Document:

<PAGE>   1
                                                                  EXHIBIT 10.20
                          FIRST MODIFICATION AGREEMENT

         THIS FIRST MODIFICATION AGREEMENT (the "Agreement") is made to be
effective as of the 9th day of March, 2000, by and between CRAFTMADE
INTERNATIONAL, INC., a Delaware corporation ("Borrower"), and ALLIANZ LIFE
INSURANCE COMPANY OF NORTH AMERICA, a Minnesota corporation ("Lender").

                                R E C I T A L S:

         A. Lender made a loan (the "Loan") in the original principal amount of
Nine Million Two Hundred Thousand and No/100 Dollars ($9,200,00.00) to Borrower.

         B. To evidence the Loan, Borrower executed and delivered to Lender that
certain Promissory Note (the "Note") dated December 21, 1995, payable to the
order of Lender in the original principal sum of Nine Million Two Hundred
Thousand and No/100 Dollars ($9,200,000.00), bearing interest and being payable
as therein provided

         C. Payment of the Note is secured by, among other instruments, that
certain Deed of Trust, Mortgage and Security Agreement (the "Deed of Trust") of
even date therewith executed by Borrower for the benefit of Lender, encumbering
certain real property located in Dallas County, Texas, more particularly
described on Exhibit A attached hereto and incorporated herein for all purposes,
and certain other property more particularly described in the Deed of Trust (the
"Property").

         D. The Deed of Trust is recorded in Volume 95249, Page 01387 of the
Real Property Records of Dallas County, Texas, said Deed of Trust and the record
thereof being incorporated herein for all purposes.

         E. Payment of the Note is further secured by, among other instruments,
that certain Assignments of Rents and Leases (the "Assignment of Leases") of
even date with the Note, executed by Borrower for the benefit of Lender and
recorded in Volume 95249, Page 01417 of the Real Property Records of Dallas
County, Texas.

         F. The Note, the Deed of Trust, the Assignment of Leases, that certain
Environmental Indemnity dated as of December 21, 1995, executed by Borrower for
the benefit of Lender, any financing statements executed in connection with the
Loan, and all other instruments evidencing, securing or relating to the Loan,
and all other instruments evidencing, securing or relating to the Loan, as same
may have been modified or amended, are herein sometimes referred to collectively
as the "Loan Documents."

         G. Lender is the current owner and holder of the Loan Documents and
Borrower is the owner of the legal and equitable title to the Premises and is
the obligor under the Loan Documents.

<PAGE>   2
         H. Borrower and Lender desire to modify certain terms and provisions of
the Loan Documents as more specifically provided hereinbelow.

         NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Borrower and Lender hereby
agree as follows:

                              A G R E E M E N T S:

         1. Additional Advance. Lender and Borrower agree that as of the
effective date of this agreement, the outstanding principal amount of the Note
is Four Million Eight Hundred Eighty-Four Thousand Two Hundred Thirty-Seven and
30/100 Dollars ($4,884,237.30). Subject to the timely satisfaction of each of
the conditions precedent set forth in this Agreement, Lender agrees to advance
to Borrower, and Borrower agree to borrow from Lender, pursuant to the terms of
the Note and other Loan Documents (as same may be amended hereby), the sum of
Four Million Three Hundred Fifteen Thousand Seven Hundred Sixty-Two and 70/100
Dollars ($4,315,762.70) (the "Additional Advance"), such that the outstanding
principal balance of the Loan will again be Nine Million Two Hundred Thousand
and No/100 Dollars ($9,200,000.00).

         2. Modification of Note. Borrower acknowledges and agrees that with the
disbursement of the Additional Advance, the unpaid principal balance of the Note
is Nine Million Two Hundred Thousand and No/100 Dollars ($9,200,000.00).
Borrower and Lender agree that the Note is hereby modified as follows:

                  (a) Beginning as of April 1, 2000, the principal balance
         outstanding from time to time shall bear interest at the rate of eight
         and 302/1000 percent (8.302%) per year, and such rate shall be the
         "Note Rate" as defined in the Note. Except to the extent otherwise
         required by paragraph C.7 of the Note, interest shall be computed on
         actual days elapsed and based on a year of twelve (12) months of thirty
         (30) days each.

                  (b) On each "Payment Date" to and including December 1, 2007,
         payments of principal and interest in the amount of One Hundred
         Thousand Three Hundred Seventy-Eight and No/100 Dollars ($100,378.00)
         shall be due and payable (the "Monthly Installment"). "Payment Date"
         means the first day of each consecutive calendar month commencing May
         1, 2000.

