What changed in this filing

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Item 1. Business

2022-02-24 compared with 2021-02-26 · 64 added, 49 removed, 121 unchanged (48% of the section changed)

11 unchanged sentences

Some competitors have greater financial and personnel resources, handle more extensive lines of merchandise, operate larger facilities and price some merchandise more competitively than we do.

We operate in two reportable segments, the Lawson operating segment and the Bolt operating segment.

We operate in two reportable segments:

the Lawson operating segment and the Bolt operating segment.

Lawson Segment

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Many factors affect the efficiency of this process including the physical design of the distribution centers, the extent of automation, routing logistics, the number of times the product needs to be handled, transportation costs and the flexibility to meet the specific requirements of our customers.

On August 31, 2020, the Company acquired Partsmaster from NCH Corporation.

Partsmaster is a leading maintenance, MRO solutions provider that serves approximately 16,000 customers and approximately 200 sales representatives.

The acquisition was made primarily to expand the Company's sales coverage, expand product lines, add experienced sales representatives, and leverage the Company's infrastructure.

The Bolt operating segment primarily delivers products to its customers through 14 branches located in Alberta, Saskatchewan, Manitoba, and British Columbia, Canada.

6 unchanged sentences

Bolt product offerings are listed on the Bolt website and are available in each of the branch locations.

During 2020, the Lawson segment sold products to over 84,000 identified customers and the Bolt segment sold products to approximately 12,000 identified customers in addition to the walk up customers at i ts 14 branch locations.

Our largest customer accounted for approximately three percent of net sales.

In 2020, approximately 81% of our net sales were generated in the United States and approximately 19% in Canada.

The percentage of sales in Canada slightly decreased in 2020 compared to 2019 primarily due to the inclusion of Partsmaster sales, the majority of which occurred in the US.

Proposed Combination with TestEquity and Gexpro Services

On December 29, 2021, Lawson entered into:

• an Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (1) LKCM TE Investors, LLC (the “TestEquity Equityholder”), (2) TestEquity Acquisition, LLC, an indirect wholly-owned subsidiary of the TestEquity Equityholder (“TestEquity”), (3) Lawson and (4) Tide Sub, LLC, a wholly-owned subsidiary of Lawson (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which Merger Sub 1 will merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of Lawson (the “TestEquity Merger”);

• an Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (1) 301 HW Opus Investors, LLC, (the “Gexpro Services Stockholder”), (2) 301 HW Opus Holdings, Inc., a wholly-owned subsidiary of the Gexpro Services Stockholder (“Gexpro Services”), (3) Lawson and (4) Gulf Sub, Inc., a wholly-owned subsidiary of Lawson (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which Merger Sub 2 will merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of Lawson (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).

TestEquity is a distributor of parts and services to the industrial, commercial, institutional and governmental electronics manufacturing and test and measurement market.

TestEquity operates through three brands, TestEquity, Jensen Tools and Techni-Tool.

Gexpro Services is a provider of supply chain solutions, specializing in developing and implementing Vendor Managed Inventory (VMI) and kitting programs to high-specification manufacturing customers.

Gexpro Services provides critical products and services to customers throughout the lifecycle of highly technical Original Equipment Manufacturer (OEM) products.

The combination of Lawson, TestEquity and Gexpro Services (the “Combined Company”) is intended to bring together three complementary distribution businesses under a holding company structure.

We believe that the Mergers and related transactions will advance our strategic objectives of expanding our offerings and services into the large, fragmented distribution industry and thereby enhance our financial performance, including through revenue and earnings growth driven by acquisition opportunities, organic revenue growth opportunities and cost synergies expected to be available to the Combined Company following the Mergers.

We expect that the holding company structure will enable each of Lawson, TestEquity and Gexpro Services to maintain their respective high-touch, value-added service delivery models and customer relationships in their specialty distribution businesses under the leadership of their separate business unit management teams, with oversight from our leadership team.

