10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Form 10–Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period from                      to                     

Commission file number 333-62635

CENTURY MAINTENANCE SUPPLY, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	76-0542935 (I.R.S. Employer Identification No.)
10050 Cash Road, Suite 1 Stafford, Texas (Address of Principal Executive Offices)	77477 (Zip Code)
(281) 208-2600 (Registrant’s telephone number, including area code)
Not Applicable (Former name, former address and former fiscal year, if changed since last report).

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

The number of shares of Common Stock, $0.001 par value, outstanding (the only class of common stock of the Company outstanding) was 12,190,498 on May 13, 2002.

CENTURY MAINTENANCE SUPPLY, INC. AND SUBSIDIARIES

Quarter Ended March 31, 2002

T ABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements of Century Maintenance Supply, Inc. and Subsidiaries (Unaudited)	2
	Condensed Consolidated Balance Sheets as of December 31, 2001 and March 31, 2002	3
	Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2001 and March 31, 2002	4
	Condensed Consolidated Statement of Changes in Stockholders’ (Deficit) for the Three Months Ended March 31, 2002	5
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and March 31, 2002	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	14
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 2.	Changes in Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 5.	Other Information	15
Item 6.	Exhibits and Reports on Form 8–K	15
SIGNATURE		16

1

PART I FINANCIAL INFORMATION

ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF CENTURY

MAINTENANCE SUPPLY, INC. AND SUBSIDIARIES (UNAUDITED)

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

	December 31, 2001			March 31, 2002
				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	770		$	201
Trade accounts receivable, net		26,635			29,342
Inventory, net		35,878			37,369
Deferred income taxes		880			880
Prepaid expenses and other current assets		5,242			5,328
Total current assets		69,405			73,120
Goodwill, net		5,946			5,946
Deferred financing costs		2,000			2,137
Other assets		390			390
Property and equipment		9,896			10,186
Less accumulated depreciation		(6,468	)		(6,896	)
Net property and equipment		3,428			3,290
Deferred income taxes		344			344
Total assets	$	81,513		$	85,227

See accompanying notes.

(continued)

2

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (continued)

(In thousands, except share data)

	December 31, 2001			March 31, 2002
				(Unaudited)
Current liabilities:
Accounts payable, trade	$	9,966		$	13,451
Revolving credit facility		—			—
Income taxes payable		812			2,050
Accrued expenses		3,588			2,693
Current portion of long-term debt		13,600			14,100
Dividends payable		3,496			1,800
Total current liabilities		31,462			34,094
Long-term debt, less current portion		64,300			60,650
Redeemable exchangeable preferred stock, net $100 par value;
2,000,000 shares authorized; 527,706 shares issued and outstanding at December 31, 2001 and 562,663 issued and outstanding at March 31, 2002		51,063			54,610
Stockholders’ deficit:
Common Stock, $0.001 par value; 15,000,000 shares authorized; 12,590,536 and 12,610,536 shares issued at December 31, 2001 and March 31, 2002, respectively		13			13
Additional paid-in capital		71,176			71,376
Treasury stock, 420,061 shares at December 31, 2001 and March 31, 2002 at cost		(2,105	)		(2,105	)
Accumulated deficit		(134,396	)		(133,411	)
Total stockholders’ deficit		(65,312	)		(64,127	)
Total liabilities and stockholders’ deficit	$	81,513		$	85,227

See accompanying notes.

3

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands)

	Three months ended March 31,
	2001			2002
	(Unaudited)
Net sales	$	59,876		$	62,786
Cost of goods sold		43,490			45,470
Gross profit		16,386			17,316
Selling, general, and administrative expenses		11,198			11,530
Operating income		5,188			5,786
Interest expense		2,202			1,145
Income before income taxes		2,986			4,641
Provision for income taxes		1,161			1,805
Net income		1,825			2,836
Other comprehensive income (loss), net of tax of $87		(135	)		—
Comprehensive income	$	1,690		$	2,836

See accompanying notes.

4

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the Three Months Ended March 31, 2002

(In thousands, except share data)

	Number of Shares Issued and Outstanding	Common Stock		Additional Paid-In Capital		Treasury Stock			Accumulated Deficit			Total Stockholders’ Deficit
Balances at December 31, 2001	12,590,536	$	13	$	71,176	$	(2,105	)	$	(134,396	)	$	(65,312	)
Preferred dividends accrued (unaudited)	—		—		—		—			(1,851	)		(1,851	)
Issuance of common stock (unaudited)	20,000		—		200		—			—			200
Net income (unaudited)	—		—		—		—			2,836			2,836
Balances at March 31, 2002 (unaudited)	12,610,536	$	13	$	71,376	$	(2,105	)	$	(133,411	)	$	(64,127	)

See accompanying notes.

5

Century Maintenance Supply, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

	Three months ended March 31,
	2001			2002
	(Unaudited)
Operating activities:
Net income	$	1,825		$	2,836
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		483			428
Bad debt expense		182			167
Changes in operating assets and liabilities:
Accounts receivable		(252			(2,874	)
Inventory		(533	)		(1,491	)
Prepaid expenses and other assets		1,267			(123	)
Accounts payable		1,291			3,485
Accrued expenses		(664	)		(895	)
Income taxes payable		1,149			1,238
Net cash provided by operating activities		4,748			2,771
Investing activities:
Purchases of property and equipment		(249	)		(290	)
Financing activities:
Net repayments under revolving line of credit		(2,500	)		—
Repayments of long-term debt		(1,900	)		(3,150	)
Proceeds of sale of common stock		—			100
Net cash used in financing activities		(4,400	)		(3,050	)
Net increase (decrease) in cash and cash equivalents		99			(569	)
Cash and cash equivalents at beginning of period		4			770
Cash and cash equivalents at end of period	$	103		$	201

See accompanying notes.

6

Century Maintenance Supply, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.    Basis of Presentation

Century Maintenance Supply, Inc. and subsidiaries (collectively, the “Company”) distribute general maintenance supplies and air conditioning and heating equipment and parts to apartment complexes throughout the United States.

The condensed consolidated financial statements include the accounts of Century Maintenance Supply, Inc. and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

The condensed consolidated balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information or footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The Company’s condensed consolidated balance sheet at March 31, 2002 and the condensed consolidated statements of income, changes in stockholders’ deficit, and cash flows for the interim periods ended March 31, 2001 and 2002 have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows have been made. The results of operations for the interim periods are not necessarily indicative of the operating results for a full year or of future operations.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2001.

2.    Income Taxes

The Company’s interim provisions for income taxes were computed using its estimated effective tax rate for the year.

3.    Stockholders’ Equity

On January 12, 2002, the Company granted to its newly appointed Chief Executive Officer a non-qualified option to purchase up to 190,000 shares of Common Stock of the Company. 40,000 shares subject to the option are immediately exercisable at an exercise price of $10.00 per share. The remaining shares subject to the option become exercisable over the next three years on the anniversary of the date of grant at exercise prices between $10.00 and $15.00 per share. The option will terminate on the seven-year anniversary of the grant date. Additionally, in January 2002, the Company sold 20,000 shares of Common Stock to the Company’s Chief Executive Officer pursuant to its Stock Subscription Plan for an aggregate purchase price of $200,000 payable with a secured promissory note for $100,000 and $100,000 in cash. The promissory note bears interest at 2.75% per annum and is payable in full on April 15, 2003.

4.    Preferred Stock

In 1998, the Company sold $40.0 million of 13¼% Senior Exchangeable PIK (Payment–in–kind) Preferred Stock of which $12.0 million was sold to affiliates of the Company. The preferred stock is due in 2010 with an aggregate liquidation preference of $40.0 million or $100 per share. Dividends are payable semi–annually in cash, except that on each dividend payment date on or prior to July 1, 2003, dividends may be paid, at the Company’s option, by issuance of additional shares of preferred stock. The Company’s credit facility currently prohibits the payment of cash dividends on the preferred stock. The preferred stock is subject to mandatory redemption at its liquidation preference, plus accumulated and unpaid dividends, on July 1, 2010. The Company may redeem the

7

Century Maintenance Supply, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

preferred stock in accordance with certain redemption provisions at a date earlier than July 1, 2010. If the Company elects to redeem the preferred stock on or before July 1, 2003 the redemption price will be 113.25% of the liquidation preference price of $100 per share. Holders of preferred stock have no voting rights. Since January 1, 1999, the Company has issued 214,236 shares of additional preferred stock as payment-in-kind for dividends on the Company’s existing preferred stock.

At any time, the Company may, at its option, exchange all of the shares of preferred stock then outstanding for exchange debentures in a principal amount equal to the liquidation preference of the shares being exchanged. The exchange debentures would have interest of 13¼% and would be due in 2010. The Company’s credit facility currently prohibits the Company from exchanging the preferred stock. The Company incurred $2,803,000 of costs as part of the sale of the preferred stock which has been offset against the proceeds. For the three months ended March 31, 2002 the Company has accreted $50,102 to retained earnings as part of dividends accrued.

5.    Credit Facility

In 1998, the Company entered into a credit facility, providing for $100.0 million of secured term loan facilities and a $25.0 million revolving loan facility (the “Revolving Credit Facility”). The term loan facility consists of a $40.0 million Tranche A Term Facility and a $60.0 million Tranche B Term Facility (collectively called the “Term Loan Facility”). The Term Loan Facility will amortize over a five–year period for the Tranche A Term Facility and a seven–year period for the Tranche B Term Facility, and the Revolving Credit Facility will mature on July 8, 2003. The interest rate under the Credit Facility is variable and based, at the option of the Company, upon either a Eurodollar rate plus 2.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 2.75% (for the Tranche B Term Facility) per annum or a base rate plus 1.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 1.75% (for the Tranche B Term Facility) per annum. If the Company achieves certain performance goals, rates under the Tranche A Term Facility, the Revolving Credit Facility and the Revolving Credit Facility commitment fee (described in the following sentence) will be reduced. A commitment fee of 0.5% per annum will be charged on the unused portion of the new Revolving Credit Facility.

The credit facility contains certain non–financial and financial covenants. The Company incurred $4,552,000 of costs as part of obtaining the credit facility which have been recorded as deferred financing costs. The Company amortizes the costs over the average life of the credit facility. For the three-month period ended March 31, 2002 the Company recognized amortization expense of $195,580.

The credit facility has been amended twice to allow the Company more flexibility in meeting minimum leverage ratio, interest coverage ratio, fixed charge ratio, and minimum EBITDA covenants thereunder.

6.    Derivative Instruments and Hedging Activities

The Company is exposed to variability of future cash flows related to interest rate risk on its existing long- term debt and has entered into interest rate swap agreements to hedge their exposure which terminated on September 28, 2001.

The Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001. SFAS No. 133 requires that all derivatives be recognized as either assets or liabilities and measured at fair value, and changes in the fair value of derivatives are reported in current earnings, unless the derivative is designated and effective as a hedge. If the intended use of the derivative is to hedge the exposure to changes in the fair value of an asset, a liability or a firm commitment, then changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item’s fair value. However, if the intended use of the derivative is to hedge the exposure to variability in expected future cash flows, then changes in the fair value of the derivative instrument will generally be reported in Other Comprehensive Income (“OCI”). The gains and losses on the derivative instrument that are reported in OCI will be reclassified in earnings in the periods in which earnings are impacted by the hedged item.

There was no impact on the Company’s results of operations from the January 1, 2001 implementation of SFAS No. 133. For the three months ended March 31, 2001, the Company recorded a $135,000 net of tax loss in OCI related to its interest rate swap agreements.

8

Century Maintenance Supply, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements—(Continued)

(Unaudited)

7.    New Accounting Standards

In July 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company adopted this statement on January 1, 2002. The adoption of SFAS No. 141 had no effect on the Company’s consolidated financial position or results of operations. The Company has not completed its assessment of SFAS No. 142 as of March 31, 2002. However, management does not believe SFAS No. 142 will have a significant effect on our consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets. The Company adopted this statement during the first quarter of 2002. The adoption of this statement had no effect on the Company’s consolidated financial position or results of operations.

9

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS 

The following discussion of Century Maintenance Supply, Inc. and its subsidiaries’ (collectively, the “Company” or “Century”) condensed consolidated historical results of operations and financial condition should be read in conjunction with the condensed consolidated financial statements of the Company and the notes thereto included elsewhere in this Form 10–Q.

Forward Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report, including without limitation, certain statements under this Item 2 and the Company’s condensed financial statements and notes thereto contained elsewhere in this Report regarding the Company’s financial position, business strategy, prospects and other related matters may constitute such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Actual results could differ materially from the Company’s expectations as a result of a number of factors, including without limitation those set forth below and those located elsewhere in this Report and in the Company’s Registration Statement on Form S-4, as amended, effective January 21, 1999 (File Number 333-62635).

General

Century has grown through a combination of increasing sales at its existing distribution centers, by opening new distribution centers and through the acquisitions of Nationwide Apartment Supply, Inc. in July 1997 (the “Nationwide Acquisition”) and Champion Blind and Drapery, Inc. in April 1999 (the “Champion Acquisition”). As part of its strategy of expanding into new geographic markets, the Company opened 22 new distribution centers from 1994 through the quarter ended March 31, 2002. Historically, a typical center breaks even within three years of opening, and operating margins continue to improve as the center’s revenue grows. The Nationwide Acquisition added 11 distribution centers principally in the Midwestern United States, three of which were consolidated into existing Century centers.

Results of Operations

The following tables set forth, for the periods indicated, certain income and expense items expressed in dollars and as a percentage of the Company’s net sales.

	Three Months Ended March 31,
	2001		2002
	(unaudited) (dollars in thousands)
Net sales	$	59,876	$	62,786
Cost of goods sold		43,490		45,470
Gross profit		16,386		17,316
Selling, general and administrative expenses		11,198		11,530
Operating income		5,188		5,786
Interest expense		2,202		1,145
Income before income taxes		2,986		4,641
Provision for income taxes		1,161		1,805
Net income	$	1,825	$	2,836

10

	Three Months Ended March 31,
	2001		2002
	(unaudited)
Net sales	100.0	%	100.0	%
Cost of goods sold	72.6		72.4
Gross profit	27.4		27.6
Selling, general and administrative expenses	18.8		18.4
Operating income	8.6		9.2
Interest expense	3.7		1.8
Income before income taxes	4.9		7.4
Provision for income taxes	1.9		2.9
Net income	3.0	%	4.5	%

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

Net sales for the quarter ended March 31, 2002 were $62.8 million, an increase of $2.9 million or 4.9% over the quarter ended March 31, 2001. This increase in net sales was primarily due to comparable center growth.

The Company’s gross profit for the quarter ended March 31, 2002 was $17.3 million, an increase of $0.9 million or 5.7% over the quarter ended March 31, 2001 primarily due to the increase in net sales discussed above. As a percentage of net sales, the Company’s gross profit increased slightly to 27.6% for the quarter ended March 31, 2002 from 27.4% for the quarter ended March 31, 2001.

Selling, general and administrative expense, consisting primarily of payroll, occupancy and vehicle expenses, totaled $11.5 million for the quarter ended March 31, 2002, an increase of $0.3 million or 2.9% over the quarter ended March 31, 2001. As a percentage of net sales, selling, general and administrative expense decreased to 18.4% for the quarter ended March 31, 2002 from 18.8% in the quarter ended March 31, 2001. This decrease was primarily due to a leveraging of certain expenses.

Interest expense for the quarter ended March 31, 2002 was $1.1 million, a decrease of $1.1 million or 48.0% from the quarter ended March 31, 2001, primarily due to a decrease in market interest rates and average outstanding balance owed on the Company’s credit facility.

Liquidity and Capital Resources

The Company’s primary capital requirements have been the funding of its continued distribution center expansion program, inventory requirements and the development and implementation of customized information systems. The Company has financed its growth through a combination of internally generated funds and borrowings.

In the first three months of 2002, net cash provided by operating activities was $2.8 million, decreasing from $4.7 million of net cash used in the first three months of 2001 primarily due to increases in accounts receivable, inventory, and accounts payable in the quarter ended March 31, 2002, and a decrease in prepaid and other current assets in the quarter ended March 31, 2001. Net cash used by investing activities in the first three months of 2002 was $0.3 million, increasing slightly from $0.2 million of net cash used in the first three months of 2001. Net cash used in financing activities in the first three months of 2002 was $3.1 million, decreasing from net cash used of $4.6 million in the first three months of 2001 primarily due to the repayment under the revolving line of credit in the first quarter of 2001.

The Company currently anticipates that its capital expenditures, excluding potential acquisitions, for 2002 and 2003 will be approximately $2.0 million for each year. Inventories were $37.4 million as of March 31, 2002

11

and $35.9 million at December 31, 2001. In order to meet the needs of its customers, the Company must maintain inventories sufficient to permit same day or next day filling of most orders. The Company anticipates that its inventory levels will continue to increase primarily to support higher sales volumes and new center openings. Trade accounts receivable, net of allowances were $29.2 million at March 31, 2002 and $26.6 million at December 31, 2001. The Company generally offers 30-day credit terms to its customers. The Company’s working capital requirements are typically higher in the second and third quarters to meet seasonal demand. This is due primarily to the fact that more people move during the summer months when school is out, causing apartment managers to purchase more supplies to make apartments ready for new occupants. Also, hot summer months translate into a higher volume of HVAC sales due to the need for air conditioning parts.

The Company has outstanding indebtedness consisting of borrowings of $74.8 million under the Term Loan Facility. The Company has access to a total of $25.0 million through the Revolving Credit Facility. As of May 13, 2002, the Company had $2.5 million outstanding borrowings under the Revolving Credit Facility. The Tranche A Term Facility will mature on July 8, 2003 and the Tranche B Term Facility will mature on July 8, 2005. Annual required principal payments on the Term Loan Facility are $10.5 million, $18.8 million, $28.5 million and $17.0 million over the next four years. The Revolving Credit Facility will mature on July 8, 2003. The interest rate under the Credit Facility is variable and based, at the option of the Company, upon either a Eurodollar rate plus 2.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 2.75% (for the Tranche B Term Facility) per annum or a base rate plus 1.5% (for the Revolving Credit Facility and the Tranche A Term Facility) and 1.75% (for the Tranche B Term Facility) per annum. Pursuant to the terms of the credit facility, because the Company achieved certain performance goals, rates under the Tranche A Term Facility and the Revolving Credit Facility and the commitment fee have been reduced in increments as agreed. At May 13, 2002 the interest rate for the Revolving Credit Facility was 5.75%, the Tranche A Facility ranges from 3.9375% to 4.8125% and the Tranche B Facility ranges from 4.6875% to 4.8125%. A commitment fee of 0.375% per annum will be charged on the unused portion of the Credit Facility. The loans under the Credit Facility are collateralized by a first priority security interest in substantially all tangible and intangible assets of the Company and its subsidiaries (including the capital stock of the subsidiaries).

Borrowings under the Credit Facility are required to be prepaid with (a) 75% (or 50% upon satisfaction of a debt to adjusted EBITDA ratio) of the Company’s Excess Cash Flow, (b) 100% of the net proceeds of issuances of debt obligations of the Company and its subsidiaries, (c) 100% of the net cash proceeds from asset dispositions of the Company and its subsidiaries, (d) 50% of the net proceeds of issuances of equity of the Company and its subsidiaries, except that if an equity issuance occurs other than as part of a Public Equity Offering (as defined) of the Company’s common stock, then 100% of the net proceeds of such offering are required to be applied to prepay the Credit Facility, and (e) 100% of the net proceeds from insurance recoveries over $1.0 million and condemnations, after application of such insurance recoveries or condemnation proceeds to repair the property involved. “Excess Cash Flow,” for any period, means EBITDA (as defined) for such period, less the sum of (a)(i) permitted capital expenditures, (ii) taxes, (iii) consolidated interest expense, (iv) increases in Adjusted Working Capital (as defined) for such period, (v) scheduled and mandatory payments of debts, (vi) voluntary prepayments of the Term Loan Facility, (vii) payments in connection with purchases of the Company’s Capital Stock, (viii) cash consideration paid for certain permitted acquisitions (but excluding cash consideration funded by a borrowing under the Revolving Credit Facility), and (ix) cash dividends paid on the Exchange Preferred Stock to the extent permitted by the Credit Facility, plus the sum of: (b)(i) decreases in adjusted working capital for such period, (ii) refunds of taxes paid in prior periods, and (iii) proceeds of certain indebtedness.

The Credit Facility contains covenants restricting the ability of the Company and the Company’s subsidiaries to, among other things, (i) incur additional debt, (ii) declare dividends or redeem or repurchase capital stock, (iii) prepay, redeem or purchase debt, (iv) incur liens, (v) make loans and investments, (vi) make capital expenditures, (vii) engage in mergers, acquisitions and asset sales and (viii) engage in transactions with affiliates. The Company is also required to comply with financial covenants with respect to (a) limits on annual aggregate capital expenditures, (b) a fixed charge coverage ratio, (c) a maximum leverage ratio, (d) a minimum EBITDA and (e) an interest coverage ratio. On July 14, 2000 and December 31, 2001, the Credit Facility was amended to

12

provide more flexibility in meeting the maximum leverage ratio, interest coverage ratio, fixed charge ratio, and minimum EBITDA covenants thereunder. The Company is in compliance, as of May 13, 2002, with the provisions of the Credit Facility.

In 1998, the Company issued 280,000 shares of its Initial Preferred Stock with an aggregate liquidation preference of $28.0 million, and 120,000 shares of preferred stock pursuant to the Private Placement, with an aggregate liquidation preference of $12.0 million. On February 19, 1999, the Initial Preferred Stock was exchanged for the Company’s Series C 13¼% Senior Exchangeable PIK Preferred Stock due 2010 which has been registered under the Securities Act pursuant to the Company’s Registration Statement on Form S-4, as amended, effective January 21, 1999 (File Number 333-62635). At the election of the Company, dividends on the Exchange Preferred Stock may be paid in kind until July 1, 2003 and thereafter must be paid in cash. Since January 1, 1999, the Company has issued 214,236 shares of additional preferred stock as payment-in-kind for dividends on the Exchange Preferred Stock. The Credit Facility currently prohibits the payment of cash dividends on the Exchange Preferred Stock. The Exchange Preferred Stock is mandatorily redeemable upon a change of control and on July 1, 2010. In September 2000, the Company repurchased 51,573 shares of its redeemable exchangeable preferred stock for $3,906,655.

The Company is a holding company and relies on dividends and other distributions from its subsidiaries as its primary source of liquidity. The Company does not have and in the future may not have any assets other than the capital stock of its subsidiaries. The ability of subsidiaries of the Company to make payments to the Company when required may be restricted by law and restricted or prohibited under the terms of the Credit Facility and future indebtedness of the Company. No assurance can be made that subsidiaries of the Company will be able to pay cash dividends or make other distributions to the Company.

The Company believes that, based on current levels of operations and anticipated growth, its cash from operations, together with other available sources of liquidity, including borrowings under the Revolving Credit Facility, will be sufficient to fund its debt service obligations and implement its growth strategy over the next 12 months.

The Company or its affiliates may, from time to time depending on market conditions, purchase, refinance or otherwise retire certain of the Company’s outstanding debt and/or equity securities in the open market or by other means through open market purchases, privately negotiated purchases or exchanges, redemptions or otherwise, in each case, without public announcement or prior notice to the holders thereof, and if initiated or commenced, such purchases or offers to purchase may be discontinued at any time.

New Accounting Standard

In July 2001, the FASB issued SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and requires the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method is prohibited. SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. The Company adopted this statement on January 1, 2002. The adoption of SFAS No. 141 had no effect on our consolidated financial position or results of operations. The Company has not completed its assessment of SFAS No. 142 as of March 31, 2002. However, we do not believe SFAS No. 142 will have a significant effect on our consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 addresses financial accounting and reporting for the impairment and disposal of long-lived assets. The Company adopted this statement during the first quarter of 2002. The adoption of this statement had no effect on our consolidated financial position or results of operations.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s market risk exposure from that reported in the Company’s 10–K for the fiscal year ended December 31, 2001.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

None.

ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS

In January 2002, the Company sold 20,000 shares of its Common Stock to the Company’s Chief Executive Officer pursuant to its Stock Subscription Plan for an aggregate purchase price of $200,000, payable with a promissory note for $100,000 bearing interest at a rate of 2.75% with a fifteen month term and $100,000 in cash. The sale was exempt from registration pursuant to Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8–K

(a) Exhibits

10.22 Amendment No. 2 to Credit Agreement dated as of December 31, 2001 by and among the Company, the lenders party thereto, Salomon Brothers Inc. and Citicorp.

10.23 Secured Promissory Note, dated January 21, 2002 made by Joseph Semmer in favor of the Company.

10.24 Stock Pledge Agreement, date January 21, 2002 by and between the Company and Joseph Semmer.

(b) Reports on Form 8–K

None.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CENTURY MAINTENANCE SUPPLY, INC., a Delaware corporation
May 14, 2002	By:	/s/    RICHARD E. PENICK
		Richard E. Penick Chief Financial Officer, Vice President and Assistant Secretary (Duly Authorized Officer and Principal Financial Officer)

16

EX-10.22

EXHIBIT 10.22

AMENDMENT NO. 2 TO CREDIT AGREEMENT

    This AMENDMENT NO. 2 TO CREDIT AGREEMENT is made and entered into as of December 31, 2001, by and among CENTURY MAINTENANCE SUPPLY, INC., a Delaware corporation (the “Borrower”), and the Required Lenders (as defined in Article I of the Credit Agreement).

RECITALS

A.    The Borrower, the Lenders (as defined in Article I of the Credit Agreement), Salomon Brothers Inc, and Citicorp USA, Inc., entered into a Credit Agreement dated as of July 8, 1998 (as amended and otherwise modified to the date hereof, the “Credit Agreement”). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Credit Agreement.

B.    The Borrower requested certain changes to the Credit Agreement, and has agreed to certain changes to other provisions of the Credit Agreement.

C.    The Required Lenders are willing to so amend the Credit Agreement on the terms and conditions set forth herein.

D.    The Borrower and the Required Lenders are entering into this Amendment pursuant to Section 9.08(b) of the Credit Agreement.

AGREEMENTS

In consideration of the foregoing recitals, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and the Required Lenders agree as follows:

SECTION 1.    Defined Terms.  The definition of “EBITDA” in Section 1.01 of the Credit Agreement is amended in its entirety to read as follows:

“EBITDA” means, (except as otherwise indicated), for any period, an amount equal to, for the Borrower and its consolidated Restricted Subsidiaries, (a) the sum of Consolidated Net Income for such period, plus the following to the extent reducing Consolidated Net Income for such period: (i) the provision for taxes based on income or profits or utilized in computing net loss, (ii) Consolidated Interest Expense, (iii) depreciation, (iv) amortization, (v) solely for fiscal year 2001, inventory writeoffs that are up to $1,000,000 and (vi) any other non-cash items (other than any such non-cash item to the extent that it represents an accrual of or reserve for cash expenditures in any future period), minus (b) all non-cash items increasing Consolidated Net Income for such period (other than any such non-cash item to the extent that it will result in the receipt of

cash payments in any future period). Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the depreciation and amortization of, a Restricted Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and only if a corresponding amount would not be prohibited at the date of determination from being dividended to the Borrower by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the terms of any consensual restriction.

SECTION 2.    Investments, Loans and Advances.  Subsection (e) of Section 6.03 of the Credit Agreement is amended in its entirety to read as follows:

(e)  Investments made in connection with Permitted Acquisitions;

SECTION 3.    Mergers, Consolidations, Sales of Assets and Acquisitions.  Subsection (c) of Section 6.04 of the Credit Agreement is amended in its entirety to read as follows:

(c)  The Borrower will not, and will not permit any Restricted Subsidiary to, purchase, lease, or otherwise acquire (in one transaction or a series of transactions) any Assets or Capital Stock of any person other than in the ordinary course of the Borrower’s business, or in connection with a Permitted Acquisition.

SECTION 4.    Debt/Adjusted EBITDA Ratio.  Section 6.10 of the Credit Agreement is amended in its entirety to read as follows:

SECTION 6.10    Debt/Adjusted EBITDA Ratio.  The Debt/Adjusted EBITDA Ratio shall not exceed the following amounts as of the ends of fiscal quarters of the Borrower ending nearest to the following dates:

Fiscal Quarter Ending Nearest to	Debt/Adjusted EBITDA Ratio
	1998	1999	2000	2001	2002	2003	2004	2005
March 31		4.25	3.50	3.25	2.85	2.25	2.00	2.00
June 30		4.25	3.50	3.25	2.85	2.25	2.00	2.00
September 30	4.25	4.25	3.50	3.25	2.85	2.00	2.00	2.00
December 31	4.25	3.50	3.25	2.75	2.25	2.00	2.00	2.00

and thereafter, 2.00.

SECTION 5. Minimum EBITDA. Section 6.11 of the Credit Agreement is amended in its entirety to read as follows:

SECTION 6.11. Minimum EBITDA. The EBITDA for the fiscal year of the Borrower shall not be less than the following amounts as of the end of the following fiscal years:

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Fiscal Year Ending Nearest to December 31,	Minimum EBITDA
2000	$29,000,000
2001	30,000,000
2002	28,000,000
2003	44,000,000
2004	50,000,000
2005 and thereafter	58,000,000

SECTION 6.    Fixed Charge Coverage Ratio.  Section 6.13 of the Credit Agreement is amended in its entirety to read as follows:

SECTION 6.13    Fixed Charge Coverage Ratio.  The Fixed Charge Coverage Ratio for the period of four fiscal quarters ending nearest to each of the following dates, shall not be less than the following ratios:

Fiscal Quarter Ending Nearest to	Fixed Charge Coverage Ratio
	2000	2001	2002	2003	2004	2005
March 31	1.20	1.10	1.00	1.00	1.05	1.05
June 30	1.20	1.10	1.00	1.00	1.05	1.05
September 30	1.20	1.10	1.00	1.05	1.05	1.05
December 31	1.10	1.10	1.00	1.05	1.05	1.05

and thereafter, 1.05.

SECTION 7.    Binding Effect and Effectiveness.  This Amendment may be executed in as many counterparts as may be convenient and shall become binding when the Borrower, and the Required Lenders have each executed and delivered at least one counterpart, and shall become effective upon satisfaction of the following condition precedent: the Borrower shall have paid to each Lender that executes this Agreement an amendment fee equal to 0.25% of such Lender’s Revolving Credit Commitment and outstanding Term Loans as of the date of this Amendment.

SECTION 8.    Governing Law.  This Amendment shall be a contract made under and governed by the laws of the State of New York, without regard to the conflicts of law provisions thereof.

SECTION 9.    Reference to Credit Agreement.  Except as amended hereby, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all

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respects. On and after the effectiveness of the amendment to the Credit Agreement accomplished hereby, each reference in the Credit Agreement, to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import, and each reference to the Credit Agreement shall be deemed a reference to the Credit Agreement, as amended hereby, as the case may be.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to Credit Agreement to be duly executed by their respective officers as of the date first above written.

CENTURY MAINTENANCE SUPPLY, INC.
by	/s/  RICHARD PENICK
	Name:   Richard Penick Title:    Vice-President

Acknowledged by:
CITICORP USA, INC., as Administrative Agent and Collateral Agent
by	/s/  SUZANNE CRYMES
	Name:   Suzanne Crymes Title:    Vice President

SALOMON SMITH BARNEY INC., as Arranger, Advisor and Syndication Agent,
by	/s/  SUZANNE CRYMES
	Name:   Suzanne Crymes Title:    Attorney-in-Fact

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LENDERS

CITICORP USA, INC.
By:	/s/    SUZANNE CRYMES
	Name:   Suzanne Crymes Title:    Vice President

AIM FLOATING RATE FUND
By: INVESCO Senior Secured Management, Inc. As Attorney in fact
By:	/s/    ANNE M. MCCARTHY
	Name:   Anne M. McCarthy Title:    Authorized Signatory

FIRST UNION NATIONAL BANK
By:	/s/    MARK B. FELKER
	Name:   Mark B. Felker Title:    Senior Vice President

