What changed in this filing

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Item 1. Business

2023-03-14 compared with 2022-02-24 · 212 added, 158 removed, 27 unchanged (93% of the section changed)

Distribution Solutions Group, Inc.

("DSG"), formerly Lawson Products, Inc., was incorporated in Illinois in 1952, and reincorporated in Delaware in 1982.

DSG changed its corporate name from “Lawson Products, Inc.” to “Distribution Solutions Group, Inc.” on May 5, 2022.

DSG is a global specialty distribution company providing value added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets.

DSG has three principal operating companies:

Lawson Products, Inc.

(“Lawson”, the “Company”, “we”, “our”, or “us”) was incorporated in Illinois in 1952, and reincorporated in Delaware in 1982.

Lawson serves the industrial, commercial, institutional and government Maintenance, Repair and Operations ("MRO") market.

Our vision is to be our customers' first choice for maintenance, repair and operational solutions that improve their operating performance.

We plan to achieve our vision by working closely with our customers to maintain and enhance their operations by providing them with quality products, superior service and innovative solutions.

Industry and Competition

The MRO market is comprised of companies that buy and stock products in bulk and supply these products to customers on an as needed basis.

("Lawson"), TestEquity Acquisition, LLC ("TestEquity") and 301 HW Opus Holdings, Inc., conducting business as Gexpro Services ("Gexpro Services").

The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined on April 1, 2022 to create a specialty distribution company.

A summary of the Mergers (as defined below), including the legal entities party to the transactions and the stock consideration, is presented below.

Through its collective businesses, DSG is dedicated to helping customers lower their total cost of operation by increasing productivity and efficiency with the right products, expert technical support, and fast, reliable delivery to be a one-stop solution provider.

DSG serves approximately 110,000 distinct customers in several diverse end markets supported by approximately 3,100 dedicated employees and strong vendor partnerships.

DSG ships from strategically located distribution and service centers to customers in North America, Europe, Asia, South America and the Middle East.

Unless the context requires otherwise, references in this Annual Report on Form 10-K to “DSG”, the “Company”, "we", "our" or "us" refer to the holding company, Distribution Solutions Group, Inc., and all entities consolidated with Distribution Solutions Group, Inc.

in the accompanying consolidated financial statements.

Combination with TestEquity and Gexpro Services

Business Combination Background

On December 29, 2021, DSG entered into an:

• Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity Acquisition, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the TestEquity Equityholder (“TestEquity”), (iii) DSG and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of DSG (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of DSG (the “TestEquity Merger”);

• Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “Gexpro Services Stockholder”), (ii) 301 HW Opus Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Gexpro Services Stockholder (“Gexpro Services”), (iii) DSG and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of DSG (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of DSG (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).

Completion of the TestEquity Merger

On April 1, 2022, (the "Merger Date"), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement.

In accordance with and under the terms of the TestEquity Merger Agreement, at the closing of the TestEquity Merger, DSG:

(i) issued to the TestEquity Equityholder 3,300,000 shares of DSG common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity.

The TestEquity Merger Agreement provides that an additional 700,000 shares of DSG common stock (the “TestEquity Holdback Shares”) may be issued to the TestEquity Equityholder or forfeited in accordance with two earnout provisions of the TestEquity Merger Agreement.

The amount of TestEquity Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of a certain additional acquisition by TestEquity during the period beginning after December 29, 2021 and ending 90 days after the Merger Date.

If any TestEquity Holdback Shares remain after the calculation of the first earnout opportunity, there is a second earnout opportunity based on, among other factors, the increase in TestEquity EBITDA (as defined in the TestEquity Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the calculations within the TestEquity Merger Agreement.

As of December 31, 2022, 700,000 TestEquity Holdback Shares are expected to be issued under the first earnout opportunity due to the consummation of the certain additional acquisition as referenced in the TestEquity Merger Agreement and were remeasured at fair value immediately prior to and reclassified to equity at April 29, 2022 when the additional acquisition was consummated.

Final issuance of the Test Equity Holdback Shares under the earnout opportunity is subject to customary terms and conditions as specified in the Test Equity Merger Agreement.

Refer to Note 8 – Earnout Derivative Liability in Item 8.

