THIS WAIVER AND THIRD AMENDMENT TO CREDIT AGREEMENT dated as of
  October 27, 2000 ("Waiver and Amendment"), is entered into by and among Katy
  Industries, Inc. (the "Company"), BANK OF AMERICA, N.A., as agent for itself
  and the Banks (the "Agent"), and the several financial institutions parties
  hereto.
                                  RECITALS
        WHEREAS, the Company, the lenders party thereto (collectively, the
  "Banks"), and Agent are parties to an Amended and Restated Credit Agreement
  dated as of December 11, 1998, as amended by the First Amendment thereto
  dated as of November 18, 1999 and the Second Amendment thereto dated as of
  March 22, 2000 (the "Credit Agreement"), pursuant to which the Agent and
  the Banks have extended certain credit facilities to the Company; and

        WHEREAS, pursuant to a Waiver to the Credit Agreement dated as of
  September 28, 2000, the Banks temporarily waived compliance by the Company
  with Section 8.19 of the Credit Agreement with respect to the fiscal quarter
  ending September 30, 2000; and

        WHEREAS, the Company has requested that the Banks make such waiver
  permanent; and

        WHEREAS, the Banks are willing to do so, and to amend the Credit
  Agreement, subject to the terms and conditions of this Waiver and Amendment.

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

           1. Defined Terms.  Unless otherwise defined herein, capitalized
  terms used herein shall have the meanings, if any, assigned to them in the
  Credit Agreement.

           2. Waiver.

                (a) The Banks hereby permanently waive compliance by the
  Company with Section 8.19 of the Credit Agreement ("Maximum Leverage Ratio")
  for the fiscal quarter ending September 30, 2000.

                (b) The Banks hereby waive compliance by the Company with
  Section 8.21 of the Credit Agreement ("Quarterly Losses") for the fiscal
  quarters ending September 30, 2000 and December 31, 2000 and, if and only
  if the Perfection Date has occurred on or before March 31, 2001, the Banks
  hereby waive compliance by the Company with Section 8.21 for the quarter
  ending March 31, 2001.

                (c) Nothing contained herein shall be deemed a waiver of
  (or otherwise affect the Agent's or the Banks' ability to enforce) any
  Default or Event of Default arising at any time under Section 8.19 or
  8.21 for any fiscal quarter as to which compliance is not waived herein
  or arising under any other financial covenant contained in the Credit
  Agreement.

           3. Amendments to Credit Agreement.

                (a) Article I of the Credit Agreement is amended to add,
  each in its proper alphabetical order, the following defined terms:

           "Event Obviating Security" shall mean either (a) on or before
        February 28, 2001, a letter of intent reasonably satisfactory to the
        Required Banks has been entered into by the Company for the sale to
        a bona fide third party of either (i) the Company as a whole or (ii)
        one or more of its material subsidiaries if (in the case of clause ii)
        the Company demonstrates to the Required Banks' satisfaction that the
        Leverage Ratio, calculated based upon the Company's December 31, 2000
        financial statements and giving pro forma effect to the sale in
        question and repayment of debt from available proceeds and by
        excluding  EBITDA with respect to the assets to be sold, would be
        below 3.25 to 1.00, or (b) the Company's Leverage Ratio as of
        December 31, 2000, is below 3.25 to 1.00, as determined using financial
        data to be provided by the Company pursuant to Section 7.1(b) for the
        fiscal quarter ending December 31, 2000.

           "Facility A Pro Rata Share" shall mean the quotient obtained by
        dividing the total Facility A Commitment by a particular Bank's
        Facility A Commitment.

           "Facility B Pro Rata Share" shall mean the quotient obtained by
        dividing the total Facility B Commitment by a particular Bank's
        Facility B Commitment.

