**Exhibit 10**

 

**THE WILLIAM CARTER COMPANY**

 

**CARTER HOLDINGS, INC.**

 

**SECOND AMENDMENT**

 

**TO CREDIT AND GUARANTY AGREEMENT**

###### ** **

**THIS SECOND AMENDMENT TO CREDIT AND GUARANTYAGREEMENT** (this **“Amendment”**)is dated as of July 29, 2003 and is entered into by and among **THE WILLIAM CARTER COMPANY**, a Massachusettscorporation (the **“Company”**), **CARTER HOLDINGS, INC.**, a Massachusettscorporation (**“Holdings”**), **CERTAIN FINANCIAL INSTITUTIONS** listed onthe signature pages hereto (the **“Lenders”**),**GOLDMAN SACHS CREDIT PARTNERS L.P.**,as Lead Arranger, Book Runner and Syndication Agent (**“Syndication Agent”**), **FLEETNATIONAL BANK**(**“Fleet”**),as Administrative Agent (**“AdministrativeAgent”**) and, for purposes of Section IV hereof, the **CREDIT SUPPORT PARTIES**listed on thesignature pages hereto, and is made with reference to that certain **CREDIT AND GUARANTY AGREEMENT** dated as ofAugust 15, 2001, as amended by that certain First Amendment to Credit andGuaranty Agreement dated as of March 27, 2002 (the **“Credit Agreement”**).

 

**RECITALS**

 

**WHEREAS,** Company hasrequested that certain Lenders provide additional new Revolving Commitments inan aggregate amount not to exceed $20,000,000, the proceeds of which shall beused for working capital and general corporate purposes, including to be usedby Holdings to make certain payments to its stockholders and optionholders;

 

**WHEREAS**, Companydesires to borrow from certain Lenders a new Tranche C Term Loan, the proceedsof which shall be used to prepay the Tranche B Term Loans to the full extentthereof;

 

**WHEREAS,**Holdingsproposes consummating an initial public offering of common stock of Holdingsproviding aggregate gross proceeds to Holdings of not less than $75,000,000;

 

**WHEREAS,** prior tothe consummation of the initial public offering (i) Holdings has requested toreincorporate in the State of Delaware and to change its name to “Carter’s,Inc.” and (ii) Company may reincorporate in the State of Delaware; and

 

**WHEREAS,** Holdingsand Company have requested that Requisite Lenders agree to make amendments tocertain provisions of the Credit Agreement in order to effectuate the

 

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new Revolving Commitments, theissuance of the new Tranche C Term Loans, payments to stockholders andoptionholders of Holdings, initial public offering, reincorporation and changeof name contemplated herein.

 

**NOW, THEREFORE**, inconsideration of the premises and the agreements, provisions and covenantsherein contained, the parties hereto agree as follows:

 

**SECTIONI.     AMENDMENTS TO CREDIT AGREEMENT**

 

**1.1****          Amendments to Section1: Definitions.**

 

**A.    **Section 1.1 of the Credit Agreementis hereby amended by adding the following definitions of “Holdings IPO”,“Increased Amount Date”, “Joinder Agreement”, “New Revolving Commitments”, “NewRevolving Loans”, “Second Amendment”, “Second Amendment Effective Date” and“Second Amendment Transaction Costs” in the proper alphabetical order:

 

**“Holdings IPO”** means an initial public offering ofcommon stock of Holdings.

 

**“Increased Amount Date”**as defined in Section 2.25.

 

**“JoinderAgreement”**means an agreement substantially in the form ofExhibit K.

 

**“NewRevolving Commitments”** as defined in Section 2.25.

 

**“NewRevolving Loan Lender”** as defined in Section 2.25.

 

**“NewRevolving Loans”** as defined in Section 2.25.

 

**“Second Amendment”**means that certain Second Amendment to Credit and Guaranty Agreement dated asof July 29, 2003 among Company, Holdings, Syndication Agent, AdministrativeAgent, Collateral Agent and the financial institutions and the Credit SupportParties listed on the signature pages thereto.

 

**“Second AmendmentEffective Date”** means the date of satisfaction of all of theconditions set forth in Section II of the Second Amendment.

 

**“Second Amendment Transaction Costs”**means (i) the fees, costs and expenses payable by Holdings, Company or any ofCompany’s Subsidiaries in connection with the Second Amendment and thetransactions contemplated by the Second Amendment; (ii) the fees, costs andexpenses payable by Holdings, Company

 

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or any of Company’s Subsidiaries inconnection with the Holdings IPO; (iii) any prepayment premium with respect tothe repayment of Senior Subordinated Notes pursuant to Section 6.5(h); (iv) thewrite-off of debt issuance costs with respect to the repayment of SeniorSubordinated Notes pursuant to Section 6.5(h) in an amount not to exceed$2,500,000; and (v) payments made with respect to the Management Agreementpursuant to Section 6.15(ii).

 

**“Tranche C Term Loan”**means a Tranche C Term Loan made by a Lender to Company pursuant toSection 2.1(c).

 

**“Tranche C Term Loan Commitment”**means the commitment of a Lender to make or otherwise fund a Tranche C TermLoan and **“Tranche C Term Loan Commitments”**means such commitments of all Lenders in the aggregate.  The amount of each Lender’s Tranche C TermLoan Commitment, if any, is set forth on such Lender’s signature page to theSecond Amendment or in the applicable Assignment Agreement, subject to anyadjustment or reduction pursuant to the terms and conditions hereof.  The aggregate amount of the Tranche C TermLoan Commitments as of the Second Amendment Effective Date is $118,004,965.

 

**“Tranche C Term Loan Exposure”**means, with respect to any Lender, as of any date of determination, theoutstanding principal amount of the Tranche C Term Loans of such Lender; provided,at any time prior to the making of the Tranche C Term Loans, theTranche C Term Loan Exposure of any Lender shall be equal to such Lender’sTranche C Term Loan Commitment.

 

**“Tranche C Term Loan Maturity Date”**means the earlier of (i) the seventh anniversary of the Closing Date and (ii)the date that all Tranche C Term Loans shall become due and payable infull hereunder, whether by acceleration or otherwise.

 

**“Tranche C Term Loan Note”**means a promissory note in the form of Exhibit B-4, as it may be amended,supplemented or otherwise modified from time to time.

 

**B.    **Section 1.1 of the Credit Agreementis hereby amended by deleting the definitions of “Applicable Margin”, “Class”,“Commitment”, “Consolidated Adjusted EBITDA”, “Consolidated Excess Cash Flow”,“Interest Period”, “Letter of Credit Sublimit”, “Loan”, “Management Agreement”,“Note”, “Pro Rata Share”, “Requisite Class Lenders”, “Requisite Lenders”,“Revolving Commitment”, “Revolving Loan” and “Type of Loan” in their entiretyand replacing them with:

 

**“Applicable Margin”**means (i) a percentage, per annum, determined by reference to the LeverageRatio in effect from time to time as set forth below:

 

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| **Leverage Ratio**                       |   | **Applicable  Margin for  Tranche C Term Loans** |   | **Applicable  Margin for  Revolving Loans** |   |
|------------------------------------------|--------|--------------------------------------------------|--------|---------------------------------------------|--------|
| > 4.25:1.00                           |   | 2.75%                                            |   | 3.00%                                       |   |
| <  4.25:1.00 > 3.75:1.00 |   | 2.75%                                            |   | 2.75%                                       |   |
| <  3.75:1.00 > 3.25:1.00      |   | 2.50%                                            |   | 2.50%                                       |   |
| < 3.25:1.00 > 2.75:1.00       |   | 2.50%                                            |   | 2.25%                                       |   |
| <  2.75:1.00                          |   | 2.25%                                            |   | 2.00%                                       |   |

 

and (ii) with respect to Swing Line Loans,Tranche C Term Loans and Revolving Loans that are Base Rate Loans, an amountequal to (a) the Applicable Margin for Eurodollar Rate Loans as set forth above,as applicable, minus (b) 1.00% per annum. No change in the Applicable Margin shall be effective until threeBusiness Days after the date on which Administrative Agent shall have receivedthe applicable financial statements and a Compliance Certificate pursuant toSection 5.1(d) calculating the Leverage Ratio. At any time Company has not submitted to Administrative Agent theapplicable information as and when required under Section 5.1(d), theApplicable Margin shall be determined as if the Leverage Ratio were in excessof 4.25:1.00.  Within one Business Dayof receipt of the applicable information under Section 5.1(d), AdministrativeAgent shall give each Lender telefacsimile or telephonic notice (confirmed inwriting) of the Applicable Margin in effect from such date.

 

**“Class”** means(i) with respect to Lenders, each of the following classes of Lenders: (a)Lenders having Tranche C Term Loan Exposure, and (b) Lenders having RevolvingExposure (including Swing Line Lender), and (ii) with respect to Loans,each of the following classes of Loans: (a) Tranche C Term Loans, and (b)Revolving Loans (including Swing Line Loans).

