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Exhibit 10.8

 
K A T Y   I N D U S T R I E S,   I N C.

305 Rock Industrial Park Drive
Bridgeton, MO  63044
Telephone: (314) 739-8585
Facsimile: (314) 656-4398

January 18, 2011

Mr. James W. Shaffer
319 Berry Bush Ct.
Ballwin, Missouri 63011

Dear Jim:

The purpose of this letter agreement is to amend your offer letter dated October
27, 2008 (your “Offer Letter”) with Katy Industries, Inc. (the
“Company”).  Subject to your agreement below, the terms of your Offer Letter are
amended as follows:

Severance.  Any severance that becomes payable to you under the terms of your
Offer Letter shall be payable in equal installments in accordance with the
Company’s normal payroll practices (no less frequently than monthly), beginning
on the first regular payroll date occurring after the termination of your
employment and continuing each payroll date thereafter until paid in full,
except as otherwise set forth below.

Additional Gross-Up. In the event that it is determined that any payment or
benefit (or the acceleration of any payment or benefit) provided by the Company
to or for your benefit under your Offer Letter or otherwise will be subject to
the excise tax imposed by Section 4999 of the Code or any successor provision,
the Company will, prior to the date on which any amount of such excise tax must
be paid or withheld, make to you an additional lump-sum payment (the “4999
Gross-Up Payment”).  The 4999 Gross-Up Payment will be sufficient such that,
after giving effect to all federal, excise, state and other taxes and charges
(including interest and penalties, if any) imposed upon the 4999 Gross-Up
Payment itself, you will be made whole for all taxes (including withholding
taxes) and any associated interest and penalties, imposed under or as a result
of Section 4999 of the Code on payments or benefits provided by the Company to
you or for your benefit; for the avoidance of doubt, the 4999 Gross-Up Payment
shall be in an amount sufficient to make you whole for all taxes imposed
pursuant to Section 4999 of the Code (including any interest or penalties
imposed with respect to such taxes, but excluding any taxes, interest and
penalties imposed pursuant to Section 409A of the Code), including income and
excise taxes imposed on the 4999 Gross-Up Payment itself.

All determinations relating to the 4999 Gross-Up Payment under this letter
agreement will be made by the Company’s tax accountants as of the effective time
of the change in control with respect to which the 4999 Gross-Up Payment
relates.  If the Internal Revenue Service asserts a claim that, if successful,
would require the Company to make a gross-up payment, or an additional gross-up
payment, you and the Company will cooperate fully in resolving the controversy
with the Internal Revenue Service.

 
 

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In the event that the 4999 Gross-Up Payment becomes payable to you, the Company
will provide you with such payment prior to the time which any amount of the
excise tax pursuant to Section 4999 of the Code (and related interest and
penalties) must be paid or withheld (and in no event later than the end of the
calendar year following the calendar year in which the underlying excise tax
pursuant to Section 4999 of the Code (and related interest and penalties) must
be paid or withheld).

Section 409A of the Code.  The intent of the Company is that payments and
benefits under your Offer Letter either comply with, or qualify for an exemption
from, Section 409A of the Code and the applicable guidance issued
thereunder.  Accordingly, all provisions of your Offer Letter shall be construed
in a manner consistent with the requirements for avoiding additional taxes or
penalties under Section 409A of the Code.

Your annual salary, as described in your Offer Letter, shall be payable in
accordance with the Company’s normal payroll practices (no less frequently than
monthly).  Any benefits to which you are entitled will be paid or provided
pursuant to the terms of the applicable benefit plan.  Any reimbursements to
which you may be entitled shall be provided as soon as administratively
practicable, but no later than December 31 of the year following the year in
which the expense is incurred and shall be provided in compliance with Section
409A of the Code or an exemption therefrom.  Further, any such reimbursement
that would constitute nonqualified deferred compensation subject to Section 409A
of the Code shall be subject to the following additional rules: (i) no
reimbursement of any such expenses shall affect your right to reimbursement of
any such expenses in any other taxable year; and (ii) the right to reimbursement
shall not be subject to liquidation or exchange for any other benefit.