Financial Statements, for information about the earnout derivative liability related to the TestEquity Holdback Shares.

Completion of the Gexpro Services Merger

On the Merger Date, the Gexpro Services Merger was consummated pursuant to the Gexpro Services Merger Agreement.

In accordance with and under the terms of the Gexpro Services Merger Agreement, at the closing of the Gexpro Services Merger, DSG:

(i) issued to the Gexpro Services Stockholder 7,000,000 shares of DSG common stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services.

The Gexpro Services Merger Agreement provides that an additional 1,000,000 shares of DSG common stock (the “Gexpro Services Holdback Shares”) may be issued to the Gexpro Services Stockholder or forfeited in accordance with two earnout provisions of the Gexpro Services Merger Agreement.

The amount of Gexpro Services Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of one or more of three certain additional acquisitions by Gexpro Services during the period beginning after December 29, 2021 and ending 90 days after the Merger Date.

If any Gexpro Services Holdback Shares remain after the calculation of the first earnout opportunity, there is a second earnout opportunity based on, among other factors, the increase in Gexpro Services EBITDA (as defined in the Gexpro Services Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the calculations within the Gexpro Services Merger Agreement.

As of April 1, 2022, approximately 538,000 Gexpro Services Holdback Shares were expected to be issued under the first earnout opportunity due to the consummation of the certain additional acquisitions which were completed prior to the Merger Date.

As of December 31, 2022, an additional 462,000 Gexpro Services Holdback Shares are expected to be issued under the second earnout opportunity based on certain performance metrics as specified in the Gexpro Services Merger Agreement, and such additional shares were remeasured at fair value immediately prior to and reclassified to equity at December 31, 2022.

Final issuance of the Gexpro Services Holdback Shares under the earnout opportunities is subject to customary terms and conditions as specified in the Gexpro Services Merger Agreement.

Refer to Note 8 – Earnout Derivative Liability in Item 8.

Financial Statements, for information about the earnout derivative liability related to the Gexpro Services Holdback Shares.

Accounting for the Mergers

TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree.

Accordingly, periods prior to the April 1, 2022 Merger Date reflect the results of operations and financial position of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date.

For more information about the Mergers, refer to Note 3 – Business Acquisitions in Item 8.

Financial Statements.

DSG Vision and Strategic Focus

The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined for the purpose of creating a specialty distribution company enabling 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.

The DSG leadership team provides oversight to the separate leadership teams of each of the operating companies.

This structure enables the combined company to leverage best practices, back-office resources and technologies across the three operating companies to help drive cost synergies and efficiencies.

The combined company has the ability to utilize its combined financial resources to accelerate a strategy of expansion through both business acquisitions and organic growth.

Organic Growth Strategy

We intend to grow our revenue organically and further improve our operations by exploring growth opportunities that provide different channels to reach customers, increase revenue and generate positive results.

We plan to utilize our company structure to grow organic revenue by collaborative selling across our customer bases and expanding the digital capabilities across our platform.

Acquisition Strategy

In addition to organic growth, we plan to actively pursue acquisition opportunities complementary to our businesses that we believe will be financially accretive to our organization.

Recent Other Acquisitions — During 2022, other businesses were acquired as part of the growth strategy.

TestEquity acquired Interworld Highway, LLC for $54.7 million, National Test Equipment for $7.2 million, and Instrumex for $3.9 million.

Gexpro Services acquired Resolux ApS ("Resolux") for $30.8 million and Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc.

("Frontier") for $25.7 million.

The consideration exchanged for these acquired businesses included various combinations of cash, sellers notes, and forms of share based payments.

For more information about these acquisitions, refer to the "Other Acquisitions" section of Note 3 – Business Acquisitions in Item 8.

Financial Statements.

Human Capital Resources - General Employee Information

Our organization supports a culture of continuous improvement and emphasizes the importance of addressing the needs of our customers.

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.

As of December 31, 2022 , our combined workforce included approximately 3,100 individuals, comprised of approximately 1,646 in sales and marketing, approximately 1,189 in operation and distribution and approximately 298 in management and administration.

Approximately 1,720 individuals are within Lawson, 554 are within TestEquity, 684 are within Gexpro Services, with the remaining in corporate or other non-reportable segments.