ING US CAPITAL CORPORATION
By:
	Name:    Title:

KZH ING - 1 L.L.C.
By:
	Name:    Title:

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KZH ING-2 L.L.C.
By:	/s/    ANTHONY IARROBINO
	Name:   Anthony Iarrobino Title:    Authorized Agent

ROYAL BANK OF CANADA,
By:	/s/    SUZANNE KAICHER
	Name:   Suzanne Kaicher Title:    Manager

KZH SOLEIL-2 L.L.C.,
By:	/s/    ANTHONY IARROBINO
	Name:   Anthony Iarrobino Title:    Authorized Agent

TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY,
By:	/s/    BILL HENRICKSON
	Name:   Bill Henrickson Title:    Vice President

WELLS FARGO BANK,
By:	/s/    S. MICHAEL ST. GEME
	Name:   S. Michael St. Geme Title:    Vice President

DRESDNER BANK AG, New York and Grand Cayman Branches
By:	/s/    FARAAZ KAMRAN
	Name:   Faraaz Kamran Title:    Assistant Vice President

By:	/s/    GABRIELA FIELDS
	Name:   Gabriela Fields Title:    Associate

6

GALAXY CLO 1999-1 LTD,
By:	/s/    THOMAS G. BRANDT
	Name:   Thomas G. Brandt Title:    Authorized Agent

KZH CYPRESSTREE-1 LLC
By:	/s/    ANTHONY IARROBINO
	Name:   Anthony Iarrobino Title:    Authorized Agent

KZH STERLING LLC
By:	/s/    ANTHONY IARROBINO
	Name:   Anthony Iarrobino Title:    Authorized Agent

SEQUILS-CENTURION V. LTD.,
By:	/s/    MICHAEL M. LEYLAND
	Name:   Michael M. Leyland Title:    Managing Director

CENTURION CDO II, LTD.,
By: American Express Asset Management Group Inc, as Collateral Manager
By:	/s/    MICHAEL M. LEYLAND
	Name:   Michael M. Leyland Title:    Managing Director

7

SEQUILS-ING 1 (HBDGM), LTD.,
By ING Capital Advisors, LLC, as Collateral Manager
By:	/s/    KURT WEGLEITNER
	Name:   Kurt Wegleitner Title:    Sr. Vice President

ENDURANCE CLO I, LTD.,
By ING Capital Advisors, LLC, as Portfolio Manager
By:	/s/    KURT WEGLEITNER
	Name:   Kurt Wegleitner Title:    Sr. Vice President

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EX-10.23

Exhibit 10.23

SECURED PROMISSORY NOTE

$100,000.00 January 21, 2002

FOR VALUE RECEIVED, the undersigned Joseph Semmer (“Borrower”) hereby promises to pay to the order of Century Maintenance Supply, Inc., a Delaware corporation (“Payee”), the principal sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00). The principal balance of this Promissory Note shall be payable in full by Borrower on that date which is fifteen (15) months from the date hereof.

Borrower shall pay interest on the unpaid principal balance of this Promissory Note, computed for the actual number of days elapsed on the basis of a 365/366 day year, at a rate per annum equal to two and seventy-five hundredths percent (2.75%), such interest rate being the minimum Federal statutory rate as of the date hereof. Accrued interest from the date hereof shall be due and payable on the stated maturity date, or on such earlier date as the Promissory Note is paid in full.

Payments of principal or interest on this Promissory Note shall be made in legal tender of the United States of America and shall be made at such place as Payee shall have designated to Borrower. If the date set for any payment of principal or interest on this Promissory Note is a Saturday, Sunday or legal holiday, then such payment shall be due on the next succeeding business day.

As of the date hereof, Borrower has purchased certain shares of common stock of the Company, par value $.001 per share (the “Shares”) of the Payee pursuant to the terms of that certain Stock Subscription Agreement (the “Subscription Agreement”) dated January 21, 2002, by and between Payee and Borrower. Payment of this Promissory Note shall be secured by the a pledge of TEN THOUSAND (10,000) of the Shares, as provided in that certain Stock Pledge Agreement of even date herewith by and between Payee and Borrower (the “Pledge Agreement”).

The principal balance of this Promissory Note may be prepaid at any time, in whole or in part, without premium or penalty. Any such prepayment shall first be applied to all accrued and unpaid interest due on the Promissory Note and then to the unpaid balance of the principal amount. In the event of a transfer by Borrower of any or all of the Shares to anyone, Borrower shall immediately pay the principal balance of this Promissory Note in accordance with the provisions of Section 6 of the Pledge Agreement.

In the event Borrower shall (i) fail to make complete payment of principal or interest when due under this Promissory Note; (ii) fail to make the prepayment of principal on this Promissory Note upon a sale of Shares as required by the fourth paragraph hereof; or (iii) breach or default under the the Pledge Agreement, Payee may accelerate this Promissory Note and declare the entire unpaid principal amount of this Promissory Note to be immediately due and

payable and, thereupon, the unpaid principal amount shall become and be immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind (all of which are hereby expressly waived by Borrower). The failure of Payee to accelerate this Promissory Note shall not constitute a waiver of any of Payee’s rights under this Promissory Note as long as Borrower’s default under this Promissory Note or breach of or default under the Pledge Agreement continues.

The provisions of this Promissory Note shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the conflicts of law rules thereof. In the event that Payee is required to take any action to collect or otherwise enforce payment of this Promissory Note, Borrower agrees to pay such reasonable attorneys’ fees, court costs and other expenses as Payee may incur as a result thereof, whether or not suit is commenced.

The terms and provisions of this Promissory Note shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Payee and any assignee or transferee of this Promissory Note. In the event of such transfer or assignment, the rights and privileges conferred upon Payee shall automatically extend to and be vested in such assignee or transferee, all subject to the terms and conditions hereof. Borrower’s obligations, rights or any interest hereunder may not be delegated or assigned without the written consent of Payee.

All notices, requests, demands or other communications under this Promissory Note shall be delivered in accordance with the provisions of Section 13(b) of the Pledge Agreement to the address(es) set forth therein.

IN WITNESS WHEREOF, this Promissory Note has been duly executed and delivered by Borrower on the date first above written.

BORROWER:

/s/    Joseph Semmer

Joseph Semmer

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EX-10.24

EXHIBIT 10.24

STOCK PLEDGE AGREEMENT

THIS STOCK PLEDGE AGREEMENT (this “Pledge Agreement”) is made as of January 21, 2002, between Joseph Semmer as pledgor (“Pledgor”), and Century Maintenance Supply, Inc., a Delaware corporation, as pledgee (“Pledgee”).

