the extent then exercisable or (ii) may
terminate on or after an Acceleration Date or before or on the Control Change
Date some or all outstanding SARs previously granted under the Plan in
consideration of a cash payment to the holder of the SAR, with respect to each
share of Common Stock to which the SAR is then exercisable, of the amount
payable at that time upon exercise of the exercisable portion of the SAR. The
Administrator in its discretion may take the actions described in (i) or (ii)
above contingent on consummation of the Change in Control and with respect to
some or all outstanding SARs or on a SAR-by-SAR basis, which actions need not be
uniform with respect to all


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outstanding SARs. The preceding sentences to the contrary notwithstanding, the
SARs shall not be terminated to the extent that written provision is made for
their continuance, assumption or substitution by a successor employer or its
parent or subsidiary in connection with the Change in Control.

      6.05. Exercise. A SAR may be exercised in whole at any time or in part
from time to time at such times and in compliance with such requirements as the
Administrator shall determine and set forth in the SAR Agreement (to the extent
not inconsistent with this Plan). However, a SAR may not become exercisable any
earlier than with respect to one-third of the shares of Common Stock subject to
the SAR on and after the first anniversary of the date of grant of the SAR and
then with respect to another one-third of the shares of Common Stock subject to
the SAR on and after each of the second and third annual anniversaries of the
date of grant, except that such vesting limitation will not apply where the
Administrator takes either of the actions described in Section 6.04 above or
accelerates the exercisability of the SAR in connection with a Change in Control
or any other event or circumstances. A SAR granted under this Plan may be
exercised with respect to any number of whole shares less than the full number
of shares for which the SAR could be exercised, provided, however, that a SAR
once it becomes exercisable shall be subject to an additional calendar year
limitation on the number of shares for which it may be exercised in any calendar
year as described in the next sentence. A SAR may not be exercised in any
calendar year for more than 50 percent of the cumulative number of shares of
Common Stock for which the SAR has become exercisable (including, for purposes
of determining the cumulative number of shares for which the SAR has become
exercisable, shares for which the SAR is then exercisable and shares for which
the SAR previously became exercisable and were exercised), except that such
calendar year limitation will not apply where the Administrator takes either of
the actions described in Section 6.04 above or otherwise waives the calendar
year limitation in connection with a Change in Control. In the event that a SAR
expires before the Participant can exercise it because of the calendar year
limitation imposed by this Section 6.05, all rights that a Participant has
regarding such SAR will be immediately discontinued and forfeited, and the
Company shall not have any further obligation thereunder to the Participant with
respect to such SAR and such SAR will not be exercisable for any number of
shares of Common Stock (whether or not previously exercisable) on and after such
time. A partial exercise of a SAR shall not affect the right to exercise the SAR
from time to time in accordance with this Plan and the applicable SAR Agreement
with respect to the remaining shares of Common Stock subject to the SAR. For
purposes of the Plan and any Agreement, the date of exercise of a SAR shall be
the date that the Company receives the Participant's notice of exercise of the
SAR.

      6.06. Payment. Within 15 days after the exercise of a SAR, the Company
shall pay the Participant, with respect to each share of Common Stock
encompassed by the exercise of the SAR, the amount specified in the Agreement
or, in the absence of any such specification, the excess of the Fair Market
Value of such Common Stock on the date of exercise over the Initial Value.
Payment shall be made in cash or cash equivalent as the Administrator specifies.
Notwithstanding the foregoing, however, if the Agreement so provides, payment of
the SAR may be made in no more than five


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equal annual installments with interest on the unpaid balance at the minimum
rate necessary to avoid imputed interest or original interest discount under the
Code.

      6.07. Shareholder Rights. No Participant shall have any rights as a
shareholder with respect to shares of Common Stock subject to a SAR.

      6.08. Forfeiture Provisions. Notwithstanding any other provisions of the
Plan or any SAR Agreement, all rights that a Participant has regarding SARs will
be immediately discontinued and forfeited, and the Company shall not have any
further obligation hereunder to the Participant with respect to any SAR and the
SAR will not be exercisable for any number of shares of Common Stock (whether or
not previously exercisable), on and after the time the Participant (i) is
discharged from employment or service with the Company or any Subsidiary for
Cause or (ii) engages in any Detrimental Activity.