                  (c) The entire remaining principal amount, together with any
         accrued and unpaid interest and all other amounts due under the Loan
         Documents, shall be due and payable in full on January 1, 2008 ("Final
         Installment").

         3. Modification of Other Loan Documents. All of the Loan Documents
shall be and hereby are amended to the extent necessary to make the recitations
and contents thereof consistent with the terms of this Agreement. The provisions
of the Loan Documents, as amended hereby, shall continue to be applicable to and
govern the Loan (inclusive of the Additional Advance).

<PAGE>   3
         4. Representations and Warranties. Borrower hereby makes the following
representations and warranties to Lender, it being hereby acknowledged by
Borrower that Lender is relying upon such representations and warranties as a
material inducement to Lender's execution hereof and the making of the
Additional Advance:

                  (a) The statements contained herein and in all documentation
         provided to Lender and all other representations or statements made by
         or on behalf of Borrower to Lender in connection with this Agreement
         are true and complete to the best of Borrower's knowledge and do not
         omit any fact or information material to Lender's evaluation hereof and
         of Borrower's compliance with the conditions for the consummation of
         the modification contemplated hereby.

                  (b) Borrower is not insolvent and will not be rendered
         insolvent by this Agreement or by any of the transactions contemplated
         hereby.

                  (c) To the best of Borrower's knowledge, all representations
         and warranties made by Borrower in the Loan Documents remain true and
         correct in all material respects, except as may have been otherwise
         disclosed in writing to Lender prior to the execution hereof.

                  (d) To the best of Borrower's knowledge, Borrower is in full
         compliance with all covenants, agreements and obligations of Borrower
         set forth in the Loan Documents and no default exists thereunder, nor
         does any event or circumstances exist which with the passage of time or
         the giving of notice, or both, would constitute a default under the
         Loan Documents.

                  (e) Borrower has no setoffs, counterclaims, defenses or other
         causes of action against Lender arising out of the Loan, the Loan
         Documents, any other indebtedness of Borrower to Lender, or otherwise,
         and to the extent any such setoffs, counterclaims, defenses or other
         causes of action may exist, whether known or unknown, said items are
         hereby waived by Borrower.

                  (f) To the best of Borrower's knowledge, Lender has duly
          performed all its obligations under the Loan Documents;

                  (g) The figures recited herein,  including the amount of the
         outstanding  principal  balance of the Note, are accurate.

                  (h) Borrower is the sole legal and beneficial owner of the
         Property and is the sole occupant of the Property, there being no
         leases in effect with respect to the Property as of the date of this
         Agreement.

                  (i) To the  best of the Borrower's knowledge, the Property is
         in compliance with all applicable government laws, rules and
         regulations.

<PAGE>   4
                  (j) Borrower has all requisite authority to enter into this
         Agreement and to execute this Agreement and all other documents
         contemplated hereby, and this Agreement constitutes the legal, valid
         and binding obligations of Borrower enforceable in accordance with its
         terms. The execution and delivery of this Agreement does not
         contravene, result in a breach of, or constitute a default under any
         deed of trust, loan agreement, indenture or other contract or agreement
         to which Borrower is bound, nor would such execution and delivery
         constitute such a default with the passage of time or the giving of
         notice, or both.

                  (k) The lien of the Deed of Trust is valid and subsisting and
         shall remain an enforceable and valid first lien against the Property
         to secure the payment of all amounts (including, without limitations,
         the outstanding principal balance of the Note, inclusive of the
         Additional Advance) and the performance of all obligations described in
         the Deed of Trust as being secured thereby.

                  (l) The survey of the Property delivered in connection with
         the Loan, dated as December 21, 1995 and certified by G. Dennis Qualls
         (RPLS No. 4276), continues to be an accurate survey of the Property,
         and there have been no alterations to the improvements included in the
         Property which would cause such survey to be inaccurate as of the
         effective date of this Agreement.

                  (m) The indebtedness relating to the NationsBank Financing
         Statement (as hereinafter defined) has been paid in full, and
         NationsBank (as hereinafter defined) has no security interest in any
         part of the Property. For purposes of the preceding sentence, the term
         "NationsBank Financing Statement" refers to that certain financing
         statement filed in the Real Property Records of Dallas County, Texas,
         on April 19, 1996, and recorded in said records at Volume 96002, Page
         2026, naming NationsBank of Texas, N.A. ("NationsBank") as "Secured
         Party" and Borrower as "Debtor."

