Document:

Exhibit 10.7

                               EP MEDSYSTEMS, INC.

                             2002 STOCK OPTION PLAN

1. DEFINITIONS

      As used herein, the following terms shall have the meanings hereinafter
set forth unless the context clearly indicates to the contrary:

      1.1 "Board" - The Board of Directors of the Company.

      1.2 "Committee" - The Compensation Committee of the Company, being
comprised of two or more members of the Board appointed by the Board to
administer the Plan. The Committee shall consist solely of directors who are
"nonemployee directors" within the meaning of Regulation 16b-3 under Section 16
of the Securities Exchange Act of 1934, as such regulations may be amended from
time to time. To the extent feasible, the members of the Committee shall also be
"outside directors" as that term is defined in the Treasury Regulations under
Section 162(m) of the Code.

      1.3 "Company" - EP MedSystems, Inc., a New Jersey corporation, and any
Subsidiary thereof.

      1.4 "Code" - The United States Internal Revenue Code of 1986, as from time
to time amended.

      1.5 "Eligible Participant" - Any person who is an officer, employee,
advisor or consultant of the Company as determined by the Committee.

      1.6 "Fair Market Value" - The per share fair market value of the Stock of
the Company, determined by and in accordance with such valuation procedures and
methods as are established from time to time by the Committee in good faith and
in accordance with the provisions of the Code and any regulations promulgated
thereunder. In particular, Treasury Regulation 20.2031-2(c) provides that fair
market value may be determined by taking the mean between the bona fide bid and
ask prices on the valuation date, or if none, by taking a weighted average of
the means between the bona fide bid and asked prices on the nearest trading date
before and the nearest trading date after the valuation date, if both such
nearest dates are within a reasonable period; if such bid and ask prices are
unavailable, fair market value is to be determined by taking into consideration
the Company's net worth, prospective earning power and dividend paying capacity
and other relevant factors such as good will, economic outlook in the Company's
industry, the Company's position in the industry and its management, the size of
the block of stock to be valued, and the values of stock of corporation engaged
in the same or similar lines of business.

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      1.7 "Option" - An option to purchase Stock of the Company granted pursuant
to the provisions of the Plan. Options granted to officers and employees may be
either (a) Incentive Stock Options as defined in Section 422 of the Code
("ISOs") or (b) non-statutory stock options ("NQSOs") or any combination thereof
at the discretion of the Committee. Options granted to advisors and consultants
shall be NQSOs. The status of each grant as an ISO or NQSO shall be clearly set
forth at the time of the grant of the Option, provided, however, that in the
event that the aggregate fair market value (determined as of the date(s) of
grant) of the shares of stock with respect to which an ISO become exercisable
for the first time by an Optionee exceeds $100,000 in any calendar year, the
Options with respect to the excess shares will be NQSOs notwithstanding anything
contained in the grant of the Option to the contrary.

      1.8 "Optionee" - The person to whom an Option has been granted pursuant to
the provisions of the Plan.

      1.9 "Option Price" - The per share exercise price of the Stock with
respect to which an Option has been granted under the Plan.

      1.10 "Plan" - The EP MedSystems, Inc. 2002 Stock Option Plan.

      1.11 "Stock" - The common stock of the Company.

      1.12 "Subsidiary" - Any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns
securities possessing 50% or more of the total combined voting power of all
classes of securities in one of the other corporations in such chain.

2. ESTABLISHMENT AND PURPOSE OF PLAN

      2.1 Establishment of Plan. The Company hereby establishes the Plan to
reward and provide incentives for those Eligible Participants who are primarily
responsible for the future growth, development and financial success of the
Company or a Subsidiary.

      2.2 Purpose of Plan. The purpose of the Plan is to advance the interests
of the Company and its shareholders by affording to Eligible Participants of the
Company an opportunity to acquire or increase their proprietary interest in the
Company by the grant to such Eligible Participants of Options to purchase Stock
in the Company pursuant to the terms of the Plan. By encouraging such Eligible
Participants to become owners of shares of Stock in the Company, the Company
seeks to motivate, retain and attract those highly competent individuals upon
whose judgment, initiative, leadership and continued efforts the success of the
Company in large measure depends.

      2.3 Effective Date of Plan. The Plan shall become effective on the date
(the "Effective Date") of its adoption by the Board; provided, however, that no
Option intended to be an ISO shall be exercisable by an Optionee unless and
until the Plan shall have been approved by the shareholders of the Company
within 12 months before or after the date of adoption of the Plan by the Board.

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<PAGE>

      2.4 Expiration of the Plan. Except with respect to Options then
outstanding, the Plan shall expire on the earliest to occur of (a) the tenth
anniversary of the date on which the Plan was adopted by the Board, (b) the
tenth anniversary of the date on which the Plan was approved by the shareholders
of the Company, or (c) the date as of which the Board, in its sole discretion,
determines to terminate the Plan (the "Expiration Date"). Any Options
outstanding as of the Expiration Date shall remain in effect until they have
been exercised or have terminated or expired by their respective terms or as
otherwise provided under the Plan.

3. STOCK SUBJECT TO PLAN

      3.1 Limitations. Subject to adjustment pursuant to the provisions of
Section 3.2 hereof, the number of shares of Stock of the Company which may be
issued and sold or awarded under the Plan shall not exceed 1,000,000 shares.

      3.2 Adjustments.

            (a) Anti-Dilution. In the event that the outstanding shares of Stock
of the Company are hereafter changed or converted into, or exchanged or
exchangeable for, a different number or kind of shares or other securities of
the Company or of another corporation by reason of a reorganization, merger,
consolidation, recapitalization, reclassification, combination of shares, stock
dividend, stock split or reverse stock split, appropriate adjustment shall be
made in the number of shares and kind of stock which may be granted subject to
the provisions of Section 3.1, and subject to unexercised Options, to the end
that the Optionee's proportionate interest shall be maintained as before the
occurrence of such event.