           "Net Proceeds" means, in respect of any sale or disposition of
        assets, the proceeds in cash received by the Company or any of its
        Subsidiaries with respect to or on account of such disposition, net
        of:  (a) the direct costs of such disposition then payable by the
        recipient of such proceeds, (b) sales, use and other taxes paid or
        payable by such recipient as a result thereof, and (c) amounts
        required to be applied to repay principal, interest and prepayment
        premiums and penalties on Indebtedness secured by a Lien permitted
        hereunder on the properties subject to such disposition.

           "Perfection Date" shall mean the first date on which each of the
        following has occurred: (a) the Company shall have granted, as
        collateral for the Obligations and, at the election of the Company,
        any then outstanding Indebtedness permitted under Section 8.5(j),
        to the Administrative Agent (on behalf of the Banks) a first
        priority perfected security interest in and lien upon (i) all of
        the capital stock of  each of the material domestic subsidiaries
        (direct or indirect) of the Company and 65% of the capital stock
        of each material foreign subsidiary (direct or indirect) of the
        Company, and (ii) all other present and future material assets and
        properties of the Company and its domestic subsidiaries (including
        accounts receivable, inventory, real property, machinery, equipment,
        contracts, trademarks, copyrights, patents, license rights and
        general intangibles), in each pursuant to documents and subject to
        such exceptions as may be acceptable to the Agent and the Required
        Banks, (b) the Company shall have taken all action deemed necessary
        or advisable by the Agent and the Required Banks to establish,
        protect and perfect the security described in clause (a), (c) the
        Company shall have executed an amendment to the Credit Agreement
        inserting additional provisions, including representations and
        warranties and Events of Default, commonly found in secured
        transactions of similar nature in form acceptable to the Agent
        and the Required Banks, and (d) the Company shall have paid all
        amounts owing under Section 11.4 in connection with the foregoing.

                (b) Article I of the Credit Agreement is further amended
  adding the following sentence at the end of the definition of Applicable
  Margin and Facility Fee Percentage:

        Notwithstanding the foregoing, Pricing Level VI shall apply from
        and after October 27, 2000 through the third Business Day after
        the Company delivers to the Agent a Compliance Certificate pursuant
        to Section 7.2 of the Credit Agreement demonstrating that a lower
        Pricing Level should apply, at which time, such lower Pricing Level
        shall apply until the next succeeding Pricing Level Change Date.

                (c) Clause (a) of the definition of "Facility A Revolving
  Termination Date" is hereby amended and restated in its entirety as follows:
  "(a) initially, the earlier of December 9, 2000 or such earlier date
  identified as the "Facility A Revolving Termination Date" in a notice by
  the Company to the Agent and each of the Banks, which date shall be at
  least five Business Days after the effective date of such notice, and,
  if the Facility A Revolving Termination Date is thereafter extended
  pursuant to Section 2.16, such later date to which it is so extended;
  and".

                (d) The references to the term "Pro Rata Share" in the
  following definitions and sections of the Credit Agreement are hereby
  amended to read "Facility A Pro Rata Share": (i) definition of "L/C
  Advance"; (ii) subsection 3.3(a); (iii) subsection 3.3(c); (iv) subsection
  3.4(a); and (v) subsection 3.4(b).

                (e) The references to the term "Pro Rata Share" in the
  following sections of the Credit Agreement are hereby amended to read
  "Facility A Pro Rata Share or Facility B Pro Rata Share, as applicable":
  (i) subsection 2.3(b); (ii) subsection 2.3(c); (iii) Section 2.5; (iv)
  Section 2.6; (v) subsection 2.12(a); and (vi) subsection 2.13(a).