 

**“Commitment”**means any Revolving Commitment or Tranche C Term Loan Commitment.

 

**“ConsolidatedAdjusted EBITDA”** means, for any period, an amountdetermined for Holdings and its Subsidiaries on a consolidated basis equal to(i) the sum, without duplication, of the amounts for such period of (a)Consolidated Net Income, (b) Consolidated Interest Expense, (c) provisions fortaxes (including any taxes actually paid) based on income, (d) totaldepreciation expense, (e) total

 

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amortizationexpense, (f) other non-Cash items reducing Consolidated Net Income (includingany such non-Cash items resulting from purchase accounting but excluding anysuch non-Cash item to the extent that it represents an accrual or reserve forpotential Cash items in any future period or amortization of a prepaid Cashitem that was paid in a prior period) and (g) to the extent deducted incalculating Consolidated Net Income, Transaction Costs, Second AmendmentTransaction Costs and non-recurring or unusual costs incurred in the relevantperiod; provided that the aggregate amount of such non-recurring orunusual costs included in this clause (g) incurred during the term of thisAgreement shall not exceed $2,000,000, minus (ii) other non-Cash itemsincreasing Consolidated Net Income for such period (excluding any such non-Cashitem to the extent it represents an accrual of revenue or the reversal of areserve, in each case in the ordinary course of business for potential Cashitems in any prior period).

 

**“ConsolidatedExcess Cash Flow”** means, for any period, an amount (ifpositive) equal to: (i) the sum, without duplication, of the amounts for suchperiod of (a) Consolidated Adjusted EBITDA, plus (b) the Consolidated WorkingCapital Adjustment, minus (ii) the sum, without duplication, of theamounts for such period of (a) voluntary and scheduled repayments ofConsolidated Total Debt (excluding repayments of Revolving Loans or Swing LineLoans except to the extent the Revolving Commitments are permanently reduced inconnection with such repayments), (b) Consolidated Capital Expenditures andPermitted Acquisitions (net of any proceeds of any related financings withrespect to such expenditures or Permitted Acquisitions), (c) Consolidated CashInterest Expense, (d) provisions for current taxes based on income of Holdingsand its Subsidiaries and payable in Cash or taxes paid with respect to suchperiod and (e) to the extent included in clause (g) of the definition ofConsolidated Adjusted EBITDA for such period, Cash Second Amendment TransactionCosts, and non-recurring or unusual costs incurred and paid in Cash during therelevant period.

 

**“InterestPeriod”** means, in connection with a Eurodollar RateLoan, an interest period of one-, two-, three- or six-months, as selected byCompany in the applicable Funding Notice or Conversion/Continuation Notice, (i)initially, commencing on the Credit Date or Conversion/Continuation Datethereof, as the case may be; and (ii) thereafter, commencing on the day onwhich the immediately preceding Interest Period expires; provided, (a)if an Interest Period would otherwise expire on a day that is not a BusinessDay, such Interest Period shall expire on the next succeeding Business Dayunless no further Business Day occurs in such month, in which case suchInterest Period shall expire on the immediately preceding Business Day; (b) anyInterest Period that begins on the last Business Day of a calendar month (or ona day for which there is no numerically corresponding day in the calendar monthat the end of such Interest Period) shall, subject to clauses (c) and (d), ofthis definition, end on the last Business Day of a calendar month; (c) noInterest Period with respect to any portion of any Tranche C Term Loans shallextend beyond the

 

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Tranche C Term Loan Maturity Date; and (d) no Interest Period withrespect to any portion of the Revolving Loans shall extend beyond the RevolvingCommitment Termination Date.

 

**“Letterof Credit Sublimit”** means the lesser of (i)$40,000,000 and (ii) the aggregate unused amount of the Revolving Commitmentsthen in effect.

 

**“Loan”**means a Tranche C Term Loan, a Revolving Loan or a Swing Line Loan.

 

**“ManagementAgreement”** means that certain Management Agreementbetween Company and Berkshire, dated as of August 15, 2001 as such agreementmay thereafter be amended, restated, supplemented or otherwise modified fromtime to time to the extent permitted under Section 6.15.

 

**“Note”**means a Tranche C Term Note, a Revolving Note or a Swing Line Note.

 

**“Pro RataShare”** means (i)  with respect to all payments,computations and other matters relating to the Tranche C Term Loan of anyLender, the percentage obtained by dividing (a) the Tranche C TermLoan Exposure of that Lender by (b) the aggregate Tranche C Term LoanExposure of all Lenders; and (ii) with respect to all payments, computationsand other matters relating to the Revolving Commitment or Revolving Loans ofany Lender or participations purchased therein by any Lender or anyparticipations in any Swing Line Loans purchased by any Lender, the percentageobtained by dividing (a) the Revolving Exposure of that Lender by(b) the aggregate Revolving Exposure of all Lenders.  For all other purposes with respect to eachLender, “Pro Rata Share” means the percentage obtained by dividing (A) anamount equal to the sum of the Tranche C Term Loan Exposure, and the RevolvingExposure of that Lender, by (B) an amount equal to the sum of theaggregate Tranche C Term Loan Exposure, and the aggregate Revolving Exposure ofall Lenders.

 

**“Requisite Class Lenders”**means, as at any date of determination, (i) for the Class of Lenders havingTranche C Term Loan Exposure, Lenders holding more than 50% of theaggregate Tranche C Term Loan Exposure of all Lenders; and (ii) forthe Class of Lenders having Revolving Exposure, Lenders having or holding morethan 50% of the aggregate Revolving Exposure of all Lenders.

 

**“Requisite Lenders”**means one or more Lenders having or holding Tranche C Term Loan Exposure and/orRevolving Exposure and representing more than 50% of the sum of (i) theaggregate Tranche C Term Loan Exposure of all Lenders and (ii) the aggregateRevolving Exposure of all Lenders.

 

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**“RevolvingCommitment”** means the commitment of a Lender to makeor otherwise fund any Revolving Loan and to acquire participations in Lettersof Credit and Swingline Loans hereunder and **“Revolving Commitments”**meanssuch commitments of all Lenders in the aggregate.   The amount of each Lender’s Revolving Commitment, if any, is setforth on such Lender’s signature page to this Agreement, or in the applicableAssignment Agreement or Joinder Agreement, subject to any adjustment orreduction pursuant to the terms and conditions hereof.

 

**“RevolvingLoan”** means a Loan made by a Lender to Companypursuant to Section 2.2(a), 2.22 and/or 2.25.

 

**“Typeof Loan”** means (i) with respect to either Tranche CTerm Loans or Revolving Loans, a Base Rate Loan or a Eurodollar Rate Loan, and(ii) with respect to Swing Line Loans, a Base Rate Loan.

 

**1.2****                               Amendmentsto Section 2.**

 

**A.    **Section 2.1 of the Credit Agreementis hereby amended by adding a new subsection (c) and (d) at the conclusionthereof as follows:

 

“(c)                            TrancheC Term Loan Commitments.  Subject tothe terms and conditions hereof, each Lender severally agrees to make, on the SecondAmendment Effective Date, a Tranche C Term Loan to Company in an amount equalto such Lender’s Tranche C Term Loan Commitment.  Company may make only one borrowing under the Tranche C Term LoanCommitment which shall be on the Second Amendment Effective Date.  Any amount borrowed under this Section2.1(c) and subsequently repaid or prepaid may not be reborrowed.  Subject to Sections 2.13(a) and 2.14, allamounts owed hereunder with respect to the Tranche C Term Loans shall bepaid in full no later than the Tranche C Term Loan Maturity Date.  Each Lender’s Tranche C Term Loan Commitmentshall terminate immediately and without further action on the Second AmendmentEffective Date after giving effect to the funding of such Lender’s Tranche CTerm Loan Commitment on such date.

 

(d)                                 Borrowing Mechanics for Tranche CTerm Loans.

 

(i)                                     Companyshall deliver to Administrative Agent a fully executed and delivered SecondAmendment Effective Date Certificate (which shall be deemed to be a FundingNotice with respect to the Tranche C Term Loans for all purposes hereof) nolater than three days prior to the Second Amendment Effective Date.  Promptly upon receipt by AdministrativeAgent of such certificate, Administrative Agent shall notify each Lender bytelefacsimile or telephone (promptly confirmed by telefacsimile) of theproposed borrowing.

 

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(ii)                                  EachLender shall make its Tranche C Term Loan available to AdministrativeAgent not later than 12:00 p.m. (New York City time) on the Second AmendmentEffective Date, by wire transfer of same day funds in Dollars, atAdministrative Agent’s Principal Office. Upon satisfaction or waiver of the conditions precedent specifiedherein, Administrative Agent shall make the proceeds of the Tranche C TermLoans available to Company on the Second Amendment Effective Date by causing anamount of same day funds in Dollars equal to the proceeds of all such Loansreceived by Administrative Agent from Lenders to be credited to the account ofCompany at Administrative Agent’s Principal Office or to such other account asmay be designated in writing to Administrative Agent by Company.”