            (b) Non-survival of the Company. In the event of a dissolution or
liquidation of the Company or any merger or combination in which the Company is
not a surviving corporation, each outstanding Option granted hereunder shall
terminate, but the Optionee shall have the right, immediately prior to such
liquidation, dissolution, merger or combination, to exercise his or her Option,
in whole or in part, to the extent that such Option is then otherwise
exercisable and has not previously been exercised, provided, however, that no
adjustment shall be made to an ISO which would constitute a "modification" of
such Option, as such term is defined in Section 424(h)(3) of the Code.

      3.3 Effect of Exercise or Termination of Option. Shares of Stock with
respect to which an Option granted under the Plan shall have been exercised
shall not again be available for grant under the Plan. In the event that Options
granted under the Plan shall terminate, expire or be canceled for any reason
without being wholly exercised, new Options may be granted under the Plan with
respect to shares of Stock covered by the unexercised portion of such
terminated, expired or canceled Options, all of which may be granted as ISOs.

      3.4 Character of Shares. The shares of Stock issuable upon exercise of an
Option granted under the Plan may be (i) authorized but unissued shares of
Stock, (ii) shares of Stock held in the Company's treasury, or (iii) a
combination of both.

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      3.5 Reservation of Shares. The number of shares of Stock reserved by the
Company for issuance under the Plan shall at no time be less than the maximum
number of shares which may be purchased at any time pursuant to outstanding
Options.

4. ADMINISTRATION OF THE PLAN

      4.1 Administration by Committee. Options under the Plan shall be granted
and the Plan shall be administered by the Committee or such other committee as
the Board of Directors of the Company shall determine in its discretion. If no
committee is appointed, reference to the "Committee" shall be deemed to refer to
the Board of Directors of the Company.

      4.2 Powers and Duties. Subject to the provisions of the Plan, the
Committee shall have sole discretion and authority to determine the Eligible
Participants to whom Options shall be granted, the number of shares to be
covered by any such Option, and the time or times at which any Option may be
granted or exercised. The Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the details and provisions of each Option
Agreement executed pursuant to the Plan, and to make all other determinations
necessary or advisable in the administration of the Plan.

      4.3 Quorum and Majority Rule. A majority of the then members of the
Committee shall constitute a quorum and any action taken by a majority present
at a meeting at which a quorum is present or any action taken without a meeting
evidenced by a writing executed by all of the members of the Committee, as the
case may be, shall constitute the action of the Committee.

      4.4 Liability of Committee. No member of the Committee shall be liable for
any action, determination or interpretation under any provision of the Plan or
otherwise if such action, determination or interpretation was done or made in
good faith by such member of the Board or Committee.

5. OPTIONS GRANTED UNDER THE PLAN

      5.1 Grant of Options. Options shall be granted only to Eligible
Participants. An Eligible Participant may be granted one or more Options. Each
Option granted under the Plan shall be evidenced by a writing addressed to the
Optionee and dated as of the date that the Option is granted by the Committee
(an "Option Agreement"). The Option Agreement shall contain such terms and
conditions as shall be determined by the Committee, consistent with the Plan.

      5.2 Participation Limitation. The aggregate Fair Market Value of the Stock
with respect to which Incentive Stock Options become exercisable for the first
time by any Optionee in any calendar year shall not exceed $100,000. The
aggregate Fair Market Value of the Stock with respect to which Options are
granted shall be determined as of the date or dates the Options are granted and
the foregoing provisions shall be applied by aggregating all Incentive Stock
Options granted to an Optionee by the Company.

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<PAGE>

      5.3 Option Price. The Option Price of the Stock subject to each Option
shall be determined by the Committee, provided, however, that in the case of an
Incentive Stock Option the Option Price shall not be less than 100%, or, in the
case of an Incentive Stock Option granted to an individual who, immediately
after the grant, would own, within the meaning of Section 424(d) of the Code,
more than 10% of the voting stock of the Company, 110%, of the Fair Market Value
of the Stock on the date the Option is granted.

      5.4 Option Exercise Period. The period during which any Option granted
under the Plan may be exercised shall not be more than ten years or, in the case
of an Incentive Stock Option granted to an individual who, immediately after the
grant, would own more than 10% of the voting stock of the Company, five years,
from the date of grant of the Option.

      5.5 Option Exercise.

            (a) Procedure for Exercise. An Option granted pursuant to the Plan
shall be exercisable, in whole or in part, at such time or times or within such
period or periods, or upon the occurrence of such event or events, as shall be
determined by the Committee and set forth in the Option Agreement. If an Option
is not at the time of grant immediately exercisable in full, the Committee may
(i) in the Option Agreement evidencing such Option provide for the acceleration
of the exercise date or dates of such Option, in whole or in part, upon the
occurrence of specified events, or (ii) at any time prior to the complete
expiration of an Option, accelerate, in whole or in part, the exercise date or
dates of the Option. Exercise shall be effected prior to the termination of the
Option by delivery by the Optionee of written notice to the Company specifying
the number of shares of Stock to be purchased accompanied by full payment for
such shares of Stock. The right of exercise shall be cumulative. Full payment
shall be in cash, or at the discretion of the Committee, by the Optionee's note
payable over such period of time, at such rate of interest and in form and
substance as shall be satisfactory to the Committee.

            (b) Restrictions on Exercise.

                  (i) No Option by its terms shall be exercisable after the
            expiration of ten years from the date such Option is granted.

                  (ii) No Option may be exercised at a time when the exercise
            thereof or the issuance or transfer of shares upon such exercise
            would, in the opinion of the Committee, constitute a violation of
            any law, federal, state, local or foreign, or any regulations
            thereunder, or the requirements of the Nasdaq Stock Market or any
            other national securities exchange or market.