                (f) Section 2.16 of the Credit Agreement is hereby amended
  and restated in its entirety as follows:

           2.16  Extension of Facility A Revolving Termination Date.

           At any time and from time to time, at the request of the Company,
        any Bank or Banks holding Facility A Commitments may extend the
        Facility A Revolving Termination Date, effective on the Facility A
        Revolving Termination Date then in effect, to a date that is not more
        than 364 days following the Facility A Revolving Termination Date then
        in effect. In connection therewith, (1) each such Bank may decrease
        or, with the consent of the Company, increase its Facility A
        Commitment, and (2) upon the request of the Company, any Bank not
        then holding a Facility A Commitment or any Eligible Assignee
        desiring to become a Bank with a Facility A Commitment may provide
        the Company with a Facility A Commitment.  Each such extension shall
        be evidenced by a writing satisfactory to the Agent executed by each
        Bank participating in such extension or provision of the Facility A
        Commitments, the Company, and the Agent.  Notwithstanding the
        foregoing, in no event may the aggregate Facility A Commitments at
        any time exceed $23,837,209.31. If the Facility A Revolving
        Termination Date shall be so extended, all Facility A Loans shall
        be repaid in full with proceeds of new Facility A Loans or
        otherwise on the effective date of such extension.

                (g) Section 2.7 of the Credit Agreement ("Mandatory Prepayments
  of Loans; Mandatory Commitment Reductions") shall be amended by adding
  the following at the end thereof:

                Within 5 days after receipt by the Company or any Restricted
        Subsidiary of any Net Proceeds attributable to any sale or
        disposition (or series of related sales or dispositions) of assets
        having a book value of $1,000,000 or more, the Company shall prepay
        Facility B Loans in the amount of such Net Proceeds and the aggregate
        Facility B Commitments shall be permanently reduced by the amount of
        such required prepayment.

                (h) Subsection 7.1(b) of the Credit Agreement ("Financial
  Statements") is hereby amended by replacing the phrase "each of the first
  three fiscal quarters of each fiscal year" with the phrase "each fiscal
  quarter" and inserting "(60 days in the case of the fiscal quarter ending
  December 31, 2000)" after the phrase "45 days".

                (i) The Credit Agreement is hereby amended by the addition
  of the following new Section 7.15:

           7.15  Preparation for Perfection Date.  Unless an Event Obviating
        Security has occurred, upon the request of the Agent, the Company
        shall cooperate with the Agent in the preparation and negotiation of
        collateral documents, conduct lien searches, and take such other
        action as Agent may reasonably request to enable the creation and
        perfection of first priority liens contemplated in the definition
        of "Perfection Date" on or before March 31, 2001.

                (j) Subsections 8.2(d) and 8.2(e) of the Credit Agreement
  ("Disposition of Assets") are hereby deleted and replaced with
  "[Intentionally left blank]" and subsection 8.2(f) shall be amended and
  restated in its entirety as follows:

           (f)  dispositions not otherwise permitted hereunder for fair market
        value as long as either (x) the book value of assets disposed of in
        any single transaction or series of related transactions is $1,000,000
        or less, or (y) each of the following is true: (1) at the time of such
        disposition, no Event of Default shall exist or shall result from such
        disposition, (2) the aggregate sales price from such disposition shall
        be paid in cash (except that in the case of dispositions of the assets
        of Thorsen Tool, up to 50% of the purchase price for such assets may
        be taken in the form of a promissory note), (3) the aggregate book
        value of all assets so sold in any single transaction or series of
        related transactions under this subsection (f) shall not exceed
        $5,000,000 unless such assets constitute  the stock or assets of
        Thorsen Tool, Hamilton Precision Metals, or operations that are
        accounted for as "Discontinued Operations" in the Company's
        June 30, 2000 financial statements, and (4) prior to becoming
        contractually committed to make any such disposition, the Company
        shall have delivered to the Banks evidence of compliance with (1)
        through (3) above and pro forma consolidated financial statements
        accompanied by a Compliance Certificate signed by a Responsible
        Officer certifying that at the end of the last fiscal quarter for
        which such financial statements and Compliance Certificate have
        been delivered pursuant to Sections 7.1 and 7.2, after giving pro
        forma effect for four trailing quarters to such disposition by
        excluding EBITDA with respect to the assets so sold, the Company
        and its Restricted Subsidiaries would have been in compliance with
        the financial covenants set forth in Sections 8.18, 8.19, 8.20 and
        8.21 (giving effect to the Third Amendment to this Agreement).