 

**B.    **Section 2.5 of the Credit Agreementis hereby amended by deleting Section 2.5(a) in its entirety and replacing itwith the following:

 

“(a)   Pro Rata Shares.  All Loans shall be made, and allparticipations purchased, by Lenders simultaneously and proportionately totheir respective applicable Pro Rata Shares, it being understood that no Lendershall be responsible for any default by any other Lender in such other Lender’sobligation to make a Loan requested hereunder or purchase a participationrequired hereby nor shall any Tranche C Term Loan Commitment or any RevolvingCommitment of any Lender be increased or decreased as a result of a default byany other Lender in such other Lender’s obligation to make a Loan requestedhereunder or purchase a participation required hereby.”

 

**C.    **Section 2.5 of the Credit Agreementis hereby further amended by deleting the last sentence of Section 2.5(b) andreplacing it with the following:

 

“Nothingin this Section 2.5(b) shall be deemed to relieve any Lender from itsobligation to fulfill its Tranche C Term Loan Commitments and RevolvingCommitments hereunder or to prejudice any rights that Company may have againstany Lender as a result of any default by such Lender hereunder.”

 

**D.    **Section 2.6 of the Credit Agreementis hereby amended by deleting Section 2.6 in its entirety and replacing it withthe following:

 

“**2.6.****                     ****Use ofProceeds. **The proceeds of the Tranche C TermLoans shall be applied by Company to prepay all outstanding Tranche B TermLoans on the Second Amendment Effective Date. The proceeds of any Revolving Loans, Swing Line Loans and Letters of Creditmade after the Closing Date shall be applied by Company for working capital andgeneral corporate purposes of Holdings and its Subsidiaries, includingPermitted Acquisitions and certain payments made to stockholders andoptionholders in accordance with Section 6.5(g).  No portion of the proceeds of any Credit Extension shall be usedin any manner that causes or might

 

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cause such CreditExtension or the application of such proceeds to violate Regulation T,Regulation U or Regulation X of the Board of Governors of the Federal ReserveSystem or any other regulation implementing Regulation T, Regulation U orRegulation X or to violate the Exchange Act.”

 

**E.    **Section 2.7(c) of the CreditAgreement is hereby amended by adding the following sentence at the conclusionthereof:

 

“Ifso requested by any Lender by written notice to Company (with a copy toAdministrative Agent) at least two Business Days prior to the Second AmendmentEffective Date, or at any time thereafter, Company shall execute and deliver tosuch Lender (and/or, if applicable and if so specified in such notice, to anyPerson who is an assignee of such Lender pursuant to Section 10.6) on theSecond Amendment Effective Date (or, if such notice is delivered after theSecond Amendment Effective Date, promptly after Company’s receipt of suchnotice) a Note or Notes to evidence such Lender’s Tranche C Term Loan.”

 

**F.    **Section 2.8(a) of the CreditAgreement is hereby amended by deleting Section 2.8(a)(iii) in its entirety andreplacing it with the following:

 

“(iii)        in the case of Tranche CTerm Loans:

 

(1)                                  ifa Base Rate Loan, at the Base Rate, plus, the Applicable Margin; or

 

(2)                                  ifa Eurodollar Rate Loan, at the Adjusted Eurodollar Rate, plus, theApplicable Margin.”

 

**G.    **Section 2.9(a)(i) of the CreditAgreement is hereby amended by deleting such section in its entirety andreplacing it with the following:

 

“(i)  to convert at any time all or any part ofany Tranche C Term Loan or Revolving Loan equal to $500,000 and integralmultiples of $100,000 in excess of that amount from one Type of Loan to anotherType of Loan; provided, a Eurodollar Rate Loan may only be converted onthe expiration of the Interest Period applicable to such Eurodollar Rate Loanunless Company shall pay all amounts due under Section 2.18 in connection withany such conversion; or”

 

**H.    **Section 2.12 of the Credit Agreementis hereby amended by deleting such section in its entirety and replacing itwith the following:

 

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“**2.12  ScheduledPayments/Commitment Reductions.**

 

(a)                                  ScheduledInstallments.  The principal amountsof the Tranche C Term Loans shall be repaid in consecutive quarterlyinstallments (each, an **“Installment”**) in the aggregate amounts setforth below on the last day of each Fiscal Quarter (each, an **“InstallmentDate”**), commencing September 30, 2003:

 
| **Fiscal  Quarter** |   | **Tranche C Term Loan****Installments** |          |
|---------------------|--------|-----------------------------------------|---------------|
| September 30, 2003  |   | $                                       | 295,012.4125  |   |
| December 31, 2003   |   | $                                       | 295,012.4125  |   |
| March 31, 2004      |   | $                                       | 295,012.4125  |   |
| June 30, 2004       |   | $                                       | 295,012.4125  |   |
| September 30, 2004  |   | $                                       | 295,012.4125  |   |
| December 31, 2004   |   | $                                       | 295,012.4125  |   |
| March 31, 2005      |   | $                                       | 295,012.4125  |   |
| June 30, 2005       |   | $                                       | 295,012.4125  |   |
| September 30, 2005  |   | $                                       | 295,012.4125  |   |
| December 31, 2005   |   | $                                       | 295,012.4125  |   |
| March 31, 2006      |   | $                                       | 295,012.4125  |   |
| June 30, 2006       |   | $                                       | 295,012.4125  |   |
| September 30, 2006  |   | $                                       | 295,012.4125  |   |
| December 31, 2006   |   | $                                       | 295,012.4125  |   |
| March 31, 2007      |   | $                                       | 295,012.4125  |   |
| June 30, 2007       |   | $                                       | 295,012.4125  |   |
| September 30, 2007  |   | $                                       | 295,012.4125  |   |
| December 31, 2007   |   | $                                       | 28,247,438.50 |   |
| March 31, 2008      |   | $                                       | 28,247,438.50 |   |
| June 30, 2008       |   | $                                       | 28,247,438.50 |   |
| September 30, 2008  |   | $                                       | 28,247,438.50 |   |

 

Notwithstandingthe foregoing, (x) such Installments shall be reduced in connection with anyvoluntary or mandatory prepayments of the Tranche C Term Loans, inaccordance with Sections 2.13, 2.14 and 2.15 as applicable; and(y) the Tranche C Term Loans, together with all other amounts owedhereunder with respect

 

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thereto,shall, in any event, be paid in full no later than the Tranche C Term LoanMaturity Date.”

 

**I.    **Section 2.13(a) of the CreditAgreement is hereby amended by deleting the last paragraph thereof and replacingit with the following:

 

“ineach case given to Administrative Agent or Swing Line Lender, as the case maybe, by 12:00 p.m. (New York City time) on the date required and, if given bytelephone, promptly confirmed in writing to Administrative Agent (and AdministrativeAgent will promptly transmit such telephonic or original notice for Tranche CTerm Loans or Revolving Loans, as the case may be, by telefacsimile ortelephone (promptly confirmed by telefacsimile) to each Lender) or Swing LineLender, as the case may be.  Upon thegiving of any such notice, the principal amount of the Loans specified in suchnotice shall become due and payable on the prepayment date specified therein.”

 

**J.    **Section 2.14 of the Credit Agreementis hereby amended by adding a new sentence at the conclusion of Section 2.14(c)as follows:

 

“Notwithstanding anything to the contrary herein, any net Cash proceedsreceived by Holdings in connection with the Holdings IPO may be used (i) torepay up to $61,250,000 of the outstanding principal amount of the SeniorSubordinated Notes plus any prepayment premium and accrued interest inconnection therewith and (ii) to prepay any fees and expenses payable under theManagement Agreement pursuant to Section 6.5(e) and Section 6.15 hereof (suchamount in (i) and (ii), the**“IPO Payments”**);provided, that 50% of any net Cash proceeds in excess of the IPOPayments shall be used to prepay the Loans in accordance with Section 2.15(b).”

 

**K.    **Section 2.14 of the Credit Agreementis hereby further amended by deleting Section 2.14(e) in its entirety andreplacing it with the following:

 

“(e)                         Consolidated Excess Cash Flow. In the event that there shall be Consolidated Excess Cash Flow for anyFiscal Year (commencing with Fiscal Year 2003), Company shall, no later thanninety (90) days after the end of such Fiscal Year, prepay the Loans and/or theRevolving Commitments shall be permanently reduced as set forth in Section2.15(b) in an aggregate amount equal to 75% of such Consolidated Excess CashFlow; provided, during any period in which the Leverage Ratio(determined for any such period by reference to the most recent ComplianceCertificate delivered pursuant to Section 5.1(d) calculating the LeverageRatio) shall be 3.00:1.00 or less, Company shall only be required to make theprepayments and/or reductions otherwise required hereby in an amount equal to50% of such Consolidated Excess Cash Flow. Notwithstanding any of the foregoing to the

 

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contrary, immediatelyfollowing the completion of the Holdings IPO, the percentages set forth aboveshall be reduced from 75% to 50% and 50% to 25%, respectively.”

 

**L.    **Section 2.15 of the Credit Agreementis hereby amended by deleting Section 2.15(a) and replacing it with thefollowing:

 

“(a)                            Applicationof Voluntary Prepayments by Type of Loans. Any prepayment of any Loan pursuant to Section 2.13(a) shall be appliedas specified by Company in the applicable notice of prepayment; provided,in the event Company fails to specify the Loans to which any such prepaymentshall be applied, such prepayment shall be applied as follows:

 

*first*, to repayoutstanding Swing Line Loans to the full extent thereof;

 

*second*, to repayoutstanding Revolving Loans to the full extent thereof; and

 

*third*, to repay theTranche C Term Loans on a pro rata basis (in accordance with the respectiveoutstanding principal amounts thereof).

 

Any prepayment of any Tranche C Term Loan pursuant to Section 2.13(a)shall be further applied on an pro rata basis to reduce the scheduled remainingInstallments of principal on such Tranche C Term Loan.”

 

**M.    **Section 2.15 of the Credit Agreementis hereby further amended by deleting Section 2.15(b) and replacing it with thefollowing:

 

“(b)                           Applicationof Mandatory Prepayments by Type of Loans. Any amount required to be paid pursuant to Sections 2.14(a) through2.14(e) shall be applied as follows:

 

*first*, to prepayTranche C Term Loans on a pro rata basis (in accordance with the respectiveoutstanding principal amounts thereof) and shall be further applied on a prorata basis to the remaining scheduled Installment of principal of the Tranche CTerm Loans;

 

*second*, to prepaythe Swing Line Loans to the full extent thereof and to permanently reduce the RevolvingCommitments by the amount of such prepayment;

 

*third*, to prepay theRevolving Loans to the full extent thereof and to further permanently reducethe Revolving Commitments by the amount of such prepayment;

 

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*fourth*, to prepayoutstanding reimbursement obligations with respect to Letters of Credit and tofurther permanently reduce the Revolving Loan Commitments by the amount of suchprepayment;

 

*fifth*, to cashcollateralize Letters of Credit an a manner reasonably acceptable to theAdministrative Agent and to further permanently reduce the Revolving LoanCommitments by the amount of such cash collateralization; and

 

*sixth*, to furtherpermanently reduce the Revolving Commitments to the full extent thereof.”

 

**N.    **Section 2 of the Credit Agreement ishereby further amended by adding a new Section 2.25 at the conclusion thereofas follows:

 

“**Section 2.25.     New Revolving Commitments**.

 

Companymay by written notice to Administrative Agent and Syndication Agent elect torequest prior to the Revolving Commitment Termination Date, an increase to theexisting Revolving Loan Commitments (any such increase, the **“New Revolving Commitments”**), by an aggregate amount not inexcess of $20,000,000 and not less than $2,500,000 individually.  Such notice shall specify (A) the date (an **“Increased Amount Date”**) on which Company proposes that theNew Revolving Commitments shall be effective, which shall be a date not lessthan one Business Day after the date on which such notice is delivered toAdministrative Agent and Syndication Agent and (B) the identity of each Lenderor other Person that is an Eligible Assignee (each, a **“New Revolving Loan Lender”**) to whom Company proposes anyportion of such New Revolving Commitments be allocated and the amounts of suchallocations; provided that any Lender approached to provide all or aportion of such New Revolving Commitments may elect or decline, in its solediscretion, to provide a New Revolving Commitment.  Such New Revolving Commitments shall become effective, as of suchIncreased Amount Date; provided that (1) no Default or Event ofDefault shall exist on the Increased Amount Date before or after giving effectto such New Revolving Commitments; (2)  Holdings and its Subsidiariesshall be in pro forma compliance with each of the covenants set forth inSection 6.8 as of the last day of the most recently ended Fiscal Quarter aftergiving effect to such New Revolving Commitments; (3) the New RevolvingCommitments shall be effected pursuant to one or more Joinder Agreementsexecuted and delivered by Company, Syndication Agent and Administrative Agent,and each of which shall be recorded in the Register and shall be subject to therequirements set forth in Section 2.20(c); (4) Company shall make anypayments required pursuant to Section 2.18(c) in connection with such NewRevolving Commitments; and (5) Company

 

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shall deliver orcause to be delivered any legal opinions or other documents reasonablyrequested by Administrative Agent in connection with any such transaction.

 

On each Increased Amount Date on which the New Revolving Commitmentsare effected, subject to the satisfaction of the foregoing terms andconditions, (a) each of the Revolving Loan Lenders shall assign to each of theNew Revolving Loan Lenders, and each of the New Revolving Loan Lenders shallpurchase from each of the Revolving Loan Lenders, at the principal amountthereof (together with accrued interest), such interests in the Revolving Loansoutstanding on such Increased Amount Date as shall be necessary in order that,after giving effect to all such assignments and purchases, such Revolving Loanswill be held by existing Revolving Loan Lenders and New Revolving Loan Lendersratably in accordance with their Revolving Loan Commitments after giving effectto the addition of such New Revolving Commitments to the Revolving LoanCommitments, (b) each New Revolving Commitment shall be deemed for all purposesa Revolving Commitment and each Loan made thereunder (a **“New Revolving Loan”**) shall be deemed, forall purposes, a Revolving Loan and (c) each New Revolving Loan Lender shallbecome a Lender with respect to such New Revolving Commitment and all mattersrelating thereto.

 

Administrative Agent shall notify Lenders promptly upon receipt ofCompany’s notice of each Increased Amount Date and in respect thereof (y) theNew Revolving Commitments and the New Revolving Loan Lenders, and (z) therespective interests in such Revolving Loan Lender’s Revolving Loans, in eachcase subject to the assignments contemplated by this Section 2.25.  The terms and provisions of New RevolvingLoans shall be identical to the Revolving Loans.”

 

**1.3****          Amendments to Section5.**

 

**A.    **Section 5.12 of the Credit Agreementis hereby amended by deleting such section in its entirety and replacing itwith the following:

 

“**5.12  InterestRate Protection. **Companyshall maintain, or caused to be maintained, in effect one or more HedgeAgreements for a term of not less than three years from the Closing Date andotherwise in form and substance reasonably satisfactory to Administrative Agentand Syndication Agent, which Hedge Agreements shall effectively limit theUnadjusted Eurodollar Rate Component of the interest costs to Company withrespect to an aggregate notional principal amount of not less than 25% of theaggregate principal amount of the Tranche C Term Loans outstanding from time totime (based on the assumption that such notional principal amount was aEurodollar Rate Loan with an Interest Period of three months) at a rate and onterms satisfactory to the Syndication Agent.”

 

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**1.4****          Amendments to Section6.**

 

**A.    **Section 6.5 of the Credit Agreementis hereby amended by deleting the “and” at the end of clause (e), deleting the“.” at the end of clause (f), and inserting the following clauses (g), (h) and(i) at the end thereof:

 

“(g)                           Holdings and Company may makeRestricted Junior Payments to stockholders and optionholders of Holdings in anamount not to exceed $27,450,000; (h) on or prior to the date three monthsfollowing the consummation of the Holdings IPO, Holdings and its Subsidiariesmay use the net Cash proceeds of the Holdings IPO to make Restricted JuniorPayments in respect of any repurchase, redemption or repayment of up to$61,250,000 of the outstanding principal amount of Senior Subordinated Notes(plus any prepayment premium and accrued interest in connection therewith); and(i) Holdings and its Subsidiaries may make Restricted Junior Payments inrespect of any repurchase, redemption or repayment of the Senior SubordinatedNotes; provided, that (x) at the time of such Restricted Junior Paymentand immediately after giving effect thereto, no Event of Default shall haveoccurred and be continuing and (y) the amount of such Restricted JuniorPayments made pursuant to this clause (i) shall not exceed $15,000,000 in theaggregate.”

 

**B.    **Section 6.9 of the Credit Agreementis hereby amended by deleting the “and” at the end of clause (d), deleting the“.” and inserting an “; and” at the end of clause (e) and adding the followingclause (f) at the end thereof:

 

“(f) Each ofCompany and Holdings may change the state of its incorporation from the Commonwealthof Massachusetts to the State of Delaware (including through a merger into anewly formed wholly-owned Subsidiary); provided, that prior to any suchreincorporation, Collateral Agent shall have received evidence satisfactory toCollateral Agent of the compliance of Company and Holdings, as the case may be,with all covenants under the Pledge and Security Agreement and other CollateralDocuments (including, without limitation, the delivery of information requestedby the Collateral Agent in connection with the filing of new UCC financingstatements).”