         6. Release of Claims. Borrower, on behalf of itself, its partners and
their respective successors and assigns (collectively and individually,
"Borrower Parties"), hereby fully, finally and completely RELEASE AND FOREVER
DISCHARGE Lender and its successors, assigns, affiliates, subsidiaries, parents,
officers, shareholders, directors, employees, attorneys, agents and properties,
past present and future, and their respective heirs, successors and assigns
(collectively and individually, "Lender Parties"), of and from any and all
claims, controversies, disputes, liabilities, obligations, demands, damages,
debts, liens, actions and causes of action of any and every nature whatsoever,
known or unknown, whether at law, by statute or in equity, in contract or in
tort, under state or federal jurisdiction, and whether or not the economic
effect of such alleged matters arise or are discovered in the future, which
Borrower Parties now have or may claim to have against Lender Parties arising
out of or with respect to any and all transactions relating to the Loan or the
Loan Documents occurring on or before the date hereof, including any loss, cost
or damage of any kind or character arising out of or in any way connected with
or in any way resulting from the acts, actions or omissions of Lender Parties
occurring on or before the date hereof. The foregoing release is intended to be,
and is, a full, complete and general release in favor of Lender Parties with
respect to all claims, demands, actions, causes of action and other matters
described therein, including

<PAGE>   5

specifically, without limitation, any claims, demands or causes of action based
upon allegations of breach of fiduciary duty, breach of any alleged duty of fair
dealing in good faith, economic coercion, usury, or any other theory, cause of
action, occurrence, matter or thing which might result in liability upon Lender
Parties arising or occurring on or before the effective date hereof. Borrower
Parties understand and agree that the foregoing general release is in
consideration for the agreements of Lender contained herein and that they will
receive no further consideration for such release.

         7. Default and Remedies. Subject to any applicable notice and grace
periods set forth in the Loan Documents, any default by Borrower in the
performance of its obligations herein contained or any inaccuracy in the
representations and warranties made by Borrower herein shall constitute a
default under the Loan Documents and shall entitle Lender to exercise all of its
rights and remedies set forth in the Loan Documents. In addition to any rights
and remedies of Lender set forth in the Loan Documents, Borrower shall pay all
reasonable legal costs incurred by Lender in any legal action involving the Loan
Documents or the indebtedness evidenced and secured thereby. Further, Borrower
shall not oppose the immediate appointment of a third party receiver upon a
voluntary bankruptcy filing by Borrower or in any case where a creditor may
attempt to claim a preference on the cash flow from the collateral securing
Lenders' debt.

         8. Ratification of Loan Documents. This Agreement is only a
modification of the Loan Documents and not a novation of same. Except as
expressly set forth herein, the provisions, representations and conditions set
forth in the Loan Documents, which are incorporated herein, are unmodified and
shall remain in full force and effect; and Borrower does hereby ratify and
confirm such provisions, representations and conditions, as amended hereby.

         9. Lien of Deed of Trust. It is the intent of the Lender and Borrower
that the amount of indebtedness secured by the lien of the Deed of Trust shall
be taken up and renewed, such that as of the date of disbursement of the
Additional Advance the Deed of Trust shall secure the full principal balance of
the Note in the amount of Nine Million Two Hundred Thousand Dollars
($9,200,000.00) as well as the payment and performance of all other indebtedness
and obligations described in the Deed of Trust. Borrower hereby ratifies,
confirms and adopts all mortgages, liens, security interests, assignments and
encumbrances under the Deed of Trust and agrees that the Deed of Trust shall
continue in full force and effect for the purpose of securing the performance
and payment of all the indebtedness and obligations therein described, including
specifically, without limitation, all indebtedness evidence by the Note
(inclusive of the Additional Advance), as modified herein, and all renewals and
extensions thereof. Borrower agrees to execute any instruments which, in the
opinion of Lender, are necessary to perfect such mortgages, liens, security
interests, assignments and encumbrances.

         10. Title Insurance Policy. Simultaneously with the execution hereof,
Borrower shall furnish, or cause to be furnished, to Lender, at Borrower's
expense, a Mortgage Policy of Title Insurance (the "Title Policy") in the amount
of Nine Million Two Hundred Thousand Dollars ($9,200,000.00) insuring that the
lien of the Deed of Trust is a first lien on the Property subject only to such
exceptions as may be approved by Lender in its sole discretion.