                (k) Subsection 8.4(b) of the Credit Agreement is amended to
  add the following clause at the end thereof before the semicolon:  "or in
  the form of the promissory note permitted by Subsection 8.2(f)(y)(2)".

                (l) Section 8.19 of the Credit Agreement is hereby amended
  by deleting the chart contained therein and inserting the following in
  its place:

                Quarters Ending                      Maximum Leverage Ratio

                Through September 30, 1999           3.50 to 1.00

                December 31, 1999 through            3.25 to 1.00
                June 30, 2000

                December 31, 2000                    4.00 to 1.00
                March 31, 2001 if the
                Perfection Date has occurred
                on or before that date

                March 31, 2001 if the                4.00 to 1.00
                Perfection Date has occurred
                on or before that date


                March 31, 2001 if the                3.00 to 1.00
                Perfection Date has not occurred
                on or before that date

                Thereafter                           3.00 to 1.00


                (m) Section 8.20 of the Credit Agreement is hereby amended by
  deleting the chart contained therein and inserting the following in its
  place:

                Quarters Ending                      Minimum Fixed Charge
                                                     Coverage Ratio

                Through September 30, 2000           1.10 to 1.00

                December 31, 2000                    1.15 to 1.00

                March 31, 2001 if the Perfection     1.10 to 1.00
                Date has occurred on or before
                that date

                March 31, 2001 if the Perfection     1.25 to 1.00
                Date has not occurred on or
                before that date

                Thereafter                           1.25 to 1.00


                (n) Section 8.5 ("Limitation on Indebtedness") is hereby
  amended by adding the following subsection 8.5(j):

           (j)  Indebtedness incurred for working capital purposes in an
        aggregate amount not to exceed $23,837,209.31 minus the aggregate
        Facility A Commitments, such Indebtedness to be unsecured unless
        the Perfection Date has occurred, in which case, at the Company's
        election, such Indebtedness may be secured on a pari passu basis
        with the Obligations as long as the holders of such Indebtedness have
        entered into intercreditor agreements reasonably satisfactory to the
        Agent and the Required Banks.

                (o) Section 9.1 ("Events of Default") is hereby amended by
  adding a new subsection 9.1(q):

           (q)	the Perfection Date has not occurred on or before March 31,
  2001, unless an Event Obviating Security has occurred on or before
  February 28, 2001.

                (p) Section 11.8 ("Assignments, Participations, etc.") is
  hereby amended (i) by deleting the following language after the proviso in
  subsection 11.8(a) thereof:  "(1) such assignment shall be null and void if
  not undertaken on a pro rata basis between Facility A Loans and Commitments
  and Facility B Loans and Commitments, and Term Loans and term Loan
  Commitments, and (2)", (ii) by deleting the following language in
  subsection 11.8(d) thereof: "(i) such participation shall be null and
  void if not undertaken on a pro rata basis between Facility A Loans and
  Commitments, Facility B Loans and Commitments and Term Loans and Term
  Loan Commitment", and (iii) by renumbering clauses (ii), (iii), (iv)
  and (v) in subsection 11.8(d) thereof to clauses (i), (ii), (iii)
  and (iv).

                (q) The Credit Agreement is hereby amended by the addition
  of the following new Section 11.19:

        11.19  Preparation for Perfection Date.  If the Company elects to
  accomplish the Perfection Date notwithstanding that an Event Obviating
  Security exists, the Agent will provide reasonable cooperation to
  achieve the Perfection Date.

           4. Amendments Relating to Security. The Company agrees for the
  benefit of each of the parties hereto that no amendment or waiver of the
  Credit Agreement shall be effective if such waiver or amendment amends
  the definitions of "Event Obviating Security" or "Perfection Date",
  Section 7.15, or subsection 9.1(q), in each case as set forth herein,
  or waives compliance by the Company with Section 7.15 or subsection
  9.1(q), unless such amendment or waiver is executed or consented to
  by each of the Banks signatory to this Waiver and Amendment on the
  Effective Date.

