<PAGE>   1
                                                                    EXHIBIT 10.3

             PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO
             A REQUEST FOR CONFIDENTIAL TREATMENT AND WILL BE FILED
                  SEPARATELY WITH THE SECURITIES AND EXCHANGE
               COMMISSION. SUCH PORTIONS ARE DESIGNATED "[***]".

                  THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
                          c/o Prudential Capital Group
                         Two Ravinia Drive, Suite 1400
                             Atlanta, Georgia 30346

                                                           August 4, 1999

Crown Crafts, Inc.
1600 Riveredge Parkway
Suite 200
Atlanta, GA 30328
Attention:        Mr. David S. Fraser,
                  Vice President and Chief Financial Officer

Ladies and Gentlemen:

         Reference is made to that certain Note Agreement dated as of October
12, 1995 between Crown Crafts, Inc. (the "Company") and The Prudential Insurance
Company of America ("Prudential"), as heretofore amended (the "Note Agreement").
Terms not otherwise defined herein have the meanings given such terms in the
Note Agreement.

         At the Company's request, and subject to its written acceptance hereof,
Prudential, as holder of all the Notes hereby agrees with the Company to amend
the Note Agreement as follows:

         1.       Paragraph 4C of the Note Agreement is hereby amended to read
in its entirety as follows: 4C. Optional Prepayments.

                  4C (1). Prepayments of Series A Notes. The Series A Notes
         shall be subject to prepayment in whole at any time or from time to
         time in part (in integral multiples of $100,000 and in a minimum amount
         of $ 1,000,000), at the option of the Company, at 100% of the principal
         amount so prepaid plus interest thereon to the prepayment date and the
         Yield-Maintenance Amount, if any, with respect to each such Series A
         Note calculated as if the interest rate of such Series A Notes were
         7.27% per annum, notwithstanding anything in paragraph 10A to the
         contrary.

                  4C(2). Prepayments of Series B Notes. The Series B Notes shall
         be subject to prepayment in whole at any time or from time to time in
         part (in integral multiples of $100,000 and in a minimum amount of $
         1,000,000), at the option of the Company, at 100% of the principal
         amount so prepaid plus interest thereon to the prepayment date and
         Yield Maintenance Amount, if any, with respect to each such Series B
         Note calculated as if the interest rate of such Series B Notes were
         6.56%, notwithstanding anything in paragraph 10A to the contrary.
<PAGE>   2

         2.  Prudential hereby waives until August 23, 1999 the Company's
compliance with a) paragraphs 5A(l)(i) and (ii) with respect to the timely
delivery of its annual financial statements for the fiscal year ended March 28,
1999 and its quarterly financial statements for the quarter ended June 27, 1999
and b) paragraph 5A(2) for its failure to deliver the Officer's Certificate
required to be delivered with the financial statements specified in the
preceding clause (a). Prudential also hereby agrees to waive the Company's
compliance with paragraph 5A(4) with respect to the subject matter of this
letter agreement.

         3.  Paragraph 4D of the Note Agreement is hereby amended and restated
to read in its entirety as follows:

         4D. Notice of Optional Prepayment. The Company shall give the holder of
each Note to be prepaid pursuant to either paragraph 4C(l) or 4C(2) irrevocable
written notice of such prepayment not less than 10 Business Days prior to the
prepayment date, specifying such prepayment date. the aggregate principal amount
of the Notes of such Series to be prepaid on such date, the principal amount of
the Notes of such Series held by such holder to be prepaid on that date and that
such prepayment is to be made pursuant to paragraph 4C. Notice of prepayment
having been given as aforesaid, the principal amount of the Notes specified in
such notice, together with interest thereon to the prepayment date and, in the
case of the Series A Notes, together with the Yield Maintenance Amount, if any,
calculated as if the interest rate on such Series A Notes were 7.27% per annum
and, in the case of the Series B Notes, together with the Yield-Maintenance
Amount, if any, calculated as if the interest rate on such Series B Notes were
6.56% per annum shall become due and payable on such prepayment date (in each
case, notwithstanding anything in paragraph 10A to the contrary). The Company
shall, on or before the day on which it gives written notice of any prepayment
pursuant to paragraph 4C, give telephonic notice of the principal amount of the
Notes to be prepaid and the prepayment date to each Significant Holder which
shall have designated a recipient for such notices in the Purchaser Schedule
attached hereto or the applicable Confirmation of Acceptance or by notice in
writing to the Company.

         4.  The last sentence of paragraph 4E of the Note Agreement is hereby
amended to read in its entirety as follows:

         "The Company shall prepay all of the Notes on the Control Change
         Prepayment Date of any holder which has timely accepted (or which has
         been deemed to have accepted) the offer of prepayment at a price equal
         to 100% of the principal amount of the Notes to be prepaid, plus
         accrued interest thereon to the Control Change Prepayment date plus the
         Yield-Maintenance Amount, if any, with respect to each Note to be
         prepaid, calculated as if the interest rate were in the case of the
         Series A Notes, 7.27%, and were in the case of the Series B Notes,
         6.56%, notwithstanding anything in paragraph 10A to the contrary."