The Company’s three reportable segments are (i) Lawson, (ii) Gexpro Services and (iii) TestEquity, which align with our principle operating businesses.

The following is a discussion of these reportable segments.

For more information about our segments, please refer to Note 14 – Segment Information in Item 8.

Financial Statements, which is incorporated herein by reference.

Lawson is a distributor of products and services to the industrial, commercial, institutional and governmental MRO marketplace.

Lawson primarily distributes MRO products to its customers through a network of sales representatives throughout the United States and Canada.

Background and Operations — Lawson delivers quality products to customers and offers them extensive product knowledge, product application expertise and Vendor Managed Inventory ("VMI") services.

Lawson competes for business

primarily by offering a value-added service approach wherein highly trained sales representatives manage the product inventory for customers.

The VMI model makes it less likely that customers will run out of a product while optimizing their inventory levels.

Lawson ships products to its customers in all 50 states, Puerto Rico, Canada, Mexico and the Caribbean.

Strategic Focus — Lawson's vision is to be its customers' first choice for MRO solutions that improve their operating performance.

Lawson plans to achieve its vision by working closely with customers to maintain and enhance their operations by providing them with quality products, superior service and innovative solutions and to grow both organically and through acquisitions.

Industry and Competition — The MRO market is comprised of companies that buy and stock products in bulk and supply these products to customers on an as needed basis.

The customer benefits from our knowledge and the convenience of ordering smaller quantities maintained by us.

We estimate that total current annual revenue generated by the North American MRO marketplace exceeds $150 billion.

There is a significant amount of competitive fragmentation by geography and product within the industry.

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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.

Lawson Segment

Through the Lawson operating segment, we deliver quality products to our customers and offer them extensive product knowledge, product application expertise and Vendor Managed Inventory ("VMI") services.

Our broad geographic sales coverage allows us to serve large multi-location customers throughout the U.S.

We compete for business primarily by offering a value-added service approach in which our highly trained sales representatives manage the product inventory for our customers.

The VMI model makes it less likely that our customers will unintentionally run out of a product while optimizing their inventory levels.

Sales orders are primarily generated from our sales representatives on behalf of customers;

however, customers can also order directly from our website or through our customer service team via fax or phone.

We ship products to customers in all 50 states, Puerto Rico, Canada, Mexico and the Caribbean.

We normally ship to our customers within one day of order placement.

Our MRO distribution process normally entails the purchase of product from suppliers in bulk for delivery to our packaging and distribution facility in McCook, Illinois (“McCook Facility”) for possible repackaging, labeling or cross-docking.

Product is then either stocked at the McCook Facility or delivered to one of our strategically located distribution centers.

As orders are received, product is picked, packed and shipped to our customers.

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.

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

Bolt generates sales from walk up business at its branch locations and through its sales team, phone, fax or the Internet.

Bolt inventory is delivered to the packaging and distribution facility in Calgary, Alberta, and then distributed to each branch location.

Sales generated via its sales team or through phone, fax or Internet orders are primarily shipped from one of the branch locations to the customer.

The majority of Bolt's customers are located in the geographic vicin ity of the branches.

Bolt generally does not offer VMI services to its customers.

Bolt generated 11.0% of the Company's annual 2021 sales.

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

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.

Although seasonality is not significant in our business, due to fewer selling days and less activity during the holiday season, net sales in the fourth quarter are historically lower than the first three quarters of the year.

Our customers include a wide range of purchasers of industrial supply products from small repair shops to large national and governmental accounts.

Historically, we have been very effective selling to and servicing small and medium sized customer locations that value our service approach.

Our product offerings are listed on our websites and in catalogs distributed to our customers.

Sales percentages by broad product categories of our product mix in 2021 were as follows:

Product Category Percentage

Customers — During 2022, the Lawson segment sold products to over 67,000 distinct customers.

Lawson's largest customer accounted for approximately 3% of consolidated revenue.

In 2022 , approximately 91% of Lawson's revenue was generated in the United States and approximately 9% in Canada.

Although seasonality is not significant, due to fewer selling days and less activity during the holiday season, revenue in the fourth quarter is historically lower than the first three quarters of the year.

Lawson's customers operate in a variety of industries.