           5. Representations and Warranties. The Company hereby
  represents and warrants as follows:

                (a) After giving effect to this Waiver and Amendment,
  no Default or Event of Default exists.

                (b) The execution, delivery and performance by the Company
  of this Waiver and Amendment have been duly authorized by all necessary
  corporate and other action and does not and will not require any
  registration with, consent or approval of, notice to or action by, any
  person (including any governmental agency) in order to be effective and
  enforceable.  The Credit Agreement as amended by this Waiver and
  Amendment constitutes the legal, valid and binding obligations of the
  Company, enforceable against it in accordance with its respective terms,
  without defense, counterclaim or offset.

                (c) After giving effect to this Waiver and Amendment, all
  representations and warranties of the Company contained in the Credit
  Agreement are true and correct.

                (d) The Company is entering into this Waiver and Amendment
  on the basis of its own investigation and for its own reasons, without
  reliance upon the Agent, the Banks or any other person.

           6. Effective Date.  This Waiver and Amendment will become effective
  on the first Business Day that each of the following conditions precedent
  has been satisfied (the "Effective Date"):

                (a) The Agent has received from the Company and the Required
  Banks a duly executed original or facsimile of this Waiver and Amendment,
  together with a duly executed Guarantor Acknowledgment and Consent in the
  form attached hereto ("Consent").

                (b) Each Bank executing this Waiver and Amendment and
  providing facsimile of its signature page to the Agent on or before 3:00
  p.m. (San Francisco time) on October 25, 2000, shall have received from
  the Company an amount equal to .25% of such Bank's respective Facility
  B Commitment, representing payment in full of a nonrefundable amendment
  fee, which fee shall have been paid to the Agent by the Company for the
  account of each such Bank.

           7. Reservation of Rights.  The Company acknowledges and agrees
  that neither the execution and delivery by the Agent and the Banks of
  this Waiver and Amendment shall be deemed (i) to create a course of
  dealing or otherwise obligate the Agent or the Banks to forbear or
  execute similar waivers under the same or similar circumstances in the
  future, or (ii) to waive, relinquish or impair any right of the Agent
  or the Banks to receive any indemnity or similar payment from any person
  or entity as a result of any matter arising from or relating to the
  defaults waived hereunder.

           8. Miscellaneous.

                (a) Except as herein expressly amended, all terms,
  covenants and provisions of the Credit Agreement are and shall remain
  in full force and effect and all references therein to such Credit
  Agreement shall henceforth refer to the Credit Agreement as amended by
  this Waiver and Amendment.  This Waiver and Amendment shall be deemed
  incorporated into, and a part of, the Credit Agreement.

                (b) This Waiver and Amendment shall be binding upon and
  inure to the benefit of the parties hereto and thereto and their
  respective successors and assigns.  No third party beneficiaries are
  intended in connection with this Waiver and Amendment.

                (c) This Waiver and Amendment shall be governed by and
  construed in accordance with the law of the State of California
  (without regard to principles of conflicts of laws).

                (d) This Waiver and Amendment may be executed in any
  number of counterparts, each of which shall be deemed an original,
  but all such counterparts together shall constitute but one and the
  same instrument.

                (e) This Waiver and Amendment, together with the
  Credit Agreement, contains the entire and exclusive agreement of the
  parties hereto with reference to the matters discussed herein and
  therein. This Waiver and Amendment supersedes all prior drafts and
  communications with respect thereto.  This Waiver and Amendment may
  not be amended except in accordance with the provisions of
  Section 11.1 of the Credit Agreement.

                (f) If any term or provision of this Waiver and
  Amendment shall be deemed prohibited by or invalid under any
  applicable law, such provision shall be invalidated without
  affecting the remaining provisions of this Waiver and Amendment or
  the Credit Agreement, respectively.