                  (iii) No Option granted pursuant to the Plan may be assigned
            or otherwise transferred by an Optionee and shall be exercisable
            during the lifetime of the Optionee only by him or her.

                  (iv) The Committee, in its discretion, may require an Optionee
            to (A) represent in writing that the shares of Stock to be received
            upon exercise of an Option are being acquired for his or her own
            account for investment and not with

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            a view to distribution thereof, nor with any present intention of
            distributing the same, and (B) make such other representations and
            warranties as are deemed necessary by counsel to the Company. Unless
            Shares issuable upon the exercise of Options are registered by the
            Company, stock certificates representing shares of Stock not
            registered under the Securities Act of 1933, as amended (the "1933
            Act"), acquired upon the exercise of Options shall bear a legend in
            substantially the following form:

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
                  ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR
                  OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER
                  SUCH ACT AND ALL SUCH APPLICABLE LAWS OR AN EXEMPTION FROM
                  REGISTRATION IS AVAILABLE."

                  (v) No Option may be exercised for any fractional share.

            (c) Vesting.

                  (i) Any Options granted pursuant to this Plan shall vest and
            be exercisable according to the terms hereof at such times and under
            such conditions as determined by the Committee or as set forth in
            the Optionee's Option Agreement.

                  (ii) The Committee may, in its discretion, as to outstanding
            Options (A) accelerate the exercise date or dates of the Options
            pursuant to Section 5.5(a) hereof, (B) upon written notice to the
            holders thereof, provided the Options have been accelerated pursuant
            to Clause (A) above, terminate all such Options prior to the
            consummation of a transaction unless exercised within a prescribed
            period, (C) provide for payment of an amount equal to the excess of
            the Fair Market Value, as determined by the Committee, over the
            Option Price of such shares as of the date of a transaction, in
            exchange for the surrender of the right to exercise such Options, or
            (D) provide for the assumption of such Options, or the substitution
            therefor of new Options, by a successor corporation or entity,
            provided, however, that with respect to ISOs, the requirements of
            Section 424 of the Code shall be met.

      5.6 Termination of Option.

            (a) Expiration or Termination of Employment. Except as specifically
provided in Section 3.2(b) and Sections 5.6(b) and 5.6(c) hereof, the Options
granted hereunder shall terminate as of the close of business on the earliest to
occur of the date of (i) expiration of the Exercise Period, (ii) an event of
default or breach by an Optionee of the terms and conditions of the grant of the
Option, or (iii) termination of an Optionee's employment or engagement as an

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<PAGE>

agent or consultant with the Company for cause. If an Optionee's employment is
terminated other than for cause, death (as provided in subsection (b) below) or
retirement or disability (both as provided in subsection (c) below), the
Optionee must exercise his or her Option, if at all and only to the extent the
Option is exercisable at termination, within 30 days from the date of such
termination, in accordance with the terms of the Plan.

            (b) Death of Optionee. In the event that an Optionee dies prior to
the exercise of his or her Option in full, the Option may be exercised by the
Optionee's executors, administrators or heirs within one year after the date of
the Optionee's death, provided such death occurred during the Optionee's
employment or engagement as an agent or consultant with the Company or within
three months following the termination of his or her employment with the Company
by reason of the Optionee's retirement after reaching the age of 65 years or the
Optionee's retirement after becoming permanently disabled. Such Option may be so
exercised by the Optionee's executors, administrators or heirs only with respect
to that number of shares of Stock which the Optionee had an Option to purchase
and which Option was exercisable (but had not theretofore been exercised) as of
the date of the earlier of the (i) retirement of the Optionee after reaching the
age of 65 years or after becoming permanently disabled, or (ii) death of the
Optionee. In no event may the Option be exercised at any time after the
expiration of the Option Exercise Period set forth in Section 5.4 hereof.

            (c) Retirement or Disability. If an Optionee's employment with the
Company is terminated prior to the exercise of his or her Option in full, by
reason of the Optionee's retirement after reaching the age of 65 years or by
reason of the Optionee's retirement after becoming permanently disabled, the
Optionee shall have the right, during the period ending three months after the
date of his or her termination of employment, to exercise the Option. Such
Option may be exercised by the Optionee only with respect to that number of
shares of Stock which the Optionee had an Option to purchase and which Option
was exercisable (but had not theretofore been exercised) as of the date of the
earlier of (i) the retirement of the Optionee after reaching the age of 65
years, or (ii) the date the Optionee becomes permanently disabled. In no event
may the Option be exercised at any time after the expiration of the Option
Exercise Period set forth in Section 5.4 hereof.

      5.7 Rights as Shareholder. An Optionee shall have no rights as a
shareholder of the Company with respect to any shares of Stock subject to an
Option prior to purchase of such shares of Stock by exercise of such Option as
provided in the Plan.

      5.8 Right of the Company to Terminate Employment. Nothing contained in the
Plan or any Option granted under the Plan shall confer on an Optionee any right
to continued employment by the Company or interfere in any way with the right of
the Company or a Subsidiary to terminate an Optionee's employment with it any
time for any reason or for no reason.

6. DELIVERY OF STOCK CERTIFICATES

      6.1 Delivery of Stock Certificates. The Company shall not be required to
issue or deliver any certificate for shares of Stock purchased upon the exercise
of all or any portion of

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<PAGE>

any Option granted under the Plan prior to the fulfillment of any of the
following conditions which may, from time to time, be applicable to the issuance
of the Stock:

            (a) Listing of Shares. The admission of such shares of Stock to
listing on (i) all stock exchanges on which the Stock of the Company is then
listed or (ii) the Nasdaq Stock Market.

            (b) Registration and/or Qualification of Shares. The completion of
any registration or other qualification of such shares of Stock under any
federal or state securities laws or under the regulations promulgated by the
Securities and Exchange Commission or any other federal or state governmental
regulatory body, which the Committee shall deem necessary or advisable. The
Company shall in no event be obligated to register any securities pursuant to
the Securities Act of 1933, as amended, or to take any other action in order to
cause the issuance and delivery of such certificates to comply with any such
law, regulations or requirement.