Lawson's revenue percentages by customer end markets in 2022 were as follows:

Industry Category Percentage of Lawson Revenue

Manufacturing 22%

Automotive 18%

Government and Military 14%

Construction 8%

Equipment rental 6%

Transportation 4%

Agriculture 3%

Lawson's customers include a wide range of purchasers of industrial supply products from small repair shops to large national and governmental accounts.

Products — Lawson's revenue percentages by product categories in 2022 were as follows:

Product Category Percentage of Lawson Revenue

Fastening systems 18%

Cutting tools and abrasives 15%

Fluid power 15%

Cutting tools and abrasives 13%

Specialty chemicals 11%

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Welding and metal repair 1%

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

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

Lawson offers over 117,000 different products of which over 93,000 products are maintained in distribution centers.

Lawson strives to carry sufficient inventory to ensure product availability and rapid processing of customer orders.

Accurate for ecasting of customer demand is essential to establish the proper level of inventory for each product.

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

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.

Our quality control department tests our product offerings to ensure they meet our customers' specifications.

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.

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

Safety Data Sheets are maintained electronically and are available to our customers on our website.

Bolt offers approximately 40,000 different core products for sale of which approximately 19,000 products are maintained in the Calgary distribution center.

The majority of inventory is kept in the Calgary distribution center, with each branch maintaining appropriate inventory levels for their business needs.

Human Capital Resources

General Employee Information

Our organization supports a culture of continuous improvement and emphasizes the importance of addressing the needs of our customers.

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.

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 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.

On December 31, 2021, the Lawson sales and marketing team consisted of approximately 1,230 individuals focused on servicing existing customers, identifying new customers, providing customer service support and providing on-site customer service.

Of the total sales team, 1,037 are sales representatives who are primarily organized into geographical regions.

The performance of each region is the responsibility of a Regional Sales Director.

Each region is further divided into geographically defined districts.

The performance of each district is the responsibility of a District Sales Manager who reports to the Regional Sales Director.

Our District Sales Managers work with the sales representatives to generate sales from new and existing customers.

Lawson also has a team dedicated to the acquisition of larger national and mid-market accounts and a team dedicated to serving governmental accounts.

The national accounts are comprised of multi-location customers with a national scope.

Sales force growth is a driver of our business.

Increased sales coverage throughout the United States and Canada directly impacts our success as an organization.

The Company is focused on identifying and recruiting individuals who are a good fit for our sales organization and providing them the tools needed to succeed.

When these employees are hired, they participate in a training program to learn the products and processes of Lawson and also the history, values and culture of the Company.

This sales training program allows the new sales representatives to assimilate into the Company and learn the most successful ways to call on potential customers, maintain relationships with existing customers, and provide the proper products and VMI services to ensure that the customers' needs are met.

The Lawson sales team receives education in the best uses of products, enabling them to provide customized solutions to address customers' needs including technical expertise and on-site problem resolution.

The VMI services Lawson offers primarily consist of ordering the right products in the optimal quantity for the customer and stocking the product for customers when the product is delivered.

The sales team also periodically provides product presentations to customers that are designed to demonstrate how the products can improve their productivity.

Additionally, Lawson sales representatives offer customized storage systems for improved organization and a more efficient work-flow.

While recruitment of new sales representatives is important, the goal of this process is to ensure the sales representatives who are brought on board will be members of the Lawson team for the long term.

Our experience has proven that a sales representative becomes more successful and generates more sales for the Company the longer they are a part of Lawson.

Longer tenured sales representatives form deeper relationships with customers, which results in customers relying on the Lawson sales representative for a larger share of their MRO needs.

Reducing sales force churn and ensuring sales representatives can grow and reach their full potential over the long term is a focus of the Lawson leadership team.

The sales leadership team is in regular contact with Regional Sales Directors, District Sales Managers and experienced sales representatives to discuss the challenges our sales representatives face in generating sales and how the Company can support them.

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

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.

In 2017, Bolt began requiring members of the sales teams to be certified as Certified Sales Professionals for the Canadian Professional Sales Association.

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

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 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.

Our plan to expand the sales force is designed by identifying under-served territories that offer the greatest growth potential, locate and recruit talented sales representatives, provide them with the proper training, and successfully integrate them into our organization.

