GENERAL RELEASE AND SETTLEMENT AGREEMENT WITH DAVID S. RAHILLY DATED JANUARY 5, 2007

David S. Rahilly and Katy Industries, Inc., for good and valuable consideration, the receipt and adequacy of which are mutually acknowledged and agreed to by the parties, do hereby covenant and agree as follows:

The following terms as used in this General Release and Settlement Agreement (“Agreement”) shall be defined as set forth in subparagraphs (a) and (b) of this paragraph:

(a)   All references to “Employee” shall refer to David S. Rahilly and his estate, heirs, devisees, legatees, representatives, spouse(s), attorneys, agents, executors, administrators, agents, successors, sureties and assignees.

(b)   All references to “Katy” shall refer to Katy Industries, Inc. and its employees, directors, officers, partners, venturers, members, subsidiary corporations, affiliated corporations, parent corporations, divisions, agents, attorneys, predecessors, successors, sureties, assignees and other related entities.

Employee’s employment with Katy will end on January 5, 2007 (“Termination Date”). Employee agrees that after the Termination Date Employee will not seek or accept employment with Katy. Employee agrees that after the Termination Date, in order to minimize distractions and interruptions, Employee will not report to work for Katy and will not enter Katy’s premises.

As consideration for the release of claims described in Paragraph 4 below and the other promises and consideration described herein, Katy will pay Employee $9,615.39 on a bi-weekly basis for six (6) months less deductions for payroll taxes. (This is the equivalent of $125,000.00 or six (6) months of Employee’s regular annual base salary.) Katy shall begin these payments to Employee within 14 days of the date Katy receives this Agreement signed by Employee. Employee acknowledges that these payments as described in this Paragraph 3 constitute special payments which Employee would not be entitled to receive if Employee did not enter into this Agreement with Katy.

Employee agrees to RELEASE, ACQUIT, AND FOREVER DISCHARGE Katy from any and all claims, known or unknown, foreseen or unforeseen, matured or unmatured, developed or undeveloped, discoverable or undiscoverable, which exist as of the effective date of this Agreement including, but not limited to, any and all claims arising out of, involving, or related to Employee’s hire, employment or termination of employment with Katy. It is expressly understood that this Agreement extinguishes any and all claims relating to Employee’s termination of employment specifically including, but not limited to, claims for damages, wages, costs, or attorneys’ fees, whether arising under tort or contract theories, or any federal, state, or local law, including but not limited to any claims pursuant to Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991 and otherwise, 42 U.S.C. § 2000e et   seq .; the Civil Rights Act of 1866, 42 U.S.C. § 1981 as amended by the Civil Rights Act of 1991; the Civil Rights Act of 1870, 42 U.S.C. § 1983; the Age Discrimination in Employment Act, 29 U.S.C. § 621 et   seq .; the Older Workers’ Benefit Protection Act, as amended; the Equal Pay Act, 29 U.S.C. § 206(d) et   seq .; the Americans With Disabilities Act of 1990, 42 U.S.C. § 12101 as amended by the Civil Rights Act of 1991; the Employee Retirement Income Security Act; the Rehabilitation in Employment Act, 29 U.S.C. § 793 et   seq .; Executive Order No. 11246 and/or 11375; any other federal law; any state anti-discrimination law; any other state or local statutory, court-made or administrative laws, regulations, ordinances or executive orders; any alleged contract, whether written or implied between Employee and Katy, or other persons or entities covered by this Agreement; any claims for discrimination based on age, sex, race, national origin, color, religion, disability or any other protected class; and/or any other basis whatsoever, whether or not characterized as violations continuing in nature. Employee agrees Employee will not file a lawsuit against Katy in any state or federal court based on anything that has occurred up to the date of this Agreement. Employee represents and warrants that Employee has not filed any lawsuit or administrative agency charge against Katy. Employee agrees that if a claim or charge is filed against Katy by or on Employee’s behalf, Employee will not accept any judgment or settlement money for any claim