At the same time, we expect that the Mergers and the holding structure will enable us to leverage best practices, back-office resources and technologies across the three companies to help drive cost synergies and efficiencies and that the Combined Company will have the ability to utilize its combined financial resources to accelerate a strategy of expansion through both business acquisitions and organic growth across the new platform.

Pursuant to the Merger Agreements, Lawson has agreed to issue up to an aggregate of 12,000,000 shares of Lawson common stock in consideration for the Mergers as follows:

• TestEquity Merger:

In connection with the TestEquity Merger, 3,300,000 shares of Lawson common stock would be issued to the TestEquity Equityholder upon the closing of the TestEquity Merger, and up to an additional 700,000 shares of Lawson common stock would potentially be issuable to the TestEquity Equityholder on or after the closing date of the TestEquity Merger upon satisfaction of the conditions of, and in accordance with, two earnout mechanisms.

• Gexpro Services Merger:

In connection with the Gexpro Services Merger, 7,000,000 shares of Lawson common stock would be issued to the Gexpro Services Stockholder upon the closing of the Gexpro Services Merger, and up to an additional 1,000,000 shares of Lawson common stock would potentially be issuable to the Gexpro Services Stockholder on or after the closing date of the Gexpro Services Merger upon satisfaction of the conditions of, and in accordance with, two earnout mechanisms.

The Mergers, if completed, will be consummated substantially concurrently.

We refer to the transactions contemplated by the Merger Agreements, including the Mergers and the share issuances, as the “Transactions.”

Entities affiliated with Luther King Capital Management Corporation (“LKCM”) and J.

Bryan King, including private investment partnerships for which LKCM serves as investment manager, beneficially own a majority of the ownership interests in the TestEquity Equityholder (which will be entitled to receive all of the shares of Lawson common stock issued by Lawson as consideration in the TestEquity Merger) and the Gexpro Services Stockholder (which will be entitled to receive all of the shares of Lawson common stock issued by Lawson as consideration in the Gexpro Services Merger).

The consummation of the Mergers is subject to certain closing conditions, including, among others, (1) receipt of the requisite Lawson stockholder approvals under the Merger Agreements and (2) receipt of proceeds of debt financing in an amount sufficient for the payment of certain payoff indebtedness, transaction expenses and other fees and expenses in connection with the Mergers.

On February 22, 2022, the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired with respect to the Mergers.

The Merger Agreements contain certain termination rights for the parties, including, among other rights, termination rights if the Mergers are not completed on or before September 30, 2022 (subject to certain limitations) or any of the requisite Lawson stockholder approvals are not obtained at a duly convened stockholders meeting.

If the TestEquity Merger Agreement is terminated under certain circumstances, Lawson will be obligated to pay TestEquity a termination fee of $4,000,000, and if the Gexpro Services Merger Agreement is terminated under certain circumstances, Lawson will be obligated to pay Gexpro Services a termination fee of $6,000,000.

Lawson expects to complete the Mergers in the second quarter of 2022.

Debt Financing Commitment Letter

In contemplation of the Mergers, on February 7, 2022 Lawson entered into an amended and restated commitment letter (the “Debt Financing Commitment Letter”) with JPMorgan Chase Bank, N.A.

(the “Initial Arranger”).

Through the Debt Financing Commitment Letter, Lawson has requested that the Initial Arranger agree to arrange and syndicate senior secured credit facilities in an aggregate principal amount of up to $500 million for Lawson and certain of its affiliates, consisting of a revolving credit facility in an initial aggregate principal amount of $200 million, an initial term loan facility in an initial aggregate principal amount of $250 million and a delayed draw term loan facility in an aggregate principal amount of $50 million.

Pursuant to the Debt Financing Commitment Letter, the Initial Arranger agreed to (1) provide up to $125 million of the facilities and (2) use commercially reasonable efforts to assemble a syndicate of financial institutions identified by the Initial Arranger and agreed to by Lawson to provide the balance of the necessary commitments for the facilities, in each case upon the terms and subject to the conditions set forth in the Debt Financing Commitment Letter.