                                  ARTICLE VII
                         ADDITIONAL TERMS AND CONDITIONS
                               APPLICABLE TO SARs

      7.01. Employee or Contractor Status. In the event that the terms of any
SAR provide that it may be exercised or become Vested only during employment or
service or within a specified period of time after termination of employment or
service, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of employment or service.

      7.02. Performance Objectives. The Administrator may prescribe that a SAR
is exercisable only to the extent that certain performance objectives are
obtained. Such performance objectives may be based on one or more of the
Company's or any Subsidiary's or any division's (i) gross, operating or net
earnings before or after taxes, (ii) return on equity, (iii) return on capital,
(iv) return on sales, (v) return on assets or net assets, (vi) earnings per
share, (vii) cash flow per share, (viii) book value per share, (ix) earnings
growth, (x) sales growth, (xi) volume growth, (xii) cash flow (as the
Administrator may define such term), (xiii) Fair Market Value of the Company or
any Subsidiary or shares of Common Stock, (xiv) share price or total shareholder
return, (xv) market share, (xvi) economic value added, (xvii) market value
added, (xviii) productivity, (xix) level of expenses, (xx) quality, (xxi)
safety, (xxii) customer satisfaction, (xxiii) peer group comparisons of any of
the aforementioned performance objectives, (xxiv) EBITDA (whether normalized or
not, including or excluding extraordinary items and subject to such other
variations as the Company may report to shareholders or creditors) or (xxv) any
other criteria that the Administrator determines. If the Administrator, on the
grant of the SAR, prescribes that the SAR shall be exercisable only upon the
attainment of performance objectives stated with respect to one or more of the
foregoing criteria, the SAR shall become exercisable only to the extent the
Administrator certifies in writing that such performance objectives have been
obtained.


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      7.03. Other Conditions. The Administrator, in its discretion, may, as a
condition to the grant of a SAR, require the Participant on or before the date
of grant of the SAR to enter into (i) a covenant not to compete (including a
confidentiality, non-solicitation or other similar agreement) with the Company
or any Subsidiary, which shall become effective on the date of termination of
employment or service of a Participant with the Company or any Subsidiary or any
other date the Administrator may specify and shall contain such terms and
conditions as the Administrator shall otherwise specify, and (ii) an agreement
to cancel any other employment agreement, service agreement, fringe benefit or
compensation arrangement in effect between the Company or any Subsidiary and
such Participant. If the Participant shall fail to enter into any such agreement
or agreements at the Administrator's request, then no SAR shall be granted to
the Participant and the number of shares of Common Stock that would have been
subject to such SAR shall be added to the remaining shares of Common Stock
available under the Plan.

                                  ARTICLE VIII
                             LIMITATION ON BENEFITS

      Despite any other provisions of this Plan to the contrary, if any payment,
accelerated vesting or other rights under this Plan would subject a Participant
to tax under Code Section 4999, the Administrator may determine whether some
amount of payments, accelerated vesting or other rights would meet the
definition of a "Reduced Amount." If the Administrator determines that there is
a Reduced Amount, the total payments, accelerated vesting or other rights to the
Participant hereunder must be reduced to such Reduced Amount, but not below
zero. If the Administrator determines that payments, accelerated vesting or
other rights must be reduced to the Reduced Amount, the Company must promptly
notify the Participant of that determination, with a copy of the detailed
calculations by the Administrator. All determinations of the Administrator under
this Article VIII are binding upon the Company and the Participant. It is the
intention of the Company and the Participant to reduce the payments, accelerated
vesting or other rights under this Plan only if the aggregate Net After Tax
Receipts to the Participant would thereby be increased. If as result of the
uncertainty in the application of Code Section 4999 at the time of the initial
determination by the Administrator under this Article VIII, however, it is
possible that amounts or other benefits will have been paid under the Plan to or
for the benefit of a Participant which should not have been so paid
("Overpayment") or that additional amounts or other benefits which will not have
been paid under the Plan to or for the benefit of a Participant could have been
so paid ("Underpayment") - in each case, consistent with the calculation of the
Reduced Amount. If the Administrator, based either upon the assertion of a
deficiency by the Internal Revenue Service against the Company or the
Participant which the Administrator believes has a high probability of success
or controlling precedent or other substantial authority, determines that an
Overpayment has been made, any such Overpayment must be treated for all purposes
as a loan which the Participant must repay to the Company together with interest
at the applicable federal rate under Code Section 7872(f)(2); provided, however,
that no such loan may be deemed to have been made and no amount shall be payable
by Participant to the Company if and to the extent such deemed loan and payment
would not either reduce