            (c) Approval or Clearance. The obtaining of any approval or
clearance from any federal or state governmental agency which the Committee
shall determine to be necessary or advisable.

            (d) Reasonable Lapse of Time. The lapse of such reasonable period of
time following the exercise of the Option as the Committee may establish from
time to time for reasons of administrative convenience.

7. TERMINATION, AMENDMENT AND MODIFICATION OF PLAN

      7.1 Termination, Amendment and Modification of Plan. The Board may at any
time terminate, modify or amend the Plan; provided, however, that if the
approval of the shareholders of the Company shall be required for any
modification or amendment under Section 422 of the Code, with respect to ISOs,
or under Rule 16b-3 under the Securities Exchange Act of 1934, as amended, with
respect to shares of Stock registered under such Act, such approval shall be
obtained before such modification or amendment shall become effective. Subject
to the foregoing, the Board may (i) modify the requirements for eligibility for
participation or change the class of Eligible Participants to whom Options may
be granted under the Plan; (ii) increase the benefits accruing to Eligible
Participants with respect to Options granted under the Plan or (iii) terminate
the Plan at any time or amend or modify the Plan at any time or from time to
time provided, however, that no such action of the Board shall do any of the
following:

            (a) Increase Number of Shares. Except as contemplated in Section 3.2
of the Plan, increase the total number of shares of Stock subject to the Plan
without the approval of shareholders.

            (b) Change Terms of Outstanding Options. Change the Option Price or
otherwise alter or impair any Option previously granted to an Optionee under the
Plan without the consent of the Optionee.

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<PAGE>

      Notwithstanding the foregoing, no termination, modification or amendment
of the Plan may, without the consent of an Optionee, adversely affect his or her
rights under an option previously granted to such Optionee.

8. MISCELLANEOUS

      8.1 Plan Binding on the Successors. The Plan shall be binding upon the
successors and assigns of the Company.

      8.2 Withholding Taxes. The Company may deduct from any cash payments due
to an Optionee upon exercise of an Option any federal, state or local
withholding taxes and employment taxes relating thereto or, as a condition of
delivery of any shares subject to Option due upon such exercise, require the
Optionee to remit, or, in appropriate cases, agree to remit when due, an amount
sufficient to satisfy such taxes; provided, however, that, subject to the prior
approval of the Committee, the Optionee may, in whole or in part, satisfy such
obligations (a) by permitting the Company to withhold some or all of the shares
subject to Option, or (b) by delivering shares of Stock already owned by him or
her. Shares so withheld or delivered shall have a fair market value, as
determined by the Committee, equal to such obligations as of the date or dates
the amounts of such taxes are required to be determined. At the time of any
disqualifying disposition, the Optionee shall remit to the Company in cash the
amount of any such taxes relating to such disposition.

      8.3 Governing Law. The validity and construction of the Plan and the
Option Agreements shall be construed in accordance with and governed by the law
of the State of New Jersey.

                                       9KATY INDUSTRIES, INC.

                           SECOND AMENDMENT AND WAIVER
                               TO CREDIT AGREEMENT

            This SECOND AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this
"Amendment") is dated as of November 26, 2001 and entered into by and among KATY
INDUSTRIES, INC., a Delaware corporation ("Company"), THE FINANCIAL INSTITUTIONS
LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a
"Lender" and collectively as "Lenders"), BANKERS TRUST COMPANY ("BTCo"), as
agent for Lenders (in such capacity, "Agent"), and for purposes of Section 4
hereof, the Credit Support Parties (as defined in Section 4 hereof) listed on
the signature pages hereof, and is made with reference to that certain Credit
Agreement dated as of June 28, 2001 by and among Company, Lenders and Agent, as
amended by that certain First Amendment and Waiver to Credit Agreement dated as
of September 27, 2001 (as amended, the "Credit Agreement"). Capitalized terms
used herein without definition shall have the same meanings herein as set forth
in the Credit Agreement.

                                    RECITALS

            WHEREAS, Company has requested that Lenders amend the Credit
Agreement to either waive or amend certain requirements of Company and its
Subsidiaries with respect to the Post-Closing Date Mortgaged Properties:

            NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:

            Section 1. AMENDMENTS TO THE CREDIT AGREEMENT

      A. Subsection 2.1A of the Credit Agreement is hereby amended by (i)
deleting the word "and" at the end of clause (a) of the last paragraph of such
subsection 2.1A, (ii) by deleting the punctuation mark "." at the end of clause
(b) of the last paragraph of such subsection 2.1A and substituting in lieu
thereof "; and", and (iii) adding immediately after clause (b) of such
subsection 2.1A the following paragraph:

      "(c) in no event shall Revolving Loans be made if, at the time of the
      making of the Revolving Loans, Holdings, its Subsidiaries, Company and its
      Domestic Subsidiaries have Cash and Cash Equivalents (minus the total
      amount of payments reasonably expected to be made within three Business
      Days) exceeding $4,000,000 (after giving effect to such Revolving Loans)
      or such other amount as may be approved by Agent in writing."

      B. Subsection 2.10A of the Credit Agreement is hereby amended by deleting
the reference to "150 days" appearing in subsection 2.10A(iii)(c)(1)(II) and
2.10A(iii)(d) and substituting in each case therefor "195 days".

<PAGE>

      C. Subsection 6.10A of the Credit Agreement is hereby amended by adding
the phrase "with such exceptions as described on Schedule 6.10A annexed hereto"
after the phrase "deliver to Agent" at the end of the fifth line of Subsection
6.10A.

      D. Schedule 6.10A annexed to the Credit Agreement is replaced in its
entirety with the Schedule 6.10A attached to this Amendment.