Lawson would intend to use the proceeds of the initial term loan facility and the revolving facility, if executed, to refinance Lawson’s existing credit agreement and certain existing indebtedness of TestEquity and Gexpro Services in connection with the closing of the Mergers, finance the working capital needs and general corporate purposes of Lawson and its subsidiaries (including TestEquity and Gexpro Services) after the Mergers and pay certain fees and expenses.

Lawson would intend to use the proceeds of the delayed draw term loan facility, if executed, to finance certain potential acquisitions by TestEquity and/or Gexpro Services, if completed, and pay certain fees and expenses.

The commitments of the Initial Arranger are subject to (1) the condition that the portion of the facilities not being provided by the Initial Arranger (which remaining portion is $375 million) shall be provided by other lenders identified by the Initial Arranger in consultation with Lawson and reasonably acceptable to Lawson and (2) various other conditions.

The Transactions subject us to a number of risks that are more fully discussed in Item 1A.

Risk Factors, "Risk Factors Relating to the Merger Transactions” and “Risk Factors Relating to the Debt Financing Expected to be Incurred in Connection with the Merger” below.

During 2021, the Lawson segment sold products to over 69,000 distinct customers and the Bolt segment sold products to approximately 12,000 distinct customers in addition to the walk up customers at i ts 14 branch locations.

Our largest customer accounted for approximately three percent of consolidated net sales.

In 2021, approximately 81% of our consolidated net sales were generated in the United States and approximately 19% in Canada.

Our customers operate in a variety of industries including automotive repair, commercial vehicle maintenance, government, manufacturing, food processing, distribution, construction, oil and gas, mining, wholesale, service and others.

13 unchanged sentences

The Lawson segment offers over 192,000 different products for sale of which over 135,000 products are maintained in our distribution centers.

The Partsmaster acquisition contributed approximately 201,000 different products for sale including items not stored in their distribution center.

We strive to carry sufficient inventory to ensure product availability and rapid processing of customer orders.

1 unchanged sentence

Inventory levels need to be sufficient to meet customer demand while avoiding the costs of stocking excess items.

During 2020, our Lawson segment purchased products from approximately 3,100 suppliers and no single supplier accounted for more than four percent of our purchases.

During 2021, our Lawson segment purchased products from approximately 3,000 suppliers and no single supplier accounted for more than three percent of our purchases.

The loss of one of our core suppliers could affect our operations by hindering our ability to provide full service to our customers.

1 unchanged sentence

We recommend solutions to help customers maximize product performance and avoid costly product failures.

Our engineering

department provides technical support for our products and offers on-site problem solutions.

Our engineering department provides technical support for our products and offers on-site problem solutions.

It also develops and presents product safety and technical training seminars tailored to meet our customers' needs.

6 unchanged sentences

We require our employees to act with integrity in every aspect of our business while encouraging them to be results driven, team oriented and progressive.

On December 31, 2020, our combined workforce included approximately 1,910 individuals, comprised of approximately 1,300 in sales and marketing, approximately 470 in operation and distribution and approximately 140 in management and administration.

As of December 31, 2021, our combined workforce included approximately 1,840 individuals, comprised of approximately 1,230 in sales and marketing, approximately 480 in operation and distribution and approximately 130 in management and administration.

Approximately 1,680 of the 1,840 individuals are within the Lawson segment and the remaining are within Bolt.

Approximately 8% of the workforce is covered by three collective bargaining agreements.

Approximately 9% of the workforce is covered by two collective bargaining agreements.

We believe that our relations with our employees and their collective bargaining organizations are good.

22 unchanged sentences

The Company regularly reviews the performance of sales representatives and determines how to manage underperforming sales representatives and territories.

In August 2020, we acquired Partsmaster, a leading MRO distributor from NCH Corporation ("NCH").

At the time of acquisition Partsmaster had approximately 200 sales representatives throughout the United States and Canada.

Partsmaster is an example of the acquisition strategy pursued by Lawson in recent years.

