Document:

<PAGE>

                                                                    EXHIBIT 10.2

     THIS EMPLOYMENT AGREEMENT dated as of June 28, 2001 ("Agreement"), is by
and between Katy Industries, Inc., a Delaware corporation ("Katy") and C.
Michael Jacobi ("Executive").

     WHEREAS, Katy desires to employ Executive as President and Chief Executive
Officer and Executive desires to serve in such capacity, upon the terms and
conditions set forth herein; and,

     WHEREAS, to induce Executive to enter into this Agreement and become an
employee of Katy, Katy agrees to grant Executive certain stock options as set
forth herein.

     NOW, THEREFORE, Katy and Executive, in consideration of the mutual
covenants and promises contained herein, do hereby agree as follows:

     1.   Acceptance of Employment.  Subject to the terms and conditions set
          ------------------------
forth below, Katy agrees to employ Executive and Executive accepts such
employment.

     2.   Term.  The period of employment shall be from the date first written
          ----
above until terminated by Katy or Executive.

     3.   Position and Duties.  Executive shall serve as President and Chief
          -------------------
Executive Officer of Katy, Executive's duties will include such duties as are
consistent with such offices and as may be assigned by the Board of Directors of
Katy (the "Board") from time to time.  Executive shall at all times be subject
to the direction and control of the Board.  Executive shall devote his full
business and professional time and attention to the business and affairs of
Katy.

     4.   Compensation and Related Matters.

          (a)  Base Salary.  Executive shall receive a base salary of $500,000
               ------------
per annum payable in accordance with the payroll procedures for Katy's salaried
employees in effect from time to time during the term of this Agreement.
Executive's base salary is subject to annual review by the Compensation
Committee of the Board of Directors.

          (b)  Annual Bonus.  Executive shall an annual bonus based on the
               ------------
performance targets and other provision of Katy's management incentive plan
with a target annual bonus equal to 40% of base salary.

          (c)  Stock Options; Ownership Requirements and Grant of Stock.  Katy
               --------------------------------------------------------
hereby agrees to establish a Katy Industries 2001 CEO Incentive Plan
substantially in the form attached as Exhibit A hereto (the "CEO Plan").
Executive shall be granted options to purchase a total of 1,050,000 shares of
Common Stock of Katy ("Common Stock") under the CEO Plan and Katy's 1997 Long-
Term Incentive Plan at the exercise prices, vesting periods and otherwise upon
the terms and conditions set forth in the Stock Option Agreements between Katy
and Executive (the "Option Agreements").
<PAGE>

          (d)  Benefit Plans. Executive shall be entitled to participate in such
               -------------
medical, dental, life, disability, 401(k), employee stock purchase, and such
other fringe benefit plans as Katy may from time-to-time make available
generally to all salaried employees. Executive shall be entitled to participate
on the same terms and conditions as other employees; however, if there are more
generous plans offered to persons at the level of Vice-President or above,
Executive shall be entitled to participate in the more generous plans.

          (e)  Other Benefits.  Katy will furnish Executive with an automobile.
               --------------
In addition, Katy will pay initiation fees and the ongoing dues associated with
Executive's membership in one country club and one business club, as selected by
Executive.

     5.   Termination of Employment.
          -------------------------

          (a)  Termination other than for Cause.  If Executive is terminated
               --------------------------------
other than for Cause, Katy will pay Executive's base salary for (i) one year, if
such termination occurs other than as a result of a Change in Control, or (ii)
two years, if such termination is a result of or within the six month period
following a Change in Control.

          For purposes of this section:

          "Change in Control" shall mean (i) a sale of 100% of Katy's
          outstanding capital stock, (ii) a sale of all or substantially all of
          Katy's operating subsidiaries or assets or (iii) a transaction or
          transactions in which any third party acquires Katy stock in an amount
          greater than that held by Kohlberg & Co., L.L.C. ("Kohlberg") and in
          which Kohlberg relinquishes control of the Board; and

          "Cause" shall mean (i) Executive's willful and repeated failure to
          comply with the reasonable and lawful directives of the Board; (ii)
          any criminal act or act of dishonesty, disloyalty, negligence,
          misconduct or moral turpitude by Executive that is materially
          injurious to the property, operations, business or reputation of Katy
          or any Subsidiary, or (iii) Executive's material breach of any
          confidentiality or non-compete obligation, with Katy or any
          Subsidiary.  A termination for "Cause" shall be determined by the
          Board.

          (b)  Stock Options.  Upon termination of Executive's employment
               -------------
hereunder, the terms of the CEO Plan and the Option Agreement shall govern the
vesting and exercisability of any stock options outstanding thereunder on the
date of termination.