      E. Subsection 6.10F(i) of the Credit Agreement is hereby amended by
deleting the reference to "120 days" and substituting therefor "155 days".

      F. The following is added as a new subsection 6.10G:

            "G. Additional Deliveries for certain Material Leasehold Properties.
      If the leases for any of the following Material Leasehold Properties or
      any of the Material Leasehold Properties listed on Schedule 6.10A for
      which a Landlord Consent and Estoppel was not delivered are renewed or are
      otherwise re-negotiated, Company shall use its commercially reasonable
      efforts to cause (and shall cause its applicable Subsidiaries to use their
      commercially reasonable efforts to cause) the applicable landlords to
      execute and deliver Landlord Consents and Estoppels with respect thereto
      and otherwise consent to the Company's (or its Subsidiary's) delivery of a
      leasehold Mortgage: (i) 15510 Blackburn Avenue, Norwalk, California, (ii)
      13300 Orden Drive, Santa Fe Springs, California, (iii) 2644 Hegan Lane,
      Chico, California, (iv) 3760 Southside Industrial Parkway, Atlanta,
      Georgia, and (v) 5145 West 78th Street, 5105-5155 West 67th Street,
      Indianapolis, Indiana. If a Landlord Consent and Estoppel is so delivered
      or the landlord otherwise consents to a leasehold Mortgage, Company shall
      deliver, and shall cause each applicable Subsidiary to deliver, each of
      the items set forth in Subsection 6.10A as if such Material Leasehold
      Property was a Post-Closing Date Mortgaged Property, provided, however, if
      the Landlord Consent and Estoppel is not able to be obtained and any other
      form of consent to leasehold Mortgage contains matters affecting
      insurability of the leasehold Mortgage, Administrative Agent may modify
      the title insurance delivery requirements in its reasonable discretion."

      G. Subsection 6.12 of the Credit Agreement is hereby amended by deleting
the second paragraph thereof in its entirety and substituting therefor the
following paragraph:

            "Notwithstanding subsection 2.10 or the foregoing paragraph of this
      subsection 6.12, Company shall not be obligated to enter into a Blocked
      Account Agreement with respect to the following Deposit Accounts: 1178
      maintained with First Community Credit Union, 942-901-9522 maintained with
      Fleet Bank, 271050-30011 maintained with Bank of America, 1005039241
      maintained with Firstar, 169-0504400 maintained with Firstar of Northwest
      County, 1036-5617-9787 maintained with US Bank, 103656179779 maintained
      with US Bank, 0032-5164-6420 maintained with Bank of America, 000-880-4
      maintained with First State Bank, 600-361798 maintained with First State
      Bank, 1067977 maintained with Tri Counties Bank, 91524 maintained with
      Amcore Bank, 328270020683 maintained with Key Bank, 5216433779 maintained
      with BB&T North Carolina, 137480 maintained with Darby Bank & Trust,
      137499 maintained with Darby Bank & Trust, 021-844-2366

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<PAGE>

      maintained with Fulton Bank, 3500720218 maintained with Firstar,
      5590034673 maintained with LaSalle Bank, 5590034707 maintained with
      LaSalle Bank, 5590034715 maintained with LaSalle Bank, 5590034616
      maintained with LaSalle Bank, 6000203892 maintained with Key Bank,
      5590034541 maintained with LaSalle Bank, 5590034574 maintained with
      LaSalle Bank, 5590034673 maintained with LaSalle Bank, 5800283029
      maintained with LaSalle Bank, 5590034582 maintained with LaSalle Bank,
      5590034566 maintained with LaSalle Bank, 5590034590 maintained with
      LaSalle Bank, 5590034608 maintained with LaSalle Bank, 5590034624
      maintained with LaSalle Bank, 5590034632 maintained with LaSalle Bank,
      5590034640 maintained with LaSalle Bank, 5590020185 maintained with
      LaSalle Bank, 5590034657 maintained with LaSalle Bank, 5800283078
      maintained with LaSalle Bank, 5590034699 maintained with LaSalle Bank,
      021-844-2358 with Fulton Bank and any zero-balance or payroll account
      opened after the date hereof; provided, that Company shall, and shall
      cause each of its Subsidiaries to, comply with each of the following
      requirements at all times:

                        (i) Company shall, and shall cause its Subsidiaries to,
            maintain Deposit Account Box 1178 solely as a safety deposit account
            and such Deposit Account shall not at any time receive or hold any
            monies;

                        (ii) Company shall, and shall cause its Subsidiaries to,
            permit deposits into Deposit Account Nos. 942-901-9522, 5590034616
            and 5590034715, which deposits shall be solely comprised of
            insurance proceeds payable to the employees of the Company and its
            Subsidiaries under health insurance policies;

                        (iii) Company shall not, and shall not permit its
            Subsidiaries to, permit the outstanding balance of Deposit Accounts
            No. 137480, and 91524 to exceed $10,000 at any time;

                        (iv) Company shall not, and shall not permit its
            Subsidiaries to, permit the outstanding balance of Deposit Accounts
            Nos. 271050-30011, 1005039241, 600-361798 and 169-0504400 to exceed
            $5,000 at any time;

                        (v) Company shall, and shall cause its Subsidiaries, to
            (A) prevent any deposits from being made into Deposit Account
            Nos.1036-5617-9787 and 103656179779 any time after October 15, 2001
            and (B) close such Deposit Accounts by no later than November 30,
            2001 and provide Agent with satisfactory evidence of same on or
            before such date;

                        (vi) Company shall not, and shall not permit its
            Subsidiaries to, permit (A) Deposit Account No. 6000203892 to
            receive deposits from any Loan Party or any other Person other than
            any deposit to be used solely by the applicable Loan Party for
            payments required to be made by such Loan Party under such Loan
            Party's pension plans within 30 days of such deposit or (B) the
            outstanding balance of such Deposit Account to exceed $100,000 at
            any time;