                (g) Company covenants to pay to or reimburse the Agent,
  upon demand, for all costs and expenses (including allocated costs of
  in-house counsel) incurred in connection with the development,
  preparation, negotiation, execution and delivery of this Waiver and
  Amendment and the administration of the existing defaults, including
  without limitation appraisal, audit, search and filing fees incurred in
  connection therewith.


        IN WITNESS WHEREOF, the parties hereto have executed and delivered
  this Waiver and Amendment as of the date first above written.


                        KATY INDUSTRIES, INC.

                        By:
                        Title:

                        By:
                        Title:

                        BANK OF AMERICA, N.A., as Agent and as a Bank

                        By:
                        Title:  Vice President

                        LASALLE BANK NATIONAL ASSOCIATION,
                        as Managing Agent and a Bank

                        By:
                        Name:
                        Title:

                        KEYBANK NATIONAL ASSOCIATION, as a Bank

                        By:
                        Name:
                        Title:

                        FIRSTSTAR BANK, N.A., as a Bank

                        By:
                        Name:
                        Title:

                        THE NORTHERN TRUST COMPANY, as a Bank

                        By:
                        Name:
                        Title:

                        WELLS FARGO BANK, N.A., as a Bank

                        By:
                        Name:
                        Title:

                        UNION BANK OF CALIFORNIA, N.A., as a Bank

                        By:
                        Name:
                        Title:

                        UNION PLANTERS BANK, N.A., as a Bank

                        By:
                        Name:
                        Title:

                        U.S. BANK NATIONAL ASSOCIATION, as a Bank

                        By:
                        Name:
                        Title:

                          GUARANTOR ACKNOWLEDGMENT
                                 AND CONSENT


        The undersigned, each a Guarantor with respect to the Company's
  obligations to the Agent and the Banks under the Credit Agreement, each
  hereby (i) acknowledge and consent to the execution, delivery and
  performance by Company of the foregoing Amendment to Credit Agreement
  ("Amendment"), and (ii) reaffirm and agree that the respective guaranty
  to which the undersigned is party and all other documents and agreements
  executed and delivered by the undersigned to the Agent and the Banks in
  connection with the Credit Agreement are in full force and effect, without
  defense, offset or counterclaim.  (Capitalized terms used herein have the
  meanings specified in the Amendment.)

        IN WITNESS WHEREOF, each Guarantor hereto has caused its duly
  authorized officers to execute and deliver this acknowledgement and consent
  as of October ___, 2000.

                        Aetna Liquidating Company,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        American Gage & Machine Company,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Bach Simpson, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Bush Universal, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Chatham Resource Recovery Systems, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Duckback Products, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Fulton Iron Works Company,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        GC Thorsen International Limited,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        GC/Waldom Electrical, Inc. (formerly known as
                        GC Thorsen, Inc.), as Guarantor

                        By:
                        Name:
                        Title:

                        Glit/DISCO, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Glit/Gemtex, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Hallmark Holdings, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Hamilton Precision Metals, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Katy International, Inc. (formerly named
                        HMO, Inc.), as Guarantor

                        By:
                        Name:
                        Title:

                        Katy-Seghers, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        K-S Energy Corp.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Panhandle Industrial Company, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        PTR Machine Corp. (formerly known as
                        Peters Machinery Company), as Guarantor

                        By:
                        Name:
                        Title:

                        Savannah Energy Systems Company,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Wabash Liquidation Corp. (formerly known
                        as Diehl Machines, Inc.), as Guarantor

                        By:
                        Name:
                        Title:

                        Wilen Products, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        W.J. Smith Wood Preserving Company,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        Woods Industries, Inc.,
                        as Guarantor

                        By:
                        Name:
                        Title:

                        WP Liquidating Corp.,
                        as Guarantor

                        By:
                        Name:
                        Title: