Exhibit 10.1
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

      UNITED STATES OF AMERICA   No. v.     LAWSON PRODUCTS, INC.   Judge

DEFERRED PROSECUTION AGREEMENT
     Defendant LAWSON PRODUCTS, INC. (“LAWSON PRODUCTS”), a company
headquartered in Des Plaines, Illinois, by its undersigned attorneys, pursuant
to authority granted by its Board of Directors, and the UNITED STATES OF
AMERICA, through PATRICK J. FITZGERALD, United States Attorney for the Northern
District of Illinois, enter into this Deferred Prosecution Agreement (“the
Agreement”), which shall apply to LAWSON PRODUCTS and all its affiliates and
subsidiaries, including Drummond American Corporation and Cronatron Welding
Systems, Inc. The terms and conditions of this agreement are as follows:
          LAWSON PRODUCTS accepts and acknowledges that, in connection with the
execution of this Agreement, the United States will file a one-count criminal
Information (attached hereto as Appendix A) in the United States District Court
for the Northern District of Illinois. The Information will charge LAWSON
PRODUCTS with mail fraud, in violation of 18 U.S.C. § 1341. LAWSON PRODUCTS
knowingly and voluntarily waives its right to indictment on this charge, as well
as all rights to a speedy trial pursuant to the Sixth Amendment to the United
States Constitution, 18 U.S.C. § 3164, and Federal Rule of

 

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Criminal Procedure 48(b). Prosecution of LAWSON PRODUCTS on the charge set forth
in the Information shall be deferred for a three-year period. As further
provided below, if LAWSON PRODUCTS fully complies with its obligations under
this Agreement during the Agreement’s three-year term, the United States will
dismiss the Information with prejudice.
     2. LAWSON PRODUCTS admits, accepts, and acknowledges that it is responsible
for the acts of its officers, employees, and sales agents, as set forth in the
Information and the Statement of Facts attached as Appendix B to this Agreement
(the “Statement of Facts”), and that the facts described therein are true and
accurate. Should the United States initiate the prosecution that is deferred by
this Agreement, LAWSON PRODUCTS agrees that it will neither contest the
admissibility of, nor contradict, in any criminal proceeding or civil forfeiture
proceeding, the Statement of Facts.
     3. LAWSON PRODUCTS agrees to place a total of $30,000,000 in an escrow
account to fund the payment of restitution and a civil forfeiture judgment as
further set forth below. LAWSON PRODUCTS will fund this escrow account in three
equal payments of $10,000,000. LAWSON PRODUCTS shall make the first $10,000,000
payment on or before the date that LAWSON PRODUCTS executes this Agreement.
LAWSON PRODUCTS shall make its subsequent two $10,000,000 payments within twelve
months and twenty-four months of its execution of this Agreement. At any point,
should a controlling interest in LAWSON PRODUCTS be sold, the remaining payments
shall be accelerated and due at the closing of that sale.

 

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     4. LAWSON PRODUCTS acknowledges that the United States will file a
complaint for in rem civil forfeiture, which is attached as Appendix C to this
Agreement (the “Forfeiture Petition”), for forfeiture of the funds in the escrow
account described in paragraph 3. LAWSON PRODUCTS agrees not to contest the
forfeiture of this property in the civil forfeiture proceeding. LAWSON PRODUCTS
further agrees to the entry of a judgment with respect to the civil forfeiture
proceeding. LAWSON PRODUCTS agrees that the funds in the escrow account shall be
forfeited and disposed of according to law. LAWSON PRODUCTS and the United
States agree that the forfeiture of the funds in the escrow account, once fully
funded by LAW SON PRODUCTS pursuant to paragraph 3, shall satisfy all monetary
claims by the United States with respect to the civil forfeiture action.
Nothing, including a dismissal of the Information or a breach by LAWSON PRODUCTS
of this Agreement, shall cause any portion of the funds in the escrow account
forfeited pursuant to the civil forfeiture judgment to be refunded. The United
States agrees, however, that in the event of a subsequent breach and
prosecution, it will recommend to the Court that the amount forfeited pursuant
to this Agreement be offset against any monetary penalty the Court may impose as
part of its judgment. LAWSON PRODUCTS understands that such a recommendation
will not be binding on the Court.
     5. LAWSON PRODUCTS acknowledges that if it were convicted of mail fraud, as
charged in the information, that it would be obligated to provide restitution to
the victims of the scheme, pursuant to 18 U.S.C. § 3663A. The United States and
LAWSON

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PRODUCTS have agreed that LAWSON PRODUCTS will make restitution payments to
customers of LAWSON PRODUCTS that (a) employed individuals who received over
$10,000 in Winners Choice checks; (b) employed individuals who have been or
later are convicted of mail fraud as a result of their receipt of Winners Choice
checks; or (c) purchased LAWSON PRODUCTS merchandise from sales agents who have
been or later are convicted of mail fraud for providing Winners Choice checks to
the customers’ employees (collectively, “the Victims”). Accordingly, LAWSON
PRODUCTS agrees to pay restitution in a total amount of $806,431, as set out in
Appendix D. In making these payments, LAWSON PRODUCTS further agrees to advise
the Victims in writing as to the circumstances leading to the payments.
     6. LAWSON PRODUCTS hereby represents and warrants that it will not
re-employ as an officer or elect as a director any individual who formerly
served in either of those positions, and who left such a position with the
company on or before the date of this Agreement.
     7. This Agreement shall be in effect for three years from the date of its
execution (except as provided below in Paragraph 15 of this Agreement, which
provides for earlier termination under certain circumstances involving a sale of
LAWSON PRODUCTS). During the term of this Agreement, LAWSON PRODUCTS agrees to
cooperate fully with the United States Attorney’s Office for the Northern
District of Illinois and any other authority or agency investigating LAWSON
PRODUCTS or any of its present or former

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directors, officers, employees, or sales agents, in any and all matters relating
to corrupt payments or benefits in connection with its sales or operations.
LAWSON PRODUCTS agrees that its cooperation shall include, but not be limited
to, the following:
          a. LAWSON PRODUCTS shall provide the United States with all documents
and records that the United States requests and are not subject to valid claims
of attorney-client or work product privileges. The United States shall not
assert that any act by LAWSON PRODUCTS known to the United States as of the date
of this Agreement constitutes a waiver of its attorney-client or work product
privileges in any respect as to matters relating to the scheme described in the
Information and Statement of Facts.
          b. LAWSON PRODUCTS shall designate knowledgeable present or Former
directors, executives, officers, or employees to provide the United States with
information regarding matters under investigation that the United States
requests. LAWSON PRODUCTS shall use its best efforts to make available for
interviews or testimony, as requested by the United States, present or former
directors, executives, officers, and employees of LAWSON PRODUCTS or any of its
present or former affiliates and subsidiaries. This includes, but is not limited
to, sworn testimony before a federal grand jury or in federal trials, as well as
interviews with law enforcement authorities. LAWSON PRODUCTS will use its best
efforts to ensure that the information that it provides in this manner is
complete, truthful, and accurate.

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          c. With respect to any information, testimony, document, record, or
other tangible evidence provided to the United States pursuant to this
Agreement, LAWSON PRODUCTS consents to any and all disclosures to other
government agencies, including federal and state agencies, of such materials as
the United States, in its sole discretion, shall deem appropriate.
     8. LAWSON PRODUCTS has implemented and will continue to implement a
compliance and ethics program designed to prevent and detect violations of
federal and state anti-corruption laws throughout its sales and operations,
including those by its affiliates and subsidiaries. LAWSON PRODUCTS has
disclosed the components of its compliance and ethics program to the United
States. LAWSON PRODUCTS agrees during the term of this Agreement to immediately
notify the United States Attorney’s Office for the Northern District of Illinois
of any violation or suspected violation of federal and state anti-corruption
laws that it receives notice of or detects.
     9. LAWSON PRODUCTS expressly agrees that it shall not, through its present
or future attorneys, directors, executives, officers, or any other person
authorized to speak for the company, make any public statement, in litigation or
otherwise, contradicting LAWSON PRODUCTS’s acceptance of responsibility set
forth above or the factual statements set forth in the Statement of Facts. Any
such contradictory statement shall constitute a breach of this Agreement as
governed by Paragraph 13, and LAWSON PRODUCTS thereafter would be subject to
prosecution as set forth in Paragraphs 13 and 14

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of this Agreement. The decision of whether any public statement contradicts the
Statement of Facts shall be solely that of the United States. Should the United
States determine that a public statement by any such person contradicts the
Statement of Facts, the United States shall notify LAWSON PRODUCTS. LAWSON
PRODUCTS may avoid a breach of this Agreement by publicly repudiating such
statement within 48 hours after such notification.
     10. If LAWSON PRODUCTS is in full compliance with all of its obligations
under this Agreement, the United States, within thirty days of the expiration of
the period set forth in paragraph 7 above, will seek dismissal with prejudice of
the Information filed against LAWSON PRODUCTS pursuant to Paragraph 1 and this
Agreement shall expire.
     11. If the United States determines, in its sole discretion, that LAWSON
PRODUCTS, at any time between the execution of this Agreement and completion of
defendant’s cooperation, provided deliberately false, incomplete, or misleading
information under this Agreement, has committed any federal or state crime
subsequent to the date of this Agreement, or has otherwise violated any
provision of this Agreement, LAWSON PRODUCTS shall thereafter be subject to
prosecution for any federal criminal violation of which the United States has
knowledge. Any such prosecutions may be premised on information provided by
LAWSON PRODUCTS, including the Statement of Facts, which shall be admissible at
any trial of LAWSON PRODUCTS. Moreover, LAWSON PRODUCTS agrees that any
prosecutions that are not time-barred by the applicable statute

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of limitations on the date of this Agreement may be commenced against LAWSON
PRODUCTS in accordance with this Agreement.
     12. Should the United States determine, in its sole discretion, that LAWSON
PRODUCTS has, at any time between the execution and termination of this
Agreement as set forth in paragraph 7, committed any federal or state crime,
provided deliberately false, incomplete, or misleading information under this
Agreement, or has otherwise knowingly and willfully breached any other material
provision of this Agreement, the United States shall provide written notice to
LAWSON PRODUCTS of the alleged breach and provide LAWSON PRODUCTS with a
two-week period from receipt of such notice in which to make a presentation to
the United States to demonstrate that no federal or state crime was committed,
no breach occurred, or, to the extent applicable, that the breach was not
material or knowingly and willfully committed or has been cured.
     13. In the event that the United States still determines, in its sole
discretion and after providing LAWSON PRODUCTS with notice of the alleged breach
and an opportunity to make a presentation, that LAWSON PRODUCTS has committed
any federal or state crime, provided deliberately false, incomplete, or
misleading information under this Agreement, or has otherwise knowingly and
willfully breached any other material provision of this Agreement: (a) all
statements made by or on behalf of LAWSON PRODUCTS to the United States, the
Statement of Facts executed in connection with this Agreement, and any testimony
given by LAWSON PRODUCTS before a grand jury, shall be admissible in evidence in
any criminal proceeding brought by the United States against LAWSON PRODUCTS,
and (b) LAWSON PRODUCTS shall not assert any claim

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that any statements made by or on behalf of LAWSON PRODUCTS are inadmissible or
should be suppressed.
     14. LAWSON PRODUCTS acknowledges that the United States has made no
representations, assurances, or promises concerning what sentence may be imposed
by the Court should LAWSON PRODUCTS breach this Agreement and this matter
proceed to judgment. LAWSON PRODUCTS further acknowledges that any such sentence
would be solely within the discretion of the Court and that nothing in this
Agreement binds or restricts the Court in the exercise of such discretion.
     15. LAWSON PRODUCTS agrees that in the event it sells or merges all or
substantially all of its business operations as they exist as of the date of
this Agreement, whether such sale is structured as a stock or asset sale, it
shall include in any contract for sale or merger a provision binding the
purchaser or successor to the obligations described in the Agreement; provided,
however, that if there should occur a corporate transaction whereby LAWSON
PRODUCTS sells substantially all of its assets or engages in a merger or similar
transaction whereby LAWSON PRODUCTS is not a surviving corporate entity; and
provided the $30,000,000 obligation and restitution provided for herein in
paragraphs 3 and 5 has been paid and satisfied; and further provided that the
new entity controlling the former assets or business of LAWSON PRODUCTS is not
controlled by a person or entity that has a significant previous affiliation
with LAWSON PRODUCTS, then the United States agrees to terminate this Agreement
and dismiss the Information within 30 days after the transaction or by
August 11, 2009, whichever comes later. In the event that LAWSON PRODUCTS
continues in existence following such sale and is not transferring title to any
substantial portion of its assets

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pursuant to such sale, LAWSON PRODUCTS rather than the purchaser of those assets
remains obligated under the Agreement.
     16. This Agreement is binding on LAWSON PRODUCTS and the United States
Attorney’s Office for the Northern District of Illinois, but specifically does
not bind any other federal agencies, or any state or local law enforcement or
regulatory agencies, although the United States Attorney’s Office for the
Northern District of Illinois will bring the cooperation of LAWSON PRODUCTS and
its compliance with its other obligations under this Agreement to the attention
of such agencies and authorities if requested to do so by LAWSON PRODUCTS and
its attorneys.
     17. This Agreement is entirely voluntary and represents all the terms of
the Deferred Prosecution Agreement between LAWSON PRODUCTS and the United States
Attorney. No modifications or additions to this Agreement shall be valid unless
they are in writing and signed by the United States Attorney, LAWSON PRODUCTS’s
attorneys, and a duly authorized representative of LAWSON PRODUCTS.
     18. Any notice to LAWSON PRODUCTS under this Agreement shall be given by
personal delivery, overnight delivery by a recognized delivery service, or
registered or certified mail,

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addressed to William Heinz, Jenner & Block, 330 North Wabash Avenue, Chicago, IL
60611.
Notice shall be effective upon actual receipt by LAWSON PRODUCTS.
AGREED:
     For LAWSON PRODUCTS:

         
/s/ Thomas J. Neri
 
THOMAS J. NERI
  /s/ Williarn D. Heinz
 
WILLIAM D. HEINZ    
President and Chief Executive Officer
  JENNER & BLOCK    
Lawson Products, Inc.
  Counsel for Lawson Products, Inc.    
 
       
For the UNITED STATES OF AMERICA:
       
 
       
/s/ Patrick J. Fitzgerald
 
PATRICK J. FITZGERALD
  /s/ Brandon D. Fox
 
BRANDON D. FOX    
United States Attorney
  NANCY MILLER    
 
  KRUTI TRIVEDI    
 
  Assistant United States Attorneys    

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OFFICER’S CERTIFICATE
     I have read this Agreement and carefully reviewed every part of it with
counsel for Lawson Products, Inc. (“Lawson Products”). I understand the terms of
this Agreement and voluntarily agree, on behalf of Lawson Products, to each of
its terms. Before signing this Agreement, I consulted with the attorney for
Lawson Products. The attorney fully advised me of Lawson Product’s rights, of
possible defenses, of the Sentencing Guidelines’ provisions, and of the
consequences of entering into this Agreement.
     I have carefully reviewed this Agreement with the Board of Directors of
Lawson Products. I have advised and caused investigative and outside counsel for
Lawson Products to advise that Board fully of Lawson Product’s rights, of
possible defenses, of the Sentencing Guidelines’ provisions, and of the
consequences of entering into the Agreement. No promises or inducements have
been made other than those contained in this Agreement. Furthermore, no one has
threatened or forced me or, to my knowledge, any person authorizing this
Agreement on behalf of Lawson Products, in any way to enter into this Agreement.
I am also satisfied with Lawson Product’s representation in this matter.

 

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I certify that I am an officer of Lawson Products and that I have been duly
authorized by Lawson Products to execute this Agreement on behalf of Lawson
Products and all the subsidiaries named herein.

                           Lawson Products, Inc.
    Date: August 11 , 2008  By:   /s/ Thomas J. Neri        THOMAS J. NERI     
  President and Chief Executive Officer Lawson Products, Inc.     

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Appendix A
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

             
UNITED STATES OF AMERICA
    )      
 
    )      
v.
    )     Violation: Title 18, United States Code,
 
    )     Sections 1341 and 1346
LAWSON PRODUCTS, INC.
    )      

     The UNITED STATES ATTORNEY charges:
     1. At times material to this count:
          a. Defendant LAWSON PRODUCTS, INC. (“LAWSON PRODUCTS”) was a publicly
traded company organized under the laws of the State of Delaware, with its
principal offices in Des Plaines, Illinois. Defendant LAWSON PRODUCTS was a
distributor and marketer of systems, services and products sold to various
entities in the public and private sectors. Defendant LAWSON PRODUCTS was the
parent company of several subsidiaries, including Drummond American Corporation
and Cronatron Welding- Systems, Inc. Defendant LAWSON PRODUCTS generated
approximately $400 million in sales annually.
          b. Defendant LAWSON PRODUCTS had two divisions: maintenance and repair
operation (the “MRO business”) and original equipment manufacturing (the “OEM
business”). Defendant LAWSON PRODUCTS sold its MRO products through sales
agents. These sales agents generally were permitted by defendant LAWSON PRODUCTS
to negotiate with its customers over the prices their customers would pay for
defendant LAWSON PRODUCTS merchandise. As a general rule, defendant LAWSON
PRODUCTS’s profits and the sales agents’ commissions were greater if they sold
products at higher prices.

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          c. Defendant LAWSON PRODUCTS maintained programs for its MRO business
through which sales agents could provide items of value to individuals for
purchasing defendant LAWSON PRODUCTS merchandise on behalf of those individuals’
employers (the “Illicit Programs”). Among the Illicit Programs were Winners
Choice, Cavalcade of Awards, LPI, and Spike Special. Defendant LAWSON PRODUCTS
administered these Illicit Programs through its Merchandising Department.
          d. Defendant LAWSON PRODUCTS and its sales agents often provided a
greater amount of rewards through these Illicit Programs if the individuals
ordered a greater amount of defendant LAWSON PRODUCTS merchandise on behalf of
their employers. Some defendant LAWSON PRODUCTS sales agents received training
suggesting that they provide the customers’ employees with rewards through the
Illicit Programs totaling approximately four to five percent of the amount of
the sale.
          e. Defendant LAWSON PRODUCTS set up “promotional funds” for each sales
agent that allowed defendant LAWSON PRODUCTS and the sales agents to split the
cost of the Illicit Programs. When a sales agent’s customer ordered merchandise,
defendant LAWSON PRODUCTS placed a percentage of the order, based on the amount
of commission earned by the sales agent, into the promotional fund, up to a
certain maximum dollar amount. A sales agent could then use the promotional fund
to pay for at least a portion of the costs of items from the Illicit Programs.
The sales agent would pay the remainder of the costs of items from the Illicit
Programs out of the commissions the sales agents earned.

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Winners Choice
          f. Winners Choice was a program in which defendant LAWSON PRODUCTS
directed a third-party named Keogh, Inc. (“Keogh”) to issue checks payable to
employees of defendant LAWSON PRODUCTS’s customers and to retail stores selected
by the recipients of the checks. Keogh would mail these checks to the employees
of defendant LAWSON PRODUCTS’s customers, who could then use these checks to
purchase items in the designated retail stores. There were several steps that
occurred before Keogh would issue these checks:
i. Cold Certificates. The first step was for sales agents to place orders for
“cold certificates” with defendant LAWSON PRODUCTS, which would then inform
Keogh of the orders. The sales agents would designate the recipient, the mailing
address, the number of cold certificates, and the denomination of the cold
certificates. Although the cold certificates were limited to $10 or $25
increments, sales agents could order multiple cold certificates totaling far in
excess of $25 to be sent to a recipient.
ii. Redemption of Cold Certificates. Next, Keogh would ship, via mail or
courier, the cold certificates to the recipient at the designated address. Along
with the cold certificates, Keogh sent a list of retail stores participating in
the Winners Choice program. To redeem the cold certificates, the recipient would
fill out an order form by selecting a retail store and the address where Keogh
should send the check. The recipient then sent the order form back to Keogh
through the mail.
iii. Checks. Once the recipient had redeemed the cold certificates, Keogh mailed
one or more checks, also known as “hot certificates,” to the recipient. While
each check was written for $50 or less, Keogh could mail multiple checks
totaling far in excess of $50 to a recipient. The checks issued by Keogh would
list two payees: (1) the individual recipient and (2) the retail store
designated by the individual recipient. The individual recipient could then use
the checks at the designated retail store.

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Cavalcade of Awards and LPI
     g. Cavalcade of Awards and LPI were programs in which defendant LAWSON
PRODUCTS and its sales agents allowed employees of their customers to select
items for themselves from catalogs that were produced by defendant LAWSON
PRODUCTS. While the Cavalcade of Awards and LPI programs included items, such as
tools, that could be used by customers, the catalogs also contained personal
items, such as golf equipment, electronics, and toys. Employees of defendant
LAWSON PRODUCTS’s customers could select items based upon the amount of “points”
or “banque notes” they earned through the amount of purchases the employees
caused their employers to make.
Spike Special
     h. Spike Special was a program offered at certain times of the year in
which Drummond American and its sales agents provided items of value to
employees of Drummond American’s customers if the employees purchased a certain
amount of a specific item on behalf of their employers during the time period
that the Spike Special was offered. As with the Cavalcade of Awards and LPI
programs, the Spike Special program allowed employees to select items that could
be used for their employers, such as tools, or personal items, such as golf
equipment, electronics, and toys.
Policies
     i. Defendant LAWSON PRODUCTS had a policy that purported to bar sales
agents from providing items of value to employees of federal, state, and local
government. While this policy existed, defendant LAWSON PRODUCTS did not have
any meaningful safeguards in place to detect whether its sales agents were
providing items of value to employees of federal, state,

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and local government. Additionally, prior to December 15, 2005, defendant LAWSON
PRODUCTS generally took no disciplinary action against sales agents it
discovered were providing items of value to employees of federal, state, and
local government.
     j. The employees of defendant LAWSON PRODUCTS customers owed a duty of
honest services to the their employers, which included the duty to provide their
employers with undivided loyalty that was free from conflict of interest between
their personal interests and the interests of their employers. Further, many
laws and policies existed that prohibited defendant LAWSON PRODUCTS customers
from accepting anything of value from vendors in exchange for the customers’
business.

  2.   Beginning no later than 1992 and continuing until approximately
December 15, 2005, at Des Plaines and Vernon Hills, in the Northern District of
Illinois, and elsewhere, LAWSON PRODUCTS, INC.,

defendant herein, along with others known and unknown, devised and intended to
devise, and participated in, a scheme and artifice to defraud defendant LAWSON
PRODUCTS’s customers of money, property, and the intangible right to the honest
services of their employees, and to obtain money and property, by means of
materially false and fraudulent pretenses, representations, and promises, as
further alleged herein.
     3. It was part of the scheme to defraud that from on or about March 11,
1992 through on or about December 15, 2005, defendant LAWSON PRODUCTS provided
substantial rewards, including approximately $9.7 million in Winners Choice
checks, to employees of its customers in order to induce them to purchase, and
to reward the employees for purchasing, merchandise from LAWSON PRODUCTS on
behalf of their employers.

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     4. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS trained its sales agents how to discuss its Illicit Programs with its
customers’ employees in order to induce and increase sales.
     5. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS taught its sales agents to use the Illicit Programs to minimize
customer complaints about pricing and price increases.
     6. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS’s sales agents occasionally told customers’ employees that the Winners
Choice certificates were “cash,” “non-traceable,” “non-taxable,” and could not
be linked to LAWSON PRODUCTS.
     7. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS directed its sales agents and Keogh to send Winners Choice cold
certificates and checks to the home addresses of the employees of the customers,
rather than the customers’ business addresses, to conceal the fact that
defendant LAWSON PRODUCTS and its sales agents were providing items of value to
its customers’ employees.
     8. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS sales agents occasionally ordered Winners Choice cold certificates and
checks in the names of the spouses of the employees of the customers to conceal
the fact that defendant LAWSON PRODUCTS and its sales agents were providing
items of value to its customers’ employees.
     9. It was further part of the scheme to defraud that on occasion employees
of defendant LAWSON PRODUCTS’s customers misrepresented to their employers that
they had not received anything of value from LAWSON PRODUCTS.

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     10. It was further part of the scheme to defraud that after its sales
agents placed an order for Winners Choice cold certificates, defendant LAWSON
PRODUCTS redacted the name of the customer from the Winners Choice order forms
defendant LAWSON PRODUCTS submitted to Keogh in order to conceal the fact that
defendant LAWSON PRODUCTS and its sales agents were providing items of value to
the customers’ employees.
     11. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS, in order to conceal the fact that employees of defendant LAWSON
PRODUCTS’s customers were receiving benefits through the Illicit Programs,
intentionally did not place defendant LAWSON PRODUCTS’s name or logo on the
Cavalcade of Awards and LPI catalogs.
     12. It was further part or the scheme to defraud that defendant LAWSON
PRODUCTS knowingly did not issue or file Internal Revenue Form 1099s, as it was
required to do, for employees of its customers receiving in excess of $600 a
year from the Illicit Programs.
     13. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS improperly deducted the cost of the Illicit Programs as business
expenses on its federal tax returns.
     14. It was further part of the scheme to defraud that defendant LAWSON
PRODUCTS misrepresented, concealed and hid, and caused to be misrepresented,
concealed and hidden, the purposes of and acts done in furtherance of the
aforementioned scheme.
     15. As a result of the scheme, defendant LAWSON PRODUCTS obtained in excess
of
$30,000,000 to which it was not entitled.

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     16. On or about March 2, 2004, at Woodstock, in the Northern District of
Illinois,
LAWSON PRODUCTS,
defendant herein, for the purpose of executing the above-described scheme and
attempting to do so, knowingly caused to be placed in an authorized depository
for mail matter, to be sent and delivered by the United States Postal Service,
according to the directions thereon, an envelope from Keogh in Woodstock,
Illinois, containing approximately $1,200 worth of Winners Choice cold
certificates, addressed to the spouse of Ronald Gholdson, an employee for
defendant LAWSON PRODUCTS’s customer Reilly Industries, Inc., at the Gholdsons’
home address in Indianapolis, Indiana.
     In violation of Title 18, United States Code, Sections 1341 and 1346.

               
 
  UNITED STATES ATTORNEY    

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Appendix B
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA,
NO
           V.
Judge
LAWSON PRODUCTS, INC.
STATEMENT OF FACTS
     1. LAWSON PRODUCTS, INC. (“LAWSON PRODUCTS”) was a publicly traded company
organized under the laws of the State of Delaware, with its principal offices in
Des Plaines, Illinois. LAWSON PRODUCTS was a distributor and marketer of
systems, services and products sold to various entities in the public and
private sectors. LAWSON PRODUCTS was the parent company of several subsidiaries,
including Drummond American Corporation and Cronatron Welding Systems, Inc.
LAWSON PRODUCTS generated approximately $400 million in sales annually.
     2. LAWSON PRODUCTS had two divisions: maintenance and repair operation (the
“MRO business”) and original equipment manufacturing (the “OEM business”). From
at least 1992 through on or about December 15, 2005, LAWSON PRODUCTS’s MRO
business engaged in corrupt sales practices carried out through its MRO sales
agents. These sales agents generally were permitted by LAWSON PRODUCTS to
negotiate with its customers over the prices their customers would pay for
LAWSON PRODUCTS merchandise. As a general rule, LAWSON PRODUCTS profits and the
sales agents’ commissions were greater if they sold products at higher prices.
     3. LAWSON PRODUCTS maintained programs for its MRO business through which
sales agents could provide items of value to individuals for purchasing LAWSON
PRODUCTS

 

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merchandise on behalf of those individuals’ employers (the “Illicit Programs”).
Among the Illicit Programs were Winners Choice, Cavalcade of Awards, LPI, and
Spike Special. LAWSON PRODUCTS administered these Illicit Programs through its
Merchandising Department until approximately December 15, 2005, when LAWSON
PRODUCTS suspended the Illicit Programs.
     4. LAWSON PRODUCTS and its sales agents often provided a greater amount of
rewards through these Illicit Programs if the individuals ordered a greater
amount of LAWSON PRODUCTS merchandise on behalf of their employers. Some LAWSON
PRODUCTS sales agents received training suggesting that they provide the
customers’ employees with rewards through the Illicit Programs totaling
approximately four to five percent of the amount of the sale.
     5. LAWSON PRODUCTS set up “promotional funds” for each sales agent that
allowed LAWSON PRODUCTS and the sales agents to split the cost of the Illicit
Programs. When a sales agent’s customer ordered merchandise, LAWSON PRODUCTS
placed a percentage of the order, based on the amount of commission earned by
the sales agent, into the promotional fund, up to a certain maximum dollar
amount. A sales agent could then use the promotional fund to pay for at least a
portion of the costs of items from the Illicit Programs. The sales agent would
pay the remainder of the costs of items from the Illicit Programs out of the
commissions the sales agents earned.
     6. LAWSON PRODUCTS trained its sales agents how to discuss its Illicit
Programs with its customers’ employees in order to induce and increase sales.
LAWSON PRODUCTS also taught its sales agents to use the Illicit Programs to
minimize customer complaints about pricing and price increases.

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     7. From the inception of the Illicit Programs until December 15, 2005,
LAWSON PRODUCTS’s sales agents provided items of value of more than a nominal
value to purchasing agents for governmental entities in violation of
governmental statutes, rules, and regulations concerning procurement. During
this same period, LAWSON PRODUCTS’s sales agents also provided items of value of
more than a nominal value to private entity purchasing agents who accepted the
items without the knowledge and consent of their employers and in violation of
their employers’ procurement policies.
     8. In order to conceal the fact that employees of LAWSON PRODUCTS’s
customers were receiving benefits through the Illicit Programs, LAWSON PRODUCTS
intentionally did not place LAWSON PRODUCTS’s name or logo on the Cavalcade of
Awards and LPI catalogs.
     9. LAWSON PRODUCTS had a policy that purported to bar sales agents from
providing items of value to employees of federal, state, and local government.
While this policy existed, LAWSON PRODUCTS did not have any meaningful
safeguards in place to detect whether its sales agents were providing items of
value to employees of federal, state, and local government. Additionally, prior
to December 15, 2005, LAWSON PRODUCTS generally took no disciplinary action
against its sales agents who it discovered were providing items of value to
employees of federal, state, and local government. LAWSON PRODUCTS also
generally took no disciplinary action against sales agents it discovered were
providing items of value to employees of private companies in violation of those
private companies’ policies.

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Winners Choice
     10. In approximately late 1991 and early 1992, LAWSON PRODUCTS
representatives met with Lawrence Keogh, the President of Keogh, Inc. (“Keogh”),
which was in the business of offering an incentive program called Winners Choice
(“WC”). LAWSON PRODUCTS decided to use Keogh’s WC program as a way to reward the
employees of its customers for purchasing LAWSON PRODUCTS merchandise on behalf
of their employers.
     11. LAWSON PRODUCTS directed Keogh to issue checks payable to employees of
LAWSON PRODUCTS’s customers and to retail stores selected by the recipients of
the checks. Keogh would mail these checks to the employees of LAWSON PRODUCTS ‘s
customers, who could then use these checks to purchase items in the designated
retail stores. LAWSON PRODUCTS’s sales agents occasionally told customers’
employees that the Winners Choice certificates were “cash,” “non-traceable,”
“non-taxable,” and could not be linked to LAWSON PRODUCTS.
     12. There were several steps that occurred before Keogh would issue these
checks:
          a. Cold Certificates. The first step was for sales agents to place
orders for “cold certificates” with LAWSON PRODUCTS, which would then inform
Keogh of the orders. The sales agents would designate the recipient, the mailing
address, the number of cold certificates, and the denomination of the cold
certificates. Although the cold certificates were limited to $10 or $25
increments, sales agents could order multiple cold certificates totaling far in
excess of $25 to be sent to a recipient.
          b. Redemption of Cold Certificates. Next, Keogh would ship, via mail
or courier, the cold certificates to the recipient at the designated address.
Along with the cold certificates, Keogh sent a list of retail stores
participating in the Winners Choice program. To

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redeem the cold certificates, the recipient would fill out an order form by
selecting a retail store and the address where Keogh should send the check. The
recipient then sent the order form back to Keogh through the mail.
          c. Checks. Once the recipient had redeemed the cold certificates,
Keogh mailed one or more checks, also known as “hot certificates,” to the
recipient. While each check was written for $50 or less, Keogh could mail
multiple checks totaling far in excess of $50 to a recipient. The checks issued
by Keogh would list two payees: (1) the individual recipient and (2) the retail
store designated by the individual recipient. The individual recipient could
then use the checks at the designated retail store.
     13. LAWSON PRODUCTS directed its sales agents and Keogh to send Winners
Choice cold certificates and checks to the home addresses of the employees of
the customers, rather than the customers’ business addresses, to conceal the
fact that LAWSON PRODUCTS and its sales agents were providing items of value to
its customers’ employees. LAWSON PRODUCTS sales agents occasionally ordered
Winners Choice cold certificates and checks in the names of the spouses of the
employees of the customers to conceal the fact that LAWSON PRODUCTS and its
sales agents were providing items of value to its customers’ employees.
     14. After its sales agents placed an order for Winners Choice cold
certificates, LAWSON PRODUCTS redacted the name of the customer from the Winners
Choice order forms that LAWSON PRODUCTS submitted to Keogh in order to conceal
the fact that LAWSON PRODUCTS and its sales agents were providing items of value
to the customers’ employees.
     15. From on or about March 11, 1992 through on or about December 15, 2005,
LAWSON PRODUCTS provided approximately $9.7 million in Winners Choice checks to

 

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employees of its customers in order to induce them to purchase, and to reward
the employees for purchasing, merchandise from LAWSON PRODUCTS on behalf of
their employers.
Cavalcade of Awards and LPI
     16. Cavalcade of Awards and LPI were programs in which LAWSON PRODUCTS and
its sales agents allowed employees of their customers to select items for
themselves from catalogs that were produced by LAWSON PRODUCTS. While the
Cavalcade of Awards and LPI programs included items, such as tools, that could
be used by customers, the catalogs also contained personal items, such as golf
equipment, electronics, and toys. Employees of LAWSON PRODUCTS’s customers could
select items based upon the amount of “points” or “banque notes” they earned
through the amount of purchases the employees caused their employers to make.
Spike Special
     17. Spike Special was a program offered at certain times of the year in
which Drummond American and its sales agents provided items of value to
employees of Drummond American’s customers if the employees purchased a certain
amount of a specific item on behalf of their employers during the time period
that the Spike Special was offered. As with the Cavalcade of Awards and LPI
programs, the Spike Special program allowed employees to select items that could
be used for their employers, such as tools, or personal items, such as golf
equipment, electronics, and toys.
     18. In many instances, LAWSON PRODUCTS provided its customers’ employees
with income greater than $600 a year through these Illicit Programs. As a
result, LAWSON PRODUCTS was obligated to issue and file Internal Revenue
Form 1099s for these individuals. On occasion, Lawrence Keogh suggested to
LAWSON PRODUCTS’s merchandising department that Keogh

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could issue and file CRS Form 1099s for these individuals on behalf of LAWSON
PRODUCTS. LAWSON PRODUCTS, however, neither issued nor asked Keogh to issue or
file IRS Form 1099s for these individuals.
     19. LAWSON PRODUCTS improperly deducted the cost of the Illicit Programs as
business expenses on its federal tax returns.
     20. On or about March 2, 2004, at Woodstock, in the Northern District of
Illinois, LAWSON PRODUCTS, knowingly caused to be placed in an authorized
depository for mail matter, to be sent and delivered by the United States Postal
Service, according to the directions thereon, an envelope from Keogh in
Woodstock, Illinois, containing approximately $1,200 worth of Winners Choice
cold certificates, addressed to the spouse of Ronald Gholdson, an employee for
LAWSON PRODUCTS’s customer Reilly Industries, Inc., at the Gholdsons’ home
address in Indianapolis, Indiana.

                 
 
  AGREED:            
 
  For LAWSON PRODUCTS:            
 
               
 
 
 
THOMAS J. NERI      
 
WILLIAM D. HEINZ    
 
  President and Chief Executive Officer Lawson Products, Inc.       JENNER &
BLOCK
Counsel for Lawson Products, Inc.    

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Appendix C
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.
FUNDS CONTAINED IN
LASALLE BANK N.A. TRUST NO.
XXXXXX IN THE NAME OF
LAWSON PRODUCTS, INC.
VERIFIED COMPLAINT FOR FORFEITURE
     The UNITED STATES OF AMERICA, by PATRICK J. FITZGERALD, United States
Attorney for the Northern District of Illinois, for its verified complaint
against the above-named defendant property, alleges in accordance with
Supplemental Rule (G)(2) of the Federal Rules of Civil Procedure as follows:
     1. This complaint for forfeiture is verified by the attached affidavit of
Special Agent Brian Murphy of the Federal Bureau of investigation, which is
fully incorporated herein.
Jurisdiction and Venue
     2. This is an in rem forfeiture action brought pursuant to Title 18, United
States Code, Section 981(a)( 1)(C) for forfeiture of the funds contained in
LaSalle Bank N.A. Trust No. XXXXXX in the name of Lawson Products, Inc. (the
“Funds”). This Court has jurisdiction over this civil asset forfeiture action
pursuant to 28 U.S.C. § 1345 and 1355.
     3. This Court has in rein jurisdiction over the defendant property pursuant
to Title 28, United States Code, Section 13 55(b)(1)(A), as certain of the acts
giving rise to this forfeiture action occurred within the Northern District of
Illinois.