 

**C.    **Section 6.12 of the Credit Agreementis hereby amended by deleting Section 6.12 in its entirety and replacing itwith the following:

 

“No CreditParty shall, nor shall it permit any of its Subsidiaries to, directly orindirectly, enter into or permit to exist any transaction (including thepurchase, sale, lease or exchange of any property or the rendering of anyservice) with any holder of 10% or more of any class of Capital Stock ofHoldings or any of its Subsidiaries or with any Affiliate of Holdings or of anysuch holder, on terms that are less favorable to Holdings or that Subsidiary,as the case may be, than those that might be obtained at the time from a Personwho is not such a holder or Affiliate; provided, the

 

15

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foregoing restriction shall not apply to (a) any transaction betweenCompany and any Guarantor Subsidiary; (b) reasonable and customary fees paid tomembers of the board of directors (or similar governing body) of Holdings andits Subsidiaries; (c) fees payable under the Management Agreement; (d)compensation arrangements for officers and other employees of Holdings and itsSubsidiaries entered into in the ordinary course of business; (e) Indebtednessto members of management in connection with management stock repurchasespermitted under Section 6.1(m); (f) transactions described in Schedule 6.12 and(g) payments made by Holdings and Company to stockholders and optionholders ofHoldings in an amount not to exceed $27,450,000.”

 

**D.    **Section 6.14 of the Credit Agreementis hereby amended by adding the following sentence at the end thereof:

 

“Notwithstanding anyof the foregoing, Holdings may (i) change the state of  its incorporation from the Commonwealth ofMassachusetts to the State of Delaware and may change its name from CarterHoldings, Inc. to “Carter’s, Inc.”; provided, prior to any suchreincorporation or name change, Collateral Agent shall have received evidencesatisfactory to Collateral Agent of the compliance of Holdings with allcovenants under the Pledge and Security Agreement and other CollateralDocuments (including, without limitation, the delivery of information requestedby the Collateral Agent in connection with the filing of new UCC financingstatements) and (ii) consummate the Holdings IPO and enter into relatedagreements in connection therewith.”

 

**E.    **Section 6.15 of the Credit Agreementis hereby amended by adding the following at the end thereof:

 

“; provided,that Company may amend the Management Agreement to provide for (i) the paymentof an amount not to exceed $1,100,000 in satisfaction of all fees and expensespayable thereunder that are accrued and unpaid prior to the date of suchpayment and (ii) upon the consummation of the Holdings IPO, a one-time paymentof an amount not to exceed $3,600,000 in satisfaction of all other fees andexpenses payable thereunder.”

 

**1.5****                               Amendmentsto Section 10.**

 

**A.    **Section 10.5(c) is hereby amended bydeleting the “or” at the end of clause (v), deleting the “.” and inserting an“; or” at the end of clause (vi) and adding the following clause (vii) at theend thereof:

 

“(vii)increase any Tranche C Term Loan Commitment of any Lender over the amountthereof then in effect without the consent of such Lender; provided, noamendment, modification or waiver of any condition precedent, covenant, Defaultor

 

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Eventof Default shall constitute an increase in any Tranche C Term Loan Commitmentof any Lender;”

 

**B.    **Section 10.6(c)(ii) is herebyamended by adding the following proviso at the conclusion thereof as follows:

 

“;provided, further, each such assignment pursuant to this Section10.6(c)(ii) shall be in an aggregate amount of not less than $1,000,000 (orsuch lesser amount as may be agreed to by Company and Administrative Agent oras shall constitute the aggregate amount of the Tranche C Term Loans of theassigning Lender) with respect to the assignment of the Tranche C Term Loans.”

 

**C.    **Section 10.17 of the CreditAgreement is hereby amended by adding the following paragraph at the conclusionthereof as follows:

 

“Notwithstandinganything to the contrary set forth herein, each party (and each of theirrespective employees, representatives or other agents) may disclose to any andall persons, without limitations of any kind, the tax treatment and taxstructure of the transactions contemplated by this Agreement and all materialsof any kind (including opinions and other tax analyses) that are provided toany such party relating to such tax treatment and tax structure.  However, any information relating to the taxtreatment or tax structure shall remain subject to the confidentialityprovisions hereof (and the foregoing sentence shall not apply) to the extentreasonably necessary to enable the parties hereto, their respective Affiliates,and their and their respective Affiliates’ directors and employees to complywith applicable securities laws.  Forthis purpose, “tax structure” means any facts relevant to the federal incometax treatment of the transactions contemplated by this Agreement but does notinclude information relating to the identity of any of the parties hereto orany of their respective Affiliates.”

 

**1.6****          Amendments toExhibits.**

 

The Exhibits to the Credit Agreement arehereby amended by adding a new Exhibit B-4 and a new Exhibit K in substantiallythe form of Exhibit B and Exhibit C to the Second Amendment.

 

**SECTIONII.     CONDITIONS TO EFFECTIVENESS**

 

Section I of this Amendment shall becomeeffective only upon the satisfaction of all of the following conditionsprecedent:

 

**A.     Execution**.  Credit Parties, Requisite Lenders and eachLender with a Tranche C Term Loan Commitment shall have executed this Amendment.

 

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**B.     Representationsand Warranties. **As of the date hereof, therepresentations and warranties contained herein and in the other CreditDocuments shall be true, correct and complete in all material respects on andas of the date hereof to the same extent as though made on and as of the datehereof, except to the extent such representations and warranties specificallyrelate to an earlier date, in which case such representations and warranties shallhave been true, correct and complete in all material respects on and as of suchearlier date.

 

**C.     NoDefault. **As of the date hereof, no eventshall have occurred and be continuing that would constitute an Event of Defaultor a Default.

 

**D.     SecondAmendment Effective Date Certificate.** Company shall have delivered to Administrative Agent an originallyexecuted Second Amendment Effective Date Certificate in the form of Exhibit Ato this Amendment, together with all attachments thereto (which shall be deemedto be a Funding Notice with respect to the Tranche C Term Loans for allpurposes hereof).

 

**E.     NecessaryConsents.**  Each CreditParty shall have obtained all material consents necessary or advisable inconnection with the execution and delivery of this Amendment.

 

**F.     Collateral. **Collateral Agent shall have receivedevidence satisfactory to Collateral Agent of the compliance of the Company andHoldings, as the case may be, with all covenants under the Pledge and SecurityAgreement and other Collateral Documents (including, without limitation, thedelivery of information requested by the Collateral Agent in connection withthe filing of new UCC financing statements in connection with Company andHoldings, as the case may be, reincorporating in the State of Delaware andHoldings changing its name from Carter Holdings, Inc. to “Carter’s, Inc.” inaccordance with subsections I 1.3C and I 1.3D of this Amendment).

 

**G.     LegalOpinion. **Syndication Agent and AdministrativeAgent shall have received a reasonably satisfactory legal opinion from Ropes& Gray LLP in form and substance reasonably satisfactory to the SyndicationAgent and Collateral Agent.

 

**H.     AmendmentFees.**  Administrative Agent shall have received,for distribution to all Lenders executing this Amendment on or prior to July29,**2003, an amendment fee equalto 0.05% of such Lender’s outstanding Tranche B Term Loans and RevolvingCommitments immediately prior to the Second Amendment Effective Date (withoutgiving effect to the New Revolving Commitments contemplated hereby).

 

**I.     OtherFees.**  Administrative Agent shall have received allother fees and other amounts due and payable on or prior to the SecondAmendment Effective Date, including reimbursement or other payment of all costsand expenses required to be reimbursed or paid by Company or Holdings, as thecase may be, hereunder or under any other Credit Document.

 

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**J.     OtherDocuments.** Administrative Agent and Lenders shall have received such otherdocuments, information or agreements regarding Credit Parties as AdministrativeAgent or Syndication Agent may reasonably request.

 

Upon the effectiveness of this SecondAmendment pursuant to the conditions set forth in this Section II and thefunding of Tranche C Term Loans on the Second Amendment Effective Date, alloutstanding amounts under the Tranche B Term Loans shall be paid and satisfiedin full and if the Company so requests, each Lender who has previously receiveda Tranche B Term Loan Note shall deliver such Note to the Company forcancellation.

 

**SECTIONIII.     REPRESENTATIONS AND WARRANTIES**

 

In order to induce Lenders to enter into thisAmendment and to amend the Credit Agreement in the manner provided herein, eachCredit Party which is a party hereto represents and warrants to each Lenderthat the following statements are true and correct in all material respects:

 

**A.     CorporatePower and Authority.**  Each CreditParty, which is party hereto, has all requisite power and authority to enterinto this Amendment and to carry out the transactions contemplated by, andperform its obligations under, the Credit Agreement as amended by thisAmendment (the **“Amended Agreement”**)and the other Credit Documents.

 

**B.     Authorizationof Agreements.**  The executionand delivery of this Amendment and the performance of the Amended Agreement andthe other Credit Documents have been duly authorized by all necessary action onthe part of each Credit Party.