To acquire the best new sales talent and prepare them for success, we have developed an extensive talent acquisition strategy.

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 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.

We are also focused on increasing the productivity of our sales representatives.

We strive to empower our sales representatives with the training, technology and support they need to maximize their sales potential while providing our customers with superior service and making it easy for them to do business with us.

In addition to organic growth, we plan to continue to actively pursue acquisition opportunities that we believe will be financially accretive to our organization.

Lawson plans to continue to explore growth opportunities in the MRO space that provide different channels to reach customers, increase sales and generate positive results.

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 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.

During 2022, Lawson purchased products from approximately 2,400 suppliers and no single supplier accounted for more than 6% of these purchases.

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

Lawson's quality control department tests its product offerings to help ensure they meet our customers' specifications.

Lawson recommends solutions to help customers maximize product performance and avoid costly product failures.

Lawson's engineering department provides technical support for products and offers on-site problem solutions.

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

Human Capital Resources — As of December 31, 2022 , Lawson's workforce was estimated to have 1,720 individuals:

approximately 1,218 in sales and marketing of whom 1,000 are sales representatives, 386 in operation and distribution and 116 in management and administration.

Approximately 11% of the Lawson workforce is covered by two collective bargaining agreements.

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

Sales force growth is a driver of the Lawson business, and increased sales coverage throughout the United States and Canada directly impacts Lawson's success as an organization.

Lawson is focused on identifying and recruiting individuals who are a good fit with its sales organization and providing them with the tools needed to succeed, such as training about Lawson's products and on the successful and effective ways to call potential customers and maintain relationships with existing customers.

Lawson's product training educates its sales team on the optimal uses of products, enabling them to provide the proper products and customized solutions to address customers' needs, including technical expertise and on-site problem resolution.

Lawson's leadership team is also focused on reducing sales force turn-over and on offering growth opportunities for our sales representatives.

TestEquity is a leading distributor of test and measurement equipment and solutions, electronic production supplies and tool kits from its leading manufacturing partners.

TestEquity operates primarily through its five distribution brands, namely TestEquity, TEquipment, Techni-Tool, Jensen Tools and Instrumex, and is focused primarily in North America with a network of sales representatives throughout the United States, Canada, Mexico, Germany and the United Kingdom.

Background and Operations — Based out of Moorpark, California, TestEquity is a large, comprehensive provider of electronic test solutions in the United States supporting the aerospace and defense, wireless and communication,

semiconductors, industrial electronics and automotive, and electronics manufacturing industries.

TestEquity designs, rents and sells a full line of high-quality environmental test chambers.

In addition to a large array of test and measurement products, TestEquity also offers calibration, refurbishment and rental solutions and a wide range of refurbished products.

TestEquity continues to benefit from electronification of products across a range of industries including the internet of things ("IOT"), electric vehicles ("EV") and the 5th generation mobile network ("5G").

TestEquity offers over 250,000 products and 700 manufacturer brands with overlap across the following brands.

TEquipment (acquired as Interworld Highway, LLC) is one of the top distributors for both test and measurement and electronic production supplies in the United States with its e-commerce focused strategy, broad product range, amplified by access to core TestEquity products, and strong technical support for their customers.

Techni-Tool is one of the industry’s largest solder, soldering equipment and electronic production distributors.

Techni-Tool offers a wide range of products to support electronic production as well as compliance testing.

In addition to the brand specific products offered, Techni-Tool also provides VMI solutions and dedicated technical support.

Jensen Tools is a top distributor for the electronics MRO customer base.

In addition to being a distributor of handheld tools from leading brands, Jensen Tools offers private label Jensen branded hand tools that have been developed over years of customer usage and manufactured to a specified and demanding tolerance level.

Jensen Tools employs a dedicated team of engineering, operational and sales professionals who focus on designing and building quality tool kits for its customers.

Instrumex is a small refurbished test and measurement distributor, based in Munich Germany, with a global reach.

During the third quarter of 2022, the final stage of moving Techni-Tool and Jensen Tools to the TestEquity platform was completed.

Customers for each of these brands now have full access to the 250,000 active products across TestEquity group.

Strategic Focus — TestEquity intends to grow revenue both organically and through acquisitions and continuing to expand and improve its service offerings to its customers.