<PAGE>   6
         11. Lift of Bankruptcy Stay. Notwithstanding any provision in the Loan
Documents to the contrary, in the event Borrower shall make application for or
seek relief or protection under any of the sections or chapters of the Code or
in the event that any involuntary petition is filed against Borrower under any
section of the Code, Lender shall thereupon be entitled, to the full extent
allowed by applicable law, to immediate relief from any automatic stay imposed
by Section 362 of the Code, or otherwise, on or against the exercise of the
rights and remedies otherwise available to Lender pursuant to the Loan
Documents and as otherwise provided by law.

         12. Fees. Simultaneously with the execution of this Agreement, Borrower
shall pay all costs and expenses incurred by Lender in connection with the
negotiation, preparation and execution of this Agreement. Without limiting the
generality of the preceding sentence, Borrower shall pay all attorneys' fees,
title company charges (including UCC searches), escrow fees and recording costs
incurred by Lender in connection with this Agreement. In addition to the
foregoing, simultaneously with the execution of this Agreement, Borrower shall
pay any amounts past due under the Loan Documents (including specifically,
without limitation, any late charges due thereunder).

         13. Recordation of Agreement. If Lender elects, this Agreement shall be
recorded, at the expense of Borrower, in the Real Property Records of each
county where the Property is located.

         14. Legal Opinion. Simultaneously with the execution of this
Agreement, Lender shall have received from legal counsel retained by Borrower
and acceptable to Lender and opinion (the "Legal Opinion") of counsel covering
the following matters: (a) the due authorization, execution, validity, binding
effect and enforceability of this Agreement in accordance with its terms; (b)
the Loan, as modified by this Agreement, complies with applicable usury laws;
(c) the due organization and valid legal existence of Borrower, and (d) the
existence of, or the non-existence of, to the current actual knowledge of
counsel of Borrower, any requirements for any consent of any governmental
authority in connection with the execution, delivery or performance of this
Agreement or any documents related thereto.

         15. Conditions Precedent.

             (a) The following shall be conditions precedent to the
         effectiveness of this Agreement and the disbursement of the Additional
         Advance:

                    (i) Prior to or simultaneously with the execution of this
             Agreement, Borrower shall have paid to Lender all amounts required
             herein to be paid on or before the date of execution of this
             Agreement, including specifically, without limitation (1) interest
             on the Additional Advance at the rate of eight and one-half percent
             (8.5%) per annum from the date of disbursement of the Additional
             Advance through and including March 31, 2000, and (2) all fees,
             costs, and legal expenses incurred by Lender as a result of the
             negotiation, preparation, approval and recording of the Agreement.

<PAGE>   7
                    (ii) Prior to or simultaneously with the execution of this
             Agreement, Borrower shall have executed, or caused to be executed,
             and delivered to Lender all documents required by Lender in
             connection with the modification of the Loan contemplated hereby,
             including specifically, without limitation, the following: (A)this
             Agreement; (B) if required by Lender, UCC Financing Statements; (C)
             UCC searches in respect of Borrower; (D) the Title Policy; and (E)
             the Legal Opinion.

                    (iii) Prior to or simultaneously with the execution of this
             Agreement, Lender shall have received an appraisal and, if required
             by Lender, and environmental report in respect of the Property
             satisfactory to Lender, in Lender's sole discretion. The costs of
             any such appraisal or environmental report shall be borne by
             Borrower.

             (b) If, for any reason, any of the foregoing conditions precedent
         fails to occur within the time period specified, this Agreement shall
         terminate and be of no further force or effect, and the Loan Documents
         shall remain in effect as if this Agreement had never been executed.
         The foregoing conditions precedent are for the sole benefit of Lender
         and may be waived only by Lender by written agreement executed by
         Lender.

         16. No Waiver. Except as expressly provided herein, the execution of
this Agreement by Lender does not and shall not constitute a waiver of any
rights or remedies to which Lender is entitled pursuant to the Loan Documents,
nor shall the same constitute a waiver of any default which may have heretofore
occurred or which may hereafter occur with respect to the Loan Documents.

         17. Severability of Provisions. A determination that any provision of
this Agreement is unenforceable or invalid shall not affect the enforceability
or validity of any other provision hereof, and any determination that the
application of any provision of this Agreement to any person or circumstance is
illegal or unenforceable shall not affect the enforceability or validity of such
provision as it may apply to any other persons or circumstances.

         18. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All such counterparts shall be construed together and shall constitute
one instrument, but in making proof hereof it shall only be necessary to produce
one such counterpart.

         19. Governing Law. The terms and conditions of this Agreement shall be
governed by the applicable laws of the State of Texas.

         20. Interpretation. Within this Agreement, words of any gender shall be
held and construed to include any other gender, and words in the singular number
shall be held and construed to include the plural, unless the context otherwise
requires. The section headings used herein are intended for reference purpose
only and shall not be considered in the interpretation of the terms and
conditions hereof. The parties acknowledge that the parties and their counsel
have reviewed and revised this Agreement and that the normal rule of
construction the effect that any ambiguities are

<PAGE>   8

to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any exhibits or amendments hereto.

         21. Amendment. The terms and conditions hereof may not be modified,
altered or otherwise amended except by an instrument in writing executed by
Borrower and Lender.

         22. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the modification of the Loan and
fully supersedes all prior agreements and understandings between the parties
pertaining to such subject matter.

         23. Successors and Assigns. The terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto,
their successors and permitted assigns.

         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement to be effective as of the day and year first above written.

                                                  BORROWER:

                                                  CRAFTMADE INTERNATIONAL, INC.,
                                                  Delaware corporation

                                                  By: /s/ JAMES R. RIDINGS
                                                     ---------------------------
                                                  Name: James R. Ridings
                                                  Title: Chief Executive Officer

                           (This space intentionally left blank)

<PAGE>   9
                                          LENDER:

                                          ALLIANZ LIFE INSURANCE COMPANY OF
                                          NORTH AMERICA, a Minnesota corporation

                                          By:   /s/ RONALD M. CLARK
                                             -----------------------------------
                                          Name:     Ronald M. Clark
                                               ---------------------------------
                                          Title:    Assistant Treasurer
                                                --------------------------------

                                          By:    /s/ WENDELL R. KURTZ
                                             -----------------------------------
                                          Name:      Wendell R. Kurtz
                                               ---------------------------------
                                          Title:     Assistant Treasurer
                                                --------------------------------

                      (This space intentionally left blank)

<PAGE>   10
STATE OF TEXAS

COUNTY OF DALLAS

         This instrument was acknowledged before me on the 8th day of March,
2000, by James R. Ridings, CEO, of CRAFTMADE INTERNATIONAL, INC., a Delaware
corporation, on behalf of said corporation.

                                                 /s/ DEBORAH S. LORENZ
                                               ---------------------------------
                                               Notary Public

                                                 Deborah S. Lorenz
                                               ---------------------------------
                                               Printed/Typed Name of Notary

                                               My Commission Expires:  1-31-2001
                                                                     -----------<PAGE>   1
                                                                   EXIHIBT 10.42

                      SECOND AMENDMENT TO CREDIT AGREEMENT

         THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of the 5th day of May, 2000, by and among the banks listed on the
signature pages hereof (the "Lenders"), KEVCO, INC., a Texas corporation (the
"Borrower"), and BANK OF AMERICA, N.A., formerly known as NationsBank, N.A., as
administrative agent for the Lenders (the "Administrative Agent"), to the extent
and in the manner provided for in the Credit Agreement (defined below and herein
so called).

                                   BACKGROUND

                  (a) The Lenders, the Borrower, and the Administrative Agent
         are parties to that certain Third Amended and Restated Credit Agreement
         dated as of July 14, 1999 (as amended through the date hereof and as
         may be further amended, extended, renewed, or restated from time to
         time, the "Credit Agreement"; terms defined in the Credit Agreement and
         not otherwise defined herein shall be used herein as defined in the
         Credit Agreement).

                  (b) The Borrower, the Administrative Agent, and the Lenders
         desire to amend the Credit Agreement to provide for certain changes to
         (i) the Borrowing Base, (ii) certain financial covenants and (iii) the
         pricing structure.

         NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the parties
hereto covenant and agree as follows:

         1. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:

                  (a) Section 1.1 is amended by amending the introductory
         language in the definition of "Applicable Base Rate Margin" as follows:

                           "Applicable Base Rate Margin" means the following per
                  annum percentages, applicable in the following situations,
                  provided that, such percentages shall be increased by 0.25%
                  commencing May 5, 2000, provided, further, that such increase
                  shall no longer be in effect after the first day of the
                  calendar month following the date the Borrower delivers its
                  financial statements for any fiscal quarter or fiscal year
                  ending on or after December 31, 2000 to the Administrative
                  Agent in accordance with Section 6.1 or Section 6.2
                  respectively, if such financial statements show compliance
                  with Sections 7.10, 7.11 and 7.12:

                  (b) Section 1.1 is amended by amending the introductory
         language in the definition of "Applicable LIBOR Rate Margin" as
         follows:

                           "Applicable LIBOR Rate Margin" means the following
                  per annum percentages, applicable in the following
                  situations, provided

<PAGE>   2

                  that, such percentages shall be increased by 0.25% commencing
                  May 5, 2000, provided, further, that such increase shall no
                  longer be in effect after the first day of the calendar month
                  following the date the Borrower delivers its financial
                  statements for any fiscal quarter or fiscal year ending after
                  December 31, 2000 to the Administrative Agent in accordance
                  with Section 6.1 or Section 6.2 respectively, if such
                  financial statements show compliance with Sections 7.10, 7.11
                  and 7.12:

                  (c) Section 1.1 is amended by entirely amending the definition
         of "Borrowing Base" as follows:

                           "Borrowing Base" means for the Borrower and each of
                  its Subsidiaries which have executed a Subsidiary Security
                  Agreement, on a consolidated basis, the sum of (a) 80% of book
                  value of accounts receivable, minus, to the extent not
                  deducted in arriving at book value, the portion of any account
                  not paid within 90 days of when due, plus (b) 60% of book
                  value of inventory (including goods in transit backed by
                  Letters of Credit) net of reserves as determined by Borrower,
                  plus (c) at any time (i) prior to January 1, 2001, 55% of book
                  value of owned real property, equipment and other fixed
                  assets, net of depreciation, or (ii) on or after January 1,
                  2001, 50% of book value of owned real property, equipment and
                  other fixed assets, net of depreciation, plus (d) 100% of Cash
                  and Cash Equivalents (excluding amounts in the Restricted
                  Account). For purposes of this definition, "book value" means
                  the value of an asset as reflected in the Borrower's or the
                  appropriate Subsidiary's accounting books and records,
                  determined in accordance with GAAP.

                  (d) Section 7.10 is amended by entirely amending clause (b)
         thereof as follows:

                           (b)(i) 8.75 to 1.00 at the end of the March 31,
                  2000, fiscal quarter, (ii) 10.25 to 1.00 at the end of the
                  June 30, 2000, fiscal quarter, (iii) 9.50 to 1.00 at the end
                  of the September 30, 2000, fiscal quarter, and (iv) 8.00 to
                  1.00 at the end of the December 31, 2000, fiscal quarter,

                  (e) Section 7.12 is entirely amended, as follows:

                           The Borrower shall not permit Net Worth to be less
                  than (a) at any time prior to the end of the fiscal quarter
                  of the Borrower ending December 31, 2000, the sum of (i)
                  $37,914,000, plus (ii) 50% of cumulative Net Income for the
                  period from and including April 1, 1999 (but excluding from
                  the calculation of such cumulative Net Income the effect, if
                  any, of any fiscal quarter (or portion of a fiscal quarter
                  not yet ended) for which Net Income was a negative number),
                  plus (iii) 50% of the Net Cash Proceeds from the Wingate

                                       2
<PAGE>   3

                  Subordinated Debt and the Wingate Stock Acquisition and from
                  any other Equity Offering, (b) $51,000,000 as of the end of
                  the fiscal quarter of the Borrower ending December 31, 2000,
                  and (c) at any time after December 31, 2000, the sum of (i)
                  the greater of (A) $51,000,000 or (B) Net Worth as of the end
                  of the fiscal quarter of the Borrower ending December 31,
                  2000, plus (ii) 50% of cumulative Net Income for the period
                  from and including January 1, 2001 (but excluding from the
                  calculation of such cumulative Net Income the effect, if any,
                  of any fiscal quarter (or portion of a fiscal quarter not yet
                  ended) for which Net Income was a negative number), plus
                  (iii) 50% of the Net Cash Proceeds from any Equity Offering
                  after May 5, 2000.

         2. AMENDMENT FEE. The Borrower shall pay to the Administrative Agent,
for the pro rata account of each Lender, an amendment fee equal to the product
of (a) 0.10% multiplied by (b) the sum of such Lender's Revolving Credit
Commitment and the total outstanding principal amount of all Term Loan Advances
owed to such Lender as of the date of this Amendment. Such amendment fee shall
be earned and payable as of the date of this Amendment in immediately available
funds.

         3. ACKNOWLEDGMENT OF THE BORROWER. The Borrower acknowledges and agrees
that the Lenders executing this Amendment have done so in their sole discretion
and without any obligation.