 

**C.     NoConflict.**  The executionand delivery by each Credit Party of this Amendment and the performance by eachCredit Party of the Amended Agreement and the other Credit Documents do not andwill not (i) violate (A) any provision of any law, statute, rule or regulation,or of the certificate or articles of incorporation or partnership agreement,other constitutive documents or by-laws of Holdings, Company or any CreditParty or (B) any applicable order of any court or any rule, regulation or orderof any Governmental Authority, (ii) be in conflict with, result in abreach of or constitute (alone or with notice or lapse of time or both) adefault under any Material Contract of the applicable Credit Party, where anysuch conflict, violation, breach or default referred to in clause (i) or (ii)of this Section III C., individually or in the aggregate could reasonably beexpected to have a Material Adverse Effect, (iii) except as permitted under theAmended Agreement, result in or require the creation or imposition of any Lienupon any of the properties or assets of each Credit Party (other than any Lienscreated under any of the Credit Documents in favor of Collateral Agent onbehalf of Lenders), or (iv) require any approval of stockholders or partners orany approval or consent of any Person under any Material Contract of eachCredit Party, except for such approvals or consents which will be obtained onor before the Second Amendment

 

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Effective Date and except forany such approvals or consents the failure of which to obtain will not have aMaterial Adverse Effect.

 

**D.     GovernmentalConsents.**  No action,consent or approval of, registration or filing with or any other action by anyGovernmental Authority is or will be required in connection with the executionand delivery by each Credit Party of this Amendment and the performance byCompany and Holdings of the Amended Agreement and the other Credit Documents,except for such actions, consents and approvals the failure to obtain or makewhich could not reasonably be expected to result in a Material Adverse Effector which have been obtained and are in full force and effect.

 

**E.     BindingObligation.**  ThisAmendment and the Amended Agreement have been duly executed and delivered byeach of the Credit Parties party thereto and each constitutes a legal, validand binding obligation of such Credit Party to the extent a party thereto,enforceable against such Credit Party in accordance with its terms, except asenforceability may be limited by bankruptcy, insolvency, moratorium,reorganization or other similar laws affecting creditors’ rights generally andexcept as enforceability may be limited by general principles of equity(regardless of whether such enforceability is considered in a proceeding inequity or at law).

 

**F.     Incorporationof Representations and Warranties From Credit Agreement.** The representations and warranties contained in Section 4 of the AmendedAgreement are and will be true and correct in all material respects on and asof the Second Amendment Effective Date to the same extent as though made on andas of that date, except to the extent such representations and warrantiesspecifically relate to an earlier date, in which case they were true andcorrect in all material respects on and as of such earlier date.

 

**G.     Absenceof Default.**  No event hasoccurred and is continuing or will result from the consummation of thetransactions contemplated by this Amendment that would constitute an Event ofDefault or a Default.

 

**SECTIONIV.     ACKNOWLEDGMENT AND CONSENT**

 

Each Domestic Subsidiary and Holdings arereferred to herein as a **“Credit SupportParty”** and collectively as the **“CreditSupport Parties”**, and the Credit Documents to which they are a partyare collectively referred to herein as the **“CreditSupport Documents”**.

 

Each Credit Support Party hereby acknowledgesthat it has reviewed the terms and provisions of the Credit Agreement and thisAmendment and consents to the amendment of the Credit Agreement effectedpursuant to this Amendment.  Each CreditSupport Party hereby confirms that each Credit Support Document to which it isa party or otherwise bound and all Collateral encumbered thereby will continueto guarantee or secure, as the case may be, to the fullest extent possible inaccordance with the Credit Support Documents the payment

 

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and performance of all“Obligations” under each of the Credit Support Documents to which is a party(in each case as such terms are defined in the applicable Credit SupportDocument).

 

Each Credit Support Party acknowledges andagrees that any of the Credit Support Documents to which it is a party orotherwise bound shall continue in full force and effect and that all of itsobligations thereunder shall be valid and enforceable and shall not be impairedor limited by the execution or effectiveness of this Amendment.  Each Credit Support Party represents andwarrants that all representations and warranties contained in the AmendedAgreement and the Credit Support Documents to which it is a party or otherwisebound are true and correct in all material respects on and as of the SecondAmendment Effective Date to the same extent as though made on and as of thatdate, except to the extent such representations and warranties specificallyrelate to an earlier date, in which case they were true and correct in allmaterial respects on and as of such earlier date.

 

Each Credit Support Party acknowledges andagrees that (i) notwithstanding the conditions to effectiveness set forthin this Amendment, such Credit Support Party is not required by the terms ofthe Credit Agreement or any other Credit Support Document to consent to theamendments to the Credit Agreement effected pursuant to this Amendment and(ii) nothing in the Credit Agreement, this Amendment or any other CreditSupport Document shall be deemed to require the consent of such Credit SupportParty to any future amendments to the Credit Agreement.

 

**SECTIONV.     MISCELLANEOUS**

 

**A.     Reference to and Effect on the Credit Agreement and the Other LoanDocuments**.

 

(i)     On and after the Second AmendmentEffective Date, each reference in the Credit Agreement to “this Agreement”,“hereunder”, “hereof”, “herein” or words of like import referring to the CreditAgreement, and each reference in the other Credit Documents to the “CreditAgreement”, “thereunder”, “thereof” or words of like import referring to theCredit Agreement shall mean and be a reference to the Credit Agreement asamended by this Amendment.

 

(ii)     Except as specifically amended by thisAmendment, the Credit Agreement and the other Credit Documents shall remain infull force and effect and are hereby ratified and confirmed.

 

(iii)     The execution, delivery and performanceof this Amendment shall not, except as expressly provided herein, constitute awaiver of any provision of, or operate as a waiver of any right, power orremedy of any Agent or Lender under, the Credit Agreement or any of the otherCredit Documents.

 

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**B.     Headings.** Section and Subsection headings in this Amendment are included hereinfor convenience of reference only and shall not constitute a part of thisAmendment for any other purpose or be given any substantive effect.

 

**C.     Applicable Law.  THIS AMENDMENT AND THE RIGHTS ANDOBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BECONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OFNEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERALOBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWSPRINCIPLES.**

 

**D.     Counterparts.**  This Amendment may be executed in any numberof counterparts and by different parties hereto in separate counterparts, eachof which when so executed and delivered shall be deemed an original, but allsuch counterparts together shall constitute but one and the same instrument;signature pages may be detached from multiple separate counterparts andattached to a single counterpart so that all signature pages are physicallyattached to the same document.

 

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the partieshereto have caused this Amendment to be duly executed and delivered by theirrespective officers thereunto duly authorized as of the date first writtenabove.

 

 
| **COMPANY:**                 | **THE WILLIAM CARTER COMPANY**       |                                                         |
|------------------------------|--------------------------------------|--------------------------------------------------------------|
|                         |                                 |                                                         |   |
|                         |                                 |                                                         |   |
|                         | By:                                  | /s/ Michael D. Casey                                         |   |   |
|                         |                                 | Name:  Michael D. Casey                                      |   |
|                         |                                 | Title:  Executive Vice President and Chief Financial Officer |   |
|                         |                                 |                                                         |   |
|                         |                                 |                                                         |   |
| **HOLDINGS:**                | **CARTER HOLDINGS, INC.**            |                                                         |
|                         |                                 |                                                         |   |
|                         |                                 |                                                         |   |
|                         | By:                                  | /s/ Michael D. Casey                                         |   |   |
|                         |                                 | Name:  Michael D. Casey                                      |   |
|                         |                                 | Title:  Executive Vice President and Chief Financial Officer |   |
|                         |                                 |                                                         |   |
|                         |                                 |                                                         |   |
| **CREDIT SUPPORT PARTIES:**  | **CARTER’S DE SAN PEDRO, INC.** |                                                         |
| (for  purposes of Section 4) |                                 |                                                         |   |
|                         |                                 |                                                         |   |
|                         | By:                                  | /s/ David A.  Brown                                          |   |   |
|                         |                                 | Name: David  A. Brown                                        |   |
|                         |                                 | Title: Vice  President                                       |   |
|                         |                                 |                                                         |   |
|                         |                                 |                                                         |   |
|                         | **CARTER’S IMAGINATION, INC.**  |                                                         |
|                         |                                 |                                                         |   |
|                         |                                 |                                                         |   |
|                         | By:                                  | /s/ David A. Brown                                           |   |   |
|                         |                                 | Name: David A. Brown                                         |   |
|                         |                                 | Title: Vice President                                        |   |

 

S-1

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| **SYNDICATION AGENT  AND A TRANCHE C  TERM LOAN LENDER:** | **GOLDMAN SACHS CREDIT PARTNERS L.P.** |
|-----------------------------------------------------------|----------------------------------------|
|                                                      | By:                                    |   |   |
|                                                      | Authorized Signatory                   |
|                                                      |                                   |
|                                                      | Tranche C  Term Loan Commitment:       |
|                                                      |                                   |
|                                                      | $                                      |   |   |
|                                                           |                                        |  |  |  |  |