                                       3
<PAGE>

                        (vii) Company shall not, and shall not permit its
            Subsidiaries to (A) permit Deposit Account Nos. 3500720218,
            5590034673, 5590034707, 1067977, 328270020683, 021-844-2366,
            000-800-4, 5216433779, 137499, 0032-5164-6420, or any additional
            payroll account created after the date hereof, to be used for any
            purpose other than for the payment of payroll expenses of the
            applicable Loan Party or (B) deposit any amounts in such Deposit
            Accounts (including such additional payroll accounts) other than
            payroll expense amounts of the applicable Loan Party required to be
            paid by such Loan Party during the then current monthly or bimonthly
            payroll period (as the case may be) of such applicable Loan Party;
            provided, however, that the balance of all such Deposit Accounts
            (including such additional payroll accounts) collectively shall not
            exceed $2,500,000 at any time; provided, further, that all monies
            deposited into each such Deposit Account (including each such
            additional payroll account) shall be proceeds of the Loans;

                        (viii) Company shall not, and shall not permit it
            Subsidiaries to, (A) permit Deposit Account Nos. 5590034541,
            5590034574, 5590034673, 5800283029, 5590034582, 5590034566,
            5590034590, 5590034608, 5590034624, 5590034632, 5590034640,
            5590020185, 5590034657, 5800283078, 5590034699, or any additional
            zero balance account created after the date hereof, to be used for
            any purpose other than as zero-balance accounts, or (B) permit any
            such Deposit Account (including any such additional zero balance
            accounts) to hold on any day any monies other than monies sufficient
            to reimburse any check or draft presented for payment against such
            account, in the ordinary course of business; provided, however, that
            the balance of each such Deposit Account (including each such
            additional zero balance account) shall be reduced to zero by the end
            of each day; and provided, further, that all monies deposited into
            each such Deposit Account (including each such additional zero
            balance account) shall be proceeds of the Loans; and

                        (ix) Company shall not, and shall not permit its
            Subsidiaries to, permit (A) Deposit Account No. 021-844-2374 to
            receive deposits from any Loan Party or any other Person other than
            any deposit to be used solely by the applicable Loan Party for the
            payment of withholding and other payroll taxes owed by such Loan
            Party pursuant to state or federal law, (B) the outstanding balance
            of such Deposit Account to exceed $200,000.00 at any time."

      H. Subsection 7.17 of the Credit Agreement is hereby amended by deleting
in its entirety and substituting the following in lieu thereof:

      "Except as permitted in subsection 2.10A(iii) and the second paragraph of
      subsection 6.12, Company shall not, and shall not permit any of its
      Domestic Subsidiaries to, maintain any Deposit Account other than (i) Lock
      Box Accounts, (ii) Concentration Accounts, (iii) disbursement accounts
      under the exclusive dominion and control of Agent and (iv) Deposit
      Accounts which are disbursement accounts, the balance of which do not
      exceed at any time $5,000 in such Deposit Account individually and do

4
<PAGE>

      not exceed at any time $100,000 in all such Deposit Accounts collectively
      (including, without limitation, the Deposit Accounts referred to in clause
      (iv) of the second paragraph of subsection 6.12). Except as permitted in
      subsection 2.10A(iii), Company shall not permit Woods or Glit to maintain
      any Deposit Account which is not a Lock Box Account or which is not
      subject to a Blocked Account Agreement."

      I. Exhibit I to the Credit Agreement is hereby amended by deleting said
Exhibit I in its entirety and substituting in place thereof a new Exhibit I in
the form of Annex A to this Amendment.

            Section 2. CONDITIONS TO EFFECTIVENESS

            Section 1 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "Second
Amendment Effective Date"):

            A. On or before the Second Amendment Effective Date, Company shall
deliver to Lenders (or to Agent for Lenders with sufficient originally executed
copies, where appropriate, for each Lender and its counsel) the following, each,
unless otherwise noted, dated the Second Amendment Effective Date:

            (i) Officer's Certificates of Company, dated a recent date prior to
      the Second Amendment Effective Date, certifying that (a) there has been no
      change in any of the Loan Parties' Organizational Documents from the date
      of the Credit Agreement, and (b) the resolutions adopted by the Board of
      Directors of Company approving and authorizing the execution, delivery,
      and performance of this Amendment are in full force and effect without
      modification or amendment;

            (ii) Signature and incumbency certificates of the officers of
      Company executing this Amendment; and

            (iii) Ten (10) executed copies of this Amendment executed by Company
      and each Credit Support Party.

            B. On or before the Second Amendment Effective Date, Requisite
Lenders shall deliver to Agent copies of this Amendment executed by Requisite
Lenders.

            Section 3. REPRESENTATIONS AND WARRANTIES

            In order to induce Lenders to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:

            A. Corporate Power and Authority. Each Loan Party has all requisite
corporate or other entity power and authority to enter into this Amendment and
to carry out the transactions contemplated by, and perform its obligations
under, the Credit Agreement as amended by this Amendment (the "Amended
Agreement").

                                       5
<PAGE>

            B. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary corporate or other entity action on the part of each Loan
Party.

            C. No Conflict. The execution, delivery and performance by each Loan
Party of this Amendment and the performance by such Loan Party of the Amended
Agreement do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to the Loan Parties, the
Organizational Documents of the Loan Parties or any order, judgment or decree of
any court or other Government Authority binding on the Loan Parties, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any Contractual Obligation of the Loan Parties,
(iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of Loan Parties (other than Liens created under any of
the Loan Documents in favor of Agent on behalf of Lenders), or (iv) require any
approval of members or stockholders or any approval or consent of any Person
under any Contractual Obligation of the Loan Parties, except for such approvals
or consents which will be obtained on or before the Second Amendment Effective
Date and disclosed in writing to Lenders.