Our acquisition strategy targets companies who are a good cultural fit and include organizations whose sales representatives will improve our sales coverage in underserved territories and allow us to generate additional sales by leveraging their existing customer relationships.

The majority of Bolt sales are made from its 14 bran ch locations.

The majority of Bolt sales are made from its 14 branch locations.

Bolt has approximately 24 sales territory managers who serve companies and professional tradespeople throughout Western Canada.

1 unchanged sentence

All newly-hired sales team members are required to receive and maintain the same certification.

COVID-19 Impact on Human Capital

The Company’s response to the COVID-19 pandemic is evidence that the Company can take the necessary steps to ensure the safety of our employees and still fulfill the needs of its customers and other stakeholders.

The unique circumstances of the COVID-19 pandemic negatively impacted the ability of Lawson MRO sales reps and the Bolt branch locations to fulfill their duties during 2020.

The second quarter 2020 performance of the Company was negatively impacted as state and local governments throughout the United States and Canada imposed strict COVID-19 related restrictions, including shutdowns of nonessential businesses and stay-at-home orders.

The Lawson MRO business model relies upon customer interaction as well as a consistent schedule of onsite visits by our sales representatives to customer locations.

The Bolt business model relies on foot traffic in its branch locations.

The onset of the COVID-19 pandemic, as well as social distancing guidelines and government mandated shelter in place orders, have negatively impacted the ability of our sales reps to visit our customers and for foot traffic to return to our Bolt branch locations, resulting in an overall negative impact on our business.

A large portion of Lawson corporate employees began to work remotely at the onset of the pandemic in March 2020 to limit exposure to the virus.

Many of these employees continue to work from home.

In response to the onset of the COVID-19 pandemic, sales representatives contacted customers via phone, e-mail and other electronic means, who were deemed essential businesses and therefore allowed to remain open during this time.

As COVID-19 related restrictions were relaxed, Lawson MRO sales representatives began to safely visit customers and call on new customers, while following social distancing guidelines and limiting potential exposure to the virus.

In addition, Bolt branch locations began to offer curbside pickup in the second quarter of 2020 and continue to do so.

As COVID-19 restrictions were relaxed, the Company was able to operate in a more stable environment.

Lawson MRO sales representatives have continued to safely visit customer locations, develop strong relationships and provide excellent service to existing customers, and generate new customer relationships while following COVID-19 related restrictions and social distancing guidelines.

Bolt branch locations continue to safely operate while following social distancing guidelines and allowing customers into stores.

In response to the ongoing COVID-19 pandemic, the Company continues to have the majority of its corporate workforce work remotely and the Company monitors local, state and federal COVID-19 requirements so that its business operations and sales representative activities operate in accordance with these rules.

The Company will continue to navigate through the COVID-19 pandemic with a focus on the safety of its team members.

Strategic Focus

In 2021, we intend to grow our sales organically, pursue acquisitions and further improve our operations to make Lawson our customers' first choice for products, services and solutions that improve their operating performance.

In 2022, we intend to grow our sales organically, pursue acquisitions and further improve our operations to make Lawson our customers' first choice for MRO products, VMI services and solutions that improve their operating performance.

Our sales are impacted by the size of our sales team, their productivity and their territorial coverage.

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We use both internal and external resources to identify and recruit the best available sales talent.

As we increase our sales coverage, we anticipate a short-term decrease in average sales per day per sales representative, as new representatives build up customer relationships in their territories.

As we increase our sales coverage, we anticipate a short-term decrease in average sales per day per sales representative, as new representatives build customer relationships in their territories.

However, we believe that these short-term investments will result in future opportunities as we leverage the positive impact of top-line growth against our operating costs which are fixed to a significant extent.

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In order to improve our operations, we utilize a Lean Six Sigma approach, which is a set of tools that allow a project team to analyze and improve selected business processes.

The project teams work with the process owners to develop statistical measures to evaluate the effectiveness of the process, document the current components and process flow, examine the root cause of defects and effect of current operations, design and implement new ways to improve performance and then measure the results for effectiveness.