         5.  Prudential hereby consents to the Lien upon the properties and
 assets of the Company that the Company proposes to grant to Prudential Bank of
 America N.A. ("B of A") and Wachovia Bank NA ("Wachovia") on a pro rata basis.
<PAGE>   3

         6.    Paragraph 6A(iv) of the Note Agreement is hereby amended to read
in its entirety as follows:

         (iv) Consolidated EBIT to be less than the following percentages of
Fixed Charges as of the date shown:

                           Date                               Percentage
                           ----                               ----------
                           6/30/99                            75%
                           9/30/99                            80%
                           12/31/99                           100%
                           3/31/00                            100%
                           6130/00                            125%
                           9/30/00 and thereafter             175%

         For purposes of calculating compliance with this paragraph 6A(iv) only,
         the Company may consider Consolidated Net Income in the fourth quarter
         of fiscal year 1999 to be $0.

         In addition, Prudential hereby agrees to waive the Company's compliance
with the provisions of paragraph 6A(iv) of the Note Agreement for the period
March 29, 1999 through and including the date of this letter.

         7.    [***].

         8.    [***].

         9.    Paragraph 6B(5) of the Note Agreement is hereby amended to read
in its entirety as follows:

         6B(5) Sale or Discount of Receivables. Sell with recourse. or discount
         or otherwise sell for less than face value thereof, notes or accounts
         receivable ("Receivables"), except that:

               (i)      notwithstanding the foregoing, the Company and any
                        Subsidiary may sell with recourse or discount or
                        otherwise sell for less than the face value thereof,
                        (x) any Receivable that is more than 90 days past due
                        or (y) any

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                        other Receivable so long as the Company or such
                        Subsidiary receives payment in respect thereof upon
                        maturity of such Receivable rather than at any time
                        prior to maturity; and

               (ii)     notwithstanding subsection (i) above the Company or
                        any Subsidiary may sell with recourse, or discount or
                        otherwise sell for less than the face value thereof,
                        any Receivable and receive payment in respect thereof
                        prior to the maturity of such Receivable in an
                        aggregate amount not to exceed (x) $30,000,000 during
                        the period commencing on July 1, 1999 and ending on
                        (and including) December 31, 1999 and (y) $1,000,000
                        from and after January 1, 2000.

         10.   Paragraph 6B(l) of the Note Agreement is hereby amended by adding
a new subparagraph (vi) thereto, to read in its entirety as follows:

         "(vi) Liens on Receivables securing factoring arrangements of the type
permitted by paragraph 6B(5)."

         11.   Paragraph 7A(iii) of the Note Agreement is hereby amended to read
in its entirely as follows:

         (iii) the Company or any Subsidiary (x) defaults in any payment of
               principal of or interest on any other obligation for money
               borrowed (or any Capitalized Lease Obligation, any obligation
               under conditional sale or other title retention agreement or
               any obligation issued or assumed as full or partial payment
               for property whether or not secured by a purchase money
               mortgage or any obligation under notes payable or drafts
               accepted representing extensions of credit) beyond any period
               of grace provided with respect thereto, or (y) fails to
               perform or observe any other agreement, term or condition
               contained in any agreement under which any such obligation is
               created (or if any other event or default thereunder or under
               any such agreement shall occur) and the effect of such
               default, event or failure is to cause, or to permit the holder
               or holders of such obligation (or a trustee on behalf of such
               holder or holders) to cause, such obligation to become due,
               redeemed, purchased or defeased prior to any stated maturity,
               or (z) fails to perform or observe any other agreement, term
               or condition contained in any agreement under which any such
               obligation is created (or if any other event or default
               thereunder or under any such agreement shall occur) and the
               effect of such default, event or failure is to permit the
               holder or holders of such obligation (or a trustee on behalf
               of such holder or holders) to cause such obligation to become
               due, redeemed, purchased or defeased prior to any stated
               maturity;

         12.   [***]
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         13.   The Company and Prudential hereby agree that the interest rate of
the Series A Notes and the Series B Notes shall be increased by 350 basis points
each effective from April 7, 1999 and the Company agrees to execute replacement
Notes for such Series A Notes and Series B Notes reflecting the change in
interest rate.

         The provisions of this letter shall become effective upon satisfaction
of the following conditions:

         1.    Prudential shall have received evidence reasonably acceptable
               to it that B of A and Wachovia each shall have agreed to
               extend their revolving credit facilities with the Company to a
               final maturity date no sooner than March 30, 2000; and

         2.    The Company shall have paid to Prudential an amendment fee of
$100,000.

         Except to the extent amended by the provisions hereof, ail of the
terms, conditions and obligations of the Note Agreement shall remain in full
force and effect.

         If you are in agreement with the foregoing, please sign this letter in
the space provided below, whereupon it will become a binding agreement between
Prudential and the Company.


                                   Very truly yours,

                                   THE PRUDENTIAL INSURANCE
                                            COMPANY OF AMERICA

                                   BY:      /s/ Yvonne M. Guajardo
                                      -----------------------------------------
                                            Name: Yvonne M. Guajardo
                                            Title:  Vice President

Agreed to and accepted
as of August 4, 1999

CROWN CRAFTS, INC.

By:      /s/ David S. Fraser
   -------------------------
     Name:  David S. Fraser
     Title:  Vice President, Chief Financial Officer

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         [***]