            D. Governmental Consents. The execution, delivery and performance by
the Loan Parties of this Amendment and the performance by Loan Parties of the
Amended Agreement do not and will not require any Governmental Authorization.

            E. Binding Obligation. This Amendment has been duly executed and
delivered by the Loan Parties and this Amendment and the Amended Agreement are
the legally valid and binding obligations of the Loan Parties, enforceable
against the Loan Parties in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.

            F. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the Second Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.

            G. Absence of Default. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.

            Section 4. ACKNOWLEDGEMENT AND CONSENT

            Holdings and each of the Subsidiary Guarantors is a party to certain
of the Holdings Guaranty and Subsidiary Guaranty and the Collateral Documents
and Company is a party to certain of the Collateral Documents. Company, Holdings
and each of the Subsidiary Guarantors are collectively referred to herein as the
"Credit Support Parties," and the

                                       6
<PAGE>

Guaranties and Collateral Documents are collectively referred to herein as the
"Credit Support Documents."

            Each Credit Support Party hereby acknowledges that it has reviewed
the terms and provisions of the Credit Agreement and this Amendment and consents
to the amendment of the Credit Agreement effected pursuant to this Amendment.
Each Credit Support Party hereby confirms that each Credit Support Document to
which it is a party or otherwise bound and all Collateral encumbered thereby
will continue to guaranty or secure, as the case may be, to the fullest extent
possible the payment and performance of all "Obligations," "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including without
limitation the payment and performance of all such "Obligations," "Guarantied
Obligations" or "Secured Obligations," as the case may be, in respect of the
Obligations of Company now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein.

            Each Credit Support Party acknowledges and agrees that any of the
Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement and the Credit Support Documents to which it is a party or
otherwise bound are true, correct and complete in all material respects on and
as of the Second Amendment Effective Date to the same extent as though made on
and as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.

            Each Credit Support Party (other than Company) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment, and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any future amendments to the
Credit Agreement.

            Section 5. MISCELLANEOUS

            A. Reference to and Effect on the Credit Agreement and the Other
Loan Documents.

            (i) On and after the Second Amendment Effective Date, each reference
      in the Credit Agreement to "this Agreement", "hereunder", "hereof",
      "herein" or words of like import referring to the Credit Agreement, and
      each reference in the other Loan Documents to the "Credit Agreement",
      "thereunder", "thereof" or words of like import referring to the Credit
      Agreement shall mean and be a reference to the Amended Agreement.

                                       7
<PAGE>

            (ii) Except as specifically amended by this Amendment, the Credit
      Agreement and the other Loan Documents shall remain in full force and
      effect and are hereby ratified and confirmed.

            (iii) The execution, delivery and performance of this Amendment
      shall not, except as expressly provided herein, constitute a waiver of any
      provision of, or operate as a waiver of any right, power or remedy of
      Agent or any Lender under, the Credit Agreement or any of the other Loan
      Documents.

            B. Fees and Expenses. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.

            C. Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.

            D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE
APPLICATION OF ANOTHER LAW.

            E. Change of Notice Address under each of the Loan Documents. Agent
hereby notifies Company and each Lender that its notice address under each of
the Loan Documents shall be Bankers Trust Company, Bankers Trust Company, 31 W.
52nd Street, 25th Floor, New York, New York 10019, Attention: Sam Cardone,
Facsimile No.: (646) 324-7808. Company and its Subsidiaries hereby notify Agent
and each Lender that their notice address under each of the Loan Documents shall
be c/o Katy Industries, Inc., 984 Southford Road, Suite 4, PO Box 360,
Middlebury, CT 06762, Attn: Amir Rosenthal, Facsimile No.: (203) 598-0712.

            F. Counterparts; Effectiveness. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment (other than the
provisions of Section 1 hereof, the effectiveness of which is governed by
Section 2 hereof) shall become effective upon the execution of a counterpart
hereof by Company and Requisite Lenders and each of the Credit Support Parties
and receipt by Company and Agent of written or telephonic notification of such
execution and authorization of delivery thereof.

                  [Remainder of page intentionally left blank]

                                       8
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.

                                         KATY INDUSTRIES, INC.

                                         By:
                                            ------------------------------------
                                             Name: Robert Baratta
                                             Title: President

                                        KKTY HOLDING COMPANY, L.L.C. (for
                                        purposes of Section 4 only) as a Credit
                                        Support Party

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

                                        EACH OF THE ENTITIES LISTED ON SCHEDULE
                                        A ANNEXED HERETO

                                        By:
                                           -------------------------------------
                                           Name:
                                           Title:                    , on behalf
                                                 of each of the entities listed
                                                 on Schedule A annexed hereto
                                                 (for purposes of Section
                                                 4 only) as a Credit Support
                                                 Party

                                      S-1
<PAGE>

                                         BANKERS TRUST COMPANY,
                                         Individually and as Agent

                                         By:
                                            ------------------------------------
                                            Name: Sebastiano A. Cardone
                                            Title: Director

                                      S-2
<PAGE>

                                         FIRSTAR BANK N.A.,
                                         as a Lender

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

                                      S-3
<PAGE>

                                        THE PROVIDENT BANK,
                                        as a Lender

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

                                      S-4
<PAGE>

                                        FOOTHILL CAPITAL CORPORATION,
                                        as a Lender

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

                                      S-5
<PAGE>

                                        LASALLE BANK NATIONAL ASSOCIATION,
                                        as a Lender

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

                                      S-6
<PAGE>

                                        GMAC COMMERCIAL CREDIT L.L.C.,
                                        as a Lender

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

                                      S-7
<PAGE>

                                        UPS CAPITAL CORPORATION,
                                        as a Lender

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

                                      S-8
<PAGE>

                                        DEUTSCHE BANK, AG,  New York Branch
                                        as an Issuing Lender

                                        By:
                                           -------------------------------------
                                           Name:  Sebastiano A. Cardone
                                           Title:  Director