In particular, TestEquity strives to improve its digital experience, with a consistent approach for all of its brands.

TestEquity intends to seek to increase its market share through continued expansion of product lines and greater penetration of the e-commerce market, enabled through investment in key digital talent and leverage of the existing TestEquity and TEquipment platforms.

Industry and Competition — Across both the test and measurement and electronic production supplies businesses, the North American market is fragmented with competitors ranging from large global distributors to national and regional distributors.

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

Customers — TestEquity serves over 30,000 customers at 100,000 locations across the United States and abroad, primarily in Canada and Europe, with approximately 92% of TestEquity’s revenue in 2022 derived from customers in the United States.

TestEquity has expanded its business operations in the United Kingdom and Germany through its recent acquisitions of MCS Test equipment in July 2021 and Instrumex in December 2022.

There is not significant seasonality in TestEquity’s business across its fiscal quarters.

However, the number of business days in a quarter has an impact on TestEquity’s revenue and profitability.

TestEquity's revenue percentages by customer end markets in 2022 were as follows:

Industry Category Percentage of TestEquity Revenue

Aerospace and defense 30%

Industrial electronics and electronics manufacturing 26%

Semi-conductor production 8%

Wireless and communications technology 6%

Products — Approximately 15,000 fast-moving products are typically held in inventory across six distribution centers available for next day delivery.

TestEquity’s revenue percentages by product categories in 2022 were as follows:

Product Category Percentage of TestEquity Revenue

Test & measurement 65%

Electronic production supplies 32%

Proprietary products 3%

TestEquity has five key suppliers that made up approximately 50% of TestEquity’s purchases in 2022.

In total, TestEquity purchases from approximately 1,050 suppliers across the marketplace.

Human Capital Resources — TestEquity supports a culture of continuous improvement, integrity and diversity.

TestEquity prides itself on its ability to meet its customers’ needs in a driven and progressive manner.

As of December 31, 2022 , TestEquity's workforce was estimated to have 554 individuals, comprised of approximately 178 in sales and marketing, 285 in operation and distribution and 91 in administration and support.

Gexpro Services

Gexpro Services is a world-class global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.

Gexpro Services provides comprehensive supply chain management solutions, including a full technology suite offering of VMI, kitting, global logistics management, manufacturing localization and import expertise, value engineering and quality assurance.

Gexpro Services' end-to-end project management is designed to support manufacturing OEMs with their engineered material specifications, fulfillment, and quality requirements to improve their total cost of ownership.

Gexpro Services has manufacturing and supply chain operations in over 31 Service Center sites across nine countries including key geographies in North America, South America, Asia, Europe, and the Middle East.

Gexpro Services serves customers in six vertical markets, including renewables, industrial power, consumer and industrial, technology, transportation, and aerospace and defense.

Background and Operations — Gexpro Services was formed in November 2019 and, in February 2020, acquired the “Gexpro Services” business from French distributor Rexel S.A.

via a carve-out acquisition.

As a top distributor and service provider to the OEM market, Gexpro Services has approximately 2,700 suppliers offering approximately 60,000 products.

These products are inventoried and sourced through 31 locations in North America, South America, Asia, Europe and the Middle East.

Strategic Focus — Gexpro Services intends to grow organically through market share expansion primarily through new product introduction, increased sales of products and services to existing customers and expansion of its customer base.

Gexpro Services believes that its services benefit its customers by helping them reduce their direct and indirect procurement costs and total cost of ownership for high volume, low value Class C parts, and that its services can help drive substantial cost savings for its customers.

Additionally, Gexpro Services intends to grow its business through strategic, accretive acquisitions, and through continued improvement in service and product offerings to its customers.

Industry and Competition — Gexpro Services operates in a large, fragmented market with many competitors servicing OEMs as well as the MRO segment of the Class C product line.

Competitors of Gexpro Services include large global distributors as well as national, regional and local distributors.

Customers — Gexpro Services serves almost 1,800 customers in over 38 countries through its 30 facilities.

In 2022 , approximately 71% of Gexpro Services' revenues were generated in the United States.

Through its customer base, Gexpro Services provides VMI services with over 100,000 installed bins which allow its customers to maintain the necessary on-hand inventory levels to support their production cycles.