For purposes of Section 409A of the Code, all references in your Offer Letter to
termination of employment or similar terms, when used in a context that bears
upon the payment or timing of payment of any amounts or benefits that constitute
nonqualified deferred compensation subject to Section 409A of the Code, shall be
construed to require a “separation from service” within the meaning of Section
409A of the Code.

For purposes of your Offer Letter, “separation from service” shall mean a
separation from service (as that term is defined in Section 1.409A-1(h) of the
Treasury Regulations) from the Company and from all other corporations and
trades or businesses, if any, that would be treated as a single “service
recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury
Regulations.  The Company may, but need not, elect in writing, subject to the
applicable limitations under Section 409A of the Code, any of the special
elective rules prescribed in Section 1.409A-1(h) of the Treasury Regulations for
purposes of determining whether a separation from service has occurred.  Any
such written election shall be deemed part of your Offer Letter.

For purposes of your Offer Letter, if you are deemed on the date of your
separation from service with the Company to be a “specified employee,” within
the meaning of that term under Section 409A(a)(2)(B) of the Code and using the
identification methodology selected by the Company from time to time, or if
none, the

 
 

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default methodology under Section 409A of the Code, then with regard to any
payment or benefit that is required to be delayed in compliance with Section
409A(a)(2)(B) of the Code, such payment or benefit shall not be made or provided
prior to the earlier of (i) the expiration of the six-month period measured from
the date of your separation from service or (ii) the date of the your death.  On
the first day of the seventh month following the date of your separation from
service or, if earlier, on the date of your death, all payments delayed pursuant
to this paragraph (whether they would have otherwise been payable in a single
sum or in installments in the absence of such delay) shall be paid or reimbursed
to you in a lump sum (without interest), and any remaining payments due under
your Offer Letter shall be paid or provided in accordance with the normal
payment dates specified for them.  If any benefits are required to be delayed
pursuant to this paragraph, such benefits may be provided at your cost, and the
Company shall reimburse you for such costs on the first day of the seventh month
following the date of your separation from service or, if earlier, the date of
your death.

Each payment made under the Offer Letter shall be treated as a separate payment
and the right to a series of installment payments is to be treated as a right to
a series of separate payments.  To the extent that some portion of the payments
under your Offer Letter may be bifurcated and treated as exempt from Section
409A of the Code under the “short-term deferral” or “separation pay” exemptions,
then such amounts may be so treated as exempt from Section 409A of the
Code.  The severance payable to you under your Offer Letter may (i) qualify as
exempt under the “short-term deferral” exemption to the extent paid within two
and one-half (2½) months after the end of the year in which you separate from
service or (ii) qualify as exempt under the “separation pay” exemption to the
extent such severance (A) will be paid solely upon your involuntary separation
from service (as defined in Section 1.409A-1(n) of the Treasury Regulations),
(B) will not exceed two times the lesser of your annualized compensation (based
upon your annual rate of pay for services provided for the taxable year
preceding the taxable year in which you have a separation from service and
subject to increases that were expected to continue indefinitely if you had not
separated from service) or the maximum amount that may be taken into account
under a qualified plan pursuant to Section 401(a)(17) of the Code for the year
in which you separate from service (which for 2011 is $245,000) and (C) will be
paid in all events within two (2) years following the end of the year in which
you separate from service.  To the extent the “separation pay” exemption
applies, the amounts covered by the exemption shall be the amounts paid earliest
in time to you that would be subject to Section 409A of the Code but for some
applicable exemption.

Neither the Company nor you shall take any action to accelerate or delay the
payment of any monies and/or provision of any benefits in any matter which would
not be in compliance with Section 409A of the Code to the extent Section 409A of
the Code applies to such payment or benefit.

Notwithstanding any of the provisions of your Offer Letter, the Company shall
not be liable to you if any payment or benefit which is to be provided pursuant
to your Offer Letter and which is considered deferred compensation subject to
Section 409A of the Code otherwise fails to comply with, or be exempt from, the
requirements of Section 409A of the Code.
 
 
 

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If you are in agreement with the terms of this letter agreement, please execute
it in the space provided below and return one copy to me, retaining a copy for
your files.  If you have any questions or comments, please do not hesitate to
contact me.

Sincerely,

David J. Feldman
President & CEO

Agreed and accepted;

/s/ James W. Shaffer                                3-28-11
James W. Shaffer                                                          Date
 
 
 

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