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the amount on which the Participant is subject to tax under Code Section 1, 3101
or 4999 or generate a refund of such taxes. If the Administrator, based upon
controlling precedent or other substantial authority, determines that an
Underpayment has occurred, the Administrator must promptly notify the Company of
the amount of the Underpayment, which then shall be paid to the Participant. For
purposes of this section, (i) "Net After Tax Receipt" means the Present Value of
payments or other benefits under this Plan net of all taxes imposed on
Participant with respect thereto under Code Sections 1, 3101 and 4999,
determined by applying the highest marginal rate under Code Section 1 which is
expected to apply to the Participant's taxable income for the taxable year; (ii)
"Present Value" means the value determined in accordance with Code Section
280G(d)(4); and (iii) "Reduced Amount" means the smallest aggregate amount of
all payments or benefits under this Plan which (a) is less than the sum of all
payments or benefits under this Plan and (b) results in aggregate Net After Tax
Receipts which are equal to or greater than the Net After Tax Receipts which
would result if the aggregate payments or benefits under this Plan were any
other amount less than the sum of all payments or benefits to be made under this
Plan.

                                   ARTICLE IX
                     ADJUSTMENT UPON CHANGE IN COMMON STOCK

      The maximum number of shares of Common Stock as to which SARs may be
granted under this Plan, the terms of outstanding SARs, and all other provisions
of this Plan shall be adjusted as the Administrator shall determine to be
equitably required in the event that (a) the Company (i) effects one or more
stock dividends, stock split-ups, subdivisions or consolidations of shares of
Common Stock or (ii) engages in a transaction which Section 424 of the Code
describes or any similar event or (b) there occurs any other event which, in the
judgment of the Administrator, necessitates such action. In addition, the
Administrator may make such other adjustments to the terms of outstanding SARs
to the extent equitable and necessary to prevent an enlargement or dilution of
the Participant's rights thereunder as a result of any such transaction. Any
determination the Administrator makes under this Article IX shall be final and
conclusive. The issuance by the Company of either shares of stock of any class
or securities convertible into shares of stock of any class, for cash or
property, or for labor or services, either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the maximum number of shares as to which SARs may be granted, any other
provisions of this Plan or the terms of outstanding SARs. The Administrator may
grant SARs in substitution for performance shares, stock awards, stock options,
stock appreciation rights, phantom shares, or similar awards held by an
individual who becomes an Employee, director, advisor or consultant of the
Company in connection with a transaction described this Article IX.
Notwithstanding any provision of the Plan (other than the limitations of Section
5.01 and Article IV), the terms of such substituted SAR shall be as the
Administrator, in its discretion, determines is appropriate.


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<PAGE>

                                   ARTICLE X
                             COMPLIANCE WITH LAW AND
                          APPROVAL OF REGULATORY BODIES

      10.01. Compliance. No SAR shall be exercisable and no payment shall be
made, except in compliance with all applicable federal and state laws and
regulations (including, without limitation, withholding tax requirements), any
listing agreement with any stock exchange to which the Company is a party, and
the rules of all domestic stock exchanges on which the Company's shares may be
listed. The Company shall have the right to rely on an opinion of its counsel as
to such compliance. No SAR shall be exercisable, and no payment shall be made
under this Plan, until the Company has obtained such consent or approval as the
Administrator may deem advisable from regulatory bodies having jurisdiction over
such matters.