         4. SUBSIDIARIES ACKNOWLEDGMENT. By signing below, each of the
Subsidiaries which has executed a Subsidiary Guaranty (a) consents and agrees
to the execution and delivery of this Amendment, (b) ratifies and confirms its
obligations under its Subsidiary Guaranty, (c) acknowledges and agrees that its
obligations under its Subsidiary Guaranty are not released, diminished,
impaired, reduced, or otherwise adversely affected by this Amendment, and (d)
acknowledges and agrees that it has no claims or offsets against, or defenses
or counterclaims to, its Subsidiary Guaranty.

         5. RELEASE.

                  (a) The Borrower and each Subsidiary Guarantor hereby
         unconditionally and irrevocably remises, acquits, and fully and forever
         releases and discharges the Administrative Agent and the Lenders and
         all respective affiliates and subsidiaries of the Administrative Agent
         and the Lenders, their respective officers, servants, employees,
         agents, attorneys, principals, directors and shareholders, and their
         respective heirs, legal representatives, successors and assigns
         (collectively, the "Released Lender Parties") from any and all claims,
         demands, causes of action, obligations, remedies, suits, damages and
         liabilities (collectively, the "Borrower Claims") of any nature
         whatsoever, whether now known, suspected or claimed, whether arising
         under common law, in equity or under statute, which the Borrower or any
         Guarantor ever had or now has against the Released Lender Parties which
         may have arisen at any time on or prior to the date of this Amendment
         and which were in any manner related to any of the Loan Documents or
         the enforcement or attempted enforcement by the Administrative Agent or
         the Lenders of rights, remedies or recourses related thereto.

                                       3
<PAGE>   4

                  (b) The Borrower and each Subsidiary Guarantor covenants and
         agrees never to commence, voluntarily aid in any way, prosecute or
         cause to be commenced or prosecuted against any of the Released Lender
         Parties any action or other proceeding based upon any of the Borrower
         Claims which may have arisen at any time on or prior to the date of
         this Amendment and were in any manner related to any of the Loan
         Documents.

                  (c) The agreements of the Borrower and each Guarantor set
         forth in this Section 5 shall survive termination of this Amendment
         and the other Loan Documents.

         6. REPRESENTATIONS AND WARRANTIES TRUE, NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants to the
Lenders that, as of the date hereof:

                  (a) the representations and warranties contained in the
         Credit Agreement and the other Loan Documents are true and correct in
         all material respects on and as of the date hereof as made on and as
         of such date, except for any representations and warranties made as of
         a specific date, which shall be true and correct in all material
         respects as of such specific date; and

                  (b) after giving effect to this Amendment, no event has
         occurred and is continuing which constitutes a Default or an Event of
         Default.

         7. CONDITIONS OF EFFECTIVENESS. This Amendment shall not be effective
until each of the following conditions precedent shall have been satisfied:

                  (a) All reasonable out-of-pocket fees and expenses in
         connection with the Loan Documents, including this Amendment,
         including legal and other professional fees and expenses incurred on
         or prior to the date of this Amendment by the Administrative Agent,
         including, without limitation, the fees and expenses of Winstead
         Sechrest & Minick P.C. and Arthur Andersen L.L.P., shall have been
         paid; and

                  (b) The Administrative Agent shall have received such
         documents, certificates and instruments as the Administrative Agent
         shall reasonably require; and

                  (c) The Administrative Agent shall have received for the
         account of the Lenders the Amendment Fee described in Section 2 of this
         Amendment.

         8. REFERENCE TO CREDIT AGREEMENT. Upon the effectiveness of this
Amendment, each reference in the Credit Agreement to "this Agreement,"
"hereunder," or words of like import shall mean and be a reference to the Credit
Agreement, as affected and amended by this Amendment.

         9. COUNTERPARTS; EXECUTION VIA FACSIMILE. This Amendment may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. This
Amendment may be validly executed and delivered by facsimile or other electronic
transmission.

                                       4
<PAGE>   5

         10. GOVERNING LAW: BINDING EFFECT. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower, the Administrative Agent, each Lender and their
respective successors and assigns.

         11. HEADINGS. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.

         12. LOAN DOCUMENT. This Amendment is a Loan Document and is subject to
all provisions of the Credit Agreement applicable to Loan Documents, all of
which are incorporated in this Amendment by reference the same as if set forth
in this Amendment verbatim.

         13. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       5
<PAGE>   6

         IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
the date first above written.

                                       KEVCO, INC.

                                       By:   /s/ Joseph P. Tomczak
                                          --------------------------------------
                                             Joseph P. Tomczak
                                             Executive Vice President and Chief
                                             Financial Officer

                                       BANK OF AMERICA, N.A., formerly known as
                                       NationsBank, N.A., as Administrative
                                       Agent and as a Lender

                                       By: /s/ William E. Livingstone, IV
                                          --------------------------------------
                                             William E. Livingstone, IV
                                             Managing Director

                                       NATIONAL CITY BANK KENTUCKY

                                       By: /s/ Jerrol Z. Miles
                                          --------------------------------------
                                             Jerrol Z. Miles
                                             Senior Vice President

                                       GUARANTY FEDERAL BANK, F.S.B.

                                       By: /s/ Robert S. Hays
                                          --------------------------------------
                                             Robert S. Hays
                                             Senior Vice President

                                       WELLS FARGO BANK, N.A.

                                       By: /s/ Danny Oliver
                                          --------------------------------------
                                             Danny Oliver
                                             Relationship Manager

<PAGE>   7

                                       PILGRIM PRIME RATE TRUST

                                       By: Pilgrim Investments, Inc., as its
                                             Investment Manager

                                       By:   /s/ Michel Prince
                                          --------------------------------------
                                             Michel Prince, CFA
                                             Vice President

                                       ARCHIMEDES FUNDING, L.L.C.

                                       By: ING Capital Advisors, Inc., as
                                             Collateral Manager

                                       By: /s/ Jonathan David
                                          --------------------------------------
                                           Jonathan David
                                           Vice President

                                       ALLIANCE CAPITAL FUNDING, L.L.C.

                                       By: Alliance Capital Management, L.P., as
                                           Manager on behalf of ALLIANCE CAPITAL
                                           FUNDING, L.L.C.

                                           By: ALLIANCE CAPITAL MANAGEMENT
                                               CORPORATION
                                               General Partner of Alliance
                                               Capital Management, L.P.

                                           By: /s/ Katalin E. Kutasi
                                               ---------------------------------
                                               Katalin E. Kutasi
                                               Senior Vice President

                                       MERRILL LYNCH DEBT STRATEGIES
                                       PORTFOLIO

                                       By: Merrill Lynch Asset Management, L.P.,
                                           as Investment Advisor

<PAGE>   8

                                       By:      /s/ Andrew C. Liggio
                                          --------------------------------------
                                                    Andrew C. Liggio
                                                    Authorized Signatory

                                       Merrill Lynch Debt Global Investment
                                       Series:
                                       INCOME STRATEGIES PORTFOLIO

                                       By: Merrill Lynch Asset Management, L.P.,
                                           as Investment Advisor

                                       By:      /s/ Andrew C. Liggio
                                          --------------------------------------
                                                    Andrew C. Liggio
                                                    Authorized Signatory

                                       BANK ONE, TEXAS, N.A.

                                       By:      /s/ Bradley C. Peters
                                          --------------------------------------
                                                    Bradley C. Peters
                                                    Vice President

                                       PAM CAPITAL FUNDING LP

                                       By: Highland Capital Management, L.P., as
                                                Collateral Manager

                                       By:  /s/ James Dondero
                                          --------------------------------------
                                                James Dondero, CFA, CPA
                                                President
                                                Highland Capital Management L.P.

ACKNOWLEDGED AND AGREED:

KEVCO MANAGEMENT, INC.

By:  /s/ James Johnson
   --------------------------------------
         James Johnson
         Executive Vice President

<PAGE>   9

KEVCO HOLDING, INC.

By:  /s/ James Johnson
   --------------------------------------
         James Johnson
         Executive Vice President

KEVCO GP, INC.

By:  /s/ James Johnson
   --------------------------------------
         James Johnson
         Executive Vice President

KEVCO COMPONENTS, INC.

By:  /s/ James Johnson
   --------------------------------------
         James Johnson
         Executive Vice President

DCM DELAWARE, INC.

By:  /s/ James Johnson
   --------------------------------------
         James Johnson
         Executive Vice President

KEVCO MANUFACTURING, L.P.

By:  KEVCO GP, INC., its General Partner

By:  /s/ James Johnson
   --------------------------------------
         James Johnson
         Executive Vice President

KEVCO DISTRIBUTION, L.P.

By:  KEVCO GP, INC., its General Partner

By:  /s/ James Johnson
   --------------------------------------
         James Johnson
         Executive Vice President

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