Gexpro Services’ value-added processes for its customers include VMI, packaging and kitting, engineering, product standardization when appropriate, sales and technical support, global sourcing and quality assurance.

Approximately 65% of Gexpro Services’ revenue in 2022 were from customers under long-term agreements.

Gexpro Services’ largest customer represented approximately 19% of Gexpro Services’ 2022 total revenue while the top 20 customers represented approximately 63% of Gexpro Services’ 2022 total revenue.

Gexpro Services has existing customers in many different industry end markets.

Gexpro Services' revenue percentages by customer end markets in 2022 were as follows:

Industry Category Percentage of Gexpro Services Revenue

Renewable energy 27%

Transportation 19%

Industrial power 17%

Technology 14%

Consumer and industrial 14%

Aerospace and defense 9%

Products — Gexpro Services' revenue percentages by product categories in 2022 were as follows:

Product Category Percentage of Gexpro Services Revenue

Fabrications 22%

Electrical 21%

Mechanical 16%

Approximately 71% of Gexpro Services’ suppliers are based in the United States, which helps limit the risk of increased freight and logistics costs;

however, many of these suppliers source their products from overseas.

Gexpro Services maintains favorable and long-tenured relationships with approximately 2,700 suppliers, with the largest supplier representing approximately 2% of Gexpro Services’ total product purchases in 2022 while the top 10 suppliers represented approximately 15% of total product purchases in 2022.

Human Capital Resources — Gexpro Services supports a culture of continuous improvement, integrity and diversity.

Gexpro Services prides itself on being a full value provider to its customers supported with a team committed to providing world-class customer service.

As of December 31, 2022 , Gexpro Services' workforce was estimated to have 684 individuals, comprised of approximately 219 in sales and marketing, 401 in operation and distribution and 64 in management and administration.

Available Information

We file or furnish annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and file or furnish amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act and Section 16 reports with the Securities and Exchange Commission (“SEC”).

We file with, or furnish to, the Securities and Exchange Commission ("SEC") annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and, as applicable, amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act.

The public can obtain copies of these materials by accessing the SEC's website at http://www.sec.gov .

In addition, as soon as reasonably practicable after such materials are filed with or furnished to the SEC, we make copies available to the public free of charge through our website at www.lawsonproducts.com or by calling (773) 304-5050.

In addition, as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC, we make copies available to the public free of charge through our website at www.distributionsolutionsgroup.com or by calling (773) 304-5050.

Information on our website is not incorporated by reference into this report.

We also make available on our website our Code of Ethics, Corporate Governance Principles and the charters of the committees of our Board of Directors.

Executive Officers of the Registrant

The executive officers of Lawson as of February 1, 2022 were as follows:

Information About Our Executive Officers

The executive officers of DSG as of February 1, 2023 were as follows:

Name Age Year First Named to Present Office Position

DeCata 64 2012 President and Chief Executive Officer

Bryan King 51 2022 Chairman, President and Chief Executive Officer

Knutson 59 2014 Executive Vice President, Chief Financial Officer and Treasurer

Brown 58 2017 Senior Vice President, Sales

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

Lambert 49 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.

DeCata was elected President and Chief Executive Officer in September 2012.

DeCata previously served in a consulting capacity for several private equity firms, including Hamilton Robinson Capital Partners from 2009 until 2012.

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

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 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.

King was elected President and Chief Executive Officer in May 2022.

King has also served as a member of the Board of Directors of the Company since 2017, and has served as Chairman of the Board of Directors of the Company since March 2019.

King has a career in investment management spanning over three decades and has served as Chairman or managing partner of several industrial distribution companies.

King is a Principal of Luther King Capital Management Corporation (“LKCM”), an SEC-registered investment adviser, and Founder and Managing Partner of LKCM Capital Group and LKCM Headwater Investments, the private capital investment group of LKCM.

Knutson has served as Executive Vice President, Chief Financial Officer and Treasurer since April 2014 and has served as Executive Vice President and Chief Financial Officer of the Company since July 2012.

Lambert has served as Vice President, Controller and Chief Accounting Officer of the Company since June 2021.

Prior to joining the Company, Mr.

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