The Lean Six Sigma process is ingrained in our culture as we have had over 100 employees complete Lean Six Sigma training over the past five years and plan to continue this training program in the years to come.

The project teams work with the process owners to develop statistical measures to evaluate the effectiveness of the process, document the current components and process flow, examine the root cause of defects and effect on current operations, design and implement new ways to improve performance and then measure the results for effectiveness.

The Lean Six Sigma process is ingrained in our culture as we have had over 120 employees complete Lean Six Sigma training over the past six years and plan to continue this training program in the years to come.

We believe our emphasis on continuous improvement will lead to further reductions in error rates, increased processing speed, reduction in cycle times, standardization of procedures and elimination of waste.

This will enable us to become a more efficient and effective organization which provides our customers with the best purchasing experience possible.

The acquisition of Partsmaster represents an important step in our acquisition strategy.

Partsmaster is a strong strategic fit with a successful VMI business model and product offerings complementary to the Company.

The addition of the Partsmaster sales force has increased our coverage throughout the United States and Canada and will offer potential for combined company sales, and continue to leverage the existing customer relationships in order to grow our business.

Available Information

8 unchanged sentences

DeCata 64 2012 President and Chief Executive Officer

Jenkins 71 2004 Executive Vice President, Secretary and General Counsel

Knutson 57 2014 Executive Vice President, Chief Financial Officer, Treasurer and Controller

Knutson 58 2014 Executive Vice President, Chief Financial Officer, and Treasurer

Brown 58 2017 Senior Vice President, Sales

McCarthy 52 2019 Senior Vice President, Supply Chain, Product Management and Marketing

Pufpaf 49 2021 Senior Vice President, Corporate Secretary, General Counsel and Chief Compliance Officer

Lambert 48 2021 Vice President, Controller and Chief Accounting Officer

Biographical information for the past five years relating to each of our executive officers is set forth below.

2 unchanged sentences

DeCata previously served on the Board of Directors of Crescent Electric Supply Company from 2008 to 2013.

Jenkins was elected Executive Vice President, Secretary and General Counsel in 2004.

Knutson was elected Executive Vice President, Chief Financial Officer, Treasurer and Controller in April 2014 and has served as Executive Vice President, Chief Financial Officer since July 2012.

Brown was elected Senior Vice President, Sales in March 2017 and served as Vice President of Field Sales since January 2016.

Brown held several levels of sales leadership roles for the Company over the last 19 years with the most recent title of Senior Director of Sales from 2014 to 2016.

McCarthy was named Senior Vice President, Supply Chain, Product Management and Marketing in September 2019.

McCarthy previously served as Senior Vice President, Supply Chain and Business Development from December 2015 through September 2019 and served as Senior Vice President, Supply Chain since June 2014.

McCarthy served as Senior Vice President, Operations from July 2012 to June 2014.

Brown held several levels of sales leadership roles for the Company since 2001 with the most recent title of Senior Director of Sales from 2014 to 2016.

Pufpaf was elected Senior Vice President, Corporate Secretary, General Counsel and Chief Compliance Officer in 2021.

Pufpaf joined Lawson in 2011, and throughout the past 11 years, has held several leadership roles for the Company, including Assistant General Counsel, Chief Compliance Officer, Assistant Corporate Secretary and Vice President, Compensation & Benefits.

Lambert was elected to Vice President, Controller and Chief Accounting Officer in June 2021.

Prior to joining the Company, Mr.

Lambert served as the Corporate Controller, and previously the Assistant Controller, of Univar Solutions, a chemical distribution company, publicly traded on the NYSE from June 2017 through June 2021.

Prior to that, Mr.

Lambert served as the Director of Corporate Accounting and Reporting of Donnelley Financial Solutions, a financial compliance company, publicly traded on the NYSE from September 2016 through June 2017.

Prior to these roles, Mr.

Lambert held progressive roles within finance and accounting at several other publicly traded companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business