      10.02. Postponement of Exercise. The Administrator may postpone any
exercise of a SAR (i) for such time as the Administrator in its sole discretion
may deem necessary in order to permit the Company to effect, amend or maintain
any registration of shares of Common Stock under the securities laws or to
permit any action to be taken in order to list shares of Common Stock or comply
with restrictions or regulations incident to the maintenance of a public market
for such shares of Common Stock, including any rules or regulations of any stock
exchange on which the shares of Common Stock are listed, or to comply with any
other applicable law, including without limitation, securities laws, (ii) during
any such time the Company is prohibited from making any such payments to the
Participant under applicable law, including without limitation, during the
course of an investigation of the Company or, (iii) to otherwise comply with any
prohibition on such payments during any applicable blackout period; and the
Company shall not be obligated by virtue of any terms and conditions of any SAR
Agreement or any provision of the Plan to recognize the exercise of a SAR in
violation of the securities laws or the laws of any government having
jurisdiction thereof or any of the provisions hereof. Any such postponement
shall not extend the term of a SAR and neither the Company nor its directors,
officers or employees shall have any obligation or liability to any Participant
or to any other person with respect to any payment as to which the SAR shall
lapse because of such postponement.

      10.03. Forfeiture of Payment. The Participant shall be required to forfeit
any and all rights under a SAR or to reimburse the Company for any payment under
such SAR (with interest as necessary to avoid imputed interest or original
interest discount under the Code or as otherwise required by applicable law) to
the extent applicable law requires such forfeiture or reimbursement, including
without limitation, in connection with any event where the Company is required
to prepare an accounting restatement due to material noncompliance, as a result
of misconduct with financial reporting requirements, for any applicable period.


                                       11
<PAGE>

                                   ARTICLE XI
                               GENERAL PROVISIONS

      11.01. Effect on Employment and Service. Neither the adoption of this
Plan, its operation, nor any SAR Agreement or other documents describing or
referring to this Plan, shall confer upon any individual any right to continue
in the employ or service of the Company or any Subsidiary or in any way affect
the right and power of the Company or any Subsidiary to terminate the employment
or service of any individual at any time with or without assigning a reason
therefor.

      11.02. Unfunded Plan. The Plan, insofar as it provides for grants of SARs,
shall be unfunded, and the Company shall not be required to segregate any assets
that may at any time be represented by grants under this Plan. Any liability of
the Company to any person with respect to any grant under this Plan shall be
based solely upon any contractual obligations that may be created pursuant to
this Plan. No such obligation of the Company shall be deemed to be secured by
any pledge of, or other encumbrance on, any property of the Company.

      11.03. Tax Withholding and Reporting. Each Participant shall be
responsible for satisfying in cash or cash equivalent acceptable to the
Administrator any income and employment tax withholding obligations attributable
to the exercise of SARs or any other event with respect to participation in the
Plan. The Company shall comply with all such reporting and other requirements
relating to the administration of this Plan and the grant or exercise of SARs
hereunder as applicable law requires.

      11.04. Governing Law. This Plan and all SARs granted hereunder shall be
governed by the laws of the State of Delaware, except to the extent federal law
applies.

      11.05. Other Actions. Nothing in the Plan shall be construed to limit the
authority of the Company to exercise its corporate rights and powers.

                                  ARTICLE XII
                            AMENDMENT AND TERMINATION

      The Board in its sole and absolute discretion may amend this Plan from
time to time or terminate the Plan. However, no amendment shall, without a
Participant's consent, adversely affect any rights of such Participant under any
outstanding SAR at the time such amendment is made, except as otherwise set
forth in this Plan.

                                  ARTICLE XIII
                                DURATION OF PLAN

      No SARs may be granted under this Plan 10 years after the Board adopts the
Plan. SARs granted before that date shall remain valid in accordance with their
terms.


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<PAGE>

                                  ARTICLE XIV
                             EFFECTIVE DATE OF PLAN

      SARs may be granted under this Plan upon and after its adoption by the
Board.

                                   ARTICLE XV
                              RULES OF CONSTRUCTION

      Headings are given to the articles and sections of this Plan solely as a
convenience to facilitate reference. The reference to any statute, regulation,
or other provision of law shall be construed to refer to any amendment to or
successor of such provision of law.

                                        KATY INDUSTRIES, INC.


                                        BY:
                                               ---------------------------------
                                        NAME:
                                               ---------------------------------
                                        TITLE:
                                               ---------------------------------


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