          (c)  Notice of Termination.  Termination of this Agreement by Katy or
               ---------------------
Executive shall be communicated by written notice to the other party hereto.

          (d)  Company Property.  Upon the termination of Executive's employment
               ----------------
under this Agreement, for any reason, Executive shall deliver to Katy all
automobiles, credit cards, mobile telephones, notebook and other computers and
related peripherals, other electronic equipment, furnishings, all equipment
manufactured by Katy and used by Executive, and other property issued to
Executive in the course of his employment.

                                      -2-
<PAGE>

          (e)  Benefit Plans.  Upon termination of Executive's employment
               -------------
hereunder for any reason, the terms of the Katy group fringe benefit plans shall
govern Executive's rights thereunder following termination.

     6.   Beneficiary.  The beneficiary of any payment to be made in the event
          -----------
of Executive's death shall be his wife, or such other person or persons as
Executive shall designate in writing to Katy. If no beneficiary shall survive
Executive, any such payments shall be made to his estate.

     7.   No Waiver.  The failure of either party at any time to enforce any
          ---------
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided herein, or to require the performance by the other party of
any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.  No waiver or
modification of this Agreement shall be valid unless in writing and duly
executed by both parties.

     8.   Governing Law.  This Agreement is governed by and shall be construed
          -------------
in accordance with the laws of the State of Delaware.

     9.   Severability.  The invalidity or unenforceability of any provision or
          ------------
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.

     10.  Successors.  This Agreement shall be binding upon Katy, its successors
          ----------
and assigns, and shall be assignable without Executive's consent to any
corporation or other business entity which may acquire all or substantially all
of Katy's assets or business, or within which Katy may be consolidated or
merged, or any surviving corporation in a merger involving Katy.

     11.  Counterparts.  This Agreement may be executed in one or more
          ------------
counterparts, each of which together will constitute one and the same
instrument.

     12.  Miscellaneous.  Executive agrees to execute and deliver such non-
          -------------
compete, confidentiality and non-disclosure, proprietary rights and similar
agreement as Katy may generally request of its employees from time to time.

     13.  Nondisparagement.
          ----------------

          (a)  Neither Executive nor any member of his immediate family will
directly or indirectly (x) disparage any of Katy, its subsidiaries, affiliates,
employees, officers or directors or (y) take any action, other than a
termination of the Agreement as provided for herein, which  is intended to have
a harmful effect on the business or reputation of any of them.

     Katy agrees neither it nor its subsidiaries, affiliates, employees,
officers, directors or successors, will directly or indirectly (x) disparage
Executive; or (xi) take any action, other than a termination of the Agreement as
provided for herein, which is intended to have a harmful effect on the business
or reputation of Executive.

                                      -3-
<PAGE>

          (b)  The provisions of this Section 13 shall survive termination of
this Agreement.

     14.  Noncontravention.  Executive represents and warrants to Katy that he
          ----------------
is not subject to any obligation of a contractual or other nature which is
inconsistent with, or conflicts with the terms of, this Agreement, or would
limit or impair in any way the performance by him of his obligations hereunder.

     15.  Headings.  The headings of Sections herein are included solely for
          --------
convenience of reference and shall not affect the meaning or interpretation of
any of the provisions of this Agreement.

     16.  Notices.  Any notice required to be given or delivered to Katy under
          -------
the terms of this Agreement will be in writing and addressed to Katy in care of
its Secretary at 6300 S. Syracuse Way, Suite 300, Englewood, Colorado  80111-
6723.  Any notice required to be given or delivered to Executive will be in
writing and addressed to Executive at the address indicated below Executive's
signature line on this Agreement, or such other address which either party shall
provide to the other from time to time in a manner in accordance with the
procedures described in this Section.  All notices will be deemed to have been
given or delivered upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified.

                                      -4-
<PAGE>

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

                                 KATY INDUSTRIES, INC.

                                 By: /s/ William F. Andrews
                                     ----------------------
                                    Chairman of the Board

                                 EXECUTIVE

                                 /s/ C. Michael Jacobi
                                 ---------------------
                                 C. Michael Jacobi
                                 Address: 358 Tranquility Road
                                 Middlebury, Connecticut 06762-0911

                                      -5-<PAGE>

                                                                    EXHIBIT 10.3

   -------------------------------------------------------------------------
                             KATY INDUSTRIES, INC.
                      2001 Chief Executive Officer's Plan
   -------------------------------------------------------------------------

                                   ARTICLE I

                                  DEFINITIONS

     Terms used herein and not otherwise defined shall have the meaning set
forth in the Agreement.

     1.1  "Administrator" means the Committee.

     1.2  "Affiliate" means any subsidiary or parent corporation (within the
meaning of Section 424 of the Code) of the Company.

     1.3  "Agreement" means a written agreement (including any amendment or
supplement thereto) between the Company and the Participant specifying the terms
and conditions of an Option granted to such Participant.

     1.4  "Board" means the Board of Directors of the Company.

     1.5  "Cause" means (i) Participant's willful and repeated failure to comply
with the reasonable and lawful directives of the Board that is not cured within
ten (10) days of notice of such failure being provided by the Company; (ii) any
criminal act or act of dishonesty, disloyalty, negligence, misconduct or moral
turpitude by Participant that is materially injurious to the property,
operations, business or reputation of the Company or any Subsidiary, or (iii)
Participant's material breach of any confidentiality or non-compete obligation,
with the Company or any Subsidiary.  A termination for "Cause" shall be
determined by the Board.

     1.6  "Change in Control" of the Company means, and shall be deemed to have
occurred upon, any of the following events:

     (a) a sale of 100% of the Company's outstanding capital stock;

     (b) a sale of all or substantially all of the Company's operating
         subsidiaries or assets; or

     (c) a transaction or transactions in which any third party acquires stock
         of the Company in an amount greater than that held by Kohlberg & Co.,
         L.L.C. ("Kohlberg") and in which Kohlberg relinquishes control of the
         Board;

     1.7  "Code" means the Internal Revenue Code of 1986, and any amendments
thereto.

     1.8  "Committee" means the Compensation Committee of the Board.

     1.9  "Common Stock" means the common stock of the Company.
<PAGE>

     1.10  "Company" means Katy Industries, Inc.

     1.11  "Employment Agreement" means the Employment Agreement between the
Company and the Participant dated as of June 28, 2001.

     1.12  "Option" means a stock option that entitles the holder to purchase
from the Company a stated number of shares of Common Stock at the price set
forth in an Agreement.

     1.13  "Participant" means C. Michael Jacobi.

     1.14  "Plan" means the Katy Industries, Inc. 2001 Chief Executive Officer's
Plan.

     1.15  "Termination Event" shall have the meaning set forth in Article VII.
                                                                   -----------

                                  ARTICLE II
                                   PURPOSES

     The Plan is intended to induce the Participant to become an employee of the
Company by enabling the Participant to participate in the future success of the
Company and its Affiliates and to associate his interests with those of the
Company and its shareholders. The proceeds received by the Company from the sale
of Common Stock pursuant to this Plan shall be used for general corporate
purposes.

                                  ARTICLE III
                                ADMINISTRATION

     The Plan shall be administered by the Administrator. Notwithstanding any
such conditions, the Administrator may, in its discretion, accelerate the time
at which any Option  may be exercised. In addition, the Administrator shall have
complete authority to interpret all provisions of this Plan; to prescribe the
form of Agreements; to adopt, amend, and rescind rules and regulations
pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of this Plan. The
express grant in the Plan of any specific power to the Administrator shall not
be construed as limiting any power or authority of the Administrator. Any
decision made, or action taken, by the Administrator or in connection with the
administration of this Plan shall be final and conclusive.  Neither the
Administrator nor any member of the Committee shall be liable for any act done
in good faith with respect to this Plan or any Option or Stock Award. All
expenses of administering this Plan shall be borne by the Company.

                                  ARTICLE IV
                             STOCK SUBJECT TO PLAN

     4.1   Shares Issued.  Upon the award of shares of Common Stock pursuant to
           -------------
a Stock Award, the Company may issue shares of Common Stock from its authorized
but unissued Common Stock. Upon the exercise of any Option the Company may
deliver to the Participant (or the Participant's broker if the Participant so
directs), shares of Common Stock from its authorized but unissued Common Stock.

                                       2
<PAGE>

     4.2   Aggregate Limit.  The maximum aggregate number of shares of Common
           ---------------
Stock that may be issued under this Plan pursuant to the exercise of Options is
978,572 shares. The maximum aggregate number of shares that may be issued under
this Plan shall be subject to adjustment as provided in Article VI.
                                                        ----------

                                   ARTICLE V
                                    OPTIONS

     5.1   Award.  The Administrator will specify the number of shares of
           -----
Common Stock to be covered by an award of an Option.  The Administrator shall
also determine the vesting schedule for such Options, which may be based on
performance measures deemed appropriate by the Administrator.