RECITALS:

A.    Pursuant to that certain Subscription Agreement dated January 21, 2002 (the “Subscription Agreement”) by and between Pledgee and Pledgor, Pledgor has agreed to purchase 20,000 shares of common stock (the “Shares”), $.001 par value per share, of Pledgee at a price of $10.00 per share.

B.    Pledgor desires to purchase the Shares and Pledgee has agreed that Pledgor may pay one half of the purchase price for the Shares by delivering a secured promissory note (the “Note”).

C.    Pledgor is required to execute this Pledge Agreement to secure payment in full of all obligations under the Note, whether for principal, interest, or otherwise, by pledging 10,000 of the Shares (the “Pledged Shares”) to ensure compliance with the terms and conditions of the Note and this Pledge Agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions contained herein, the parties hereto agree as follows:

1.    Grant of Security Interest in the Pledged Shares.    Pledgor hereby grants to Pledgee a security interest in, pledges and hypothecates the Pledged Shares to Pledgee, and deposits the certificate evidencing the Pledged Shares (the “Certificate”) with Pledgee as collateral security for the payment by Pledgor of all obligations existing under the Note, whether for principal, interest, or otherwise, and the satisfaction of all obligations of Pledgor under this Pledge Agreement. The Certificates, together with one or more stock assignments duly executed in blank with signatures appropriately guaranteed or witnessed, are being delivered herewith to Pledgee, to be retained by Pledgee as the pledgeholder for the Pledged Shares.

2.    Representation and Warranty of Pledgor.    Pledgor represents and warrants to Pledgee that the Pledged Shares are free and clear of all claims, mortgages, pledges, liens and other encumbrances of any nature whatsoever, except (a) the liens and restrictions set forth

1

herein and in the Note and (b) any restrictions upon sale and distribution imposed by the Securities Act of 1933, as amended (the “Act”), applicable state securities laws, the Option Agreement and the Plan.

3.    Voting of Pledged Shares.    So long as there shall exist no Event of Default (as hereinafter defined), Pledgor shall be entitled to exercise, as Pledgor deems proper but in a manner not inconsistent with the terms hereof, Pledgor’s rights to voting power with respect to the Pledged Shares. Pledgee, and not Pledgor, shall be entitled to vote the Pledged Shares at any time that there exists an Event of Default.

4.    Distributions; Dividends.    Other than (a) liquidating dividends or (b) distributions in kind, as described in Section 13(a), so long as there shall exist no Event of Default, Pledgor shall be entitled to receive any dividend (ordinary or extraordinary, whether paid in cash, stock or property) or other distribution with respect to the Pledged Shares other than . If there exists an Event of Default, such dividend or other distribution shall be delivered to Pledgee to be held as additional collateral security under this Pledge Agreement.

5.    Pledgee’s Duties.    So long as Pledgee exercises reasonable care with respect to the Pledged Shares in its possession, Pledgee shall have no liability for any loss or damage to such Pledged Shares, and in no event shall Pledgee have liability for any diminution in value of the Pledged Shares occasioned by economic or market conditions or events. Pledgee shall be deemed to have exercised reasonable care within the meaning of the preceding sentence if the Pledged Shares in its possession are accorded treatment substantially equal to that which Pledgee accords its own property, it being understood that Pledgee shall not have any responsibility under this Pledge Agreement for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to the Pledged Shares, whether or not Pledgee has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any person or entity with respect to the Pledged Shares.

6.    Release from Pledge.    No Pledged Shares may be transferred by Pledgor unless Pledgor has made payment to Pledgee of all unpaid obligations existing under the Note (whether or not then due and payable), whether for principal, interest, or otherwise and all unsatisfied obligations of Pledgor under the Note and this Pledge Agreement. In the event of (a) purchase by Pledgee from Pledgor of a number of the Pledged Shares sufficient to repay in full all obligations under the Note, whether for principal, interest, or otherwise or (b) repayment by Pledgor in full of all obligations under the Note, whether for principal, interest, or otherwise, the Pledged Shares shall be released from this Pledge Agreement. Pledgor hereby authorizes and directs Pledgee, upon receipt by Pledgor of payment to complete and execute the stock assignment or stock assignments delivered herewith to effectuate such transfer.

7.    Sale of Collateral.    Upon the occurrence of any Event of Default, Pledgee shall have all the rights and remedies of a secured party under the applicable Uniform Commercial Code and also may, without notice, except as specified below, at its option, sell all or any part of the Pledged Shares, for cash, note or other property upon credit for future delivery or upon such other terms as Pledgee may deem commercially reasonable. Upon such sale, Pledgee, unless

2

prohibited by a provision of any applicable statute, may purchase all or any part of the Pledged Shares being sold, free from and discharged of all trusts, claims, rights of redemption and equities of Pledgor. If the proceeds of any sale of the Pledged Shares shall be insufficient to pay all amounts due under the Note and satisfy the obligations of Pledgor under the Note and this Pledge Agreement, including collection costs and expenses of such sale, Pledgor shall remain obligated and liable for any deficiency with respect thereto. If, at any time when Pledgee shall determine to exercise its rights to sell all or any part of the Pledged Shares pursuant to this Section 7, such Pledged Shares, or the part thereof to be sold, shall not be effectively registered under the Act as then in effect or any similar statute then in force, subject to the provisions of Section 9 hereof, Pledgee, in its sole and absolute discretion, is hereby expressly authorized to sell such Pledged Shares, or any part thereof, by private sale in such manner and under such circumstances as Pledgee may deem necessary or advisable in order that such sale may be effectuated legally without such registration. Without limiting the generality of the foregoing, Pledgee, in its sole and absolute discretion, may approach and negotiate with a restricted number of potential purchasers to effectuate such sale or restrict such sale to a purchaser or purchasers who shall represent and agree that such purchaser or purchasers are purchasing for its or their own account, for investment only, and not with a view to the distribution or sale of such Pledged Shares or any part thereof. Any sale conducted in the manner described in the foregoing sentence shall be deemed to be a sale conducted in a commercially reasonable manner within the meaning of the applicable Uniform Commercial Code, and Pledgor hereby consents and agrees that Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Shares at a price which is not unreasonably low, notwithstanding the possibility that a substantially higher price might be realized if the sale were public. Pledgee shall not be obligated to make any sale of the Pledged Shares regardless of notice of sale having been given. Pledgee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and any such sale may, without further notice, be made at the time and place to which it was so adjourned.

8.    Redemption of Collateral.    Notwithstanding any other provision of this Pledge Agreement, upon the occurrence of an Event of Default, Pledgee shall give Pledgor written notice of the time and place of any public sale or of the time on or after which any private sale or other transfer is to be made at least five (5) days before the date fixed for any public sale or before the day on or after which any private sale or other transfer is to be made. Pledgor agrees that, to the extent notice of sale shall be required by law, such five (5) days’ notice shall constitute reasonable notification. This notice shall also specify the aggregate outstanding monetary obligations of the Pledgor to Pledgee at the date of such notice (the “Total Obligation”). At any time during such five–day period, Pledgor shall have the right to redeem the Pledged Shares by the payment by wire transfer or certified or bank cashier’s check of an amount equal to the Total Obligation.

9.    Events of Default.    At the option of Pledgee, the principal balance of the Note, and all other obligations of Pledgor to Pledgee thereunder and hereunder, shall become and be immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind (all of

3

which are hereby expressly waived by Pledgor), upon the occurrence of any of the events set forth below (individually, an “Event of Default”):

(a)  Pledgor shall fail to make complete payment of principal or interest when due under the Note; or

(b)  Pledgor shall commit a breach of or default under the Note or this Pledge Agreement.

10.    Termination.    This Pledge Agreement shall terminate only upon payment to Pledgee of all unpaid obligations existing under the Note and all unsatisfied obligations of Pledgor under this Pledge Agreement. Upon termination of this Pledge Agreement, Pledgor shall be entitled to the return of the Certificates then held by Pledgee and any other collateral security then held by Pledgee pursuant to Section 4 of this Pledge Agreement.

11.    Cumulation of Remedies; Waiver of Rights.    The remedies provided herein in favor of Pledgee shall not be deemed exclusive but shall be cumulative and shall be in addition to all of the remedies in favor of Pledgee existing at law or in equity. Nothing in this Pledge Agreement shall require Pledgee to proceed against or exhaust its remedies against the Pledged Shares before proceeding against Pledgor or executing against any other security or collateral securing performance of Pledgor’s obligations to Pledgee under the Note or this Pledge Agreement. No delay on the part of Pledgee in exercising any of its options, powers or rights, or the partial or single exercise thereof, shall constitute a waiver thereof.

12.    Execution of Endorsements, Assignments, Etc.    Upon the occurrence of an Event of Default, Pledgee shall have the right for and in the name, place and stead of Pledgor to execute endorsements, assignments or other instruments of conveyance or transfer with respect to all or any of the Pledged Shares and any other shares of the capital stock of Pledgee or other property which is held by Pledgee as collateral security pursuant to this Pledge Agreement.

13.    Miscellaneous.

(a)  Further Assurances; Changes in Capitalization.    Each party hereto agrees to perform any further acts and execute and deliver any documents which may be reasonably necessary to carry out the intent of this Pledge Agreement. The provisions of this Pledge Agreement shall apply to any and all stock or other securities of the Pledgee or any successor or assign of the Pledgee, which may be issued in respect of, in exchange for or in substitution of, the Pledged Shares by reason of any split, reverse split, recapitalization, reclassification, combination, merger, consolidation or otherwise, and such Pledged Shares or other securities shall be encompassed within the term “Pledged Shares” for purposes of this Pledge Agreement and the Pledgee shall have a security interest in all such securities on the same terms set forth in this Pledge Agreement.

(b)  Notice.    Except as otherwise provided herein, all notices, requests, demands and other communications under this Agreement shall be in writing, and if by telecopy,

4

shall be deemed to have been validly served, given or delivered when sent, or if by personal delivery or messenger or courier service, or by registered or certified mail, shall be deemed to have been validly served, given or delivered upon actual delivery, at the following addresses, telephone and facsimile numbers (or such other address(es), telephone and facsimile numbers a party may designate for itself by like notice):

If to Pledgee:

Century Maintenance Supply, Inc.

10050 Cash Road, Suite 1

Stafford, Texas 77477

Attention:    Chief Financial Officer

Telephone:  (281) 208-5000

Telecopy:    (281) 208-5094

If to Pledgor:

Mr. Joseph Semmer

(c)  Amendments.    This Pledge Agreement may be amended only by a written agreement executed by the parties hereto.

(d)  Governing Law.    This Pledge Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

(e)  Disputes.    In the event of any dispute between the parties arising out of this Pledge Agreement, the prevailing party shall be entitled to recover from the nonprevailing party the reasonable expenses of the prevailing party including, without limitation, reasonable attorneys’ fees.

(f)  Entire Agreement.    This Pledge Agreement constitutes the entire agreement and understanding among the parties pertaining to the subject matter hereof and supersedes any and all prior agreements, whether written or oral, relating hereto.

(g)  Successors and Assigns.    Pledgee shall have the right to assign with absolute discretion any or all of its rights and/or obligations and/or delegate any or all of its duties under this Agreement to any of its affiliates, successors and/or assigns, including, without limitation (i) to any of its banks or lending institutions as collateral security, or (ii) to any entity succeeding the Pledgee by merger, consolidation or acquisition of all or substantially all of the Pledgee’s assets, and this Agreement shall inure to the benefit of, and be binding upon, such respective affiliates, successors and/or assigns of Pledgee in the same manner and to the same

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extent as if such affiliates, successors and/or assigns were original parties hereto. Unless specifically provided herein to the contrary, Pledgor may not assign any or all of its rights and/or obligations and/or delegate any or all of its duties under this Pledge Agreement without the prior written consent of Pledgee. Upon an assignment of any or all of Pledgor’s rights and/or obligations and/or a delegation of any or all of its duties under this Pledge Agreement in accordance with the terms of this Pledge Agreement, this Pledge Agreement shall inure to the benefit of, and be binding upon, Pledgor’s respective affiliates, successors and/or assigns in the same manner and to the same extent as if such affiliates, successors and/or assigns were original parties hereto.

(h)  Headings.    Introductory headings at the beginning of each section and subsection of this Pledge Agreement are solely for the convenience of the parties and shall not be deemed to be a limitation upon or description of the contents of any such section and subsection of this Pledge Agreement.

(i)  Counterparts.    This Agreement may be executed in two counterparts, each of which shall be deemed an original and both of which, when taken together, shall constitute one and the same Pledge Agreement.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge Agreement as of the day and year first above written.

PLEDGEE:
CENTURY MAINTENANCE SUPPLY, INC., a Delaware corporation
By:	/s/    Richard E. Penick
	Richard E. Penick Vice President, Chief Financial Officer and Assistant Secretary

PLEDGOR:

/s/    Joseph Semmer

Joseph Semmer

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