                                      S-9
<PAGE>

                                   SCHEDULE A

                              SUBSIDIARY GUARANTORS

<PAGE>

                                 SCHEDULE 6.10A

1.    305 Rock Industrial Park, Bridgeton, Missouri
      -     Delivery of a Landlord Consent and Estoppel not required

2.    333 Rock Industrial Park, Bridgeton, Missouri
      -     Delivery of a Landlord Consent and Estoppel not required

3.    105-123 Byassee, Hazelwood, Missouri

4.    13330 Lakefront, Earth City, Missouri
      -     Delivery of a Landlord Consent and Estoppel not required

5.    1067-1083 North Warson Road, St. Louis, Missouri

6.    1105-1151 North Warson Road, St. Louis, Missouri

7.    1895 Brannan Road, McDonough, Georgia
      -     Post-Closing Date Mortgage Policy to be issued and all of the
            requirements related thereto to be satisfied on or before December
            31, 2001

8.    250 Canal Street, Lawrence, Massachusetts
      -     Landlord Consent and Estoppel in the form required by the Credit
            Agreement not required
      -     Post-Closing Date Mortgage to be recorded on or before December 31,
            2001 (leasehold interest must become a Recorded Leasehold Interest)
      -     Post-Closing Date Mortgage Policy to be issued and all of the
            requirements related thereto to be satisfied on or before December
            31, 2001

9.    3760 Southside Industrial Parkway, Atlanta, Georgia
      -     Company and its applicable Subsidiary shall use their commercially
            reasonable efforts to cause the deliveries required to be made under
            Subsection 6.10A of the Credit Agreement to be delivered on or
            before January 15, 2002

10.   5145 West 78th Street, 5105-5155 West 78th Street, Indianapolis, Indiana
      -     Company and its applicable Subsidiary shall use their commercially
            reasonable efforts to cause the deliveries required to be made under
            Subsection 6.10A of the Credit Agreement to be delivered on or
            before January 15, 2002

11.   121 N. Meridian Street, Jasonville, Indiana

12.   700 South Commercial Street, Worthington, Indiana

13.   510 Third Avenue S.W., Carmel, Indiana
      -     Post-Closing Date Mortgage to be recorded on or before January 31,
            2002

<PAGE>

      -     Post-Closing Date Mortgage Policy to be issued and all of the
            requirements related thereto to be satisfied on or before January
            31, 2002

14.   511 and 525 Third Avenue S.W., Carmel, Indiana
      -     Post-Closing Date Mortgage to be recorded on or before January 31,
            2002
      -     Post-Closing Date Mortgage Policy to be issued and all of the
            requirements related thereto to be satisfied on or before January
            31, 2002

                                      S-2
<PAGE>

                                     ANNEX A

                                    EXHIBIT I

                          [FORM OF NOTICE OF BORROWING]

                               NOTICE OF BORROWING

      Pursuant to that certain Credit Agreement dated as of June 28, 2001, as
amended, supplemented or otherwise modified to the date hereof (said Credit
Agreement, as so amended, supplemented or otherwise modified, being the "Credit
Agreement", the terms defined therein and not otherwise defined herein being
used herein as therein defined), by and among Katy Industries, Inc., a Delaware
corporation ("Company"), the financial institutions listed therein as Lenders
("Lenders"), and Bankers Trust Company ("BTCo"), as agent for the Lenders (in
such capacity, "Agent"), this represents Company's request to borrow as follows:

      a.    Date of borrowing: ___________________, _________

      b.    Amount of borrowing:        $___________________

      c.    Type of Loans:           |_| a.  Term Loans
                                     |_| b.  Revolving Loans

      d.    Interest rate option:    |_| a.  Base Rate Loan(s)
                                     |_| b.  Eurodollar Rate Loans with an
                                             initial Interest Period
                                             of ____________ month(s)

The proceeds of such Loans are to be deposited in Company's account at the
Funding and Payment Office.

            The undersigned officer, to the best of his or her knowledge, and
Company certify that:

            (i) The representations and warranties contained in the Credit
Agreement and the other Loan Documents are true, correct and complete in all
material respects on and as of the date hereof to the same extent as though made
on and as of the date hereof, except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties were true, correct and complete in all material
respects on and as of such earlier date; provided, that where a representation
and warranty is already qualified as to materiality, such materiality qualifier
shall be disregarded for purposes of this certification;

            (ii) No event has occurred and is continuing or would result from
the consummation of the borrowing contemplated hereby that would constitute an
Event of Default or a Potential Event of Default;

<PAGE>

            (iii) Each Loan Party has performed in all material respects all
agreements and satisfied all conditions which the Credit Agreement provides
shall be performed or satisfied by it on or before the date hereof;

            (iv) After giving effect to the requested Revolving Loans, (a) the
Total Utilization of Revolving Loan Commitments will not exceed the Revolving
Loan Commitments then in effect, (b) the Total Utilization of Revolving Loan
Commitments will not exceed the Revolving Borrowing Base then in effect, (c) the
aggregate principal amount outstanding under the Woods Subsidiary Note is
$_______, and (d) the aggregate principal amount outstanding under the Glit
Subsidiary Note is $______ ; [and]

            (v) As of the date hereof and as of the date of the proposed
borrowing, Holdings, Company and their respective Subsidiaries do not, and will
not, have Cash and Cash Equivalents (minus the total amount of payments
reasonably expected to be made within three Business Days) in excess of
$4,000,000 (after giving pro forma effect to the proposed Revolving Loans) or
such other amount as has been approved by Agent in writing[.][; and]

            [(vi) After giving effect to the requested Term Loans, the Term
Loans will not exceed the Term Borrowing Base then in effect.](1)

DATED: ____________________                KATY INDUSTRIES, INC.

                                           By:__________________________
                                           Title:_______________________

--------
(1)   Applicable only on the Closing Date.

                                      S-2

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