     5.2   Option Price.  The price per share for Common Stock purchased on the
           ------------
exercise of an Option shall be determined by the Administrator on the date of
grant.

     5.3   Payment.  Unless otherwise provided by the Agreement, payment of the
           -------
Option price shall be made in cash or a cash equivalent acceptable to the
Administrator. If the Agreement provides, payment of all or part of the Option
price may be made by surrendering shares of Common Stock to the Company that the
Participant has held for at lease six months. If Common Stock is used to pay all
or part of the Option price, the sum of the cash and cash equivalent and the
fair market value (determined as of the day preceding the date of exercise) of
the shares surrendered must not be less than the Option price of the shares for
which the Option is being exercised.

                                  ARTICLE VI
                    ADJUSTMENT UPON CHANGE IN COMMON STOCK

     The maximum number of shares as to which Options may be granted under this
Plan, the terms of outstanding Options, and the per individual limitations on
the number of shares or for which Options may be granted, shall be adjusted as
the Committee shall determine to be equitably required in the event that (a) the
Company (i) effects one or more stock dividends, stock split-ups, subdivisions
or consolidations of shares or (ii) engages in a transaction to which Section
424 of the Code applies or (b) there occurs any other event which, in the
judgment of the Committee necessitates such action. Any determination made under
this Article VI by the Committee shall be final and conclusive.
     ----------

                                  ARTICLE VII
                          EFFECT OF CHANGE OF CONTROL

     In the event of a Change in Control, unless otherwise specifically
prohibited by applicable laws, or by the rules and regulations of any governing
agency or national securities exchange, any outstanding Options shall become
immediately exercisable, and shall remain exercisable throughout their entire
term.  The Common Stock issuable upon exercise of the

                                       3
<PAGE>

Option shall be subject to adjustment in accordance with Article VI hereof in
                                                         ----------
the event of any changes affecting the Common Stock as a result of such Change
in Control.

     Notwithstanding anything to the contrary set forth in the Agreement, the
provisions of this Article VII shall not apply to the Participant if, prior to
                   -----------
the date on which a Change in Control takes place (i) the Option ceases to vest
for any reason, or (ii) the Participant ceases to serve in his current position
with the Company.  Otherwise, the provisions of this Article VII shall apply to
                                                     -----------
Participant.

                                 ARTICLE VIII
                                   AMENDMENT

     The Board may amend or terminate this Plan from time to time; provided,
however, that no amendment may become effective until shareholder approval is
obtained if (i) the amendment increases the aggregate number of shares of Common
Stock that may be issued under the Plan, (ii) the amendment changes the class of
individuals eligible to become Participants or (iii) the amendment materially
increases the benefits that may be provided under the Plan. No amendment shall,
without the Participant's consent, adversely affect any rights of such
Participant under any Option outstanding at the time such amendment is made.

                                  ARTICLE IX
                              GENERAL PROVISIONS

     9.1  Employment.  Nothing in the Plan shall interfere with or limit in any
          ----------
way the right of the Company to terminate Participant's employment at any time,
nor confer upon Participant any right to continue in the employ of the Company.

          For purposes of this Plan, a transfer of Participant's employment
between the Company and a Subsidiary, or between Subsidiaries, shall not be
deemed to be a termination of employment. Upon such a transfer, the Committee
may make such adjustments to outstanding Awards as it deems appropriate to
reflect the changed reporting relationships.

     9.2  Tax Withholding.  The Company shall have the power and the right to
          ---------------
deduct or withhold, or require Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.

     9.3  Share Withholding.  With respect to withholding required upon the
          -----------------
exercise of Options or upon any other taxable event arising as a result of
Awards granted hereunder, Participant may elect, subject to the approval of the
Committee, to satisfy the withholding requirement, in whole or in part, by
having the Company withhold Shares having a Fair Market Value on the date the
tax is to be determined equal to the minimum statutory total tax which could be
imposed on the transaction.  All such elections shall be irrevocable, made in
writing, signed by the Participant, and shall be subject to any restrictions or
limitations that the Committee, in its sole discretion, deems appropriate.

                                       4
<PAGE>

     9.5  Severability.  In the event any provision of the Plan shall be held
          ------------
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.

     9.6  Securities Law and Tax Law Compliance.  With respect to insiders,
          -------------------------------------
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act and Code Section
162(m).  To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee.

     9.7  Governing Law.  To the extent not pre-empted by Federal law, the Plan,
          -------------
and all agreements hereunder, shall be construed in accordance and governed by
the laws of the State of Delaware.

                                       5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00028-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00028-of-00352.parquet"}]]