 

S-2

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| **ADMINISTRATIVE AGENT:** | **FLEET NATIONAL BANK** |
|---------------------------|-------------------------|
|                      |                    |
|                      |                    |
|                      | By:                     |   |   |
|                      |                    | Name: |
|                      |                    | Title: |

 

S-3

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| **LENDER:** | **[INSTITUTION]** |
|-------------|-------------------|
|        |              |
|        |              |
|        | By:               |   |   |
|        |              | Name: |
|        |              | Title: |

 

S-4

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**EXHIBIT A TO**

**SECOND AMENDMENT TO**

**CREDIT AND GUARANTYAGREEMENT**

 

**SECOND AMENDMENTEFFECTIVE DATE CERTIFICATE**

 

**THE UNDERSIGNEDCOMPANY HEREBY CERTIFIES AS FOLLOWS:**

 

1.             Reference is made to the Credit andGuaranty Agreement, dated as of  August15, 2001 as amended through the date hereof (as it may be amended, supplementedor otherwise modified, the**“Credit Agreement”**;the terms defined therein and not otherwise defined herein being used herein astherein defined), by and among **THE WILLIAMCARTER COMPANY**, a Massachusetts corporation (**“Company”**), **CARTER HOLDINGS, INC.,**a Massachusetts corporation (**“Holdings”**), **CERTAIN SUBSIDIARIES OF COMPANY**, as Guarantors, the Lendersparty thereto from time to time, **GOLDMANSACHS CREDIT PARTNERS L.P.**, as Lead Arranger, Book Runner and asSyndication Agent, **FLEET NATIONAL BANK**,as Administrative Agent and Collateral Agent and **BNP PARIBAS**, as Documentation Agent.

 

2.             Pursuant to Section 2.1(d) of the CreditAgreement, Company requests that Lenders make the following Loans to Company onthe date hereof:

 
| Tranche C Term Loans:                                                                                                                                            |   | $      | 118,004,965 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|
|                                                                                                                                                             |   |   |        |
| Eurodollar Rate Loans, with an Initial  Interest Period of                   Month(s) |   |   |        |

 

3.             We have reviewed the terms and conditionsof Section II of the Second Amendment and the definitions and provisionscontained in the Credit Agreement (as amended by the Second Amendment) relatingthereto, and in our opinion we have made, or have caused to be made under oursupervision, such examination or investigation as is necessary to enable us toexpress an informed opinion as to the matters referred to herein.

 

4.             Based upon or review and examinationdescribed in paragraph (2) above, we certify, on behalf of Holdings andCompany, that as of the date hereof:

 

(a)                                  after giving effectto the Second Amendment, the representations and warranties contained in eachof the Credit Documents are true and correct in all material respects on and asof the Second Amendment Effective Date to the same extent as though made on andas of such date, except to the extent such representations and warrantiesspecifically relate to an earlier date, in which case such

 

A-1

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representations and warranties are true andcorrect in all material respects on and as of such earlier date;

 

(b)                                 after giving effect tothe Second Amendment, no event has occurred and is continuing that wouldconstitute an Event of Default or a Default.

 

5.             Each Credit Party has requested Ropes& Gray LLP to deliver to Agents and Lenders on the Second AmendmentEffective Date written opinions in form and substance reasonably satisfactoryto the Agents.

 

[Remainder of page intentionally left blank]

 

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The foregoing certifications are made and delivered as of July 29,2003.

 
|   | **THE WILLIAM CARTER COMPANY** |
|--------|--------------------------------|
|   |                           |
|   |                           |
|   | By:                            |   |   |
|   |                           | Name: |
|   |                           | Title: |
|   |                           |
|   |                           |
|   | **CARTER HOLDINGS, INC.**      |
|   |                           |
|   |                           |
|   | By:                            |   |   |
|   |                           | Name: |
|   |                           | Title: |

 

A-3

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**EXHIBIT B TO**

**SECOND AMENDMENT TO**

**CREDIT AND GUARANTY AGREEMENT**

 

Exhibit B-4 To Credit Agreement

 

**TRANCHE C TERM LOAN NOTE**

 
| $[1]**[     ,     ,     ]** |   |               |
|--------------------------------------------------------------------------------------------------------|--------|--------------------|
| [2]**[mm/dd/yy]**                                                                                      |   | New York, New York |

 

**FOR VALUE RECEIVED**, **THE WILLIAM CARTER COMPANY**, a****Massachusetts corporation (**“Company”**), promises to pay **[NAME OF LENDER]** (**“Payee”**) or its registered assigns theprincipal amount of [1]**[DOLLARS]**($[1]**[     ,     ,     ]**)in the installments referred to below.

 

Company alsopromises to pay interest on the unpaid principal amount hereof, from the datehereof until paid in full, at the rates and at the times which shall bedetermined in accordance with the provisions of that certain Credit andGuaranty Agreement, dated as of August 15, 2001 (as it may be amended,supplemented or otherwise modified, the **“CreditAgreement”**; the terms defined therein and not otherwise definedherein being used herein as therein defined), by and among Company, **CARTER HOLDINGS, INC.**, a Massachusetts corporation (**“Holdings”**),**CERTAINSUBSIDIARIES OF COMPANY**, as Guarantors, the Lenders party theretofrom time to time,**GOLDMAN SACHS CREDIT PARTNERS L.P.**, asLead Arranger, Book Runner, and as Syndication Agent, **FLEET NATIONAL BANK**, as AdministrativeAgent and as Collateral Agent, and **BNPPARIBAS**, as Documentation Agent.

 

Company shallmake principal payments on this Note as set forth in Section 2.12 of the CreditAgreement.

 

This Note isone of the “Tranche C Term Loan Notes” in the aggregate principal amount of$118,004,965 and is issued pursuant to and entitled to the benefits of theCredit Agreement, to which reference is hereby made for a more completestatement of the terms and conditions under which the Term Loan evidencedhereby was made and is to be repaid.

 

All paymentsof principal and interest in respect of this Note shall be made in lawful moneyof the United States of America in same day funds at the Principal Office ofAdministrative Agent or at such other place as shall be designated in writingfor such

 

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[1]           Lender’s Tranche C  Term Loan Commitment

 

[2]           Date of Issuance

 

B-1

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purpose in accordance with theterms of the Credit Agreement.  Unlessand until an Assignment Agreement effecting the assignment or transfer of theobligations evidenced hereby shall have been accepted by Administrative Agentand recorded in the Register, Company, each Agent and Lenders shall be entitledto deem and treat Payee as the owner and holder of this Note and theobligations evidenced hereby.  Payeehereby agrees, by its acceptance hereof, that before disposing of this Note orany part hereof it will make a notation hereon of all principal paymentspreviously made hereunder and of the date to which interest hereon has beenpaid; provided, the failure to make a notation of any payment made on this Noteshall not limit or otherwise affect the obligations of Company hereunder withrespect to payments of principal of or interest on this Note.

 

This Note issubject to mandatory prepayment and to prepayment at the option of Company,each as provided in the Credit Agreement.

 

THIS NOTE ANDTHE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY,AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OFTHE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.

 

Upon theoccurrence of an Event of Default, the unpaid balance of the principal amountof this Note, together with all accrued and unpaid interest thereon, maybecome, or may be declared to be, due and payable in the manner, upon theconditions and with the effect provided in the Credit Agreement.

 

The terms ofthis Note are subject to amendment only in the manner provided in the CreditAgreement.

 

No referenceherein to the Credit Agreement and no provision of this Note or the CreditAgreement shall alter or impair the obligations of Company, which are absoluteand unconditional, to pay the principal of and interest on this Note at theplace, at the respective times, and in the currency herein prescribed.

 

Companypromises to pay all costs and expenses, including reasonable attorneys’ fees,all as provided in the Credit Agreement, incurred in the collection andenforcement of this Note.  Company andany endorsers of this Note hereby consent to renewals and extensions of time ator after the maturity hereof, without notice, and hereby waive diligence,presentment, protest, demand notice of every kind and, to the full extentpermitted by law, the right to plead any statute of limitations as a defense toany demand hereunder.

 

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**IN WITNESS WHEREOF**,Company has caused this Note to be duly executed and delivered by its officerthereunto duly authorized as of the date and at the place first written above.