 

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     4. Venue is proper under Title 28, United States Code, Section 1395(b)
because the Funds are found in this district.
     5. This forfeiture action in rem is brought pursuant to Title 18, United
States Code, Section 981(a)(1)(C).
Specific Allegations
     6. There is probable cause to believe that Lawson Products, Inc. committed
an offense against the United States, namely, mail fraud, from in or about 1992
to on or about December 15, 2005, in violation of Title 18, United States Code,
Section 1341. Specifically, Lawson Products, Inc. provided kickbacks and other
illegal rewards to its customers’ employees for purchasing Lawson Products, Inc.
merchandise on behalf of their employers. As a result of this scheme, Lawson
Products, Inc. obtained approximately $30,000,000 to which it was not entitled.
     7. On August 11, 2008, the United States filed an information against
Lawson Products, Inc., charging one count of mail fraud. On August 11, 2008,
Lawson Products, Inc. and the United States entered into a Deferred Prosecution
Agreement. Pursuant to the Agreement, Lawson Products has admitted the factual
allegations of the information and the United States has agreed to defer
prosecution for the period of three years from the date of the Agreement,
provided that Lawson Products, Inc. abide by the conditions and requirements of
the Agreement.
     8. Further, pursuant to the Agreement, Lawson Products, Inc. agreed to pay
to the United States of America a monetary penalty of $30,000,000, reduced by
any restitution payments Lawson Products, Inc. made to victims of its scheme.
Lawson Products agreed to place these funds in LaSalle Bank N.A. Trust
No. XXXXXX in three annual payments, which are to be accelerated if Lawson
Products, Inc. is sold or merged with another company. The parties agreed that
the Funds

 

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would be subject to forfeiture in a separately tiled civil complaint. Lawson
Products agreed to the entry of a judgment and agreed that the Funds shall be
forfeited and disposed of according to law.
     9. By reason of the foregoing, there is probable cause to believe that the
defendant property constitutes or is derived from proceeds traceable to
violations of Title 18, United States Code, Section 1341 (mail fraud), and is
subject to forfeiture pursuant to Title 18, United States Code,
Section 981(a)(1)(C).
     WHEREFORE, the UNITED STATES OF AMERICA prays:
     A. That the defendant property be proceeded against for forfeiture and
condemnation, that a warrant of seizure and monition issue and that due notice
be given to all interested parties to appear and show cause why the forfeiture
should not be decreed; and
     B. That the court adjudge and decree that the defendant property be
forfeited to the United States and disposed of according to law.

            Respectfully submitted,

PATRICK J. FITZGERALD
United States Attorney
      By:   s/Brandon D. Fox         BRANDON D. FOX        Assistant United
States Attorney 219 South Dearborn, Room 500 Chicago, Illinois 60604 (312)
353-5277     

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NORTHERN DISTRICT OF ILLINOIS
ss
COUNTY OF COOK
AFFIDAVIT OF BRIAN MURPHY
     BRIAN MURPHY, being duly sworn under oath, deposes and states as follows:
     1. I am a Special Agent with the Federal Bureau of Investigation in Rolling
Meadows,
Illinois. I have been employed in this capacity for approximately 17 years.
          As part of my duties, I have participated in investigations of
individuals involved in alleged criminal violations, including mail fraud, wire
fraud, and bribery offenses. Through my training and experience and discussion
with other law enforcement officers, I am familiar with the methods and
practices used by individuals involved in violations of these and other federal
and state law as it relates to their financial affairs.
     3. I have read the complaint in this matter. The facts alleged are true and
correct to the best of my knowledge and belief based upon my own personal
knowledge as well as information I have received from other agents, persons, and
documents.
     4. I declare under penalty of perjury under the laws of the United States
of America that the foregoing is true and correct.

           
 
 
 
BRIAN MURPHY, Special Agent
Federal Bureau of Investigation    

SUBSCRIBED and SWORN to before me
this                      day of                                         
                                                                           
                                                            
               NOTARY PUBLIC

 

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APPENDIX D

                 
Moog, Inc.
  $ 110,530          
Vertellus
  $ 97,760     07 CR 235
Silberline Manufacturing
  $ 41,195          
Ada S. McKinley Community Services
  $ 28,625     07 CR 234
US Steel
  $ 29,475          
International Paper
  $ 27,625          
Wesley Commons
  $ 23,700          
Cumming, Inc., Nelson Filter Division
  $ 23,325          
Caesar’s Palace
  $ 22,925          
ATC/Vancom
  $ 22,000          
Veteran Affairs Medical Center, Buffalo, NY
  $ 21,875          
IGI Labs
  $ 21,550          
Mittal Steel
  $ 21,400          
Victaulic
  $ 21.375          
Wheatland Tube
  $ 20,400          
Humboldt Utilities/Wastewater
  $ 19,625          
United Technologies
  $ 19,475          
ACW Management
  $ 18,325          
Maine Medical Center
  $ 16,850          
Hamilton college
  $ 15,675          
Town of Clay
  $ 15,575          
Michael Stores
  $ 15,195          
Bowdoin College
  $ 14,775          
Lenape Regional High School District
  $ 13,525          
General Motors – Electromotive Division
  $ 12,075          
Foremost Farms, USA Coop
  $ 12,000          
Unit Corp
  $ 11,160          
City of Long Beach
  $ 4,575     07 CR 214
Spaulding County Corrections
  $ 10,550          
Mount Vernon Mills
  $ 10,100          
Illinois School District U-46
  $ 9,875          
Marymount University
  $ 7,555          
Logan County (IL) Housing Authority
  $ 7,475          
Macon County (IL) Highway Department
  $ 4,525          
Mattoon (IL) School District
  $ 4,300          
Chicago Heights (IL) Fire Department
  $ 3,496     07 CR 232
Village of Hazel Crest, IL
  $ 3,600     07 CT 232
Orland Park (IL) Park District
  $ 1,495     07 CR 232
Lincoln (IL) High School
  $ 3,400          
Village of Ramsey, IL
  $ 3,225          
St. Mary’s Hospital (Decatur, IL)
  $ 3,225          
City of Blue Island, IL
  $ 3,125     07 CR 234
Dayton Metropolitan Housing Authority
  $ 3,030          
Village of New Lenox, IL
  $ 2,615     07 CR 232
Village of Rosemont, IL
  $ 1,200          
City of Elgin, IL
  $ 1,050          
 
               
 
               
Total
  $ 806,431