 

 
|   | By:    |   |   |
|--------|--------|--------|--------|
|   | Title: |

 

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**EXHIBIT C TO**

**SECOND AMENDMENT TO**

**CREDIT AND GUARANTY AGREEMENT**

 

**JOINDER AGREEMENT**

 

**THIS JOINDER AGREEMENT**,dated as of                       , 2003 (this **“Agreement”**),by and among [NEW LENDERS] (each a **“Lender”**and collectively the **“Lenders”**), **THE WILLIAM CARTER COMPANY**, a Massachusettscorporation (**“Company”**), **CARTER HOLDINGS, INC.,**a Massachusettscorporation (**“Holdings”**), **CERTAIN SUBSIDIARIES OF COMPANY**, asGuarantors, the Lenders party thereto from time to time, **GOLDMAN SACHS CREDIT PARTNERS L.P.**, as LeadArranger, Book Runner and as Syndication Agent and **FLEET NATIONAL BANK**, as Administrative Agent and CollateralAgent.

 

**RECITALS:**

 

**WHEREAS**, referenceis hereby made to the **CREDIT AND GUARANTYAGREEMENT**, dated as of August 15, 2001 (as it may be amended,restated,  supplemented or otherwisemodified from time to time, the **“CreditAgreement”**; the terms defined therein and not otherwise definedherein being used herein as therein defined), by and among the Lenders partythereto from time to time,****GSCP,as Lead Arranger and Syndication Agent, Fleet, as Administrative Agent andCollateral agent, and BNP Paribas, as Documentation Agent; and

 

**WHEREAS**, subject tothe terms and conditions of the Credit Agreement, Company  may increase the existing RevolvingCommitments by entering into one or more Joinder Agreements with the NewRevolving Loan Lenders, as applicable.

 

**NOW, THEREFORE**, inconsideration of the premises and agreements, provisions and covenants hereincontained, the parties hereto agree as follows:

 

Each Lenderparty hereto hereby agrees to commit to provide its respective Commitment asset forth on Schedule A annexed hereto, on the terms and subject to theconditions set forth below:

 

Each Lender(i) confirms that it has received a copy of the Credit Agreement and the otherCredit Documents, together with copies of the financial statements referred totherein and such other documents and information as it has deemed appropriateto make its own credit analysis and decision to enter into this Agreement; (ii)agrees that it will, independently and without reliance upon the AdministrativeAgent or any other Lender or Agent and based on such documents and informationas it shall deem appropriate at the time, continue to make its own creditdecisions in taking or not taking action under the Credit Agreement; (iii)appoints and authorizes Administrative Agent and Collateral Agent to take suchaction as agent on its behalf and to exercise such

 

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powers under the CreditAgreement and the other Credit Documents as are delegated to AdministrativeAgent and Collateral Agent, as the case may be, by the terms thereof, togetherwith such powers as are reasonably incidental thereto; and (iv) agrees that itwill perform in accordance with their terms all of the obligations which by theterms of the Credit Agreement are required to be performed by it as a Lender.

 

Each Lenderhereby agrees to make its Commitment on the following terms and conditions:

 

1.             **New Lenders**.  Each New Revolving Loan Lender acknowledges and agrees that uponits execution of this Agreement that such New Revolving Loan Lender shallbecome a “Lender” under, and for all purposes of, the Credit Agreement and theother Credit Documents, and shall be subject to and bound by the terms thereof,and shall perform all the obligations of and shall have all rights of a Lenderthereunder.

 

2.             **Credit Agreement Governs. **Except as set forth in this Agreement, New RevolvingLoans shall otherwise be subject to the provisions of the Credit Agreement andthe other Credit Documents.

 

3.             **Holdings and Company’s Certifications**.  By its execution of this Agreement, theundersigned officer, to the best of his or her knowledge, and Holdings andCompany hereby certify that:

 

i.              Therepresentations and warranties contained in the Credit Agreement and the otherCredit Documents are true and correct in all material respects on and as of thedate hereof to the same extent as though made on and as of the date hereof,except to the extent such representations and warranties specifically relate toan earlier date, in which case such representations and warranties were trueand correct in all material respects on and as of such earlier date;

 

ii.             Noevent has occurred and is continuing that would constitute a Default or anEvent of Default; and

 

iii.            Companyhas performed in all material respects all agreements and satisfied allconditions which the Credit Agreement provides shall be performed or satisfiedby it on or before the date hereof.

 

4.             **Company Covenants**.  By its execution of this Agreement, Companyhereby covenants that:

 

i.              Companyshall make any payments required pursuant to Section 2.18(c) of the CreditAgreement in connection with the New Revolving Commitments;

 

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ii.             Companyshall deliver or cause to be delivered a legal opinion from Ropes and Gray LLPand other documents reasonably requested by Administrative Agent in connectionwith this Agreement; and

 

iii.            Setforth on the attached Officers’ Certificate are the calculations (in reasonabledetail) demonstrating compliance with the financial tests described in Section6.8 of the Credit Agreement.

 

5.             **Eligible Assignee. **By its execution of this Agreement, each New Revolving LoanLender represents and warrants that it is an Eligible Assignee.

 

6.             **Notice**. For purposes of the Credit Agreement, the initial notice address of eachNew Revolving Loan Lender shall be as set forth below its signature below.

 

7.             **Non-US Lenders**.  For each New Revolving Loan Lender that is a Non-US Lender,delivered herewith to Administrative Agent are such forms, certificates orother evidence with respect to United States federal income tax withholding mattersas such New Revolving Loan Lender may be required to deliver to AdministrativeAgent pursuant to subsection 2.20(c) of the Credit Agreement.

 

8.             **Recordation of the New Loans**.  Upon execution and delivery hereof,Administrative Agent will record the New Revolving Loans made by New RevolvingLoan Lenders in the Register.

 

9.             **Amendment, Modification and Waiver**.  This Agreement may not be amended, modifiedor waived except by an instrument or instruments in writing signed anddelivered on behalf of each of the parties hereto.

 

10.           **Entire Agreement**.  This Agreement, the Credit Agreement and  the other Credit Documents constitute theentire agreement among the parties with respect to the subject matter hereofand thereof and supersede all other prior agreements and understandings, bothwritten and verbal, among the parties or any of them with respect to thesubject matter hereof.

 

11.           **GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDERSHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITHTHE LAWS OF THE STATE OF NEW YORK.**

 

12.           **Severability**.  Any term or provision of this Agreement which is invalid orunenforceable in any jurisdiction shall, as to that jurisdiction, beineffective to the extent of such invalidity or unenforceability withoutrendering invalid or unenforceable the remaining terms and provisions of thisAgreement or affecting the validity or enforceability of any of the terms orprovisions of this Agreement in any other jurisdiction.  If any provision of this Agreement is sobroad as to be

 

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unenforceable, the provision shall be interpreted to be only so broadas would be enforceable.

 

13.           **Counterparts**.  This Agreement may be executed in counterparts, each of whichshall be deemed to be an original, but all of which shall constitute one andthe same agreement.

 

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**IN WITNESS WHEREOF**,each of the undersigned has caused its duly authorized officer to execute anddeliver this Joinder Agreement as of[                       ,           ].

 

 
|   |   | **[NAME OF LENDER]**           |
|--------|--------|--------------------------------|
|   |   |                           |
|   |   |                           |
|   |   | By:                            |   |   |
|   |   | Name:                          |
|   |   | Title:                         |
|   |   |                           |
|   |   | Notice Address:                |
|   |   |                           |
|   |   |                           |
|   |   | Attention:                     |
|   |   | Telephone:                     |
|   |   | Facsimile:                     |
|   |   |                           |
|   |   |                           |
|   |   | **THE WILLIAM CARTER COMPANY** |
|   |   |                           |
|   |   |                           |
|   |   | By:                            |   |   |
|   |   | Name:                          |
|   |   | Title:                         |
|   |   |                           |
|   |   | **CARTER HOLDINGS, INC.**      |
|   |   |                           |
|   |   | By:                            |   |   |
|   |   | Name:                          |
|   |   | Title:                         |

 

K-5

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| **Consented to by:**                     |   |   |
|------------------------------------------|--------|--------|
|                                     |   |   |
| **GOLDMAN SACHS CREDIT PARTNERS, L.P.,** |   |   |
| as  Syndication Agent                    |   |   |
|                                     |   |   |
|                                     |   |   |
| By:                                      |   |   |   |   |
|                                     | Name:  |   |   |
|                                     | Title: |   |   |
|                                     |   |   |
|                                     |   |   |
| **FLEET NATIONAL BANK**                  |   |   |
| as  Administrative Agent                 |   |   |
|                                     |   |   |
|                                     |   |   |
| By:                                      |   |   |   |   |
|                                     | Name:  |   |   |
|                                     | Title: |   |   |
|                                          |        |        |  |  |  |

 

K-6

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**SCHEDULE A**

**TO JOINDER AGREEMENT**

 

 

| **Name of  Lender**                                                                                                                                                                                                  |   | **New Revolving Commitment**                                                                                                                                              |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| [                                   ] |   | $                             |   |
|                                                                                                                                                                                                                 |   |                                                                                                                                                                      |   |
|                                                                                                                                                                                                                 |   | Total:  $                                    |   |

 

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